Oversea-Chinese Banking Corporation Ltd

SGX:O39

Earnings Call Transcript 2019-Q2

[Ching Ching Koh, executive]

Okay. Good morning, ladies and gentlemen. Welcome to our first half results briefing. On our panel this morning, we have our group CEO, Mr. Sam Nag Tsien.

[Samuel Tsien, executive]

Good morning.

[Ching Ching Koh, executive]

Our Group CFO, Mr. Darren Tan; our Chief Operating Officer, Mr. Ching Wei Hong; and Mr. Lam Kun Kin, which heads our Global Treasury and investment banking. We will start with Darren taking us through the presentation slides, and we will take Q&A thereafter. Thank you.

[Siew Peng Tan, executive]

Okay. Morning, everyone. It's very early in the morning [indiscernible]. Okay. I'll straight -- I'll go straight into the results. I'll just refer you to Slide #3. For the second quarter of 2018, our net profit grew 1% from a year ago, tend to rise in profit from our banking operations. Net interest income increased 10% to a record $1.59 billion. This was led by a combination of 4% loan growth as well as 12 basis points mentioned in net interest margin. Noninterest income was up 1% at $1.03 billion. Wealth management fee rose 8%. Bank of Singapore asset management continue to grow, rising 9% to USD 111 billion from USD 102 billion a year ago.

Expenses remained well managed, resulting in a cost income ratio of 44%. On our balance sheet, loans increased 4% year-on-year, while deposit grew 2%. Asset quality remains solid with NPL unchanged at 1.5%. Capital and liquidity position remains strong. CET CAR rose to 14.4%. Return on equity remained robust at 11.5%. Given the overall good performance and the strong capital, we increased our interim dividend to $0.25 per share.

Now move on to the group's financial performance. For the second quarter, net profit was $1.22 billion, 1% higher from a year ago and 1% lower versus the previous quarter. Now if you were to look at the net profit from our banking operations, it rose 15% quarter-on-quarter and 7% year-on-year to a new record of $1.09 billion.

Now Great Eastern contribution to the group fell to $137 million, largely from the higher valuation of its long-term insurance liabilities as a result of the decline in the discount rate. For the half year, net profit was $2.45 billion, this 6% higher versus the previous year. And if you look at the banking operation itself, the profit increased 1% to $2.03 billion.

I'll move on to Slide 9. Earnings remain well diversified. Corporate banking in Singapore remains the largest contributor by business and geography at 40% and 57%, respectively. Net interest income for the second quarter rose 10% from a year ago and 4% from the previous quarter to another new high of $1.59 billion. The increase, as I mentioned earlier, was driven by a combination of loan growth as well as the expansion in net interest margin. For the second quarter, noninterest income of $1.03 billion was 1% higher year-on-year, but 10% lower quarter-on-quarter.

Again, as I mentioned earlier, the decline from the previous quarter was mainly attributable to the lower life insurance profit from Great Eastern, as a result of revaluation of the long-term insurance liability, arising from the foreign discount rate.

Now for the first half of the year, the group's wealth income rose 12% to $1.67 billion, and this accounted for 32% of total income. Bank of Singapore AUM continue to grow predominantly from net new money, rising 11% from the previous year and 3% from the previous quarter to USD 111 billion. Net fee and commissions in the second quarter were 1% higher year-on-year and 5% higher quarter-on-quarter to $522 million. This was largely driven by higher wealth management fee and is at the highest level in the recent 5 quarters. Now second quarter operating expenses increased 5% from the previous quarter to $1.15 billion led by higher staff cost from a combination of higher head counts as well as salary increments.

And moving on to cumulative allowances on Slide 15. If you look at the chart itself, you notice the total cumulative allowances, which include the regulatory loss allowance reserve were relatively stable at $3.05 billion, and it cover about 78% of our total nonperforming assets. Net allowances for the second quarter of $111 million were 56% lower than the previous quarter. And as you're aware, there were additional allowances set aside for the oil and gas support vessels sector in the previous quarter. Correspondingly, total credit costs were lower at 15 basis points.

Moving on to our balance sheet. Customer loans rose 4% from the previous year and 2% from the previous quarter to $263 billion. Our loan portfolio remains well diversified. Loans with credit risk, originating over Singapore and Greater China, accounted for the bulk of our exposure and 42% and 24%, respectively. By industry, housing loan remains the largest segment at 24% of our total loan. The credit quality our loan portfolio remains sound. NPL ratio remain unchanged at 1.5%. Now if you do exclude oil and gas NPL, the NPL ratio remain unchanged at 0.63%. New NPA formation for the quarter were largely offset by recoveries and upgrades.

And moving on to our deposit. Our customer deposit grew 2% from a year ago to $297 billion. Current accounts and savings account rose 3% and accounted now for 48% of deposits. With high loan growth relative to deposit growth, LDR was correspondingly higher at 87.6%. Our funding and liquidity position remains strong. Customer deposit accounted for 78% of total funding. Average Sing dollar LCR and all-currency LCR remain high at 255% and 151%, respectively. Net stable funding ratio was 109%.

Now moving on to our capital on Slide 24. Our common equity Tier 1 capital adequacy ratio grew to 14.4%, a combination of higher retained earnings, which more than offset the moderate increase in risk-weighted assets. And also we capture the 2018 final dividend payout into our capital by the Scrip Dividend Scheme. Consequently, you look at our leverage ratio, we've increased to 7.5%. We're pleased to announce -- declare an interim dividend of $0.25 per share, it's an increase of $0.05 from the 2018 interim dividend, and also an increase of $0.02 from the 2018 final dividend. The payout represent 44% of our half year net profit. This Scrip Dividend Scheme will be applicable, with the issue price at a 10% discount to the average prices registered during the price determination period.

Okay. With that, I'll end here and pass the call to Sam. Thank you.

[Samuel Tsien, executive]

Well, good morning to all of you, and welcome to this session. I would like to talk about the results a bit more into our insurance business and our banking business. For the group's net profit on a year-on-year basis, our second quarter earnings is up by 1%, which is basically flat with the second quarter of last year. But then if you look at the first half of our results, the first half results was up 6% on a year-on-year basis, which is a record high for the OCBC Group.

The difference between the first quarter and first half, and the second quarter and the first half, was really the result of a very strong first quarter that was reported by Great Eastern. Great Eastern announced its results 2 days ago, yes, 2 days ago. And on a Q-on-Q basis, you see that our insurance subsidiary has reported a fairly significant drop in net profit. This is on a Q-on-Q basis. If we delve deep into those numbers on a Q-on-Q basis, our insurance franchise actually performed very well. Our total weighted new sales on a Q-on-Q basis rose by 20%. Our new business embedded value on a Q-on-Q basis increased by 40%. Our operating profit increased by 8%. So what dragged down the Q-on-Q results, which resulted in a 51% decrease on the Q-on-Q, was due to the nonoperating profit, which created a negative swing of $100 million because it was $75 million positive in the previous quarter to negative $26 million in the second quarter. Therefore, a swing of $100 million.

In addition to that, the shareholders' fund also reported a drop in earnings from $148 million to $38 million, which therefore, created another swing of $110 million, both are negative swings. In the net nonoperating profit, $100 million negative swing. In the shareholders', a negative swing of $110 million. Now these swings are primarily caused by things which are not directly related to the operating results of the company. The operating results, we focus on net sales, we focus on new business embedded value and we focus on operating profit.

If we go deeper into the Great Eastern financials, the other comprehensive income actually rose by $132 million in the second quarter, which means that the profit that was embedded in the investment portfolio is actually in the balance sheet after the IFRS 9 movement, and it was not captured in the P&L side. So when you look at the Great Eastern contribution, really have to go deeper into those numbers. And as I said, this first quarter was very strong, second quarter was comparatively weaker. But when you combine the 2, our Great Eastern subsidiary still performed very well, which also contributed to the group's reporting, our first quarter record -- first half record net profit.

Then I'll move on to the banking side. The banking operation performed very well in the second quarter, it was up 7% year-on-year, and this is the highest net profit recorded for the bank on a quarterly basis. Our net interest income rose, our noninterest income rose, our loans rose by 4% on a year-on-year basis. Deposits also increased by 2% on a year-on-year basis. The NIM, which has been the focus for the past quarters from many of you, continue to rise. The NIM rose by 3 basis points on the Q-on-Q basis and rose 12 basis point on a year-on-year basis, resulting in 1.79% for the second quarter. Just for information, last year, the full year was 1.70% NIM.

On the fee income side, our wealth management fee has rebounded very strongly. And at $239 million, it is the highest wealth management fee on a quarterly basis for the past 5 quarters. Our AUM at the private banking subsidiary increased to USD 111 billion, up from $108 billion the previous quarter. And if you compare it with last -- in last year, it was only $102 million, so that continue to rise. The AUM is always very important because this is the future base for our earnings. Our group expenses on a year-on-year basis increased by 11%, but that was really caused by the fact that under our Great Eastern subsidiary, there was an accrual expense reversal in the prior year. Otherwise, the expenses at Great Eastern are pretty normal. Then you look at the bank expense increase, the bank's expense increase is 7% year-on-year.

On allowances. Our allowances is now at $111 million for the quarter, of which the Stage 3 allowance is $93 million and the Stage 1 and 2 allowance is $18 million. Credit cost for the quarter was 15 basis points, so back to normal. You will recall that in the first quarter, we took some extra caution on the oil and gas portfolio. And we've decided to write-down some of our loans extended against the vessels, and we divided vessels into on-charter and waiting for charter or otherwise, the charter is going to expire within 1 year, without the visibility yet of a charter renewal.

And for those second category of which there is no charter or there is no charter renewal visibly ascertained, then we write them down basically to the scrap value. So we took a higher provision in the first quarter. Second quarter, it's back to normal, so we have a 15 basis point credit cost, which is composed of both Stage 1 as well as Stage 2 and 3.

New NPL formation for the quarter is $390 million. Our net new NPL formation is $142 million only. The gross new NPL formation includes our retail portfolio. But the retail portfolio, as you know, the NPL is driven by payment experience. When the payment got caught up, they'll be moved back again. So this has always been the situation. So the gross new is $390 million, but the net new is only $142 million. It is slightly higher than the first quarter of last year. But on a full year compared with last year basis, it is still within a very acceptable range.

Our NPL ratio dropped slightly, but when you round it up, it's still about 1.5%. Within the credit cost, we saw a slight deterioration in our CPO portfolio in Indonesia primarily driven by the lower palm oil prices, which started to have some impact on those customers who are in the plantation business. Since the end of the first quarter, the crude oil prices -- the palm oil prices have risen slightly so we believe the situation is stabilized. However, in order to allow those plantation customers to be able to write through the lower CPO prices, we have restructured some loans. And as a result of that, we have decided to put them on nonperforming loan because of the restructuring. Most of those restructured loans, there is no Stage 3 requirement to put up additional provisions because there is enough collateral. And on a restructured basis, it is able to write out the lower oil prices, which has started to rise about $100 -- MYR 100 already, and we saw this situation quite stabilized. It represents about 2% of our portfolio on a group basis only for the palm oil.

So this is the additional analysis I would like to share with you with respect to our second quarter results. Overall, the banking side continues to perform extremely well, achieving a record high profit for the quarter on a group-wide basis because of the various market factors impacting on the insurance portfolio, which always do. It fluctuates. We are able to report a $1.223 billion net profit for the second quarter.

With that, we will take any questions that you may have. Yes, Nick?

[Nicholas Lord, analyst]

Thank you very much about the explanations you've given on the credit side. I guess just a couple of questions on that. On that $390 million of new NPL formation, the increase, is it primarily driven by retail or is it driven by CPO? Is there anything else in there? Or is it just those 2 factors that drive...

[Samuel Tsien, executive]

Retail is pretty flat. It has always been at around $120 million to $150 million. If you look at then the nonretail portfolio, it's primarily in Indonesia. And in Indonesia, it is primarily related to the CPO portfolio, which we have decided to take a look at, and we help the customers to restructure. Again, no Stage 3 provision is required.

[Nicholas Lord, analyst]

Okay. Perfect. And then my second question is on the dividend. So thank you very much for the increase in dividend. You've obviously ...

[Samuel Tsien, executive]

In the option that if you want to participate in the growth of the company, you can take the Scrip. Otherwise, you can take the cash.

[Nicholas Lord, analyst]

Exactly. And that flexibility, I'm sure will be appreciated by some. The Tier 1 ratio, those gone up again by another 20 basis points.

[Samuel Tsien, executive]

Correct. Yes.

[Nicholas Lord, analyst]

So at what stage do we start to bring this down? Because presumably, we're getting to about 100 basis points over where you need it to be at the moment.

[Samuel Tsien, executive]

Yes. In the event that we do not see active deployment of the capital, which is more than what we required, then we will find ways to return it to the shareholders. In the event that we found that the market opportunities may exist for us to take advantage of a strong capital position, then we will retain those capital within our balance sheet.

[Nicholas Lord, analyst]

Is there a maximum level you would go to on CET1?

[Samuel Tsien, executive]

It depends on the magnitude of the market opportunity that may present itself. At this point in time, I think any increase in capital will probably be just quite incremental. I do not foresee that the capital retention will far exceeded our anticipated requirement in the event that the market opportunity arise. Robert? Over here. I'll come back to you, Julia. Robert?

[Robert Kong, analyst]

Robert from Citi. Two questions, if I may. First of all, could you give some color on Hong Kong? First of all, it appears to me that your Slide 32 has been restated from previous quarter because the 1Q is not the same as what I remember from the previous presentation, but maybe I'm not correct on that. But on top of that, you had a very strong NIM performance, up 12 basis points, which is very good obviously in that environment. And if you could just give some color as to what you're seeing because clearly, there is concerns about China slowdown, liquidity risk in Hong Kong as well, their own unique issues.

The second one, just briefly on the capital front. Is there any particular areas of opportunity, sectorally or country-wide, that you would find interesting? I think in a previous briefing, I think China was discussed as a very interesting place for potentially inorganic growth. But if there's any other area such as insurance, if you could discuss.

[Samuel Tsien, executive]

Okay. Sure. On Wing Hang Bank presentation, at this time around, we presented Wing Hang Bank with Hong Kong and Macau included but we have excluded China. Previously, when we presented Wing Hang Bank because the China operation is legally under Wing Hang Bank, so we reported Wing Hang Bank on a legal basis. But that has become increasingly not meaningful because our China operation actually supports a lot of the group's operations in terms of, for example, our treasury activities. And therefore, we think that for the analysts and for the investors to really understand our Wing Hang Bank franchise, which was the original Wing Hang Bank franchise that we look at. We singled out Hong Kong and Macau to present to you with a better picture.

As a matter of fact, a week later, we'll be having a media conference and analyst conference in Hong Kong. Many of you are invited to attend that conference, where we are going to show you the Greater China numbers and the Greater Bay Area numbers in more detail. Because just by presenting on the legal entity basis does not seem to be able to let you have a true understanding of the franchise value that we're able to create. For this quarterly performance, going forward, we will be presenting Hong Kong and China, which represents about 85% of our earnings in any event. But there is much less fluctuation in that because the treasury activities that we conduct in China, under Wing Hang Bank China legal entity, is excluded from that. You can see the real performance of our franchise under Wing Hang.

With respect to NIM, we are very pleased, but this is along the way that we have explained to the media, the analyst and the investors, that the previous NIM was lower primarily because of the delayed lagging impact of the asset price repricing. So it is now gradually catching up. So this is a reflection of the repricing of the asset portfolio. It rose by 3 basis point on a Q-on-Q basis. For the coming quarter, this particular quarter, third quarter, we expect that there will be a slight rise in our NIM. But then if you move into the fourth quarter, then you really have to look at the interest rate actions taken by the different central banks, to see whether they will have an impact. We expect that the fourth quarter will probably become flat. But on the full year basis, we still expect there will be a good rise in our NIM because the first and the second quarter is already higher than the 1.7% full year for last year. So we believe that at the 1.79% NIM that we saw in the second quarter, we'll probably be able to be carry forward or slightly higher on a full year basis for 2019.

With respect to more defined market opportunities, first of all, we have a very clear-cut corporate strategy that was outlined, that if we were to deepen or broaden, it will be in the core markets that we're currently in, which is Singapore, Malaysia, Indonesia and Greater China. It will always be within the 3 pillars that we have defined for ourselves, wealth management, commercial banking and the insurance business. We are aware of the Chinese regulators' intention to relax the foreign ownership percentage in the local bank. At this point in time, the details have not yet been announced. So we do not know the extent of the relaxation. And we simply cannot take any actions before the details are announced. Beyond China, we believe that there are also opportunities in other core markets that we are in, and within the same core pillars that we have always liked. Yes, Tanya?

[Unknown Analyst]

Sorry. Just to -- one follow-up question on opportunities. So based on what you've just said, does it -- are you kind of excluding other countries in Southeast Asia like Thailand, Vietnam, Myanmar? That's question one. Question 2 is on Great Eastern, there was a drop in net new premiums, weighted premium sales, et cetera, in Q2 versus a year ago. Could you perhaps add some color? I mean are there any one-off factors? Or is there something of, say, greater concern?

[Samuel Tsien, executive]

Okay. Yes. Should there be any market opportunities that we find attractive, in the near term, we will be only focusing on those core countries. So the countries which fall out of our core countries is not likely to be a country in which we are going to capitalize upon market opportunities, should they present themselves. With respect, I think you were referring to the total weighted new sales on a year-on-year basis because the number I just quoted you is on a Q-on-Q basis, which is actually up 20%.

On a year-on-year basis, the total weighted new sales is -- the drop is caused by our much reduced single-premium product sales. In the total weighted new sales, we typically divide our products into 2. One is a regular premium and one is single premium. Single premium has got more of an investment component to it and regular premium has more of a recurring insurance protection element to it. As a group, both OCBC as well as Great Eastern, we have been moving more into the regular premium side. Regular premium, the total weighted new sales number would be lower but the embedded value -- the new business embedded value is created -- is much higher. So on a longer-term basis, we are shifting more into the regular premium. The other reason is that for the single premium because it's primarily more investment oriented, it also depends on the yield curve. So when you have a yield curve, which is flattening, it is difficult to craft a single premium product that is significantly more attractive than, for example, a depository product. So both for market reasons as well as of the strategic shift for the OCBC Group, including Great Eastern to move more into regular premium, we have a lower total weight of new sales, but we have started this strategic shift in the second half of last year, in a fairly strong basis. That's why you see that on a year-on-year basis, you see a drop. But on a Q-on-Q basis, you started to see the sales ramping up pretty strongly in the regular premium side. And long-term wise, the embedded value creation is going to be very beneficial to the franchise value of our insurance subsidiary.

Okay. Back to you, [indiscernible].

[Unknown Analyst]

First of all, congratulations on beating our consensus. My -- I have 3 questions. A follow-up on what Darren said about new net money at Bank of Singapore that drove Bank of Singapore AUM in the second quarter. Where did that flow come from? Second question, focusing on Hong Kong for Sam, could you share outlook for NIM and loan growth in Hong Kong for the second half? And your slide presentation #12, why did wealth management franchise income decline, both on quarter and on year basis, the $700 million one?

[Samuel Tsien, executive]

Okay. Our Bank of Singapore's AUM growth to $111 billion has been pretty broad-based. We have -- we divide them into 5 regions. So the regions in the Southeast Asia, in Greater China, all performed very well. We -- Bank of Singapore's franchise is now no longer considered a regional franchise anymore. It is considered as a global franchise. So we do see inflows as a result of our success in this business from all different regions, including Greater China, including Southeast Asia, including our European region, including the NRI segment, the nonresident Indian segment. So it is pretty broad-based for the past quarter.

With respect to the Hong Kong loans, we do expect that the Hong Kong loans will slightly increase. We do not see a drop primarily because our market share in Hong Kong is pretty lower. So in order to grow for additional quality business and with the higher brand recognition of OCBC Group in the Hong Kong market, we believe that we will be able to take over some of the loan opportunities that presents itself in the market.

Having said that, overall speaking, the loan demand for expansion is quite low. So this will mean that in markets where you have a larger market share, your ability to grow will be lesser. However, in a market where your market share is not high, then it will still be easier for you to get because through your better servicing, through a better name recognition, through your better ability to mobilize the network for customers in the particular country, you would be able to get those loans who -- which may be part with another bank. So we do see that as a result of our stronger presence and penetration ability in the Hong Kong market, we will continue to see a fairly moderate growth though in the Hong Kong market.

With respect to the wealth management franchise, I think you have to distinguish between 2 figures that we show you. One is the wealth management franchise, which includes private banking, includes our Great Eastern insurance profit contribution from the life side. And they are classified in the wealth management because the insurance product is now more used as an investment product with a protection element, rather than the pure protection element. So previously, it has been very successful in that respect. However, the income contribution is also impacted by the market fluctuation with respect to the investment portfolio. And because the second quarter has got some less favorable market movement impact on the portfolio, so that contributed to a -- to reduce the growth of our wealth management franchise value. But within the wealth management franchise value that was outlined, we also have the wealth management fee income. Now that is not subject to any direct market movement impact. So our wealth management fee income, as I mentioned earlier, was the highest in the past 5 quarters, hitting $239 million.

Wealth management fee income is a factor of 2. One is how much AUM do you have. The AUM are the portfolio that belong to the customers that they wanted to invest. So the higher the AUM, the higher the fee income that you were likely to get. But the second factor is the market sentiment. In the event that the market sentiment is very positive, then people's propensity to invest will be more. And as a result of that, reinforced by the higher AUM, you will have a higher wealth management fee income. In the event that the market sentiment is weak, what we call risk off, then people will stay with their original investments or otherwise convert into very safe investments such as government securities, such as government bonds or such as even deposits. In which case, there was not much fee income that we can make. Of course, in those situations, the net yield that the customers will be able to get will be lower. But in the risk-off situation, this is what we typically see. Yes, please. Yes. Aakash, yes?

[Aakash Rawat, analyst]

A few questions. First one on the payout, when I think now that you've increased the dividend, are you in a better position to give us more specific guidance on the payout? Is it fair to extrapolate the H1 payout to the full year? And I think your final dividend is usually higher or the same as the interim dividend. Is that a fair assumption for the final dividend?

The second one is on the trading gains on the banking book versus the investment losses that you had on the GE side. What are the different drivers for these things? Why is the behavior so different across these 2 investment portfolios? If you could explain that.

Thirdly, on the loans. So for example, the UOBs numbers today suggest very strong loan growth. So I'm just wondering, do you also have that kind of aspiration? Are there any particular areas where you can grow faster, so your loan growth looks maybe close to 8%, 9%? Or you're happy with the kind of numbers that you are -- have today?

And finally, on staff cost, I think they grew quite strongly this quarter. Sorry, year-on-year basis, I think it was up 12% or so. So is that something we should extrapolate? And final, wealth management. I was just wondering, there's 3 different numbers. So on Page 13 of the presentation, it's $239 million. Page 16 of the financials is $262 million, and Page 12 of the presentation is $751 million. I think you talked about the last one. But what is the difference between the first 2? What includes what? So that's 5 questions.

[Samuel Tsien, executive]

Okay. I'll ask Darren to take the question on the payout ratio and then on the trading side. I'll take the question on the staff cost and the last one as well on the loans, Aakash.

[Siew Peng Tan, executive]

Unfortunately, I've got to say that it depends, interest on the payout ratio. The guidance is still the same, right? I mean in terms of the quantum, predictable, stable. So that we -- I mean right now, we've increased to $0.25. So we want to maintain that at least. Now in terms of the -- when I say depends because there are a few other factors that we guided as well. Pertaining to payout ratio, it's very much in the region of 40% to 50%, right? So in terms of that actual amount, it really depends on the -- in this case, the denominator because if the buyers is to maintain at least 25% and above in terms of dividend, then obviously, it depends on the denominator to ultimately decide to determine the actual payout ratio. But roughly, the guidance of 40%, 50% is still applicable.

[Samuel Tsien, executive]

Trading?

[Siew Peng Tan, executive]

Trading, okay. Now if you look at the trading versus sort of performance on the asset side, maybe it's better to kind of refer to a particular page on our financial report. If you can refer to Slide 22. For the bank itself, obviously you know there's trading and banking book, right? As a bank, typically, we don't own as much equity versus bond. Trading and banking book, we also treat the accounting -- the performance of the bonds within the trading book and banking book differently. So in the event that there is a performance, in this case, very much -- second quarter is very much a fixed income market done very well, right? You can actually see that the performance in the banking book will go to the fair value to OCI. So if I may refer you to the financial assets at OCI, fair value gains for the period, you will see that for the quarter is at $283 million.

So that include a portion coming from the banking book. Now then whether it transfer to the performance itself on the trading side, it depends on whether Kun Kin's team decide to take a profit on that asset itself. Now similar development actually on the insurance side. Now insurance side, as you know, we also have this similar treatment of fair value to OCI or not. In this case, as you know in the second quarter, again, the financial assets did pretty well. Both equities and to a stronger extent, fixed income, actually rallied. So there is also the fair value OCI performance. Again, that portion would go into this line, $283 million, right? Now then, where the difference for insurance will come in this? Essentially also how that accounting treatment for nonoperating profit will come in?

Now nonoperating profit would have a combination of assets that is booked on a fair value to P&L basis. And as said, sort of on a fair value to OCI basis. In this case, it's all below line whereas the liability is essentially fair value to P&L, to some extent, depending on the extent of the interest rate movement, essentially because the liability is longer duration, 20, 30 years. And you'll revalue that -- the liabilities when there's more than 10 basis point movement. And as you are aware, second quarter, there's quite significant move in terms of our interest rate, which is where the liability is being repriced.

So the way to look at Great Eastern is essentially there's 2-part to the asset that is being reval, right? A portion is being revalued, whereas a portion of the asset -- sorry, a portion of the asset is revalued. Another portion is not revalued to the P&L but to the OCI. Whereas on the liability side, the full liability is reval to the P&L. Hence, you see that difference in performance in terms of nonoperating profit.

[Samuel Tsien, executive]

With respect to the loan outstanding, our guidance is we are still targeting for the mid-single-digit loan growth for the full year. On a year-on-year basis, our increase was 4%. But I think for loan outstanding, it is better to look at it on a Q-on-Q basis because it's incremental. So on a Q-on-Q basis, it's actually 2%. So of course, if you analyze the 2%, it becomes 8%. But we believe that the mid-single-digit is still the better guidance at this point in time.

As I mentioned, investment and expansion-oriented loan demand has been fairly weak. But there continue to be investments that the Southeast Asian countries, customers move on to the western countries to invest in London, Australia, New York, Los Angeles. They made quite a bit of investment so there's a loan demand there. There's also a loan demand from the drawdown of the on-block that took place about a year ago, although most of those on-block have been drawn. But during the second quarter, there continues to be some of the carryforward on-blocks, which has been drawn. And then there were some corporate actions that were taken by some of the customers, particularly in Singapore, which will require some loans. So those were the origination of that. We believe that some of those corporate actions will probably taper off the second half, but the drawdown of the loans for people who invest overseas, which they have committed to will continue. So this will be the driver. But overall loan growth, I think mid single-digit is still the best guidance that I can currently give you.

With respect to the staff cost, the staff cost is really caused by the facts that on a year-on-year basis, under Great Eastern, there was a previously accrued expense that was reversed, which therefore reduced the base, and that is in the staff category. So that's an abnormal item because prior year second quarter, the expense rate was suppressed, as a result of this accrued expense reversal, which resulted in that. So if you look at -- on the banking level, it's 7% growth instead of a 11% growth. So that was the reason why the staff cost. So it is not going to be a increase, as you have noted on a year-on-year basis. And we've explained in the commentary and the video release that it was really caused by a reversal of an expense accrual and that expense was accrued in the staff category.

With respect to the distinguishment of the wealth management franchise in the wealth management fee, the $239 million, as I mentioned, is the pure fee income that we sell in our private bank and in our consumer bank, related to wealth management products.

So Bank of Singapore's wealth management fee will be in there. Our unit trust fees will be in there, and our bancassurance fee will be in there.

The $751 million is a broader definition of wealth management to revenue, and that includes the life insurance profit that we make under the Great Eastern.

Now you also mentioned another number of $262 million. Collins, what is the $262 million number?

[Collins Chin, executive]

Now I think the financial report wealth management fees, it show both gross and then it also show net off expenses so it basically show net expense -- net fees so basically, the $262 million is our gross wealth management fees. So in the slides, we show that's net.

[Samuel Tsien, executive]

So which means that it became $239 million after we've netted off out the expenses. I see. Okay.

Any further questions, Harsh? Okay. So Melissa's got a question over there first. And then we'll come back to you, Harsh.

[Melissa Kuang, analyst]

Just a just couple of questions. Firstly, on your mortgage book, continues to kind of contract quarter-on-quarter. I just wanted to understand your thoughts about market share and where you think you will be at the end of the year? What do you -- and doubt some competition? Or would you just stay out and lose market share? Secondly, in terms of your Indonesia book, is the CPO the only one that we should be worried about? The Indonesian banks have been talking about other categories as well that have some problems within like steel and textile. Do you have exposures there? And then lastly, in the NIMs, you talk about 3Q NIMs going up a bit. Where do you think it will come from? And what's supporting that margin expansion in that quarter given that it all has already started to come off and doesn't seem to want to rebound back to where the SIBOR numbers are?

[Samuel Tsien, executive]

Sure. I'll let Wei Hong, our Head of Consumer Wealth Management CEO, to take over -- to take the question on housing loan.

[Ching Hong, executive]

On the housing loan book side, maybe just a bit of context into it. Last year, I think we had a fairly difficult year with the cooling measures that kicked in. We were also the first to go out to reprice our loan book that saw quite a bit of -- I mean a little of bit of trail off in terms of repayments and refinancing and then of course, the price competition.

And we decided to be a bit more disciplined and not participating in a price war. I think for this -- in the first half of this year, in the second quarter, we saw some normalcy back in the market in term of pricing. And we were also able to launch a series of products, which were based on a floating rate bay structures, and that was very well received in the market given, number one, it's transparency as well as -- it's the flexibility with the interest rate outlook, right? So I think the second quarter, we did actually quite a very strong -- recorded very strong bookings, exceeding three -- about $3.2 billion, and we would expect to put about at least $1.5 billion net back into the book for the second half of this year. I just want to just state that I think for the Singapore market, it's still -- I would still think it's fairly muted given the uncertain economic outlook, right? The cooling measures are still in place. But if you look at the total sales of the market for the first half of this year versus last year, both primary sales as well as in the resale secondary market, that's come off by about 32%, right? Even though primary market sales went up marginally about 6.1%, right? The third quarter, unfortunately, we got ghost month coming up. So the second quarter has also a little bit of a seasonal blip, right? So I think it's fair -- it's still a fairly muted market in there. Will it fall off the edge? I don't think it will fall off the edge, right? You still have a lot of latent demand from the on-block sales asset, not really been deployed into the market yet. In terms of market, housing family units growth remains steady. And then there's also a fairly good portion of HEB upgrades where they pass the minimum occupation stage of the 5 years. So net-net, all in all, I think we've reversed the decline, but I'm not certain that we'll see a massive uptick in the second half.

[Samuel Tsien, executive]

With respect to your Indonesia question, Melissa, regarding our portfolio in Indonesia. In our case, we see the more noticeable sector that needs some restructuring is the CPO sector. But having said that, most of the CPO customers that we have belong to very large groups. So they have both maturing plantations as well as plantations of which they are still investing. As a result of that, it does create a balanced cash flow to help them to write through the low CPO prices. The good thing about a CPO price is now, it has risen, as I mentioned, to about MYR 1,009 and lowest it achieved was slightly under MYR 1,800. So it seems to have stabilized, and this is a cyclical industry as well. So with the support of the bank, I believe that it will be able to write through it pretty comfortably.

At this point in time, as I said, by looking at the collateral values that we have, we don't believe that stage 3 provision would be required. With respect to the steel industry, our involvement in the steel industry is not deep. We have a few customers. And there was one customer, which I think is relating to the country, state owned, that is relooking at how they should position themselves. We have been closely following on that and in active discussion. Again, we believe that it will be a situation where it will be worked out comfortably with the support of the state because it's 100% owned by the state. With respect to the textile, we are not actively involved in that sector. And I think if you are referring to a particular company that was in the scene, we are not involved in that.

With respect to the NIM, the reason that we feel that the NIM will stable at the high level or have a slight increase is because the portfolio composition that we see that there will be a bit more composition to our overseas locations, which has got a higher spread than we get in the domestic Singapore market. So that will contribute to a higher asset yield that we otherwise would get if we put it only to the Singapore market. But I don't want you to lead you to believe that there will be another 3 basis point increase on a Q-out basis or another 12 basis point increase on a year-on-year basis. I think the adjustment in the third quarter is going to be very mild, very mild. So our target is that it should arise -- it should be about maybe 1 basis point above that of the third quarter. It depends on the -- as you correctly pointed out, the market interest rates to see whether they will adjust downwards pretty significantly or not. But if that were to happen, it may have some impact on it. But at the present time, if we just focus on the asset yield side, the composition of the loan portfolio should be able to give rise to a fairly stable rather than the decreasing NIM for the third quarter.

So I think there's a question here. And there's a question here firstly.

Yes, all right, Harsh. Yes, we forgot to come back to you. That's right. You're always on our mind.

[Harsh Modi, analyst]

Absolutely. A bit of getting back to the capital question. Since you're thinking about market opportunities, either you can build capital and then wait for the opportunity to come. Or once the opportunity presents itself, you can let the investors know exactly what the opportunity is and then raise capital. Between these 2, how do you balance between these 2 processes? And to put it more in specific terms, let's say for whatever reason, if for the next 12 months, you don't get clarity on the market opportunity because regulator doesn't allow or whatever, going at this rate, you're going to accrue another $5 billion of capital in the next 12 months, more or less, which is about north of 200 bps on CET1. So is there a limit in terms of timing or in terms of absolute CET1 or the buffer, howsoever, we think about it? Where you will say, okay, this is where I'll probably falls? And so that's exactly what I wanted to understand.

[Samuel Tsien, executive]

Okay, Harsh. As I had mentioned before, when we decided to offer the Scrip Dividend, first of all, we say that we offer the choice. But we also offer it with a 10% discount. And as a result of that, many of the investors decided to take the Scrip. When we announced this, we also say that the market is weakening. So for defensive reasons, we think that it is also a time that we should shore up the capital in the event that we need the capital because of the market. Now at the same time, during a weakening market, there usually would be opportunities that will arise. Some people may decided to divest or some people decided to move the investments and get a proceeds and move on to a new sector. So our market opportunity is based on historical evidence will always arise. So we also felt that in addition to being defensive, we can also use the accumulated cushion to be ready for any market opportunities should they arise. Now your point is you wait for the market opportunities and you wait for 5 years and it doesn't come, then you accumulated a lot of capital. This will not likely to be the case. So where there has to be some realistic views that we take on the offensive side, that market opportunities is more likely to arise than less likely. And we believe that under the current situation, the opportunities is more likely to present themselves. So that's why we are keeping that. In the event that we have no longer visibility on the market opportunities, then I think we will have to return the capital back to the shareholders if the growth is also not there. So currently, the growth is -- the growth because of the various market factors that's happening is less strong than in the rosy market that we saw 3 or 4 years ago. So if the market opportunities, we've got no visibility that it's going to arise, which appeals to us, which falls into our core market and falls into the core segment and if the growth is no longer visibly coming, then there is no need to keep so much capital. At which point in time, we have to find ways to deploy or return to capital.

[Harsh Modi, analyst]

Within the sense of absolute amount or timing, which is exactly the same thing because every 6 months, you are retaining about 100 bps of CET1. So is there any...

[Samuel Tsien, executive]

If the investors are willing to reinvest back into the company.

[Harsh Modi, analyst]

We don't have a choice. That 10% dividend discount, it's a mini rights issue.

[Samuel Tsien, executive]

It is a attractive option. There is a choice.

[Siew Peng Tan, executive]

Maybe, Harsh, let's go to other points of whether you accumulate capital now versus raising capital when the opportunity arise. You see, in all form of opportunities, organic or inorganic, especially for inorganic, beyond price, 2 other factors is very important. One is certainty of completion and speed of completion. So in a sense, having that ability to prove that in terms of price certainty of completion and speed of completion will be actually a very important consideration, which in turns argue that it makes sense to have certain capital in place as well.

[Samuel Tsien, executive]

Yes, question here. Yes. Get a microphone at the back. Maybe -- yes, we'll come back to you.

[Unknown Analyst]

Yes, 2 questions. First is on the loans. You mentioned about the increase in loans to overseas investment properties. Would that come under others category in your loan breakdown or under the building construction? You said there's an increase in loan demand for overseas investment -- property investments.

[Samuel Tsien, executive]

Yes, yes. In terms of categorization, if this is an investment into the hospitality industry, then it will go to the real estate side of the pie chart.

[Unknown Analyst]

And the building and construction?

[Samuel Tsien, executive]

Building and construction depends on whether it is under construction or not.

[Unknown Analyst]

Because there is a very strong growth in this building construction loans Q-on-Q basis.

[Samuel Tsien, executive]

Yes, yes.

[Unknown Analyst]

Is that one reason?

[Samuel Tsien, executive]

Correct, correct. Completed properties are also in the building construction occurrence, isn't it? Yes, it will fall into that.

[Unknown Analyst]

For the overseas [indiscernible]. The other question is, what's your view on the MAS and also about this release of new -- for the digital bank prices? How does it -- is it going to affect OCBC in terms of the SME market, especially for the wholesale side? And for the retail side, banking license on other loans like on credit card loans, asset car loans, those are very -- margins are high. How this new license growth affect you?

[Samuel Tsien, executive]

Yes. We do expect that there will be nonbank participants who will be joining the banking industry. And as a result of that, it will create competition for the banks. But having said that, I think the MAS has been very prudent in making sure that it does not disrupt the market in an unhealthy way. So you will notice that in Senior Minister Tharman's speech at the ABS, he commented that there has to be value creation for economy. And there also has to be no predatory pricing. Therefore, it has to be a reasonable business model that you are really adding additional services to this industry such that you will help from an overall perspective. There will be more choices and more services and more sectors will be able to enjoy the banking services. If a new entrant, particularly from the nonbanking sector, will only coming in, in order to disrupt purely for the fact that they want to have a presence in the market but offering a predatory pricing, this is not the model that under the guideline that has been released by the MAS is encouraging. So in that respect, we believe that there will be responsible competition, and we face competition all the time. We face competition not only from the new entrants. We face competition from additional foreign banks coming into our market. We face competition for our peer banks as well as they introduce new features. And sometimes, pricing is also used there too. So we should be able to defend our market share pretty effectively, particularly given the fact that under the new principle guidance that was granted out at the same time that the license were announced, that there should not be disruption that will not create value, and it should not be predatory pricing.

Yes, going back to you again, [indiscernible]

[Unknown Analyst]

So I just wanted to spell out question in the market opportunity that you're talking about. So now, since you mentioned regulatory challenges, I'm assuming it's Bank of Ningbo because you're already at 20% ownership limit there. And you talked about regulatory -- that regulatory side is still not clear how the Chinese regulators are opening up the market. So I'm assuming it's Bank of Ningbo that you're looking at and not something else. Now if it is Bank of Ningbo, then I want to get your thoughts on the practical considerations of how you can increase the stake. So the first thing is they've already done an equity issuance recently. So it's unlikely that another equity issuance would be coming up in the next 12, 18 months.

[Samuel Tsien, executive]

What is the equity issuance?

[Unknown Analyst]

Equity issuance -- equity offering that they did.

[Samuel Tsien, executive]

Yes. Okay. Yes.

[Unknown Analyst]

The second thing is the price for the stock is obviously up 50% year-on-year, so that doesn't make it any easier. The strategic shareholders for Bank of Ningbo apart from yourself, the other 9 strategic shareholders having very low turnover shareholders for the last 4, 5 years. So if you were to get a stay from there, you'll probably have to pay a premium rather than discount. So again, I mean keeping these practical concentrations in mind, I'm just thinking, how do you think it's more likely that this opportunity goes through rather than less likely, right? You see what I mean?

[Samuel Tsien, executive]

Yes, of course. So the answer to that is if all these constraints that you described are the constraints that we felt are prohibitive, then it may not be able to be classified under the market opportunity category.

[Unknown Analyst]

Understand. Okay. And the second thing is on the Scrip Dividend take up, could you share some trends in the last few quarters? Like what sort of take-ups have you seen?

[Siew Peng Tan, executive]

Yes. On the Scrip, with the 10% obviously the participation has been very high. Historically, it has been in -- around 80%. The last 2 participation has -- partly, also because I think market volatility has declined to 75% and recently, 70%. But we do expect the -- we do anticipate that with the -- essentially the possibility of participating in our performance and also with the 10% discount obviously that participation is likely to maintain 70% level or even higher.

[Samuel Tsien, executive]

Yes. Okay. Yes. We'll take Jamie, yes?

[Jamie Lee]

It's Jamie from Business Times. I have 4 questions, I'm sorry. The first is on the mortgage book. Could I get a sense on the percentage of fixed loans on fixed basis versus floating rate and whether we could get the market share for the mortgage space? Second question is really on -- we've seen the FOMC meeting that was out. And so if there's some market commentary on -- are there some mixed signals on whether it will be hawkish? Or whether -- how many rate cuts are we expecting? Do you have a house view on how many rate cuts the bank expects perhaps till the end of the year? Third, we're seeing sort of a Singapore perhaps seen as a more safe harbor in these times. You're seeing Brexit, some of the Hong Kong tensions. We are seeing, of course, record prices on certain bungalows as well. Just wondering if we could get some sense of if -- are we well poised to capture some of these capital flows that might be coming into Singapore as a result of these tensions? And finally, my favorite question on supply chain, whether you're seeing some shifts in supply chain. We are seeing some of the Chinese companies perhaps moving to Vietnam, but you don't have a presence in Vietnam. So I'm just wondering if there are opportunities there you could capture as you see some of the shifts in supply chains.

[Samuel Tsien, executive]

Sure. I'll have Wei Hong talk about the housing loan side. And I have Kun Kin who will talk about the interest rate outlook, and I'll take the last 2 questions.

[Ching Hong, executive]

In terms of possibly for the rate packages, we've never been aggressive in a fixed segment. The bulk of our book that we've built up over the past years were mainly what we call in bought rate loans, which give us a price -- the ability to reprice in interest rate movements, right? And I think the buildup in the last 4 to 5 months really has been the floating rate programs, right? The SIBOR Base Plus program, which are flexible rates, right?

[Kun Lam, executive]

Yes. On the interest rate front, we believe that the economic data globally, including Asia, are slowing down. And with the trade tension escalating, we believe that if I want to continue to ensure there's market stability and therefore, there is, I think, a shift towards stability in providing insurance to the market with rate cuts. I think the direction is quite clear that as the data continue to soften, the Fed will respond, and they're very much in control of the situation. And there is also I think, supported by the shift in stand in many of the global central banks, including China. They shifted from a period of deleveraging last year to now since the beginning of the year towards softening the policy and sustaining stability in the economy. So we continue to expect additional 2 more rate cuts in terms of house use until year-end.

[Samuel Tsien, executive]

With respect to the question on Singapore being safe haven in this respect, Singapore has always have the reputation of being very stable, good legal system, good governance. So as a result of that, whether it is on the trade side, whether it is on the wealth management side, whether it is on insurance or reinsurance, legal profession arbitration, we've always become the center where we are very attractive to the overseas people. Particularly with respect to any recent incidents, we do not see any noticeable additional inflow. But Singapore has always been on the steady increase in terms of its inflow of activities into our country. With respect to the supply chain, there has been a lot of talks of our supply chain migrating to other countries in Southeast Asia from China. So far, what we have seen is that for those companies who already have an established presence in the Southeast Asian countries such as in Thailand, Vietnam and Malaysia, there - they have increased capacity there and the banking services requirement has also increased.

With respect to new companies migrating over, we hear a lot of talk. People would like to do it, but there is not much real investment that has been made yet. But we believe that those will come. It's a fact that when you want to migrate a supply chain, actually, the whole supply chain needs to move, not just the anchor company. The anchor company needs to make sure that all of the vendors who will supply them with different parts and pieces will move at the same time. I believe that action is being mobilized right now, but we don't see that yet. I do believe that there will be migration. The migration will probably not be as significant as people believe it would be because in addition to just having the hardware, you also need the software. Software does not only include the skill level of the laborers but the adaptability of the laborers. A good example is that when you change from one model to another model, the basic model could still be the phone. But the way that you assembly it, the way that you put it together is different.

Are the labor force immediately ready to have that adaptability? And China is very good at that. They are very used to changing model and adapting the labor force to a new model. That also needs to be trained over time. So I think it's going to happen, but it's not going to happen significantly. Of course, the trade tariff is now expanded not only between China and the U.S., but is also between the U.S. and some other Asian countries recently. So this will probably give further thoughts to the major manufacturers to see whether the way to migrate is really to Southeast Asia, or they've got other long-term plans, which will increase the cost, but perhaps migrating back to the market in which they sell, which will therefore means it's more difficult for them to do. But in the event that they want to truly avoid tariff, they may have to think about that.

[Unknown Analyst]

This is [ indiscernible ] from Taobao. Can I ask you about the NIM? I think it's mentioned that NIM is -- you guided NIM to be slightly higher than 1.79% for the whole year, right, for this year?

[Samuel Tsien, executive]

The second quarter NIM is at 1.79%. We believe that we have some upward movement rooms, fairly limited, maybe 1 basis point or so in the third quarter. And the fourth quarter is going to be maybe flattish is the best outlook that we can look at the present time.

[Unknown Analyst]

Sure. So DBS guided that I think NIM will fall off a little bit in Q3 and Q4. So I'm just wondering what is the reasons behind the different views?

[Samuel Tsien, executive]

The composition of the funding portfolio could be different from bank to banks. So in the event that you have a larger lower-yielding deposits that you're able to make a higher spread, if the market rate got adjusted downwards, then you will have a more immediate impact. So because the funding position is quite different.

[Unknown Analyst]

Okay. And sorry, another question, I think probably asked before as well. On digital bank license, so do you think you're going to consider digital bank in the region for some of the other markets?

[Samuel Tsien, executive]

Our Indonesian subsidiary is already embarked upon a fairly aggressive digital transformation, including adding features to the digital channel. We have not formed a separate bank under NISP, but NISP is very much on that journey already. Yes?

[Conrad Werner, analyst]

It's Conrad from Macquarie. Just a follow-on from the house view on the rate cuts. Is that what you also use when you assess your own NIM outlook like we've just discussed? And I guess maybe it's more of an issue for 2020 if we have these additional, I guess, an additional 2 cuts is what you mentioned?

[Kun Lam, executive]

Two cuts until the end of the year.

[Conrad Werner, analyst]

So 3 in total, including the one we've just had?

[Kun Lam, executive]

Yes.

[Conrad Werner, analyst]

I know it's a little early to be talking about 2020, but could you give us maybe some sense of how you're thinking about it? If the house view is for 3 cuts, it's quite a lot.

[Samuel Tsien, executive]

Yes. When we look at the NIM forecast, we do incorporate, of course, the house view into it, and that's the most important consideration factor in our view. And you will know that there was a lagging impact in terms of the market interest rate impact on the portfolio. As you saw, when interest rates start to rise, there is also a lagging impact across the banks that they do not have an immediate catchup. And so in the drop, there will be a short-term lagging impact as well as a result of that. So we are really focusing just now on the third and the fourth quarter. If the market interest rates adjusted downwards in response to the continued weak market, then the NIM will be under pressure in 2020 in terms of adjustment downwards. But hopefully, from a net profit perspective because of the adjustments, the economic slowdown would not be as big as it otherwise would be. And therefore, we'll be able to get additional economic activities created, which will evolve in the banking side. So the banks will be able to participate in the continued slower growth rather than in a recessionary situation. So NIM is only one factor that contributes to the bank's income. The other factors is the volume. If the rate cut is able to achieve a situation where the volume is protected, whereas the NIM has come down a bit, then on a net-net basis, it may still be better off. But it's a bit difficult these days, as you would know, to forecast what is going to happen because it just changes so abruptly. Just look at the China tariff situation. It just changes within 2 hours. That market may not be expecting what they would expect.

[Siew Peng Tan, executive]

Maybe just to supplement Sam point on the Fed rate. Fed's direction in terms of -- or rather the direction for Fed rates would, in turn, provide a direction of -- the direction for the other rates that we are exposed to Singapore and [indiscernible]. But the timing is actually quite different because there are too many factors involved. As you can see in the most recent rate development, rates actually went up in the U.S. much earlier than Singapore. And likewise, currently when U.S. rates are coming off, the SIBOR and [indiscernible] is really only catching up now.

[Samuel Tsien, executive]

Back to you for the question. Yes.

[Unknown Analyst]

Takashi from Nikkei. This is a very basic question. But Singapore growth rate is now 0.1%. This is a while since global financial crisis and Singapore economy also has declined sharply especially manufacturing sectors. But you achieved the core profit, and your NPL ratio is unchanged. So how could it happen? Usually, bank's result is consistent with the situation of the home country, home economy. And now not only in Singapore, but there are so many uncertainties in Asia. So -- and the last time, during financial crisis, your result had deteriorated. So is it because your main customers are the large corporates and affiliates, and that they are not affected by recent economic turmoil?

[Samuel Tsien, executive]

Yes. I think we -- when you look at Singapore, Singapore grew by 0.1%. But Singapore has got a lot of activities that do not belong to Singapore, of which the Singapore banks are handling. So trade is one, which, by the way, has also come down. But wealth management is another one. And you saw that we have very good increase in wealth management. And that was because the Singapore continues to be a wealth management center, reinforced its position, particularly for Bank of Singapore, building up a global reputation that when people want to divest their location of wealth management to a overseas countries other than own home country, Singapore becomes a very attractive site. So if we just rely on the Singapore domestic market, then you will probably see a growth in income comparable in trend to the GDP growth of Singapore. But because Singapore is really a hub economy that most of the activities that the banks do in terms of the additional activities the banks do, it reverses year-on-year basis. I think I'm not directly related to Singapore domestic economy, which related to our hub status of the economy. So that helps the banks, including OCBC, to be able to deliver result, which is higher than just domestic Singapore.

Our expansion overseas since the past 10 years have also helped us to shoot against a particular country to impact our results too much. So if you look at our overseas presence in terms of Greater China, in terms of Malaysia, in terms of Indonesia, their economic growth is still -- Malaysia is the lowest, about 4.2%, 4.4%, but the others are still above 5%. So it continues to provide you with a growth opportunity. The third factor is the market share. In a market where you have a 20% to 25% market share, it will be quite difficult to grow in excess of the economic growth of that country. But as I mentioned, Singapore, we have this amount of market share, but it's a hub economy so that helps. But then in overseas markets, our market share is not at that level yet. So there was always opportunity, as I mentioned, with respect to the question on the Hong Kong market, that there was always opportunity to gain additional quality business without compromising on the credit quality side for lending business. There's additional quality depository business that we can get because we have the network that is able to support the customers' aspiration to be able to bank with you overseas as well. So I think those are the factors that come into play as we perform a result which is better than the economic performance of the country in which we are incorporated.

Yes, Nick?

[Nicholas Lord, analyst]

Just coming back to the competitive market opportunity [indiscernible] the areas that you're interested in, so the geographies which you're interested, the 3 business pillars that you're interested in. Could you just remind us how you think operationally about acquiring things? So what does it have to deliver to you that you can't achieve in an organic fashion? How do you weigh sort of a dollar of investment inorganic versus a dollar of investment organic?

[Samuel Tsien, executive]

Well, first of all, in choosing, in the event that the market opportunity presents itself, we have to make sure that the culture of the target company fits into that of the OCBC, the way that we do business, the transparencies that we need, the sharing that we need. That's the most important element. Then the second element is that the profile of their concentration fits into the profile of OCBC Bank. You will know that I mentioned the 4 core markets that we have. We already have establishment over there. So in the event that we have a customer, a target there that does not fit to the profile there at -- to do the -- at the extreme of our business that we will do, then it is not likely. We are -- if we find an opportunity, we find an opportunity because we're already in those markets. We will like to look for scale, and then we look for scope. We probably need to look for scale first because scale will help us on the cost side. And then we also look for scope. Scope is, are you able to penetrate deeper into the markets, of which we are currently weaker? So those are the things that we will look at. And then we also look at when you add 1 plus 1, we need to -- the end result to be more than 2. And how you're going to achieve that? Typically, you'll be able to achieve it by mobilizing the products and services, of which you and them do not have.

But by combining them, you're able to create additional. So the Hong Kong acquisition, which we'll talk about more next week that we did 5 years ago, is able to exactly achieve that. The reason that we wanted to single out Wing Hang into Hong Kong, Macau because that's the area that we are able to create additional franchise value from. And then the China franchise is very important for us because it generates economic activities and business activities for us outside of China. You see, we have a chart there, which is most revealing, and I've talked about it before. Our Greater China exposure is [ 60-plus ]. Our China exposure is only [ 5 ], and the [ 5 ] has not changed over the past 5 years. But our earnings from the Greater China contribution continues to rise. It was because by virtue of our establishing a franchise name in those markets, we're able to sell the network to them. Those profits are not booked in China. Those profits are booked outside of China. And that has been the value. And we go deeper into it next week when we present our Greater China accomplishments because it's 5 years, almost 5 years, actually 4-plus years that we have acquired the Wing Hang Bank franchise. And we want to share with the investors, with the media and with our analysts to see how we have achieved that, how much have we achieved that. So that -- those are important considerations.

[Nicholas Lord, analyst]

And do you have any financial criteria like time period, return on invested capital?

[Samuel Tsien, executive]

Well, it has not -- it cannot be too distant in future that we cannot visibly see. But it has to be sometime in the future that we do not rush into it.

[Anand Swaminathan, analyst]

Anand from Bank of America. Can you give some color on kind of the Singapore, Malaysia, SME book? Given the headline macro numbers, trade volumes are bad, economic macro number is also bad, and a lot of uncertainty in the supply chain as well. What are you seeing with your SME book? Clearly, your credit cost guidance and dividend increase suggests that taking a few, you are very confident. What gives you the confidence? And what kind of stress tests are you already doing?

[Samuel Tsien, executive]

In the SME book, I think 2 factors are very important. One is the sector that you choose. So there are some more volatile sectors. We try to avoid that. So that's the most important consideration in the SME book. And that's why the SME book has actually been very well run. From a portfolio quality perspective, it has been very, very steady. The second factor that we need is that you really need to have local market knowledge. So it is not a situation where you can -- unless you go to the very small side, you really have to understand what is it, what are the principles behind it, whether the sponsors are willing to step in, in certain countries of which the record is not very good, who are the bad customers, who are the good customers because it's kind of difficult for the bad customers to turn good in terms of the integrity and things like that. Those are very important. So if you look at our SME penetration, it is only in those markets of which we have a fairly penetrating presence. Otherwise, we are not in the SME market. For example, in China, we are not in the SME market because we don't feel that we can have a direct practical knowledge about how to evaluate those SME credits. So it's not only because of competition, whether the competition is strong or not. It's that you know who you are, you know whether you really have the pulse or not. So that's very important. So even though that the market has been up and down, if you look at our SME book, it has never created any major issues for us.

[Ching Ching Koh, executive]

So I think [ China ] has one last question for the day.

[Unknown Analyst]

So have you had one of the best people for me to ask this question. Are you worried about Hong Kong situation? Do you -- does it keep you awake at night?

[Samuel Tsien, executive]

I sleep very late. So by the time I hit the bed, I immediately fall asleep. So as a result of that, it doesn't keep me awake at night. Hong Kong situation, I think, will be able to be addressed. And I think the -- both the authorities and the people in Hong Kong want it to be satisfactorily addressed. We continue to feel that they will have the ability to address the concerns that has been raised.

[Unknown Analyst]

[indiscernible]

[Samuel Tsien, executive]

It will be addressed in the best way that fits Hong Kong.

[Ching Ching Koh, executive]

So with that, we will see some of you in Hong Kong on the 13th of August.

[Samuel Tsien, executive]

Okay. Thank you.

[Ching Ching Koh, executive]

Okay. Thank you very much, everyone.

[Samuel Tsien, executive]

Thank you. Thank you for the sharing as well.