Oversea-Chinese Banking Corporation Ltd

SGX:O39

Earnings Call Analysis

Record Profits and Resilient Performance in Q3 2023

In Q3 2023, a robust performance led to a record net profit increase of 21% year-on-year to SGD 1.81 billion, with a strong year-to-date gain of 32%. This growth was underpinned by a 17% rise in net interest income reaching SGD 2.46 billion and a 21-basis point improvement in net interest margin to 2.27%. Noninterest income also grew by 4%, with fee income at its highest in four quarters. The company sustained disciplined cost-control with a cost-to-income ratio at 39.1%, despite a 5% rise in expenses. Credit quality remained high, with net loan portfolio growth of 1% and a nonperforming loan ratio improvement to 1.0%. Wealth management and insurance operations were strong contributors, and the company's capital position stayed solid with a core equity Tier 1 ratio of 14.8%.

Strong Profit and Revenue Growth

This quarter, the company saw a robust performance leading to a record net profit for the first nine months of 2023. The group's net profit surged 21% year-on-year and 26% from the previous quarter to reach SGD 1.81 billion, while total income increased by 13% to SGD 3.43 billion. This stellar growth is mainly driven by a significant rise in net interest income, which grew 17% from the previous year, and an expansion in noninterest income, although net interest margin saw only a modest increase.

Business Pillars Show Resilience

The company's three key business segments—banking, wealth management, and insurance—all posted resilient performances. Banking operations exhibited a remarkable net profit increase of 31% from the previous year, and wealth management now constitutes a third of the group's income. Meanwhile, insurance business gains stemmed primarily from higher single premium sales in Singapore, despite increased medical claims impacting insurance income overall.

Income Drivers and Cost-to-Income Ratio Enhancement

With a 32% year-on-year increase in group net profit amounting to SGD 5.4 billion, the income growth owes much to a 35% increase in net interest income. Notably, operating efficiency has also improved significantly, with positive operating jaws leading to a 7.1 percentage point improvement in the cost-to-income ratio, bringing it down to 38.2%.

Net Interest Income Reaches Record Heights

Net interest income hit a record of SGD 7.18 billion for the nine-month period, a 35% boost compared to the previous year, and was propelled by a 6% growth in average assets. The net interest margin (NIM) for the third quarter was on an upward trend with a tiny 1 basis point improvement compared to the previous quarter, fitting into the company's active balance sheet management strategy.

Modest Uptick in Noninterest Income

Noninterest income over a nine-month span increased by 3% to SGD 3.05 billion, mainly driven by trading income, gains from the sale of investment securities, and insurance profits. Fee income also showed recovery contributing to a higher noninterest income for the third quarter, again indicative of the company's robust wealth management segment.

Trading and Fee Income Analysis

The trading income climbed 5% year-on-year to SGD 783 million for the first nine months of 2023, buoyed by strong customer flow income, which continued its upward trend in the third quarter. On the other hand, noncustomer flow income saw a decline from the previous quarter due to a drop in valuation of certain financial instruments.

Maintained Credit Discipline

The credit cost for the nine-month period stood at 20 basis points on an annualized basis, aligning with the full-year 2023 guidance. The company experienced a reduction in total allowances due to a write-back in general allowances, transitioning some to specific allowances, as part of their prudent financial management.

Steady Improvement in Asset Quality

The company's asset quality remained resilient, with a declining nonperforming loan (NPL) ratio, now at a notable 1.0%. Total nonperforming assets (NPA) also decreased across several key markets leading to a stronger nonperforming assets coverage ratio of 239%.

Diversified and Growing Loan Portfolio

The loan portfolio showed healthy diversification and growth, registering a 1% increase in constant currency terms to SGD 298 billion. Amid variations in loan types, non-trade corporate loans and housing loans saw an increase, highlighting the company's commitment to meeting customer needs for sustainable financing, which saw an impressive year-on-year growth of 28%.

Earnings Call Transcript 2023-Q3

[Chin Yee Goh, executive]

[Audio Gap] the robust performance for the quarter, which contributed to record net profit for the 9 months of 2023.

Moving on to our financial highlights on Slide 4. For the third quarter of 2023 [ or how we use ] 3Q '23 in short, group net profit rose 21% from a year ago and 26% from the previous quarter to SGD 1.81 billion. The group's annualized return on equity for 3Q '23 improved 2.1 percentage points year-on-year to 14%. Total income rose 13% from a year ago to SGD 3.43 billion, underpinned by a record net interest income and growth in noninterest income.

Net interest income was SGD 2.46 billion, up 17% from the previous year, supported by asset growth and a 21 basis point expansion in net interest margin to 2.27%. Noninterest income of [ JPY ] 973 million was 4% above 3Q '22, with fee income rising to the highest level in the past four quarters. We continue to invest in our franchise to support business expansion while keeping costs well controlled. With income growth up facing a 5% year-on-year increase in expenses, Cost-to-income ratio improved to 39.1%.

Credit costs for the quarter were an annualized 17 basis points and our [ low ] portfolio remains sound with NPL ratio further improving to 1.0%. Loans grew 1% on a constant currency basis to SGD 298 billion, while deposits were 1% lower from the previous quarter as we proactively manage our balance sheet by reducing higher cost deposits. Our capital position remains strong with core equity Tier 1 ratio at 14.8%.

Moving on to Slide 5. Our three key business pillars of banking, wealth management and insurance continue to deliver resilient performance. Banking operations net profit for Q3 '23 was SGD 1.66 billion, 31% higher than the previous year and 7% above the prior quarter on the back of record net interest income and fee growth.

Wealth management income was also higher year-on-year and comprised 1/3 of the group's total income. And that under management were [ SGD 270 billion ] as of 30th September 2023, up 8% from the previous year from net real [indiscernible]. Our insurance business registered higher single premium sales in Singapore during the quarter, with [ google ] new sales or new business and rated value up quarter-on-quarter.

Moving on to Slide 6. We maintain our strong balance sheet position, placing us on a good footing to support growth opportunities and to buffer for uncertainties. Regulatory ratios were all well above requirements.

Moving on to more details on our group results from [ slide 8 ]. Net 9 months 2023 net profit for both the group and banking operations were higher than the previous year, and I will cover these in the next few slides. And going on to slide 9.

Group net profit of SGD 5.4 [ billion ] for 9 months moved 32% year-on-year on the back of record income, which estimate SGD 10 million. Income growth was largely driven by a 35% rise in net interest [indiscernible]. We achieved positive operating [ jaws ] which drove a 7.1 percentage point improvement to cost-to-income ratio to 38.2%. Allowances rose year-on-year with more general and specific allowances [ on the stateside ].

Turning to next page. For the third quarter, net profit increased [ 31% ] year-on-year to SGD 1.8 billion, largely attributable with record quarterly net interest income and higher noninterest income. Back to the prior quarter, net profit rose by 6% mainly from a rise in net interest income and in network allowances.

Moving on to Slide 12, where are [ repurchasing ] the group's performance trends. Net interest income for 9 months of 2023 rose 35% at [ SGD 7 billion ] marked for the first time to reach SGD 7.18 billion. This was driven by a 6% growth in average asset and a 50 basis point uplift in NIM to 2.28%. For Q3 '23, net interest income was a record SGD 2.46 billion, up 17% year-on-year and 3% from the previous quarter. We continue to actively manage our balance sheet. Quarterly NIM was 2.27%, a 21 basis point expansion from a year ago on the back of higher margins across our markets compared to 2Q '23. NIM was up 1 basis point as higher asset used outpace the rise in funding costs.

Moving to Slide 13. Noninterest income for 9 months 2023 was [ SGD 3.05 billion ], 3% above the previous year. The increase was mainly driven by higher trading [ income ], net gains from sale of investment securities and insurance profits. This more than compensated for lower fee income was naturally due to softer [ well ] and [ fees ] in the first half of this year. For 3Q '23, Noninterest income rose 4% year-on-year to SGD 973 million, supported by improvement in fee income and investment performance. Insurance income was lower year-on-year, largely due to an increase in medical claims, which was partly compensated by increased investment performance.

Moving on to Slide 14, where I will cover fee income in more detail. 3Q '23 [indiscernible] of [ SGD 461 million ] was the highest in the last four quarters, 2% above a year ago and 7% a year [indiscernible] 3Q '23. The quarter-on-quarter growth was led by increased wealth management, credit card and trip-related fees. The improvement in [ belts fees ] underscore the strength of our wealth management franchise. Customer activity were higher in 3Q Q3, and we also saw higher demand for wealth management products, including insurance, bonds and structured products.

Turning to Slide 15. Trading income, which mainly comprise customer flow income was SGD 783 million for 9 months of 2023, up 5% compared to the previous year. For the quarter, customer flow income continued to trend higher. Noncustomer floor income was lower as compared to the prior quarter mainly attributable to a drop in mark-to-market valuation of fair value through P&L [indiscernible] and derivatives.

Moving on to Slide 16 for in our corporate sales expenses. In line with our corporate strategy, we continue invest in our franchise across people and technology while still maintaining cost discipline, ranking expenses for the 9 months and quarter well managed, up 5% year-on-year for both periods and 1% higher quarter-on-quarter for 3Q '23. [ Possibly operating jaws ] and year-on-year income growth outpaced the increased expenses. Cost income ratio for the last 3 quarters were below [ 40% ].

Moving on to allowances on Slide 17. For the 9 months of 2023, credit cost was 20 basis points on an annualized basis. In line of the full year 2023 guidance, for the third quarter, total allowances were SGD 101 million, 27% lower in the prior quarter mainly due to write-back in general allowances of [ SGD 36 million ] as compared to SGD 200 million charge against [indiscernible] 3. The group has prudently set aside general allowances in previous quarters and the write-back 3Q '23 included migration of general to specific allowances.

Specific allowances for the quarter were mainly attributable to corporate accounts in our key markets across a range of sectors. We also saw [indiscernible] or as I'm calling in [ 2021 ], you make allowances for a project in Greater China from delays due to supply chain disruptions brought upon by COVID-19. The project was progressing well and has since been completed and is generating revenue.

The [ main ] next slide 18. The group's nonperforming assets coverage ratio continue to rise higher [ 239% ] as of 30th September 2023 driven by the decline in nonperforming assets. Turning to next page on asset quality. Our asset quality stayed resilient with the nonperforming loan ratio further improving to 1.0%. Total NPA as of 30th September 2023 were lower year-on-year and quarter-on-quarter at SGD 3.1 billion. The drop in nonperforming assets were across our key markets of Singapore, Malaysia, Indonesia and Greater China, mainly due to higher recoveries and aspects.

[indiscernible] in 3Q of '22, we shared that the group downgraded a single network customer need, there was real estate [ later ] in our Greater China portfolio, which was highly secured games property. We provide an update, this account seems fully repaid during this quarter.

Moving next to Slide 21. Our loan portfolio continues to be well diversified across geographies and industries. Group loans grew 1% in constant currency terms from a year ago and from the prior quarter to SGD 298 billion. Non-trade corporate loans and housing loans were up quarter-on-quarter, while trade loans declined. We remain focused on supporting the increasing customer needs sustainable financing solutions our sustainable financing loans rose 28% year-on-year and comprised 12% of [ foot ] loans accepted as of 30th September this year.

We move on to Slide 22. Our commercial real estate for CRE for short, office sector loan portfolio comprised 13% [ of this launch ]. The portfolio remains resilient and largely secured comfortable [ LPV ] of between [ 15% to 16% ]. 2/3 of our CRE office portfolio are in our 4 key markets of Singapore, Malaysia, Indonesia and [ greeted ] China. The remaining are primarily to developed markets, including Australia, the United Kingdom and United States, which accounts for 4% of total group launch. They are largely lending to our network names with strong responses.

Moving on to deposits on Slide 23. Customer deposits were SGD 369 billion as of 30th September, 1% lower than the previous quarter as we continue to proactively optimize our balance sheet. [ Hostile ] balances rose 1% quarter-on-quarter and [ custom ] ratio increased with 46.3%. The group released assessed liquidity in the form of fixed [ clauses ] and [indiscernible].

Moving on to my final slide. Our capital position remained strong, with the core and [indiscernible] Tier's 1 ratio at 14.8% as of [ September ], [ being ] us in a good position for strong growth and [ vapor ] uncertainties. [ CT1 ] ratio reduced by 0.6 percentage points from a quarter ago. This was mainly due to third quarter profit accretion in offset by a payment of our [indiscernible] 2023 dividend in orders and increase in credit risk referred assets. With this, I end my presentation and will now pass the floor over to Helen. Helen, please?

[Pik Kuen Wong, executive]

Thanks, Chin Yee and good morning, and good morning to those who are on the call and for those who are physically here. Welcome to the OCBC offices.

Chin Yee has done quite a detailed presentation on the third quarter results. So I won't repeat it, but I just want to highlight a few things that I feel important and which is encouraging to our team and to the [indiscernible]. So first of all, I'm very glad that our total income surpassed the SGD 10 billion mark and also our net profit also surpassed the SGD 5 billion mark and these are record size. And so we're quite happy, good numbers. Of course, our ROE has also been trending up. So it's at [ 14.12% ]. So we are on target to achieve our full year target of about for 14%.

I think the performance continued to reflect where we are, what we are in banking, insurance and wealth management. Of course, I think our insurance business have some changes in the way we account for their numbers because of a new accounting standard. But which we have been dutifully [ follow up ] and I think this will be quite a change. Although we did actually be [ base ] last year. But if you need more information, understanding of [ GV ], feel free to ask the finance team or of course, the [ GV ] team directly as well.

So net interest income, of course, is high because of how we manage our NIM. And of course, we benefited from high interest rate environment. enabled by the foundations we laid for the banks in the past few years. This is regarding proactively managing our balance sheet including how we do our loan book and which sector we grow and also how we manage funding base as well.

One important thing over the years is that we've been managed to work hard and win some new cash management mandates and grew our corporate banking operating account [ base ]. And this is the area where you will [ drawn ] to the cash, the money of the clients and [ buy ]. If they need to run their business, they need to maintain operating account with us.

So in that sense, because we have acquired so many more [ SME ] clients as well, the SME is typically plays a very literal of their funds and tax deposits because they need to manage it. The money on the for the working capital. So we also enhance our digital proposition. So that helps us to acquire customers faster this year more effectively and in a way, also allows our customers to continue to use us in doing that business so this is important. Also very important for the retail deposit franchise. I'll talk a little bit about that later.

Again, because of [ OT ], we also allow us to build a more resilient deposit base. So as Chin Yee has covered for the third quarter, we do see cost of balance increase and also, we are able then to partner some of the higher cost fixed deposit in managing our funding costs.

We have thus revised our full year 2023 target to the 2.25% ratio. Fee income also have rebounded in third quarter, as Chin Yee covered earlier. But I wouldn't pay to [ rose ] picture. We need to see that momentum going. I think investors still sitting a bit on the bank as regard to whether they would go actively into a bigger into more wealth management activities.

And one more point I want to mention that we continue to invest in people, in technology, so that we strengthen our businesses. And in a way, we still want to also be diligent in maintaining expenses as well. So we're refining our 2023 cost-to-income ratio target to be lower at around [ 40% ].

So I think I don't need to talk too much about how current market conditions like, right? And before this quarter, we were talking about one [ war ] now, we're talking about [ war ] around the world. [indiscernible] political tension continue to remain, not very happy in the way the tension is a [ despite a ]. I think it reflects a lot of them on the macroeconomic conditions and also on demand of loans in a way. So we do see loan demand to be quite muted. Trade loans is not doing very well because I think the trade volume around the region also has not rebounded as people have [ for ].

So in a way, we still managed to grow our corporate loan portfolio and the Singapore housing loans for this quarter and you might have to say that one of our big focus is on sustainability financing, so separating finance commitment, as Jim earlier talked about there's already a surplus of SGD 50 billion [ sold ] by 2025. So we are playing an increasingly important role for our customers in tapping that transition to a more low carbon environment.

Loan portfolio is [ done ]. We do not see systemic risk, but need to be continued to be prudent as interest rates stay high and also need to be prudent regarding how we look at the portfolio and make an appropriate destination of NPL and better appropriate level of provisions as well.

So our full year, we are targeting credit cost of around 20 basis points and change. So if we flip the page to the second page, I'm just trying to reflect a bit on the 3-year plan that I talked about earlier in July, we talked about, hopefully, with a lot of the initiatives and under the corporate plan. We want to deliver SGD 3 billion more revenue over the period of '23 to '25, right? So I just want to report by September we are quite on track to achieve our 2023 incremental revenue. When I said that, I also have indicated with all the initiatives, the first year, you see the smallest amount right? And then the second year, third year, hopefully, you will see more of the amount. And it did -- but for those that we plan for in 2023, it looks like that we should be able to achieve those by the end of the year.

I want to touch base then to express what has been done well. I've got the examples to bring in additional revenues according to plan. So going back to our corporate strategy, we talk about growth in 3, 4 areas. The first one is wealth. So what are the key initiatives or the changes we made in order to deliver more and to strengthen our wealth management franchise. So one thing that is very important is increase the collaboration, how we drive, in particular for retail, how we drive similar banking and premier client segments across the group, right? So the whole fact about allowing easier account opening. I think we did announce that, and we're allowing people to do online account opening around the vision, and we've seen quite a good number like that. It's not just like any particular country, but we do see quite a lot of [ convening ] from individuals around in the region. And with that, with more accounts and also, we have invested also into products. We're able to offer also digitally roll out some more new products to our client base.

So that includes, for example, [ Epic ], a client overseas with an account with us can just use a digital channel to conduct FX products and some other products as well. I think the one thing that I also want to mention is really regionalizing brand. So you're very involved when we launch our brand. And I would like to say that in July, we have done Singapore, Malaysia and Hong Kong. Recently, we completed accounts but we're also going to look at China and doing [ share ], so more news to come.

I think our [ BA1 ] brand with a new logo and OCBC recognized across the banking world is very important for us as we continue to group everybody together so that we increase our business on a regional basis.

So on capturing trade and investment flows between us and Greater China, it's a very important [indiscernible]. And again, we -- I did mention before that we have strengthened our [ termite ] business offices able to allow customers coming to ASEAN in particular. And of course, we have also improved how we engage ourselves in the capital markets. We've been a big player in Singapore, but [ Sub-dish ] in particular, we have done more significant loans for our customers in [ bigger ] China. We climbed up so we can along [indiscernible] quite well in [ Manteca ] Hong Kong. So these are some of the things that we effectively, as a team, that we can put in regional borrowers and [ have them ] [indiscernible] them. And I want to say one example as well. In the third quarter, we have brought a high-end back company of China who want to look at the Indonesian market. So we bought them all and working with our munition team, we introduced them to a lot of the clients that are interested to work with them. And of course, what results would be they -- of course, they open account with us in Indonesia. And you guys can hopefully, as they embark on doing business, they will buy more of us. So that this is one of the ways how we say we can still grow because you increase the wallet, increase the share of wallet of the customer. So we don't just bank them in China, we bank them in Singapore, we're now starting to bank them in Indonesia as well.

So the first pillar we talked about unlocking values, new economy. One of these is really detecting heavier on onboarding new to bank customer across the region through our digital SME model. So we have by now launched our SME preapproved loan backlog in Malaysia as well. And also applied that to our [ LMN ] unit, which is the [ Islamic share refinancing] that we are launching this as well. So with this powerful development, we'll be able to continue to capture more market share by banking more customers.

New partnership is also a new economy in a way. I just want to say that one example is the new procurement platform of Sesame, which avail same-day digital invoice financing approval to Singapore government terminals tennis. So it's so much easier now to finance what they sell and because the platform announced the recognition of the invoice really quickly so that we do know that by financing done will be repaid by the buyers on due date.

On the another area, I just also want to mention we have launched a number of us to market capability. enabling ongoing enabled by our ongoing technology investment. One of the things -- I think a lot of customers get quite excited saying that now they can use -- do cross-border payments like Alipay Plus. And I actually have a friend who will talk to me, and said I'm not yet an OCC customer [indiscernible] value. But in the way he said that, I do travel to China a lot. I now need to open an account with you. So we're opening [ account that ]. So I do feel that such capabilities will continue to help us to bring in more customers.

And another one thing that we have invested in technology is really to roll out generative AI to all our employees. So we now have in-house, in a way, in-house OCBC [ track activity ] system. But this is very much focused on helping our colleagues to be much more productive. There are -- we tested it, there are successful use case and [indiscernible] were good. But of course, [indiscernible], we also manage the risk. So this is more a platform that or OCBC data is not released to outside. So we [ continue ] our own data while we actually adopt data in the outside world.

So these are exciting developments. But again, more importantly, you must heard me talk about [ One Group ] for a long time now. And in a way this quarter, we also make to more comments to my top team, the CEO of China, and Greater China CEO, both existing colleagues, OCBC colleagues. And together this year, we -- if you come from January, we do have 5 [ comments ] to the senior management team and I'm very excited what [indiscernible] all of us in order to deliver a solid growth in our business and also good results.

So looking ahead, I think to wrap up, I'd just say earlier on, nobody expects in second [ quarter ] there's a second [ world above ]. How does the whole world economic situation come up? Macro, there are a lot of uncertainties. Are we saying that interest rate will certainly come down and give inflationary pressure have already been [ aimed ]. What the both high interest rate continue to make credit conditions difficult. It did what geopolitical tensions [ gone to escalate ]. These are all the uncertainties that we are facing. And that's why while we are firmly on track to deliver our 2023 targets with some adjustments as you've seen on the slide, Again, we need to continue to be very prudent and make sure that our capital, our liquidity and our funding base are strong as we continue to embark on growth, and it did continue to improve the ability of how we serve our customers as well.

And broadly for initial [ Fox ] for 2024, potential NIM would be seen at current levels for first half. But again, [indiscernible] circumstances. You can plan all you do, but things can still don't turn out as you wish, right? So no growth, we don't see certain jump in demand, but we'll see how we manage to continue to grow, maybe not on a high note. But in a way, we will go in through reports some more in details when we report the last quarter results and the full year results by early February.

So I think with that, we'll open to questions. Chin Yee?

[Chin Yee Goh, executive]

We give some questions here. First, before I move to [indiscernible].

[Unknown Analyst]

[indiscernible] guidance on the ROE for next year? I know you [indiscernible] but what is the outlook of the ROE [ for this year ] and are you able to continue this momentum, bringing the total income for next year [indiscernible] outlook?

And the second question, I would like to ask what is OCBC exposure in the recent money laundering [ chain before ]. What is the [ specific allowance ] allocated to this? And do you see the allowance to increase? On the third question, with regards to the recent [ destructions ] in the [ education ], can you identify the main issues and where you'll be making more investments in terms of technology [indiscernible] to manage this kind of issue [indiscernible].

[Pik Kuen Wong, executive]

[indiscernible] are we, as I said, I cannot give you a [ time ]. It depends, of course, [indiscernible] depends on the level of equity and your return. So income, we are committed to continue to do what we can to identify new customer new area under the [ One Group ] strategy. So we do hope to be able to bring in what we call about [ BAU ] business. But you're also aware that net interest income is quite subject to the interest rate environment, whether interest rate will come down.

To some extent, you have to plan that debt potentially will be interest rate coming down potentially second half of the year. But of course, that will -- may change. It depends on how things unfold, right? So in that sense, whether we'll be able to keep the same return. We hope to put this is as well what we're trying to do, right? Always going. But again, where it will be. At this point, we're certainly working on that. So no target dividend yet. But hopefully, the momentum we do, especially on the new initiatives that we can keep that, and I think having the [ gold ] group to work together has been powerful as we have seen [indiscernible].

[Collins Chin, executive]

[ To what Helen ] said, I think, of course, we won't be able [indiscernible] at this stage, give you the ROE target for next year, but we did set up in July, we outlined our own strategy that over medium term ROE of 14%.

[Pik Kuen Wong, executive]

So the second thing is about exposure and allowance to the recent [ AML ] case. We have insignificant exposure, I have to say. So we will make the announcement as appropriate but because it's significant, yes, it's nothing much to talk about in a way.

So disruption. We have seen the recent disruption, we have seen a technical issue that impact on the performance of a certain software. And in a way that results in slowness known as [ in the system ]. So we have detected it, so the way we have been, in a way, fixing it. So it's [indiscernible] and I think we will be able to manage a similar reason in the future. But as to your question, [indiscernible] certain [indiscernible]. We continue to add more headcount, add more people specialists and technology, we continue to improve our technical -- sorry, our technology infrastructure, and we continue to invest in new systems and upgrade. So it is -- whenever we say technology investment, it is very much investing in current system upgrading and also investing in the technology that allow us to have higher capabilities and new products as well.

The [ third ] part of this is investing in technology to make ourselves more effective in ambition. So when I cite generative AI, it is about to help our colleagues to work more effectively and to be more progressive.

On the issue that happened at the [ betting the software ] component, we are the midterm [indiscernible] and so it was not [indiscernible] so there were transactions coming through at high percentage of transmissions coming through [indiscernible] so that has [indiscernible] on the day it was fixed. Next question?

[Unknown Analyst]

The first one will be just give us the main reason behind the raising for the target for NIM this year? And what's your outlook for global interest rate going forward next year? And the second question is what's your view on China? Do you see the environment quarter [ impact] [indiscernible]?

[Pik Kuen Wong, executive]

You take investment? so we raised our [ problems ] what I mentioned is [ 2.20% ], right? During the [ second Q results on '20 ]. Now the region of 5% [indiscernible] look at our 9 months NIM, we reached 2.3%. We are sort of no outlook for first quarter in term [indiscernible] as well as we expect some efficient funds with year-end which drive up in costs, right? So as a result, we should [indiscernible] no further deterioration in macro environment of the board, and I mentioned that so. Yes. Right. Okay.

Second question on China, right? I think third quarter [ GP ] growth surprised a bit [indiscernible] better. The way we do see China trying to have a lot of measures to encourage an economic growth. I think they start to see some momentum there. But whether next year, I can predict, I think it's up to everybody's guess so hopefully measures continue to yield results. But also, I think the good thing is we also see manufacturing numbers going up, [ entry ] slightly pick up as well. So hopefully, all this momentum can [ vary ] through into next year.

Of course, we watch very carefully about any sort of [ patents ], I think [ geopretention ], as we mentioned. And also whether they are rebounding at the speed that everybody will hope for.

So I think to that extent, we are -- I think we're still saying China is a very important market that nobody can ignore. And in a way, but our strategy for China is also very clear. We are having Chinese customers and individuals as they [indiscernible] overseas. I think that's where we can play the most effective assistance to these customers. And on that, I still see a very positive momentum on that.

[Chin Yee Goh, executive]

Okay. Maybe I just go to [indiscernible] back in Bloomberg, and again, if you are not satisfied, but because your money laundering mission has already been answered, so I will not ask that. Talk about your capital position remains strong. So is there any considerations in China? That's the first question.

Second question, are you still benefiting from the credit [ stories ] collapse in Wealth Management [ fees ] are up quite a bit. So 2 questions. The money laundering [indiscernible].

[Pik Kuen Wong, executive]

M&A for China, a very specific question. So I must say we hold on to what I have always been talking about. We look at opportunities especially in the markets that we -- that will supplement to our core business. So in a way, if you apply that across the core markets that does include China. But I have nothing on the horizon that I'm going to be able to talk about at all. So I hope that answers your question.

For the funds flow, actually, we do see net funds flow for in the year in the [ price ] of bank but also see that also equaling flowing in for the retail side, mainly on the premier and premier prices as well. So I wouldn't say comment as a continuous flow. I think we're trying to grow.

[Chin Yee Goh, executive]

It's not accredited.

[Pik Kuen Wong, executive]

Yes. And it's not about [indiscernible] so trying to continue to grow customers and grow AUM is something that is in our DNA. We'll continue to do that. So I think in the early part of the year, the market did see some [ funds flow ] and I think we talked about it in the first quarter already. So nothing more to add on. By now, we are already in the [ website ].

[Chin Yee Goh, executive]

It's not attributed to [indiscernible]. Okay. And if that is okay, I will move on [ president ].

[Unknown Analyst]

[indiscernible] Follow up on the fund [indiscernible] I think Helen, you mentioned previously that you saw SGD 10 billion in the first quarter, SGD 6 billion in the second. Just wondering about the volume and [indiscernible] momentum continue despite [indiscernible] both Q-on-Q [indiscernible] from there? Also can you [indiscernible] in the impact [indiscernible] it'd be a longer-term impact there. I just wanted to follow up on [indiscernible] generative AI and helping productivity. What specific accounting functions [indiscernible].

[Pik Kuen Wong, executive]

I think Collins talk about the functional capacity, I heard talk about it.

[Collins Chin, executive]

If you look in terms of -- as you know, in terms of the AUM, right? On a quarter-on-quarter basis declined by about [ SGD 4 billion ], right? So as we saw fund flows in some segments of the wealth business. I think we've [indiscernible] like the. We also saw for the birthday some rather lush [indiscernible] as [indiscernible] some of the funds for their own business purposes. So I think which is usual for [ work ] banking.

At the same time, somewhat declined in AUM [indiscernible], a result of normative valuations [indiscernible].

[Pik Kuen Wong, executive]

I think that can do the first two questions. But you'll have the third one on impact of the [ AML ] case on Wealth Management business. I think it is a good thing that the industry is dealing with them because it is -- I'm sure that this [ center ] to say one on of us is some that can deal with places like that. So in a way, protect the reputation of Singapore, I think, in that sense.

So if you ask me, is there any clients saying that they are -- they the lose confidence and take their money out. We haven't seen that. We haven't seen that at all. So if you ask me, the impact, I would say the impact is minimal or known. But to an extent, possibly, I feel it is actually a good thing that we're able to handle it.

So the [ boarding ] focus is on generative AI, what sort of areas that we use it for. I think one thing is on research because you can assess the information much more effectively. Another area is on coding coating, that's for our engineers, programmers. And then actually, even for frontline, if you think about , we'll always have to track information of their customers in the public market. So this helps them more effectively track orders and for them, if you are now you're writing an account plan for the clients, you can access to those information and because Generative AI is the greatest more than just giving you the data, right? So I think that [ puts ] them as well.

So we have actually done quite a lot of testing and what we call successful use case before we decide to launch it to all the colleagues in the bank. We see high interest. So in a way, we say that, we make it very clear that we -- this is not now you do less with your work. It is for you to be able to be more productive. Everybody is still accountable to make sure that as you use it, the information of what we produce, you have the same level of diligence and also to make sure that whatever you use, it is also correctly and accurately projected in your results.

[Unknown Analyst]

Question on the results, there's a few questions here. I think first question is about commission being [ there ]. So I think looking at the income of [ SGD 400 million to SGD 1 billion ] for this quarter is higher than the last 4 quarters. But this is down from, I think, [ SGD 559 million ] at [indiscernible] three years ago. The bulk of this was from wealth management. So when we [indiscernible] management or private banking and one.

And I think [ further ] on this follow-up question. I know [indiscernible] about initial income every fourth quarter. So is this in the market situation like maybe [indiscernible] positioned on what has been here. Can we expect this for the fourth quarter of this year as well?

[Collins Chin, executive]

I mean if you look at those -- the wealth management fees, the Outlook for clients is still risk of [indiscernible] given the [ climate ]. So Again, I think the trend is clients are still predominantly holding the [indiscernible] in cash so that's why we use it. I mean this quarter, the fees were above -- again to channels and sold like private banking services, the sales of well-mentioned products right tracker deposits to interest.

So I think we hope that trend should continue. But again, it's really dependent on the [ car ] market [indiscernible] given the outlook innovation, [indiscernible] with your second question. Seasonally, not just us, I guess, across the industry as well, fourth quarter does seem to be a bit more softer. That may be due to the rest of the year, tradition again is [indiscernible] treats in respect [indiscernible].

So I think -- I know that the fee income is also like a higher wealth, credit card related at least. So we heard [ had our become plans with 2 bones here and blade for concept. So what CPGs to grow in credit card, whether or not this within lifestyle ].

[Pik Kuen Wong, executive]

We have indeed working on lifestyle so -- [ you see it when we announced it ].

[Collins Chin, executive]

[indiscernible].

[Unknown Executive]

There are no questions.

[Unknown Analyst]

Yes. I think on loans, I know similar happens from second quarter with [indiscernible] Malaysia, Indonesia [indiscernible] for the rest of the world, that NPLs are increasing since [ 4Q last year ]. So what is also going to be reason from last quarter because last quarter, the quote we got [ was mainly on the target of core account in the commercial impact in the U.S. So what is the reason for this ratable increase. ]

[Collins Chin, executive]

So this quarter, we recently [indiscernible] corporate in Asia. [indiscernible] the board, but it [indiscernible].

[Unknown Analyst]

And so I feel [indiscernible] increase in the rest of growth. So a little very small where increase from? I think just beginning what. So this is from [ Loans by geography. ] So at least in [indiscernible] except for a slight increase in the rest of the growth segment [indiscernible].

[Pik Kuen Wong, executive]

If you look at this, we continue to support our network [indiscernible] in rest of the world. So the [ life ] increase is really some of the opportunity that is [indiscernible].

We still want to grow our loan book of course. So -- but depending on where the opportunity is and where our customers need us -- so if the customer need us in the rest of the world, that means we will increase of the [ look will be booked back ] somehow, yes.

[Unknown Analyst]

I just focus on [ cost ]. So I think that's a slight 1% percent rising for [indiscernible]. I think we treat very far [indiscernible] [ year. It impactable. But what have customers done? Are you retain -- what do you make of this? ] [indiscernible] figure for customers. You mentioned something I'll be about [ SMB ] giving [indiscernible].

[Pik Kuen Wong, executive]

Yes, I do hope that by the fact that we have invested so much in onboarding new customers. So the cost of the effects of some of the mandates that we want, hopefully. But again, it's a one quarter change. And we do want to see whether it is on the uptrend going forward, right?

But in a way, you could also assume that because interest rate will stay higher for quite a while. It's very difficult to say that [ CASA ] will just [indiscernible] because it's still good to be able to put deposits in particular, if you are not investing, you would want to put the deposit in fixed deposits as well.

So -- but because we have -- we actively manage our [ funding base line ]. So where we have the choice, we can always manage down fixed deposit. If we feel that we don't really need that funding fixed deposit is quite transparent in a way. You pay for it, the customer will put a [indiscernible]. So it's -- it's really [indiscernible] that you really need to hope that you can add more customers that use your -- for the operating accounts that you can build your cost out better.

[Unknown Analyst]

Final question about dividends here. [indiscernible] still above our medium-term target of SGD 14 billion, even after paying the higher [ per dividend from lathi this year]. So -- And I know the [ dividend port ratio of 50% ], but some analysts are already hopeful for a special dividend at what we [indiscernible] thought on this.

[Pik Kuen Wong, executive]

We can't really talk about it. We -- but we always say that this year, in particular, we committed since [ 2022 ], we committed to pay 50%. We [ remain ] whether there's any upside, it all depends on how we look at our capital positioning for the next year as well. So it is not because we are high [ C1 ] that will definitely pay a special dividend. But we will talk about it as we ready to announce our dividend for the full year.

[Chin Yee Goh, executive]

Any other questions?

[Unknown Analyst]

Yes. What's your outlook for [indiscernible] next year?

[Pik Kuen Wong, executive]

That's a big question, actually. As we say, we're trying to call it to our corporate strategy, we have a lot of [ emissions ] focusing and improving the business. So when you grow the business, obviously, the fee should grow alongside it, right? Meaning we have more customers we should have more fees. But fees is quite [ subjective ], as we say, our investment sentiment. So it's really related to how the market is going to be like next year as well because in particular for wealth management things.

Other than that is you talk about a lot of [ thesis ] on transactions. So trade in particular, remittances, money flowing cross-border as well. So for our initiatives, capturing more of the customers' wallet across the country. So we still hope that, that part of the piece will go up, yes. But again, the trade situation in Asia in particular, we still hope that it will grow [ backlog ]. So we see some uptick this quarter for the [indiscernible] -- we see another uptick in the last quarter we're quite happy. Hopefully, the momentum will continue yes. But this is very difficult to project how much higher it will be.

Or if, unfortunately, there's some other events and investors are going to sit more on the sidelines again. So we hope that it doesn't happen.

[Unknown Analyst]

Which -- is there a particular sector or other part of the business that you're most positive about the next couple of [indiscernible].

[Pik Kuen Wong, executive]

On the low positives [indiscernible]. I think I see [ segments ] first. I'm still quite positive about wealth flow. And then of course, we are strengthening our proposition, right? Yes? I think I'm still quite positive about the segment, but the performance is, as I said, will be more subject to market conditions. So -- but as to sectors, we have a focus on new economy.

So in the way the [ trading picture ] in the ecosystem doing more with the [ new tax ], it's not just [ fintech ] anymore. You're talking about more new taxes, which is in medicine, in biology. You are talking about different types of new e-commerce players, et cetera. So these are the segments that we feel we have more opportunity to win because there's more [ growth ] in ASEAN across the country. And I think sustainability is an important part. It's not a particularly factor, but it is a particular product, right, as we support our clients to go green. So I think that would -- we're still very positive about that and will continue to grow fast.

[Unknown Analyst]

[ Do you see as any direct exposure to the [indiscernible] like any amount ][indiscernible].

[Pik Kuen Wong, executive]

We really aren't operating in that part of the world.

[Unknown Analyst]

[indiscernible] I think the first question is about [indiscernible] mentioned. So I think 6 months ago when we're here on COVID, you mentioned that you have no plan to raise the target any further because this [indiscernible] changing the numbers here every quarter. So then you've said that you're confident can hit SGD 50 billion figure. What's next in terms of quantify success in this simple finance [ era? ] How would you measure whether it was [indiscernible].

[Pik Kuen Wong, executive]

I think we measure ourselves in -- actually all [indiscernible] one of the measurement. But because it's very prominent, right? We see that grow in the local that's why we like it. And we continue to measure the growth. We're still thinking that following double-digit is the right way forward. And another thing is you do we know that we announced our recapitalization plan for our book this year. This is one very big commitment, how to reach [ maximum ] by 2050 it's a big commitment.

So for simple financing go hand in hand with [ decarbonizing ] the book. The more you can be [ financial current customer by a greenfield ]. It is better, meaning they are transitioning themselves. That's why the demand shift to sustainable financing.

So I think that would be a strong measurement going forward, yes. And then, of course, what are the policies we adopt? What other disclosure we are able to define and share with our customers? What more we put into social, for example? What do we pay for? And all built into the overall sustainability agenda. So we could continue to measure and report on this.

[Chin Yee Goh, executive]

Last question [indiscernible].

[Unknown Analyst]

So I think [indiscernible] lowest coverage rose to [ 139% ] from [ 101% ] [ this ] quarter. Is this really higher than [indiscernible] what is driving this year in a sense? Is this overly conservative in your view? Are you hearing [indiscernible]?

[Collins Chin, executive]

I guess if you look at it, right? It's a function of your last coverage over your [ LPAs ] [indiscernible] the numerator allowances has been fairly stable, but is in fact, [indiscernible] I think for the reasons that the [indiscernible] so that's why in the allowance coverage, we would [indiscernible] decline in LPAs.