Oversea-Chinese Banking Corporation Ltd

SGX:O39

Earnings Call Analysis

Strong Third Quarter Results

For the third quarter of 2024, the company reported a notable net profit of SGD 1.97 billion, marking a 9% year-over-year increase. This upward trend illustrates the bank's ability to navigate challenging market conditions and leverage its core business segments effectively. Total income for the quarter reached SGD 3.8 billion, driven by substantial growth in non-interest income, which surged by 41% to SGD 1.37 billion. This reflects a strong performance particularly in the wealth management sector.

Impressive Growth in Wealth Management and Non-Interest Income

Bolstered by rising wealth management activities, the company saw its wealth management income grow 15% year-on-year to SGD 1.29 billion, accounting for about one-third of total income. Assets under management (AUM) hit a record high of SGD 284 billion, fueled by net new inflows of nearly SGD 12 billion across nine months. This segment's strong performance shows a clear indication of customer confidence and demand for financial products.

Stable Net Interest Income Amidst Market Challenges

Net interest income (NII) remained stable at SGD 2.43 billion for the quarter, despite changes in interest rates affecting industry-wide loan conditions. Over the first nine months of the year, NII increased by 2% to SGD 7.3 billion. The narrowing of the net interest margin (NIM) to 2.22% speaks to the challenge of maintaining income in a fluctuating rate environment, although it reflects prudent management strategies to defend NII.

Operational Efficiency and Cost Management

The firm's cost-to-income ratio improved to 38.5%, indicating enhanced operational efficiency as they continue to benefit from positive operating jaws. They reported an increase in operating expenses by 9% year-on-year, primarily due to increased business volumes and technology investments. This strategic allocation suggests a focus on future growth despite current financial pressures.

Solid Asset Quality and Loan Growth

The bank's loan portfolio quality remains robust with a non-performing loan (NPL) ratio of 0.9%, reflecting diligent risk management practices. Total loans expanded by SGD 9 billion from the previous year, positioning the bank on track to achieve its full-year growth guidance. This indicates healthy loan demand across various sectors, particularly in mortgages and non-trade corporate loans.

Guidance and Future Outlook

Looking ahead, management has set a full-year NIM target of approximately 2.2%, reflective of ongoing challenges from rising funding costs. Guidance also includes expectations of low single-digit loan growth and an overall stable profit outlook against a potentially declining interest rate environment. Both wealth fees and loan growth are projected to demonstrate resilience in the coming year, supported by ongoing customer engagement initiatives and innovations in product offerings.

Capital Position and Strategic Plans

The company emphasized its strong capital position, maintaining a Common Equity Tier 1 (CET1) ratio of 17.2%, providing ample room to support future growth and strategic initiatives. Management expressed confidence in navigating uncertainties and indicated potential for capturing inorganic growth opportunities while continuing to enhance shareholder returns.

Navigating Geopolitical Challenges

Geopolitical tensions and market pressures remain on the horizon, especially in light of recent developments in global trade dynamics. The management reinforced their commitment to prudent risk management as they leverage their diversified operational structure to mitigate risks and capitalize on potential opportunities arising from regional shifts in supply chains.

Earnings Call Transcript 2024-Q3

[Pik Kuen Wong, executive]

Thank you very much for joining us this morning. We put out our media briefing or our third quarter results. And I will pass the time to Chin Yee.

[Chin Yee Goh, executive]

Good morning to all. Thank you for joining us at OCBC's Third Quarter 2024 results briefing. We reported a strong set of results for the quarter, and I will now share the highlights.

For the third quarter of 2014, we recorded net profit of SGD 1.97 billion, up 9% year-on-year and up 2% quarter-on-quarter. Total income for the quarter climbed to a record SGD 3.8 billion. Net interest income was generally flat at SGD 2.43 billion. Noninterest income surged 41% from the previous year to SGD 1.37 billion. Growth in wealth management activities boosted fee and trading companies. Insurance income was also up.

Cost-to-income ratio improved year-on-year to 38.5% on positive operating jaws. Loan growth momentum was sustained. Our loan portfolio expanded 12% year-on-year on constant currency basis. Deposits were broadly stable. Portfolio quality remained benign with NPL ratio at 0.9%. We continue to set aside allowances mainly for non-impact assets. Nonperforming assets coverage ratio increased to 14%.

MAS' final Basel III reforms came into effect on 1st July 2024. On a transitional basis, common equity Tier 1 ratio was 17.2% as at end September 2024. On a fully facing basis, CET1 ratio would be 15.6%. Our strong Q4 performance contributed to a record group net profit of SGD 5.9 billion, up 9% year-on-year.

I will elaborate for on the performance of our key businesses in the following slides. the 3 main engines of our diversified franchise continued to deliver resilient funds. Banking operations net profit for 3Q '24 was SGD 1.72 billion, up 3% year-on-year. Our Wealth Management business performed well, reflecting our continued efforts in growing the franchise.

Group Wealth management income grew 15% year-on-year to SGD 1.29 billion, accounting for about 1/3 of group total income. Assets under management grew to a record $284 million from net new money inflows and improved market renovations. Working contribution from Great Eastern rose 72% year-on-year to $254 million, driven by better underlying insurance performance and stronger investment results from its [ shareholders' fund ].

Our operating profit is well diversified across businesses and geographies, providing long-term earnings on me. Our capital funding and liquidity positions remain robust. Our financial strategy places us in a good position to pursue growth opportunities, navigate uncertainties and increase shareholder returns.

Moving on to details of our performance trend from Slide 19. Net interest income was largely stable throughout all 3 quarters of 21024. For the 9-month period, NII increased 2% to SGD 7.3 billion. This was underpinned by the 4% rise in average assets from customer loan growth and a 10% increase in other high quality assets.

As part of our ongoing balance sheet positioning to manage NII amid declining interest rates, liquidity was deployed to high-quality bank placements and debt securities. These assets were income accretive but lower yielding and customer loans. Overall, 9-month EBITDA for NIM narrowed to 2.22% as the increase in funding costs outpaced the rise in asset yields. For the quarter, NIM was 2.18%, and NIM for September was 2.16%.

Taking into consideration the recent Fed rate cuts in September and November as well as our house [indiscernible] on rates for the remainder of 2024, we expect full year NIM to be around 2.2%. This is in line with our previous guidance of coming in at the lower end of our NIM range. Noninterest income for 9 months of '24 grew 23% to a new high of SGD 3.76 billion, driven by higher fee, trading and insurance income. For the quarter, noninterest income was up 41% year-on-year from broad-based growth.

I will go into more details of our fees and trading income in the next few slides. 3Q '24 fee income rose 10% year-on-year to SGD 508 million, the highest level for the last 3 years. The improvement was largely driven by a 25% increase in wealth management fees. We saw robust customer activities during third quarter driven by higher demand across wealth products, including bankassurance, unit trusts, structured deposits and other banking. Investment banking and loan-related fees were also higher.

We recorded strong trading income growth for the quarter and 9 months from record customer flow and higher noncustomer flow come. 3Q '24 trading income more than doubled year-on-year to $5.8 million while 9 month trading income surpassed the $1 billion mark for this time. The rising customer flow trading income was underpinned by both Corporate and Wealth segments. The increase in noncustomer flow treasury income was led by higher mark-to-market valuations and gains in our global markets portfolio and Great Eastern shareholders' funds.

We continue to put in targeted investment to support the goal of our businesses. Operating expenses for the quarter were up 9% year-on-year. This was mainly driven by higher costs associated with increased business volumes as well as technology expenses linked to our ongoing insurance digitalization initiative.

Cost to income ratios for each quarter of this year were below 40%. 9 months '24 cost-income ratio was 37.8%, marginally below the previous year. Our loan portfolio quality remains sound. NPL ratio is improving from a year ago to 0.9%. Total NPAs dropped 10% year-on-year to SGD 2.8 billion. Compared to a quarter ago, NPAs were 4% lower as higher recoveries, upgrades and write-offs more than compensated for new corporate NPAs.

New corporate NPA formation in third quarter was mainly attributable to the downgrade of 1 corporate name in Hong Kong, which relates to real estate and is largely secure. For the 9 months, total credit cost was 17 basis points on an annualized basis, lower than 20 basis points a year ago.

Total allowances for the third quarter were SGD 169 million These were mainly SGD 132 million in general allowances taken largely for credit portfolio changes. For example, in Hong Kong, we have taken prompt actions to watchlist account when necessary, given the wins and weak real estate factor gentlemen. This is in line with our prudent and forward-looking risk management efforts. The group's NPA coverage ratio continued to trend higher to 164% as of 30 September 2024.

Our loan portfolio continues to be well diversified across geographies and industries. Group loans and 4% year-on-year to SGD 305 billion. By geography, it was driven by Singapore, Malaysia, the United Kingdom and Australia. By industry, the growth was largely from mortgages and nontrade corporate loans. We supported customers in the student accommodation and built in -- I'm sorry, build to rent asset space. We also supported new economy industry within technology, digital infrastructure by data centers and the new energy sector.

One of our fastest-growing segment is our sustainable financing load volume, which expanded 31% from a year ago to SGD 47 billion. This portfolio now made up 15% of our group loans. Loan to the commercial real estate sector comprised 11% of the total group loans. These are largely secured with an average LTV of 50% to 60%. 2/3 of these loans are in our key markets of Singapore, Malaysia, Indonesia and Greater China.

Consumer deposits were SGD 369 billion at end September, steady from a year ago and SGD 1 billion below previous quarter. Group loan to deposit ratio increased to 51.6% on the back of loan growth. Importantly, the change in deposit mix reflect our proactive balance sheet management. Come back to the previous year, higher cost deposits were reduced by SGD 1 billion. On the other hand, we grew lower-cost CASA relative by SGD 8 billion year-on-year and CASA ratio increased to 48.4%.

Closing on my final slide. We maintain our strong capital position. CET1 ratio increased quarter-on-quarter to 17.2%, mainly driven by a significant drop in risk-weighted assets after the adoption of final Basel III reforms. The Basel III reforms are being progressively phase in until 1st January 2029 and the transitional decrease in risk-weighted assets will reduce our time. Assuming our portfolio as of September 24 was subject to the full application of the final 3 reforms which will take effect on 1st January of 2029, CET1 ratio 15.6% on a fully phased-in basis.

With this, I end my presentation. And will now pass the floor over to Helen. Thank you. Helen, please.

[Pik Kuen Wong, executive]

Thank you, Chin Yee, and welcome to our office again. Chin Yee has given quite a detailed presentation on the performance results and be 9 months numbers. So I'm not going to repeat most of what she said. I have prepared two very simple slides, but perhaps will give a bit more view about on how I think the business is progressing and also some of the new things that we are doing, right?

So first, I'm happy to say that, of course, this is another record result for the bank or for the group and this is 9 months. And again, powered by our 3 franchises, Banking Insurance and Wealth Management. Also, our total income was SGD 11 billion for the first time. Happy about that as well. And supported by higher NII and record non II as well. Cost income ratio improved, and we're operating -- we have a positive operating jaws for 9 months.

So I think a lot what we do this year in preparation for interest rate peaking coming down as to how we look at our net interest margin and also our net interest income. So we embark to defend NII. And there are a few things that we have done right. The first thing is the need to drive volume growth. You need to take volumes so to counter for the dropping NIM and so that we continue to bring more NII in. And we also put our liquidity to work to invest in high-quality assets. So that may have some impact on them, but we protect our NII, which is protecting the income.

The second thing is we grow our fixed rate mortgages and particularly quite successfully in Singapore. And then we'll put in some cash flow hedges and that was when interest -- catching interest rate at the higher part. And lastly, manage our funding base. I think in the past, I talked quite a lot about how we grow digitally in SME account opening and the consumer account opening. And I think we have seen some fruit.

And with more of these accounts open and we're able to actually build our CASA in replace of some of the higher cost fixed deposits. And if you look at how our CASA were, it has been trending up is. It's now close to 49% of the total deposits. And we hope we'll be continue to be able to do it in that train momentum going into next year.

So our [ NII ] also have a rather broad-based growth. So which adds on to show that how our franchise work. Chin Yee mentioned about AUM, we reported AUM, which is a record high of SGD 284 million. And this is contributed by banking contributed by our India profit client segment and also banking side.

I just also want to mention one more number that for 9 months. These segments together, we launched about SGD 12 billion net new money [indiscernible]. For third quarter, it is close to SGD 5 billion. So we do see a bit of increase over along this year. So seeing some of the results that they have invested in people, invested in products and also invested in the capabilities to serve our customers are using our capabilities.

So some of the trading income that we've seen also reaching credit actually good record is really about serving our customers. So it in particular, I feel the growth is very much customer-driven, which is good, yes, because you -- this will be a long-term growth for the group in particular and does reflect when we announced, we have growth plans and various initiatives to bring the one group together to serve our customers in more geography and more products. This is seeing some results.

And that is why if you reflect on what we announced a year that we want to -- based on all these initiatives, we want to have incremental income of SGD 3 billion in 3 years. So last year, we reported SGD 500 million, of which we made and this our target is SGD 1 billion. I'm quite pleased to say that by end of 9 months, we are close to SGD 1 billion. So probably this year we'll overachieve. But it's good to overachieve this year because next year, the market will perhaps be a bit more uncertain as to how who will grow further interest rate will still stay higher for a longer brand. So these are things that we will actively manage.

I just mentioned trading income is robust for SGD 1 billion and again, strong momentum in customer flow. I want to say that our sales and trading work hand in hand together and working with our corporate side and also with our retail side to bring a lot of customer-driven income for what is a good trading number.

Loans expanded SGD 9 billion from the end of last year. I think this is on track for us to achieve our full year loan growth guidance. And we have successful capture flow. I think Chin Yee talked about what area we're focusing on and she also talks about we continue to have our plan to transition into [indiscernible] and indeed as a single loan financing, outstanding is SGD 47 billion, as Chin Yee mentioned. And our commitment, including -- I mean, those that is not [indiscernible] is about 63 -- sorry, is about SGD 65 billion as at the end of September.

So asset quality is a NPL ratio of 9%. We will remain prudent. Prudent meaning that we know the market is uncertain, and we are closely monitoring because of geopolitical tension will remain especially with -- after the U.S. election results has come out. And of course, that is ongoing and complex in various parts of the world. So we will continue to actively do stress testing and manage our portfolio. So that would get us to -- in a way, we will refine our full year credit cost guidance to trend to a range of 20 basis points.

We did say last quarter that we expect to be low end of 20 to 25. So now, this year. So now -- so on Page 2 of my slide, we said we are firmly placed to deliver this 2024 target, which includes the NIM around 2.2% and then single-digit loan growth, low single-digit loan growth, full year credit cost in the range of 20% and then ROE about 14%. So I just want to touch on -- I talked about the initiatives allowing us to build faster growth and improve income, right? I also want to say some of the things that we have invested over the last 2, 3 years is how we are seeing bearing fruit, and we continue to want to do more of the first-to-market initiatives.

For example, I think some of you do see and cover that in October, we launched our OCBC -- my account for teenagers, young teenagers and older children between the age 7 to 15. We see very good interest from the parents. This is more about financial literacy, teaching young people how the money is coming in and going out, but giving parents the controls over the ceiling of each payment, for example, and teaching and working with the young children to manage the money.

We got some interested since we launched in October, I think we are only like about 2 weeks into it. We have opened quite a few thousand accounts already. for children and teenagers. And I think this goes hand-in-hand with our -- some of our ESG initiatives as well that we really want to the community to be a lot more financially literate and also this will be able to help children or young people to understand some of the anti-scam efforts that the industry is putting in.

We have also -- we also set up the first comprehensive financial and personal wellness program for property agents. So property agents, we are working on to treat them give them more -- in a way, give them more attention so that they would work with us also closer. So we have a program that we launched for property agents. And also, we have just this week announced we are working with a real estate, a government-owned company, government body to pilot a blockchain-based conditional payments for construction projects.

And you know payments for construction projects is a very tedious process, tracking construction process, getting certificate, launching a lot of -- getting a lot of documents in place and then drawing down the loans and making payments, et cetera. So if we use blockchain, that means everything will be tracked in a very safe environment and everything can be tracked along the blockchain, which makes things a lot more transparent and easier for those who are involved.

And also, we are in October, the first bank with enabling intraday institutional lending capability. This is to use a platform to lend cash intraday to an external counterparty by accepting tokenized assets. and again, using blockchain technology and all that. So we're quite excited. We are doing a lot of these. Some certainly help to make sure that we onboard more clients, some make sure that we protect the process as we do with clients. Some are more effective to generate more funding channels, for example.

So all this is based on the very active period of digitalization investment, and we will continue to do that. So we also want to report some of the corporate development this year. So we completed the merger of [ PT Bankommongif ] into OCBC Indonesia on 1st of September. and our stake in Great Eastern. So after the VGO that ends in July, that was 93.32%. But you remember, we report that is Section 215(3) of the Companies Act that allow our shareholders to continue to sell the shares to us based on the same price. And as of the end of this 3 months, which is 23rd of October, our stake in Great Eastern is now 93.72%. So we gathered another 0.4% of the shares.

So looking ahead, I would have to say that we're still confident about the ASEAN market to remain resilient, and we are also thinking that other growth opportunities as well. So outside of Singapore, countries like Malaysia and Indonesia should continue to benefit from the global repositioning of supply chain. And one of the things that we do, again, as we say, we want to onboard more clients is we are also beginning more active to cover some of the bigger MNCs as they continue to use ASEAN more for the supply chain, and we could be taking more risk on the MNC as we finance the receivables of the supply chain companies.

So this goes also hand-in-hand with our increase of supporting, in particular, Chinese company coming to this part of the world or even Korean companies, Taiwanese companies coming to this part of the world, where we can help them and also provide them the visible financing as well as part of it, but also gaining the capital account with us, meaning the working capital account, which is a part of the growth of ourPASA. So I think if economic activities and sentiments for China improve with the implemented stimulus measure, then this could also provide more win in the sales.

So to wrap up, I think we are on a firm footing to deliver on 2024 targets. And our well-diversified franchise again shows that it works. If you look at our insurance income and our wealth income as NII become quite flat in terms of growth the last quarter. And I think our strong financial position also will allow us to continue to capture growth and give us confidence in generating shareholder returns as well.

So I think I'll stop here and pass it on to Q&A and Chin.

[Collins Chin, executive]

Okay. We also have a few of our media friends online. I'll start with [indiscernible] first with us.

[Unknown Analyst]

Yes, just to continue the theme of this earnings, since you have very high excess capital, could you stay on fully phased in CET1? How much excess capital do you have? And what's your plan on capital management? Since your 2 rivals already mentioned capital buyback, is it something on the cards at OCBC? Second question, I would like to get your 2025 outlook that includes profit, NII, NIM and wealth fee growth.

[Pik Kuen Wong, executive]

You want to take the...

[Chin Yee Goh, executive]

I'll take the capital management question. Yes, you mentioned the fully phased-in -- we don't excess capital. But suffice to say that we have always been saying that over the medium term, we want to have our common equity Tier 1 at about 14%, minimally 40%. And why 14% is really because that was the expectations that our rating agencies has conveyed to us for AA rated banks. We want to definitely maintain our AA rating.

So 14% is minimally what we want to do. And over the medium term -- and talking about capital planning, capital planning to us fundamentally, the most important is to be able to have enough capital to support our franchise growth, right? As outlined in our corporate strategy, we do have a lot of growth ambitions and a number of exciting plans in the pipeline on how we can use capital.

Secondly, navigating uncertainties. As we can see today, there are really quite a lot of uncertainties in what Helen has actually highlighted as well. And finally, providing capacity for us to be able to capitalize on any inorganic opportunity that prop up on and off, right? And we do have small bits of that in the form of EP Bank Commonwealth in which we announced in 2023 and then just completed merger in September '23.

And then there's also MetLife that our Eastern subsidiary has outlined. And of course, not forgetting our exercise for Great Eastern, right? So these are areas of usage of capital, and we do have quite a fair bit of this because we are really excited about the future and providing enough capacity for Helen to go shopping. We particularly like portfolios bolt on part of acquisition. So these are areas that we have in our plan, what we wanted to do, right, in the future.

Now you also have a question like, okay, how about share buybacks, right? So share buybacks is indeed share buybacks and canceling the shares is indeed one of the capital management tool that can be used alongside delivering dividends, okay? Now it's not that -- maybe I should rephrase. For us, looking at share buybacks really depends on the situation as well.

Currently, we do have share buybacks, but we don't cancel the share is to meet our employee share plan. And why do we buy back shares to meet our employee share plan is because we don't want to issue new shares to fulfill such employee share plan, although we do have the mandate, right, that's refresh every year at our AGM to do so. Now why do we not do that because we don't want to dilute our existing capital base, right, by issuing new shares. Now on the share buyback, to cancel shares, it depends pretty much on the situation.

As of now, whenever we have let's say share trading or share price above price to book, my preference would be not to do share buyback and canceling the share, but to deliver more in terms of dividend. And also, of course, we fundamentally in capital planning, we really take into consideration the usage of capital, the usage of funds that we have and I've already outlined the exciting prospects in relation to debt that we for. So I'll stop there in terms of share buyback, yes, is something is a tool that can be considered, but not at this moment for us.

[Unknown Analyst]

Just to understand your comment on valuation a bit better. You said share buyback with cancellation depends on situation. At current PP ratio, which is just above rather do dividend...

[Pik Kuen Wong, executive]

You have the second question, which is asking me to tell you a lot of things for the future outlook. We will have more better guidance by the time we go into the final results announcement in February. But just have to some discussion on what you asked. Of course, we are all projecting interest rate to further come down. And indeed last night is another cut of 25 basis points. Although the results of the Trump administration may throw different light on the interest rate environment.

But before that, we're still thinking that with interest rate coming down and with the way we grow our business, we do feel that the growth of non-II should be in double digit again next year, which should be able to counter the fall of NII, right? NII is also would be mitigated by higher volume as well. So if you ask me, given the original scenario where the market generally talked about further interest rate cut, we're still thinking that we expect profits to be quite stable for next year. stable compared to this year.

I mean this is because of a lot of the growth initiatives we were talking about, right? So -- but I'll give you better guidance when we come to February. So I just say that, that means that our wealth fees, we're expecting wealth fees to do better. And with the AUM that is increased and with the hiring that Bank of Singapore has been doing, remember, Jason mentioned he want to build to a 500 number strong in RM. This year, he added quite a number of RMs already. So hopefully, we can put, of course, some of the net inflow of funds.

And if the interest environment is coming down, our customer will be a lot more active. As you can see, actually, the last quarter, wealth fees has been growing really well. So that is on the non-II for NIM. It also depends on whether we can grow loan faster as well. And -- but with interest rate coming down, of course, NIM would always have pressure. Pressure doesn't mean that it is exceptional pressure. It's just that you will indeed see that we will be able to protect NIM to an extent of building more CASA, right, lower cost CASA.

As we said, SME account opening, consumer account opening and more account open with us, then you would have more CASA coming in. So this is to protect NIM. But again, volume is still important. So I do see that next year, loan growth have a bigger potential compared to this year. So -- but I will tell you the whole year guidance in February again. So I think these are the few things I can discuss and disclose. Before you ask, I probably would just want to mentioned when talks about we have various plans, right? I do want to mention that -- there was a question about the center, the property.

[Chin Yee Goh, executive]

Whether you're going to read that.

[Pik Kuen Wong, executive]

Yes. So before you ask then we did talk about exploring and I just want to say we have made certain progress. So certain progress that may need us to have more to say by next year. But I can't disclose any details. But when we say more to say that if we do embark to redevelopment, of course, that need capital as well.

[Unknown Analyst]

Is this fully -- is the plot ratio fully used? Or is there -- you have excess?

[Pik Kuen Wong, executive]

This is the details I can't tell you. Because we are still planning, but I just want to say that we make progress. It's not the center, right? You know who we have. I think Center East, Center South -- I'll come back to you.

[Chin Yee Goh, executive]

We do have that number. This today is our results.

[Unknown Executive]

Sorry, I jumped to say, but I thought you may ask, and I want to relate that to some of the things that we are doing.

[Unknown Analyst]

I just want to bring back to the dividend part because when we had a chat you and I, one-to-one, sorry, everybody. You said -- I mean, I got to ask and you said that you prefer dividends to share buyback at that time.

[Pik Kuen Wong, executive]

It's just now, we still prefer that. I still prefer that. In a way, it's the same results, right, meaning doing shareholders' return. but I keep the capital base.

[Unknown Analyst]

I have a question regarding the impact of the global minimum corporate tax on the profit. Which markets or which industry would -- firstly, would it affect -- do you think that this will create some big impact on the profit? And then which industry -- yes, which industry and sector would be most affected?

[Chin Yee Goh, executive]

Yes. Okay. This minimum global tax guidance effect from 1st Jan 2025. And typically for countries which have tax rates below 15% the minimum global tax rate now is 15%, right? The 3 countries that is relevant for OCBC Singapore, Macau as well as UAE, right? UAE...

[Unknown Analyst]

I think you mentioned that I think also will be Singapore, Malaysia and Hong Kong. I think she is also talking also within our network, but our key markets would be Singapore, Malaysia and Hong Kong.

[Chin Yee Goh, executive]

Macau, Hong Kong and Singapore because you get a lot of what is it called tax rebates or something...

[Pik Kuen Wong, executive]

There are also some incentives in Singapore, depending on the sort of activities, right, where we have the financial services sort of incentive. So -- but if you look at what's the impact on CBC, if you look at our overall group even for this year, our effective tax rate are already quite close to like 15% because of the blend of our revenue in countries that we operate. So when this take effect, the impact will not be overly for us.

[Unknown Analyst]

So what causes some type rates to go up. I mean what causes some tax rates for some banks to...

[Pik Kuen Wong, executive]

Yes, because we need to comply with this minimum 15% global tax you do trading and all that is like tax-free or No, it's not tax-free -- but in Singapore, some of these could have the financial services incentive scheme where the tax is actually lower, can be 5% or 10%. So it also depends on the mix of our products that we get revenue from. So it's not overall, on a blended basis, effective tax rate overall for OCBC Group is actually close to...

[Unknown Analyst]

Mentioned the effective tax rate is quite close. Are you able to disclose?

[Pik Kuen Wong, executive]

...market I think we have been quite competitive in terms of mortgages, right? So we have also increased our market share within the mortgage space. So I think right now, we are around quite close to 23% up from last...

[Collins Chin, executive]

I guess is asking whether we are going to cut mortgage rates. Going to respond to those.

[Pik Kuen Wong, executive]

We will look at the market and we will adjust accordingly. It's not like somebody cut will definitely just cut immediately. It depends on how our pipeline is like, depending on how we -- our relationship with the customers like. And I think the last 2 years, as we improve in the fixed rate mortgages, I mean, you know the life of mortgage hold with any bank is quite short. So we actively look at repricing and how we manage the book.

[Chin Yee Goh, executive]

I think what we are saying is that we have grown our mortgage book very well despite local banks pricing, which...

[Unknown Analyst]

Coming back to the NPA that you mentioned as a new one you see what's the outlook NPA?

[Pik Kuen Wong, executive]

Okay. This would be quite idiosyncratic. We don't -- we're not seeing it as like the whole industry or our book having big pressure, not like that. And for this particular one account, it is largely secured with LTV around -- actually with average LTV below 50%. But of course, we look very keenly at, in particular, the Hong Kong office sector because residential is a lot more stable. And when we say office sector, we started manage it actually much earlier.

And I just want to share with you one data point. For Hong Kong, our office sector, we have reduced exposure by 50% over 1 year from last September to this September. This is due to our active engaging clients to advise them to deleverage much earlier on. And also -- and that's the reason why we actually reduced our outstanding. And we will continue to have clients to how to read the market and to deleverage earlier than later. So hopefully, it will stabilize.

[Chin Yee Goh, executive]

I think [indiscernible] a question.

[Unknown Analyst]

Just very basic question. I think back in August of the bank's house view is for 2 rate cuts by the Fed this year, which has so far materialized and possibly 4 to 5 next year. So does this still hold with Trump presidency in mind? And how much of an update on 2024 forecast was set prior to the outcome of the presidential elections this week? And has that changed anything? Finally, how are you preparing the bank for both maybe a falling rate environment, which has really been expected and maybe a longer rate?

[Chin Yee Goh, executive]

And inflation because we think that Trump will -- and inflation leads to interest rates stay higher. Thank you. I think our plan has been on 20 to 3 rate cuts this year, plus 5 next year. I think that is what the industry normally would think as well. So if a lot of people are now saying that potentially there's still rate cuts, but maybe stopped in March, right? Some people are saying that industry is changing their view. I would not be telling you now what views we adopt. It just happened last, right, in a way.

But indeed, if interest rate is a reduction stopped in March, then it does provide potentially higher NIM for the rest of the year, right? But again, ASEAN currency is not directly linked with U.S. dollars. We have to always remember that. Different countries, currency interest rate respond a little bit differently. Of course, in general, interest rate will go down together alongside the U.S. Fed cuts, right? But they also actually acted differently.

For example, Singapore interest rate reacted faster, quite fast in that sense. So I think we won't be able to say whether we will change the outlook from 5 cuts next year to 3. I think it's too early to say. We do want to -- we haven't even heard from the President hasn't sworn in yet. So to an extent, I think it's a bit early to tell. But I think by early next year, we'll be seeing what our plans are. We'll be able to give some more guidance on NIM for the year, our loan growth for the year and also for expected wealth fees growth for the year, et cetera.

[Unknown Analyst]

The question more was expected, do you think the environment is...

[Pik Kuen Wong, executive]

I think we always talk about the uncertainty, which we have seen happening, right? I think long before -- I mean, don't talk about Trump 2.0. But even before that, when Trump first -- in his first term, right, or whatever, when we refresh our corporate strategy, we are always talking about the flow intra-Asia that we're focusing on. I don't think that trend has changed or that trend has deteriorated because the more complex trade conflict there is, I think Asia do trade more with Asia in that sense. So it actually fits very neatly in our corporate strategy when we refresh it in 2022, right?

And the initiatives we talked about in growing wealth the initiatives, we're talking about capturing more corporate clients or SME in the supply chain under China Plus One, that is materializing as well, and we continue to see the flow. And nowadays, we talk more about China Plus rather than China Plus One because Chinese company is not just going to one country like Vietnam for low-cost manufacturing, right? Chinese companies are doing a lot more in the region. Some go to Indonesia, but everybody come to Singapore first to start the company before -- they always use Singapore as the center to manage the investments into Indonesia, Malaysia, Vietnam, et cetera.

So that is how we have seen flows coming in and we benefiting under our corporate strategy. So geopolitical tension will be more fierce, I think would you cannot draw an equal sign. You just have to look at what's the impact of that and then how we capture opportunity. And I was just saying exactly that would have an impact to cause Asia to trade more of Asia, right? And then with more shift of China manufacturing or investments coming out, then it does benefit a bank like us.

And that is why we have been preparing ourselves by adding more China officers in that sense sitting in our various presence in ASEAN in order to be able to engage this. And we are seeing not seeing the China plus one not just for Chinese customers. It is for the Koreans, it is for the Chinese, it is also for some of the MNCs. -- that have to actually reshape the supply chain by moving some of the supply chain in ASEAN. So I think that benefits us in that sense.

[Unknown Analyst]

And on the flip side, do you see more need to derisk in China and Greater Bay area because we have been quite bullish there?

[Chin Yee Goh, executive]

When we say bullish about China, we were always saying that we are focusing on outbound Great Eastern, we're focusing on China outbound.

[Pik Kuen Wong, executive]

China outbound, right? So if you capture well, the risk is not so much about that unless you say, the full stop. Otherwise, on wealth, I mean, we will not talk about derisking. But if we're talking about exposure to Chinese companies lending money to them, we are always saying that we have been serving Chinese companies outside more than within China. Within China, our exposure is more really to the SOEs and to leading companies. But our proposition is always helping them to come to ASEAN.

And I think we used that sort of number before every $1 we land in China, there will be at least $4 to $5 land outside of China, which is very clear if you look at Page 1, Page 17 of years back, right? We have a breakdown of the Greater China loan book and Hong Kong is HKD 32 billion. Offshore is HKD 23 billion. China is only 7 billion. So you can imagine $7 billion versus -- and if you consider Hong Kong part of China. But however you consider, meaning 7 versus offshore of 23, that is already versus 3-point something or 4. And of course, part of that is booked in Hong Kong as well.

[Unknown Analyst]

Further on China's question about risk, right? And again, with Trump in the background of our minds here. I'm not sure how much data you have, but among the companies that have come from Greater China to set up shop here, are they only involved in business around ASEAN? Or are you seeing maybe them setting up JVs to enter U.S. like a bit of Singapore.

[Pik Kuen Wong, executive]

Interesting question. I don't think you can really -- you can really do it to say that because companies, you always look at the ultimate beneficiary owner, right? A China-owned company is a China-owned company. not sure how we wash it in that sense. But when we say are they only focusing in ASEAN, probably not. We do see some Chinese companies, especially in new economy, they would take Singapore as the international business headquarter. Some of them do. I have one client that has set up their international quarter in Singapore, but also focusing on the Middle East, not just ASEAN.

But a lot of the companies that come now, I mean, the SMEs, they've been in ASEAN normal. And you do know that because Singapore, we are a very big commodity trade center. So the big POEs do trade using Singapore as a trade center, right? And -- but we're seeing a lot more of the -- what we call the new economy company coming, a lot of them logistics.

I mean, fintech is already long here, right? And then you have other things like research, med tech, agritech, some looks at Indonesia on the e-commerce because Indonesia is going to be the fast-growing consumer market, right? And some look at linking up with, as I said, with the Middle East as well because we do see Middle East sovereign money more active in Asia as well. So -- and Saudi, for example. So I think these are all new developments that we think we can capture.

[Unknown Analyst]

What about -- can you ask specifically about what are you doing in the special economic zone and there have been some incentives to set up more branches. I mean do you plan to do that? And do you plan to invest more? I mean, are your customers moving to?

[Pik Kuen Wong, executive]

I think it is quite an early stage of the initiative. We're excited about that. We're excited because we've been in Malaysia as long as we are in Singapore in that sense. So we actually do have quite a good presence in [indiscernible] already. It doesn't mean that -- but that's under Malaysia, right? And -- but we want to capture a lot of the initiatives that both governments are looking at, and we will be -- we will be I wouldn't even say tracking it. We will be actively involved in it being -- as we said, we are very old bank in Malaysia and also very old bank. And we're going to support our customers as they develop their business plan for using the...

[Chin Yee Goh, executive]

And there's also this initiative to set up something city you look at that.

[Pik Kuen Wong, executive]

We consider all options at the moment, but it is -- I mean, you need some concrete planning exactly how to execute that, and we are at that stage. But we are big in Malaysia -- I mean, we have big supporting companies. I think just in oh, we have 7 branches, if I'm not wrong, but I need to confirm that. So my memory is quite good. So 7 branches. So we are already supporting [indiscernible] is a very affluent area. So we're keen about development.

[Chin Yee Goh, executive]

These areas that we are looking at, I mean people are looking like sustainable energy, right, trading, electronics, health care, data centers. So I think we are seeing interest from customers as well.

[Collins Chin, executive]

I'm going to move to [indiscernible].

[Unknown Analyst]

Just a question I guess a lot of focus on new net inflows, right? I guess a lot of it skewed to Singapore you sort of see the mix being more traction more new account Singapore...

[Pik Kuen Wong, executive]

New accounts coming outside of Singapore, but domestically as well. When we say domestically, Singapore's SME is quite vibrant as Singapore continue to capture the growth in the region. So the domestic companies are also growing quite well. And we're beginning to see quite a lot of what we call serial entrepreneurs meaning they continue to bank with us and not just in one particular sector. As they grow faster, they are involved in different parts or they may be in their own industry, they are in the whole chain in the industry.

So they will open different accounts with us as well. So we grow quite a lot of accounts with domestic owners in that sense. But it's important. That is why it is so important we have to be very digitally prepared because most of the new SME companies, they're very digital, and they need it. They are smaller companies in a way and they cannot afford to have -- they cannot afford to do a lot of their own analytics or I mean they know the market, but we have them to shape the business plans.

And the way we do have a service that actually we send them back how we analyze the dealing with us. We tell them your customer, for example, F&B, as simple as an F&B shop, right? If we have a lot of the payments data. So if those clients are using OCBC card in particular, we can share your age group of your -- actually, your clients is actually between this age to that age.

So we actually can have data analytics that we can help our customer. And we have used -- we have launched 2 years ago because we have enough data analytics that we know which customer -- SME customers are doing better and on the trajectory of the growth because we can use the data to analyze and we approve loans for some of these SMEs. So we already offered to them before they ask for it. And we have launched that in Malaysia last year. Response has been good.

This is important because you speed up the way you serve your SME customers and you have them to grow. So a lot of many other things recently, we also launched, in particular, for women. So for women owner, we have launched something that we actually cultivate. We have -- I think we issued a press release to talk about some of the characteristics of female entrepreneurs. In general, they they're more cautious, more cautious and we know how to deal with them also better in order to support female entrepreneurs.

So there are many ways that we are doing to make sure that our SMEs continue to fare well. It's very important because if you look at our commercial banking, the contribute to deposits is about 20%. And these are mainly working capital account. Once they bank with you, they trust you, they don't move the money away. And this is the money that they use day in, day out to do business. The float is always there.

[Collins Chin, executive]

Because of interest of time, if any urgent is maybe just one last question, one last question.

[Unknown Analyst]

Securities book interest rates so the yields are so high now. I mean, are you going to reprice them to reprice your NIM?

[Chin Yee Goh, executive]

We are talking about our debt I mean we have been balancing that over the course of the interest rate cycle. And then if you notice what we call the fair value income used to be quite negative when interest rates were declining so quickly rising so quickly during the low -- now the negative has sort of gone off. So the fair value to comprehensive income, the sort of mark-to-market sort of losses has actually tapered off. And even within that portfolio, we have been over the course of the rate cycle.

[Unknown Analyst]

Banks, LCR came off a lot. Was there a particular reason for that actually...

[Chin Yee Goh, executive]

Above it's actually a much better sort of use of -- yes, the 140-something percent it's actually much more on we take it offline.

[Pik Kuen Wong, executive]

All right. Anyway, thank you. Thank you very much for joining us this morning. Thank you.

[Chin Yee Goh, executive]

Thank you.