DBS Group Holdings Ltd
SGX:D05
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DBS Group Holdings Ltd
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Good morning, and welcome to DBS Fourth Quarter and Full Year Financial Results Briefing. This morning, we announced record full year net profit of $6.8 billion, up 44% from the previous year. Return on equity rose to 12.5% from 9.1% a year ago. Fourth quarter net profit was $1.39 billion, a 37% increase from a year ago. And to take us through the key highlights today, we have with us our CEO, Piyush Gupta; and our CFO, Chng Sok Hui. Without further ado, Sok Hui, please.
Thank you. Good morning, everyone, and a very happy Lunar New Year to all. I hope the Year of the Tiger brings with it strength and vitality. DBS full year net profit rose 44% to a record $6.8 billion, and return on equity rose 3.4 percentage points to 12.5%. Strong business momentum mitigated the impact of lower interest rates and lower investment gains from the high base in 2020. Loans grew 9%, the fastest rate since 2014. And both fee income and Treasury Markets income rose to new highs.
Fourth quarter net profit rose 37% from the previous year to $1.39 billion as business momentum was sustained over the quarter. Loans grew 1% from the previous quarter, and net interest margin was stable at 1.43%. Fee income rose 9% from the previous year, led by transaction services and cards. Expenses were unchanged from the third quarter at $1.67 billion.
Asset quality was resilient and the balance sheet healthy. Nonperforming assets declined 13% or $814 million from a year ago, with bulk of the decline occurring in the fourth quarter as 2 large nonperforming loans were fully repaid. As a result, the NPL rate fell from 1.5% to 1.3%.
General allowances of $447 million were written back during the year as weaker exposures were repaid and portfolio quality improved. General provision overlays established in previous years were maintained. The specific allowance charge was $500 million for the year or 12 basis points of loans, well below pre-pandemic levels. As a result, total allowances amounted to $52 million.
The Common Equity Tier 1 ratio was 14.4%, well above regulatory requirements and above the group's target operating range of between 12.5% and 13.5%. Two onetime items were recorded in the fourth quarter. The first was a gain of $104 million on completion of the purchase of the 13% stake in Shenzhen Rural Commercial Bank in October 2021. This gain arose as the purchase price was fixed at book value at negotiation. But by the time the transaction was completed, the net book value has grown. Hence, the gain is recorded as income under accounting rules. The other onetime item was $100 million contribution to the DBS Foundation and other charitable causes. The Board proposed a final dividend of $0.36 per share, increasing the annualized dividend by 9% to $1.44 per share.
Slide 3. Full year net profit rose 44% to a record $6.8 billion. Total income declined 2% to $14.3 billion as record fee income and record trading income were offset by lower net interest income and lower gains on investment securities. Net interest income declined 7% or $636 million to $8.44 billion. Net interest margin fell 17 basis points due to the full period impact of lower interest rates and a decline more than offset the impact of 9% loan growth. Fees rose 15% or $466 million to a new high of $3.52 billion as most fee activities grew by double-digit percentages. Other income declined 5% or $125 million to $2.33 billion as record trading income was more than offset by lower investment gains from a high base. Expenses were 5% or $311 million higher at $6.47 billion.
Excluding the full year impact of Lakshmi Vilas Bank as well as the impact of government grants received, underlying expenses were well controlled, growing by 1% over the previous year. Total allowances fell to $52 million compared to $3.07 billion a year ago, comprising an SP charge of $1.35 billion and a GP charge of $1.71 billion in 2020.
In 2021, specific provisions fell by 2/3 to $500 million or 12 basis points of loans. There was a write-back of general provisions as weaker credits were repaid, portfolio quality improved and some general provisions were transferred to specific provisions when loans turn nonperforming. The general provision overlay was maintained.
Slide 4. Fourth quarter net profit declined 18% from the previous quarter to $1.39 billion as total income declined 8% to $3.29 billion. Net interest income increased for the second consecutive quarter after several quarters of decline. It rose 2% or $36 million to $2.14 billion as net interest margin stabilized and loans grew 1%. Fee income declined 8% or $73 million to $815 million due to seasonal effects.
Other income declined 41% or $231 million to $338 million due to lower trading income as well as lower gains from investment securities. There was a maiden contribution of $26 million, representing 2 months of associate income from the 13% stake in Shenzhen Rural Commercial Bank which was completed in October 2021. Expenses were well managed and stable from the previous quarter at $1.67 billion. There was a general allowance write back of $34 million compared to $138 million in the previous quarter. Specific allowances were a little changed at $67 million. As a result, total allowances amounted to $33 million.
Slide 5. Fourth quarter net interest income increased for the second consecutive quarter after 5 consecutive quarters of decline. It rose 2% from the previous quarter to $2.14 billion as loans grew 1% and net interest margin stabilized at 1.43%. Compared to a year ago, net interest income rose 1% as loan growth of 9% was partially offset by a 6 basis point decline in net interest margin. Most of the decline in net interest margin occurred in the first half.
Full year net interest income fell 7% to $8.44 billion. Net interest margin fell 17 basis points to 1.45% due to the full period impact of interest rate cuts in March 2020. The lower net interest margin was mitigated by broad-based [indiscernible]. We continue to deploy surface deposits to low-risk liquid assets. The deployment is accretive to net interest income that accounted for a 7 basis point headwind to net interest margin.
Slide 6. In the fourth quarter, loans rose 1% or $6 billion in constant currency terms to $415 billion. Non-trade corporate loans grew $5 billion led by Singapore and Hong Kong. Consumer loans grew $2 billion with housing loans up $1 billion as new bookings in the previous quarter continued to be strong. Trade loans were stable as demand for commodities moderated with lower activity in China. Over the year, loans expanded 9% or $34 billion in constant currency terms. This was the fastest rate of growth since 2014. The broad-based growth was led by $18 billion of non-trade corporate loans and $10 billion of housing and wealth management loans. Trade loans grew $4 billion with the growth concentrated in the first half.
Slide 7. Deposits grew $15 billion or 3% in constant currency terms in the fourth quarter to $502 billion. Compared to the previous year, deposits grew 7% or $32 billion. Current accounts and savings accounts or CASA grew 12% or $41 billion to $381 billion as strong inflows continued for a second year. The CASA growth allowed more expensive fixed deposits to be released, improving the quality of the deposit base. As a result, the CASA ratio rose 3 percentage points to a record 76% of total deposits.
The loan-to-deposit ratio rose 1 percentage point to 81%. Liquidity was [ ample ]. The half year liquidity coverage ratio of 133% and a net stable funding ratio of 123% was both comfortably above their respective regulatory requirements of 100%.
Slide 8. Full year gross fee income rose 15% to a new high of $4.06 billion, with the first 3 quarters, the 3 highest on record. Wealth Management fees increased 19% to a record $1.79 billion from higher sales of investment products and bancassurance. Transaction services fees rose 13% to a new high of $925 million from growth in trade finance and cash management fees. Investment Banking fees grew 47% to $218 million as fixed income fees reached a new high and equity market fees grew from a low base. Card fees rose 12% to $715 million as combined credit and debit card spending reached record levels. Loan-related fees were stable at $413 million.
Fourth quarter gross fee income was $954 million, 9% higher than a year ago and 7% lower than the previous quarter. Growth from the previous year was broad-based across Transaction Services, Cards, Investment Banking and Wealth Management.
Slide 9. Full year expenses rose 5% to $6.47 billion. Excluding costs relating to the Lakshmi Vilas Bank and the previous year's government grants, underlying expenses were well managed, rising by 1%. The cost/income ratio was 45%. Fourth quarter expenses were unchanged from the previous quarter at $1.67 billion. Compared to a year ago, expenses rose 6%, mainly due to government grants in the previous year.
Slide 10. Full year Consumer Banking and Wealth Management income declined 8% from a year ago to $5.32 billion. Loans and deposit income declined 25% to $2.26 billion as the impact of lower interest rates was moderated by higher volumes. The decline in income from loans and deposits was partially offset by a 14% rise in investment product income to $2.22 billion and a 3% increase in card income to $755 million as the combined credit and debit card spending reached record levels. Assets under management increased 10% to $291 billion. We maintained our domestic market share for savings deposits and housing loans.
Slide 11. Full year Institutional Banking income increased 4% from a year ago to $5.98 billion. Cash management income fell 17% to $1 billion due to lower interest rates. The decline more than offset strong growth in other product categories. Loan income grew 9% to $3.30 billion. Trade income grew 5% to $757 million. Treasury product income grew 13% to $764 million. Investment Banking income grew 33% to $161 million. GTS deposits grew 12% to $186 billion.
Slide 12. Full year Treasury Markets income and Treasury customer income were both at record levels, rising to $3.21 billion in 2021. Treasury Markets income increased 5% to $1.51 billion from strong performance in equity and credit trading, surpassing the previous year's record. Treasury customer income increased 13% to a new high of $1.71 billion from strong performance in equity and FX sales with Consumer Banking and Institutional Banking each accounting for half the amount.
This chart shows that Treasury Markets income has doubled from the low levels in 2017 and 2018 to $1.5 billion in 2021. Similarly, Treasury customer income has also grown 1.5x from 5 years ago to $1.7 billion in 2021. The Treasury Markets business continues to benefit structurally from massive digitalization. These improvements mean that we can expect Treasury Markets income to average $275 million a quarter or $1.1 billion a year, up from the previous guidance of $1 billion a year. We expect Treasury customer income to grow steadily.
Slide 13, Hong Kong. In constant currency terms, Hong Kong's full year net profit increased 27% from a year ago to $1.19 billion. Total income rose 1% to $2.48 billion and fee income and other income both rose 21%, offsetting an 11% decline in net interest income. The decline in net interest income to $1.39 billion was due to a 30 basis point fall in net interest margin to 1.25%, mitigated by 11% loan growth in constant currency terms. Fee income increased 21%, mainly from investment and product sales, bancassurance and cash management. Other noninterest income increased 21% from higher Treasury customer sales. Expenses rose by a modest 2% to $1.06 billion. The cost-to-income ratio increased 1 percentage point to 43%. Asset quality was resilient with allowances falling from $332 million in 2020 to almost 0 in 2021 due to lower specific allowances and a general allowance write-back.
Slide 14. Asset quality improved as nonperforming assets fell 13% during the year to $5.85 billion. Most of the decline occurred in the fourth quarter, mainly due to the repayment of 2 large NPLs. The NPL rates declined to 1.3% from 1.6% a year ago.
Slide 15. Full year specific allowances fell by 2/3 to $498 million or 12 basis points of loans, benefiting from write backs of resolved NPLs. They were well below pre-pandemic levels of around 20 basis points of loans. Fourth quarter specific provisions were $67 million or 6 basis points of loans. They were stable from the previous quarter and 1/5 of their level a year ago.
Slide 16. As at 31st December 2021, total allowance reserves stood at $6.8 billion, with $2.93 billion in specific allowance reserves and $3.88 billion in general allowance reserves. The reduction in specific provision reserve was mainly due to write-back for NPL that were fully resolved, attesting to our prudent provision standards. During the year, there was a general allowance write back of $447 million as weaker exposures were repaid and portfolio quality improved. General provision overlays were maintained.
General allowance reserves remained prudent. The reserve exceeds the regulatory's minimum requirement by $0.4 billion and $1.1 billion above Tier 2 eligibility. The surplus acts as a buffer for the total capital adequacy ratio. Allowance coverage was at 116% or at 214% when collateral was considered.
Slide 17. Capital continued to be healthy. The Common Equity Tier 1 ratio was 14.4%. Level change from the third quarter and from the first half. On a conservative assumption that the operational risk charge for the digital disruption is not lifted before the consolidation of Citigroup's Taiwan consumer business, and there is no further capital accretion, the Common Equity Tier 1 ratio would be 13.3%, which is at the upper end of the group's target operating range and well above regulatory requirements. The leverage ratio of 6.7% was more than twice the regulatory requirement of 3%.
Slide 18, in line with our policy of paying sustainable dividends that grow progressively with earnings, the Board recommended a final dividend of $0.36 per share for the fourth quarter which is subject to shareholders' approval at the AGM on 31st March 2022. The $0.36 per share is an increase of 9% or $0.03 per share. The increase was moderated due to the additional operational risk capital charge. This brings the total dividend for the 2021 financial year to $1.20 per share. Barring unforeseen circumstances, the annualized dividend going forward is $1.44 per share. Based on the previous trading days closing share price, the new annualized dividend yield is 3.9%.
Slide 19, in summary. We achieved a stellar set of results despite the low interest rate environment. Our broadly diversified franchise saw robust loan growth and record fee income amidst a recovering economic environment. Expenses have been well managed and we have reaped the benefits of prudent risk management. Our strong financial performance and capital ratios have allowed us to increase our dividend by 9% to $0.36 per share per quarter. The increase is in line with our policy of paying sustainable dividends that grow progressively with earnings. We have set aside a further $100 million for the DBS Foundation and other charitable causes. Business pipelines in 2022 remains healthy, and we can expect to benefit from rising interest rates. We expanded our footprint in India, the Greater Bay Area and most recently in Taiwan. Together with our new digital platform, these will provide additional growth engines for the future.
Thank you for your attention, and I'll pass you back to Piyush.
All right. Thank you, Sok Hui. And let me echo Sok Hui's words, [Foreign Language]I hope the Year of the Tiger is great for everybody on this call.
As usual, I have a few slides to supplement what Sok Hui has already covered. So why don't I just go through them very quickly. My first slide is just a quick reflection on last year. As we did our own scorecard and appraisal for last year, it is quite clear that from a financial strategy and business standpoint, this is probably the best performance we've had in, certainly, the entire of the last decade.
As Sok Hui pointed out, notwithstanding the collapse in interest rates, we lost about $3 billion of revenue because of interest rates between the summer of 2019 and now. And that notwithstanding, we've been able to deliver a record profit. And if you look at the underlying picture, the profit pool has been very, very broad-based. Loan growth of 9% we spoke about, has been fantastic, the fastest we've grown in [ 7 to 8 years ]. That's been broad-based. We were helped in the first year by some of the ESG-linked loans in Singapore. But if you look at 2021, it's been Singapore, Hong Kong, the property sector, connectivity, the TMT sector, financial institutions. So -- and consumer mortgage, wealth-related loans, so quite a diversified balance sheet growth.
Perhaps more important, the deposit growth has been spectacular. Between 2020 and 2021, our CASA growth has been $140 billion. That's actually dramatic. It's changed our CASA ratio from the high 50s to now 76% CASA ratio. And as you think about the environment we're going into, a rising interest rate environment, the structural shift in our CASA ratio is going to be extremely beneficial for us in coming periods.
Fee income was very strong. 15% growth in fee income is actually quite spectacular. And again, that was diversified. If you look within that, Wealth Management was very strong, 19-odd percent. Transaction banking grew 13%. Cards grew 12%. Investment Banking grew 40% -- 47%. So other than the loan book, it was actually quite diversified very, very strong fee growth.
We've seen some pickup in momentum overall. You take cards as an example. Our total card spend is now higher than it was in 2019, that's debit plus credit cards altogether. In fact, the fourth quarter spend was 10% higher than the same period a couple of years ago. Now it's true that within that, the mix is a little bit different. Travel-related spend is still down. And because travel-related spend is down, the income hasn't actually fully caught up. Travel-related income tends to be higher. So card income is slightly a bit lower, but the overall spend has actually caught up quite nicely.
And Wealth Management reflects a fantastic growth across the board. Our net new money for the year was north of $11 billion, which is very good. Our AUM growth was about $25 billion, which is solid. And we continue to see these flows of money and the momentum in Wealth Management to be repeatable as we go forward.
Finally, Treasury was fantastic. Treasury Markets for most houses last year was a soft year for FICC. For the markets business as a whole, we're one of the few houses which shows year-on-year growth. We grew 9% year-on-year in market which is actually quite good. That reflects not just the FICC, the equities, derivatives, et cetera. That came not just on trading, but that just came from customer activity as well, which again grew double digits. So no matter which dimension of the top line you look at, extremely strong performance.
At the same time, because we didn't know what was coming, we managed expenses prudently and I'm actually quite pleased that we did a fairly good job. Our nominal growth rate is 5%. That reflects the grants we took in 2020, and it reflects the add-on of Lakshmi Vilas Bank. If you back those out, our expenses grew 1%, which is actually fairly well managed. You can see that in our headcount. Our headcount for the year has actually sunk and that's despite continuing to add technology people.
Finally, asset quality benefited a lot, obviously, from higher repayments, NPA formation was low. In fact, the NPA has come down to 1.3%. SPs were contained. Because the portfolio improved, general provisions got reserved, even though we still kept our overlay position and general position provisions. Therefore, no matter how you look at it, top line, expense line, credit line, a pretty solid year.
If you look forward to where we are in the business and where we're going. I expect, overall, the business outlook to be fairly consistent with the guidance that we gave at the end of the third quarter, notwithstanding some headwinds we saw in the fourth quarter and early this year.
So what were the headwinds? Clearly, the markets were choppy, markets tanked, and that has impact on both the Treasury Market business and at some extent, the Wealth Management business. People do less activity when the markets are choppy. Notwithstanding that, our Wealth Management business actually grew year-on-year. Our Treasury Markets was down but much less than global competitors. Most people saw a 20%, 25% drop in the fourth quarter, we saw a 8%, 9% drop in the fourth quarter. Nevertheless, there's some headwinds in markets, some headwinds on wealth management fees.
There were also some headwinds on the mortgage book as the new sets of rules kicked in, in Singapore in December. And so bookings slowed down a tad bit. We've wound up the year, therefore, slightly slower than we've seen in the first 3 quarters. But as we look at our pipeline going forward through the remainder of this year, I'm pretty confident, like I said, that our guidance for the third quarter will stand up. We said mid to high single-digit loan growth. I mean, we won't get the 9% we got last year, but 6%, 7% loan growth we think is quite possible from the pipelines and what we're looking at right now.
What are the uncertainties? Obviously, on the one hand, it's the policy era in the sense that you wind up with massive increases in interest rates, which take economies into recession. We've not factored that into our outlook. At this point in time, though we think it's unlikely, even if there are 7 or 8 rate hikes, that would take rates up to about 2% levels, and 2% levels are still manageable. If the Central Banks find that inflation is too sticky, and therefore, rates get back to 3%, 3.5%, 4% level, then that's another story. That's not our base case.
The other uncertainty, of course, is China. China continues to be slower. And it's a big question mark is the Omicron impact in China. If China continues to keep its domestic economy controlled in terms of mobility, that might have some impact on consumption expenditure. So a little bit of uncertainty. But despite that, as I look forward, our pipelines are looking good. Our Wealth Management business is continuing to look strong, the loan pipelines are looking good. And therefore, like I said, our guidance on the top line is still pretty much intact.
Of course, the second big part of the outlook is rate. We've given guidance last quarter. But we think that we have an upside of -- in the commercial book of $18 million to $20 million per basis point. That continues to be the case. And we've been quite sensible in modeling it. We recognize that there's some surplus deposits we have. We assume deposits will flow out. We assume there will be some repricing in deposits, et cetera. But net-net, the commercial book will benefit quite substantially as rates go up. So that's a positive.
Our expense growth will definitely be higher than it was last year. Last year, we grew 5%. This year, we think 6%, 7% expense growth is possible. And that's because we, like everybody else, have had to adjust to wages in the second half of last year. So that wage growth on the second half of last year will flow through into the numbers this year.
At the end of the last quarter, I said we probably still have mildly negative jaws for this year, which is that expense growth might be slightly higher than revenue growth. At that stage, we were looking at about a couple of rate hikes. If we get more than that rate hikes, for example, if we get a quarterly rate hike, 25 basis points through the year, it's quite possible that we might wind up with flat or neutral jaws. If you wind up getting even more aggressive rate hikes, then of course, we will be benefited even more.
Outside of operating profit, our credit outlook continues to be very good. Asset quality is resilient. Sok Hui showed you the numbers on SP, GP, et cetera, for the year. Next year, we expect our total allowances to be at about the same level between the SP and GP, which is somewhere between 0 and $100 million for the year. Again, as best as we can see right now, we should be able to do that. SPs might keep up a bit, though we have no line of sight to any deterioration tradition in our portfolio right now. But we do have the belief that the portfolio will continue to improve. And therefore, we might be able to continue to release some general provisions to take care of that eventuality if that happens.
I did want to make this point on franchise expansion. Again, Sok Hui spoke a little bit about it, but I do believe that we did extremely well over the last couple of years. To judiciously grow our franchise in meaningful and significant ways. So first, as you know, we've done 3 inorganic transactions over this period with Lakshmi Vilas one, the Shenzhen Rural Commercial Bank and now Citibank Taiwan. Our projection suggests that by 2024, when all of these are completed, the Taiwan will get completed in the middle of '23, these 3 transactions should add somewhere between $1.2 billion, $1.3 billion to our top line and $0.5 billion to our bottom line. So they're going to be quite material in terms of accelerating our growth trajectory as we go forward.
Second, we really did extremely well to capture customer wallet share and grow the flow volumes in the last 2 years. And some of these numbers are actually quite dramatic. Our payments payment and collections business, for example, the volumes are up between 200% and 400% between 2019 and 2021. In value terms, we've grown our payment and collections from $50 billion to now $175 billion. That's almost fourfold increase. And that underlies a large part of our fee growth as well as our balances growth. So that's very strong.
Similarly, you take digital FX. The total volumes of our digital FX have grown from about $20 billion to $40 billion in this period of time, 100% growth, and the transaction throughput is even stronger. So we believe that over this period of time, our digital capabilities have shown up. In terms of the significant increase in volumes and share that we've been able to get and we think this is sticky. So this should continue to help us as we go forward.
And finally, we've tried to diversify the franchise by several new initiatives that we launched over this period of time. We believe that in this year, 2022, these initiatives should give us $80 million to $100 million of incremental income. The investment banking activity security joint venture that will give us $40 million, $50 million, hopefully, we've already had good start. Our funds businesses, the 2 or 3 that we did some of the digital exchange at [indiscernible] should give us another $40 million, $50 million. And therefore, we believe that the capacity to have improved our franchise over this period has actually been quite important and will come to quite nice years to come.
A quick comment on the disruption we had in -- as you have pointed out, our customers have the right to expect more from us. The disruption was 38, 39 hours, that's unacceptable. And even though the bank was functioning, people who have come to the bank, who could have got on the phone, the reality is used to the convenience of banking digitally. And if you can't get digital access then that's certainly unacceptable. We've confirmed that the problem was due to a malfunctioning access control server.
Now the way -- our topology is we have 4 of these access control servers, there's redundancy built into it, there's active replication built into it. Nevertheless, one of those servers malfunctioned. We've had 2 sets of reviews done already from -- the experts said this, and they've not been able to replicate the problem for why that server actually malfunctioned. Nevertheless, we've learned a lot from the reviews, and it's principally around our incident management and our recovery process. It took us some time to figure out what the problem was and some time to fix it. And frankly, we could have done a lot better in terms of the speed to recovery.
We have another independent review going on right now, there's been an overarching view to confirm and validate our system architecture, our fault tolerance of our system makeup, overall protocols and processes. So I'm sure we learn from that and continue to improve and make sure our recovery process in particular are a lot more robust than they were.
So we take this seriously, as you know I've come back and we apologized to our customers. You are right to expect more from us. But hopefully, we can put this behind us and be able to get back to a more robust set of performances as we go forward.
Finally, we've taken the opportunity, as Sok Hui pointed out, to leverage. Both have very strong capital ratios and extraordinarily strong performance for the year. And do that by reflecting it in an improvement in our dividend, we're growing our dividend 9%. Actually, truth be told, we think we have the capital and profitability in the [indiscernible] it would have allowed us to do even better. Because of the operation surcharge imposed on us, we've had to moderate that dividend growth down. And we will keep an eye on our capital adequacy until such time as the operational risk surcharge gets lifted at some stage in the future.
But nevertheless, we were strong enough, and we not only were able to improve dividend, we were also able to contribute back to community. We've added another $100 million to our foundation and charitable activities. One of things the pandemic has shown is that we all need to be conscious of our commitments, not just on the environment front, but also on the social front. And so hopefully, this [indiscernible] in our commitment to the foundation will allow us to do more for society and for community at large.
Why don't I stop there, and we are happy to take some questions.
Thank you, Piyush. We'll now take questions on media. [Operator Instructions] We'll take the first question from Rebecca.
I'm Rebecca from S&P Global Market Intelligence. My question is with your growing franchise and rising interest rates, you said that the asset quality all remain resilient. How do you expect your NIM to evolve this year?
Rebecca, that's a tough question because it's a call on how many interest rate hikes you see. And depending on which forecast you look at, that could be anything from 3 to 7. I think Credit Suisse, last I saw, had 7. Somebody said the Fed is likely to hike at every cycle. So it's kind of hard to tell how many rate hikes you might see.
Also the timing of the rate hikes matter. For example, if you see 4 to 8 hikes, one at the end of every quarter, the fourth rate hike end of December [indiscernible] through this year at all. We model -- if we just see a rate hike at end of every quarter, then our average NIM for this year will get close to 150 -- 149, 150 levels.
Exit NIM for the year will be close to 160 -- 158, 160. But if you assume rates go back all the way to where they were in the summer of 2019, let me take rate cuts since then, then obviously, that should take our NIMs back up to the levels we used to have 2 years ago.
We'll take your question from [ Gula ].
Thanks for the presentation and happy new year to all of you out there and also Happy Valentine's Day to all of you. Can I ask these questions? So how could we think about the [ 100 ] basis point rise in interest rate impact from your net interest income? That's the first question.
And the second question is how should we think about your cost to income ratio in 2022 and 2023 given that it was a little bit high in the fourth quarter of this year? And also, how will inflation impact your NPV model? And will that have an impact on your ECL 1 and 2? I mean, if inflation rises too much, working for you to have more ECL 1 and 2? And just an update, what is the level of your management overlay? And on your operational risk capital charge, how much higher would your quarterly dividends have been if there was no operational risk charge? And is this just a onetime charge? That's it.
A lot of questions. So first one was the impact of interest rates on our...
Net interest income.
You want to take that?
Yes. So I think you see in the slides we've guided, that is about 18 to 20 basis points increase. So if the flat rate -- so there is sensitivity to flat rate. So assuming the 100 basis points that you're talking about, then it's $1.8 billion to $2 billion. So of course, it will take time to play out. So you'll get 1/4 -- 25 basis points increase at the end of March, June. September, you have to sort of do your modeling to get the impact over time. But that is the idea. $18 million to $20 million per basis point.
So [ Gula ], I think it's worth reflecting that we reckon that we've given up about $2.8 billion to $3 billion of interest income in the last 2 years. And that's because of the 3 rate cuts in the tail end of 2019, and then there were 5 cuts in March 2020. So 8 rate cuts. That's basically $3 billion. At that stage, it was about $15 million per rate cut per basis point.
Since then, our CASA book has increased quite substantially. And therefore, we've actually been able to get some more leverage somewhat bigger than we had going down. That's how we get that number. Quite clearly, in our model, we will be conservative. We know all of the money won't stick. We assume about 25% of the money will flow out. We assume a degree of repricing that will have to happen. But that notwithstanding, we actually have some very substantial data to rising interest rates.
Your second question was on cost to income ratio. You're right, the first quarter cost to income ratio was about 50. Last year it was about 48. This generally reflects the fact that the fourth quarter income tends to be slow seasonally. And I often joke, traders tend to go off on holiday in December. And for December is always a very soft month for a large part of our activity, that's what reflects in the cost to income ratio.
The outlook for cost to income ratio for the coming year is really more as a function of the income growth than the costs. Our costs competitively to be very well controlled. This year, if we ignore the grants we got last year and then [indiscernible], our costs were 1% up. So we continue to drive structural and strategic cost management into the system. We're very judicious about our headcount growth. And so the outcome of where the cost to income ratio improves from this year's 45 level or not is really a function of your first question, how much interest is fixed? And how much of that $2.8 billion of income are we able to claw back.
Your third question was inflation and what is the impact -- likely impact of that. As best as we can tell, on our large corporate book, which is the largest part of our exposure, we are very robust. And we've done bottoms up, we've done sectorial. Many of these companies have gone through some pretty severe crisis in the last 2 years. So we think that will be fine.
I think consumer book and the mortgage book is also likely to be impacted. So the area to watch if inflation is very sharp and grades go up very sharply would be our SME book. Now SME book is not that big for us. But that's when you might expect the cost of goods will start impacting the SMEs, wage hikes should already be able to impact them. And if rates were sharply, then they will have to worry for debt servicing as well. So that's the area to look at.
Now the flip to that is, in the last 3 [years] we've been really managing the book very, very tightly. I said Hong Kong, we started doing that 3 years ago with the supply chain issues. In the last 3 years, with the COVID all, frankly, most banks have been very focused on making sure that book is tightly managed. And therefore, while I will keep a close eye on the SME book, I'm not anticipating any substantial or significant or material impact either to the SP levels of [indiscernible] GP. Frankly, if you look at the last quarter or 2, our portfolio is improving.
And as the portfolio improves, we're having to reverse our dividend provisions, either because we can't pay down or the [tenants] reduced and so on. So I'm not anticipating anything much different in the coming quarters.
Your question on management overlay was the fourth question. Sok Hui, it's about $1.5 billion?
Yes, it's about $1.5 billion.
Yes, so it's about $1.5 billion of management overlay. And just to clarify, we always see some management overlay. So I don't think anybody should assume that we'd ever reverse out the entire management overlay. But I think it's fair to assume that as the economies open and as the virus situation falls behind us, as China stabilizes a bit, we do have the potential to be able to release some of that.
And your last question is about more dividend, I mean, that's a highly conservative question. When we discussed with the Board in the middle of the year [indiscernible] actions, we set up a game plan and path -- glide path for how we could increase dividend over the next year. Our payout ratios are low. Our payout ratios are still only in the 15% range. Our capital adequacy is very strong. Even if we take Basel Final 2028, we are well over 14%, 14.5%. If you factor in the Basel transaction arrangement, we try to be [transaction] for the next 6 months. Our capital adequacy is now to 15%, 15.5%.
So we do have a lot of capital. And we come up with some arrangements for how we could return money back to shareholders. Now obviously, we've got to be mindful of the capital setup. So we've moderated down, we didn't have any specific numbers in mind.
We'll move on to our next question, it's from [ Prisca ].
Congrats on the good results. I have a question about the update on the disruption. Does the bank see the $913 million requirement having any impact on its investment and hiring plans in the coming quarters? And also, when does DBS expect that this requirement will be lifted going by current status of [indiscernible]?
Well, the first answer is no, because our investment hiring plans doesn't impact expense line, cost-income ratio, they're not moderated by capital. What the CapEx does is causes us to focus on our dividend policy, causes us to focus on our business selection because of the incremental capital charge. It doesn't really impact our investment and hiring plans. And we've already said that it's already been reflected in our dividend decisioning.
In terms of how long it takes to remove the charge, frankly, this is a [indiscernible] prerogative. So it will be out of place for us to speculate. I do think 2 observations are appropriate. One, a large part of what we need to do, which is focus on accident management and recovery process, we've got underway. We have another third review finished by the summer. So I'm fairly confident that we can fix all of our bases over the next couple of quarters.
The last time we had a similar charge about a decade ago. The MAS took 14 months to reverse it, so that gives you any same of reference. But like I said, I don't want to speculate, the MAS could take much longer than that.
And then another question from Timothy.
I'm Timothy Goh from Bread News. So my question to you is, are there any plans to expand the DBS Digital Exchange? And is there a road map for rolling out digital asset trading to retail investors, given the growth in that market?
Yes. So I think what we're going to do through this is actually just spend all of Saturday discussing this as an [indiscernible] in my mind. What we will focus on in the first half or the first 3 quarters of this year is to make the access to the digital assets a lot more convenient, but still in the [greater] investor base.
Today, what happens is that we got 24/7, but our customers still need to call and speak to bankers. So the first order days to make it online, make it self-service, make it instant and make sure the internal process are robust to be able to support that. At the same time, we started doing the work on seeing how we can in a sensible way take it out and expand it beyond the greater investor base. And that includes making sure we have appropriate thinking about suitability. We have appropriately thinking about potential for fraud, et cetera. Then by the time we made all of these things down. I think we are looking more like the end of the year before we can actually take something to market.
And a question from [ Anshuman ] of Reuters.
Piyush, I want to check with you, can you talk a little bit more about the -- some color about the different businesses that are driving growth. How is it different from the previous year when you had record results? And the second point is, obviously, rises in interest rates would help DBS. But apart from that, do you see strong drivers of growth beyond interest rate increases, especially after a strong year.
[ Anshuman ], [indiscernible] there are 2 big businesses, [indiscernible] business, if you will, which have secularly driven our growth now for some years. And so the question is really do these continue to stand and in fact, can accelerate. The first is we all know Wealth Management. Wealth Management, from being mid-single-digit contributor to the bank, today, it does 20% plus of the bank's performance. The good thing with the Wealth Management business is it's increasingly getting even more broad-based. We are getting -- we are being not just in the largest private banking space, in the private client space, in the mass affluent space, but we've been able to take this product even into the mass marketplace. Today, almost 18%, 20% of our Wealth activity is actually retail, both bancassurance, digital portfolio, [ global banking ] and so on. But the balance, 80-odd percent, which is affluent enough is just going remarkably well.
And as I mentioned before in my earlier comments, we looked at our performance for last year. We saw not just increase in net asset AUM, we saw new money. And we also saw a lot more discretionary money. So almost $10 billion [ per AUM ] now in some way, shape or form, discretionary money, that used to be $2 billion a couple of years ago. So the nature and quality of that Wealth Management business has been great and that I'm pretty confident that will continue.
If we look at the last 5 years, 2020, 19% off the chart. But we've never grown less than 10%, 11% actually was our lowest. So we've grown somewhere between 11% and 20% every year over the last 5 years. And so can we continue to get circa 15% growth rate in the business? I think we can.
The second big thing that has been a big driver for us is Transaction Banking. Transaction Banking is not the business cash management, is up 10x in the last decade. Similarly, rate -- open account rates, supply chain financing, et cetera, these has been very robust, very strong. We grew 13% in transaction banking fees last year. As you know, transaction banking, obviously, is a big provider of the life. A lot of the CASA comes from there.
I think the fact the data points gave on our volumes grow, that is really the best way to think about it. If you cannot get 200% to 400% growth in payment volume, collection volume, consumer, corporate without something happening. For us if something is that digitization we've been able to do. The API we've been able to create and [ plug-in ] there are over 1,000 customers in Asia who we plug the API connectivity into. And that's showing up in the volume and that's showing up in the CASA growth as well as the fee income growth.
I believe we're only scratching the surface. There is just a lot more opportunity to continue to drive that part of the business.
Now outside of those 2, the third big thing that's happened in our market business. And then both on the trading side as well as the customer franchise side. And that reflects, to my mind, to a large extent, also digitalization. We've digitalized a heck out of that business in the last 2, 3 years. We're using not just algorithmic tools, we use sentiment analysis, we are using digital distribution, we're using data to improve our actual cross-sell [indiscernible] the journey management we did with it. I think all of that is coming through quite nicely. So that's our third big engine of growth, and that continues to improve every year.
Some of core businesses are doing well like lending. Because we've automated and digitized, so we used a lot of algorithmic lending. We've got lending models now for SME lending and supply chain. So that's holding and making sure that part of our core business is quite robust. Our investment bank is growing nicely, both fixed income and [ACR]. I'm pretty hopeful that the China activity will give us some [impetus] even though the number of spots. We make circa $220 million, I think we made last year, in Investment Banking. So as a percentage growth as we attracted as an absolute dollar number, it doesn't move the needle that well. But for me, it's a long-term game. I think if you continue to get the China piece right, this can again be a meaningful contributor to us in days to come.
Okay. I'm afraid that's all the time we have for today. So thank you very much for attending, and we'll see you next quarter.
All right. Thank you all.