United Overseas Bank Ltd

SGX:U11

Earnings Call Transcript 2022-Q2

[Unknown Executive]

Good morning, and welcome to UOB's first half 2022 Results Briefing. I'm Wendy Wan from UOB's Group Strategic Communications and brand, and I will be your MC for today. This morning, we have Mr. Wee Ee Cheong, UOB Deputy Chairman and CEO; and Mr. Lee Wai Fai, our CFO, to present the results. A few house rules before we start. Please keep your questions until after the presentations are done. [Operator Instructions]

Without further ado, I will now pass the time to our CEO. Mr. Wee, please?

[Ee Cheong Wee, executive]

Good morning. Thank you for joining us. Great to see everyone of you here in person again. I believe our results announced, and I saw some of the headline numbers. I believe you are quite familiar. But let me just take this opportunity to highlight to some of you, right? And since we last spoke, there is much talk about rising inflation, aggressive rate hikes and recession risk. This backdrop has 2 divergent implications on banks.

On 1 hand, increasing rates will boost our interest income. On the other hand, higher rates may weigh on overall business and credit costs as the economy slow. We are confident that with our strong balance sheet, diversified revenue drivers and disciplined approach, we can navigate this environment and support our customers.

Our first half profit came in at SGD 2 billion, stable year-on-year. Our second quarter profit of $1.1 billion was 11% and higher year-on-year. Core business is strong, driven by higher margins, healthy loan growth, and active balance sheet management. We achieved record fees related to loans, trades and credit cards. Asset quality is resilient with total credit costs well within expectations. Our balance sheet remains strong. Given our strong earnings and capital position, the Board has recommended an interim dividend of $0.60 per share, a payout ratio of 50%.

Now let me give you some highlights on business segments. Wholesale Banking did well. Income up 16% year-on-year, backed by quality loan growth, higher margins, record trade and investment banking loan fee. Our diversified footprint, client base and deep expertise allow us to capture business flows as borders reopen and trade and investment activities pick up.

Our AA rating, coupled with strong transaction banking capabilities have resulted in higher CASA balances and digital transaction volume. We continue to help clients go digital and prepared for the future, working closely with government agencies on various initiatives. Being the leading financial to the banking industry, for example, we are actively helping clients improve operational efficiency and control to the [ Sing ] trade tech platform.

Our retail performance -- the income came down 3% year-on-year, was supported by diversified revenue drivers. On 1 hand, we saw lower wealth management fees, as investors stay cautious in an uncertain market. We continue to take a risk-first approach with our customers. Despite market collection, our overall AUM was stable, still maintained a $138 billion as at June this year, reflecting clients' continued confidence and trust in us.

On the other hand, credit card fees rebounded to a new high, benefiting from higher consumer spending as COVID restrictions are relaxed. Mortgage business also grew steadily with strong pipeline from new mortgage sales. We are making meaningful progress in scaling up across the region.

For our digital platform, UOB TMRW, we see strong growth momentum. We have acquired 1 million customers since launch in 2019 and expect to acquire 0.5 million customers this year, and about 70% are new to bank. UOB TMRW is ranked #1 on Appstore. #2 in MPS with a wide merchant base, offering choices for customers. We have 7,000 merchants and 13,000 touch points.

Now on our Citi acquisitions, we are happy with the progress. Business remains receding. We are targeting legal closing for Thailand and Malaysia by end of this year. Vietnam by first quarter and Indonesia by fourth quarter next year. Citibank staff given us a strong vote of confidence, 90% of the staff in Thailand, Malaysia and Vietnam have agreed to join us. In Indonesia, 75% of the leadership team will remain on board.

Next, on sustainability. We are making good progress and building our sectorial pathways towards net zero. Earlier this month, we issued our first sustainability bond impact report, listing out tangible outcomes from financing green and social projects. Our sustainable financing portfolio reached $21 billion today of which $2 billion was to SME customers. As a leader in SME segment, we continue to support SMEs in their ESG efforts. We are working closely with the government and industry on various initiatives.

For example, we launched a new program called Greentech Accelerator to help start up commercialized green solutions for SMEs in areas such as carbon management and reporting, energy efficiency and zero-waste supply chain.

Looking ahead, they are deferring views on how much the economy will slow as the world fight inflation. Now UOB, our base case is we do not expect a recession in our key markets. Though growth may slow in the next 12 to 18 months, we will benefit from rising rates through higher net interest income.

Overall, we expect mid-single-digit loan growth. Low single-digit fee growth, stable cost-to-income ratio of around 45% and 25 basis points of credit costs. I want to thank my colleagues for their dedication and teamwork for this good set of results. As a team, we are here for our customers, fellow colleagues and stakeholders in these uncertain times. We are committed to fulfill our purpose of helping to build the future of ASEAN, by supporting the businesses and people and communities there. Thank you.

Now I will turn over to Wai Fai to elaborate on our financials.

[Wai Fai Lee, executive]

Thank you, Wee Cheong. And once again, good morning again. Actually, it's quite nice to meet physically again after so many years. Okay. I think since we last book, markets continue to be uncertain with consumer confidence receding business sentiment winning and inflationary pressure rising. In response, like in Wee Cheong said, various countries have been raising interest rates.

Amid this macro economic challenges, the group sustained stable first half profit of almost $2 billion, supported by NIM expansion and lower credit costs. The second quarter profit of $1.1 billion showed strong recovery of 23% from the previous quarter, aspired by strong net interest income with trading and investment income normalizing.

Against the same quarter last year, profit was 11% up, Strong new momentum drove a robust net interest income growth. On the fees front, we are witnessing record loans related and card-related fees. However, we are faced with softer as customer sentiment were more subdued. Businesses are also taking a more cautious spend by hedging [deferred ] positions, leading to higher customer-related treasury income.

With interest rates expected to continue to increase, we focus our effort to grow selectively. Hence, our loans book grew 1% Q-on-Q by 8% year-on-year. Asset quality remained resilient, with NPL ratio stable at 1.7%. Total credit cost on loans were stable at 22 basis points. Our capital and liquidity position remained healthy with CET1 at 13.1% and NSFR at 111%, respectively.

From the business front, retail operating profit was lower as wealth management activity slowed down on the back of the cautious market sentiment. This was partially cushioned by sustained deposit growth and higher margin. We are confident that with the Citi consumer portfolio coming in, it will further fortify our regional franchise to capture more opportunities when customer confidence resumes.

Wholesale saw double-digit growth, led by broad-based growth drivers. Margins has improved with loans and investment banking fees at record levels. Global market, on the other hand, benefited from market volatility and achieved better trading results.

Our wholesale business continued to register strong growth momentum on the back of diverse engine growth. Our comprehensive RCM footprint, sector specialization, and deepen product capabilities has enabled us to capture the growing cross-border opportunities as economies reopen.

Cross-border income grew 13% and now accounts for 29% of our wholesale banking income. Loan-related fees increased 8% to a record high in the first half as customers increasingly take on our sector-specific insights and solutions. Our global financial institution income rose 25% as we bank property funds and financial sponsors and media mix with our strong structuring capabilities. Across the region, you see an acceleration of digital adoption by our corporate customers with robust growth in transaction volumes and cashless payments.

For the consumer, we continue to build scale and deepen capabilities in our retail business, as Wee Cheong mentioned, we are on track to digitally acquire another 500,000 new customers across the region by the end of the year. We had also accumulated 3 billion deposits from additionally acquired customers.

Ecosystem partnership has been key to our franchise growth. Today, we have established more than 80 ecosystem partnerships across the region to drive customer acquisition and loyalty. 27% of our digitally acquired customers were successful partnership referrers. Despite market volatility, our asset under management increased 1% year-on-year to $138 billion.

Our Digital Home solution was well positioned to serve customer needs in the buoyant property market. We achieved more than $9 billion of new mortgage sales in Singapore and across the region. Growth is seen across our key markets in Singapore and North Asia. As our customers venture across the region to create the investment opportunities, we offer 1 of the best platforms in the region. As a result, our overseas contribution stayed strong at 45%, where we continue to support real capital and trade flows of our customers.

I think as I mentioned earlier, our customer franchise remains strong with higher net interest income, labor fees and expenses. Net profit for the quarter grew 22% and 11% year-on-year. I think asset quality and credit costs are stable.

Okay. Let me go through the details. Net interest income increased 11% quarter-on-quarter. This is powered by the 9 basis point lift in NIM for the quarter to 1.67% on the back of rising interest rate. Loan growth was seen across consumer mortgages, corporate and the financial institution group.

With further rate hikes expected in the second half of this year, we expect that the net interest income to continue expanding. Total fees was largely flat at $567 million. Loans related fees hit a new record high, recording 4% quarter-on-quarter growth as we supported customers' need for trade and investment opportunities as economic activities level increase.

Credit card fees also reached a record level. We have cut spending picking up as border reopen and travel resumes. On the other hand, wealth management and fund management fees took a as market sentiment continue cautious along geopolitical tensions and recession concerns. However, these dips were more than compensated by our margin expansion, leading to a growth in total income. Year-on-year, customer-related treasury income rose 9% with more customers looking to hedge business risk.

Other trading and investment income rebounded to a more normalized level this quarter. Our costs were well under control. Cost-to-income ratio for the quarter improved to 43.8% as income picked up. We are managing our staff costs as we respond to the higher tight labor market condition, especially in Singapore. The good news is that our prior investments into people and systems are starting to bear fruit as evidenced by the improving fees and customer flow income.

Overall, our asset quality of our loan portfolio remained resilient. NPL formation was higher this quarter due mainly to a single corporate account. This led to NPL ratios being slightly higher at 1.7%. As country relief programs tapers off, the residuaries of this portfolio will reduce over the next few quarters. While the credit outlook remains uncertain, we believe that the credit cost will be at a manageable level.

Total credit cost for the quarter was at 22 basis points, mainly from the specific allowance from the account mentioned earlier. We do not see any systemic weakness in our portfolio. Considering heightened inflationary pressures and recovery slowdown, we are taking a conservative stance on allowance and adding a modest amount to the general allowance this quarter. We expect credit costs for 2022 to maintain at around 25 basis points.

The group total allowances were at $4.9 billion for the quarter, of which $3.3 billion was general allowances. NPA coverage at 91% or 185% after taking collateral into account and performing loans coverage at 0.9%. I think they all remain adequate. We are confident that our general allowances will be sufficient to absorb anticipated credit losses from our portfolio should it weaken.

Loans growth momentum sustained well, increasing 8% year-on-year across all our major footprint as economic activities resume. While we have been more cautious this quarter in view of the uncertainties in the market, remain committed to support our customers in the pursuit of business needs and trading opportunities. Our liquidity position remains healthy with the quarterly LCR at 141% and NSFR at 111%, they are well above regulatory requirements. On the capital front, we ended the capital with a healthy CET1 at 13.1%.

With the customer capital and liquidity position, with adequate allowances, the Board declared an interim dividend of $0.60 per share in appreciation of the support from our shareholders. I think this translates to a payout ratio of 50%.

I think with that, I conclude my presentation. I'll pass it to Wendy.

[Unknown Executive]

[Operator Instructions] We have the first question from Business Times.

[Unknown Analyst]

Okay. So if market conditions continue to deteriorate, would rising NIMs in second half be sufficient to offset lower noninterest income. That's one. Then the second question is, what is your strategy for [ riding out ] this period?

[Wai Fai Lee, executive]

Like Ee Cheong said our in-house view is, we don't think we're going to a deep recession, okay? There might be some slowdown, I think you look at the macro environment, obviously, the recent rate hike by the Fed, okay, they have already done 4, and up to 200 basis points. Will they continue? So 2 things that we have seen, and they have signaled that they are now watching. They are not as bullish as they were.

The other thing they look at is the 10-year rate, the 10-year rate has actually come down. So that seems to indicate that the market is starting to get a [ grabs ] that the long-term inflation is probably going to be stabilized lower. So now it's the short term problem. So with the short term going up, how much will it affect the real economy. I think that's the challenge that we have.

So our view is that when you look at this part of the world, the real economic indicators are not that bad. Okay, GDP are still positive, although they are slowing down a bit. They're not negative like in Europe and probably some of them [ depend ] in U.S. Unemployment is still healthy, I think this are a bit more real indicators to find the real effect of economy.

I think as you walk around, you will still see that consumer sentiment is still positive, activities are still happening. So basically, our view is that there will be a slowdown in the region, but we don't think there will be a type recession. But mainly because of this market sentiment like we explained, the consumer part, people might be a bit more cautious. So yes, wealth fees will come down. But we are quite confident that the margin expansion to your first question, will more than offset this.

So I was confident then to say that my total income will continue to grow because our base, if you think about it, on $1.5 billion net interest income compared to fees of $400 million. The delta itself, I can more than absorb it. So that's probably where we are. And we are watching right, Wee Cheong said we are taking a cautious stand on observing the development in the region. But so far, the in-house view is...

[Ee Cheong Wee, executive]

Let me just also further, at what Wai Fai just said. I think we don't see a recession, we see a slowdown and why, okay? Few things we are observing, one is the rise of interest rate, I think, is manageable. Second thing is strong employment that is important. And third thing if you look at the whole long-term prospect of ASEAN, right, you look at -- with the COVID recovery, and most of the Southeast Asia countries are net exporters of commodities, right? You can see the commodity prices as they're moving up.

So I think with that scenario, and I believe there will be a slight slowdown, but I don't think this is significant to affect us.

[Unknown Executive]

Second question from [indiscernible].

[Unknown Analyst]

So can I just ask on the short-term stuff first, is this troubled account that you mentioned -- is it a one-off? Or are there any further customers in this sector? Yes. And can I ask about the China exposure as well? In terms of the property sector, what are your exposures in China on that? Because you used to announce it, but this year, you haven't.

[Wai Fai Lee, executive]

I won't comment on this specific accounts since there's a -- suffice to say that we're trying to work out the borrower, okay? So then we look at China itself, and we really look at the real China, China exposure, okay? Those that we are worried about where the development risk and the projects are all in China, and we disclose that, that's around $3 billion, so that is 1% of our loan book, of which a big part is taken out by this account in there.

The rest of them are well diversified, strong LTVs and we think that they are performing because when we do credit assessments, they are all in the 1 to 4 range our internal credit rating of the 5% to 8%. So they are performing with strong LTVs, and we think that they are not in danger of turning NPLs. So that's the [ relative ] exposure that we're actually managing, $3 billion, 1%, of which a big part we are really taken into NPL this account.

[Unknown Analyst]

Then in terms of the loan growth that you're looking at the mid-single digits, you know what is the pipeline like in terms of sectors and geographies? And where are people likely to invest, I mean, in terms of their projects, et cetera, if you could on that line?

[Wai Fai Lee, executive]

I think 2 things, right? One is, we think in the short term like in the second half, mortgage should still continue to be strong despite the other worries about rising interest rate, especially in Singapore, okay? We think mortgage, the pipelines are still strong in there. Because mortgage pipelines, we can see the drawdown of the new projects probably will draw down probably 1.5, 2 years later. But the next half year, we see strong pipeline drawdown in mortgage.

The other part of the growth will be some of the trades, okay? While there are slowdowns, we still see opportunities in there because ASEAN is a trading region. We will see core activities going around -- where we see a little bit some cautiousness is in the big funds, okay? These big funds might be a bit more cautious where the FIG people begin.

So in the region itself, we think that this year, the growth will be modest, okay? Although we don't see pressure, we don't see big interest rate hikes in there because except from Malaysia, the rest have not actually done any hike. We think it will be modest, but there are some uncertainties and some other political developments that we're actually watching. So the growth probably will still be strong from Singapore and the developed market for this -- next year, we are probably a little bit more confident with the Citi portfolio coming in into the region itself. But for this year, it's mainly Singapore.

[Ee Cheong Wee, executive]

Let me also further add. If you look at some of our -- some of our SMB customer, you can start to see especially working capital, right? They start to make the use of it. And as what Wai Fai said the trade is important, right, because ASEAN is basically net exporter of commodities. .

And thirdly also, this recovery of global FDI because you can see companies that are coming to this part of world. And also sustainable financing, ESG-focused investment. So these are all activities, I think generally, we are still quite optimistic and hopeful there will be some growth.

[Unknown Analyst]

So in terms of your ECLs, et cetera, in the 1 and 2, are you going to -- are you -- will you continue to set aside in the next 2 quarters? Or what you -- and also if you could update on your management overview. You could do those couple of things short-term?

[Wai Fai Lee, executive]

So this is a bit of a typical question. The long and short is to [indiscernible] okay, they have no general provisions into my book. So we think that we have enough. But I think technically, you know that the amount that we set aside from a bottom-up standpoint, we're actually very comfortable, okay? We're very comfortable with the portfolio. We have the [indiscernible] portfolios have been monitor closely, et cetera. We're actually very comfortable.

The challenge is the top-down scenario. Are we going into recession? Are we going to growth? Or are we going to stagnation? I think that is probably the challenge, and if you're very pessimistic, then obviously, you need a lot more, okay? You are very positive, you will start writing back. I think we can take out the first scenario, okay? I don't think people will be very positive. We have a look at that.

So the question is that how negative are you and see how much you need to add? And because of our saturation and scenario, we think that we don't really need to add a lot, but I don't think we will reverse, okay? Hence, you see the indications that we are adding slightly to buffer for the scenarios itself.

To mention overlay, we do have enough -- to mention overlay, it's just a technical part. But look at my total general provision, whether to quite measure overlay or whatever over performing loans. I think at 91 basis points is something that we are all comfortable with. The last time before crisis we were 70 over, so we are already building up a buffer in view of some of these uncertainties. So that's probably just to tell you that we do have enough. But we have built out slightly and not reverse.

[Unknown Executive]

So there provision is enough, maybe a bit top-up, but won't reverse, won't write back.

[Wai Fai Lee, executive]

We don't see -- as if -- we don't see that maybe next year when we are sure of the outlook.

[Unknown Executive]

Do you have a follow-up question?

[Unknown Analyst]

Just wanted to know, will you continue to invest -- in your different -- I think you just mentioned that you're going to open a new building and all that in Bangkok, so are you planning to put more capital in your various subsidiaries? Or do they self-fund in the region, Vietnam?

[Ee Cheong Wee, executive]

These are all self-funded. These are all self-funded, right? We have adequate capital in our respective subsidiaries, right, in Thailand, for instance. I mean, we are using our capital for the Citi acquisition. The building that existing building is already there, right? Whatever we do is just to build new building. So the land is already there. When we were acquired, we already have the 2 pieces of land in the building, right.

Malaysia is okay, our capital is adequate to take and Vietnam is something that we are focusing. And hopefully, one day, we are able to buy a small building in Vietnam, and to be part of the overall strategy, because we believe that every subsidiary should have their own building, right? So that provides a lot of confidence as well as certainty, I think.

[Wai Fai Lee, executive]

Maybe I'd like to [ jump in ] the first going in position is we're actually quite bullish on the long-term outlook of ASEAN. So we'll continue to invest. The 2 big subsidies on Malaysia and Thailand, we expect them to be self-funding. So maybe Vietnam, might need a bit more, but Vietnam, it's a small base, and we know that Vietnam is countries that we are very positive about, maybe, but it won't be big numbers because it's a small base.

Indonesia, I think it has reached a level where they are sustainable. We will then have to relook at our future business direction, but they have enough today to sustain the growth strategy that we have, especially after Citi.

[Unknown Executive]

Thank you, [indiscernible]. Can we move on to [ Faris ] from Bloomberg.

[Unknown Analyst]

Faris from Bloomberg. Just a couple of questions. The first is just to expand on UOB's China exposure, the $3 billion loans to developers. I just want to clarify, do you think that there is a potential for default given the turmoil in the market and given the mortgage boycotts that we're seeing in China right now?

And second question is like, the bank is very, very optimistic contrary to global sentiment, very, very optimistic. But in terms of the markets and under your portfolio, is there like 1 market in particular that you're very concerned about in terms of the outlook for the rest of the year?

[Ee Cheong Wee, executive]

I think generally, we are fairly well diversified. If you look at, I would say, 50% of our portfolio in Singapore, okay? -- is well diversified. And I would say our SME, if you worry about market uncertainty, SME will be the first 1 that get hit. Our overall exposure to SME is about maybe 30% of the loan portfolio cut across the whole region.

Now if you look at Malaysia, I would say 50%, Wai Fai correct me if I'm wrong, consumer, consumer related. The rest are big corporate as well as SME. In Thailand, I would say the main bulk of it is in consumer, okay? And the rest of the OECD country, these are very wholesale. These are all big corporates. I think the ratings are good right?

And I'm not overly concerned, right? And as what my CFO articulated in China, I think our exposure to a Chinese developer is only $3 billion. In the overall scheme of things, I think we should be able to manage it. And I'm confident that Chinese authority is actually looking at it, okay? And this is not something overly concerning.

And in fact, the main activity in China today is export, manufacturing, right? To cater for the domestic as well as external. So if the economy continues to grow, okay, and property market, yes, is a subset of all this thing. And then if people continue to have the income employment, I think they should be able to overcome some of these.

[Wai Fai Lee, executive]

So I think just to supplement. I think Wee Cheong said, we are actually very well diversified. So where the markets you ask that we are worried about, right, the general suspect, Europe, North Asia, okay? And we are not big in Europe. Okay. In fact, anything in Europe are actually our customers investing there.

North Asia, Hong Kong, China, yes, we are concerned. Number one, but 2 things. We don't do a retail portfolios in this -- so all this worry about mortgage, we are not exposed because we don't have retail exposure in China. Then for the wholesale part is how strong are these developers besides the account, like I said, when we do the credit review they are technically still rated between the 1% to 4% or 5% to 8% internally, which is still credit performing. So based on that, we are confident, okay, that those portfolio will hold.

And besides that, the third thing that we look at it, the sponsors behind it for the other exposures, I mean, just being very open, we do have some of the Singapore companies doing development in China. Okay? The user suspect of capital land and they open is the big part. So we are quite confident that some of them, the business model might be some slowdown, but the sponsors are strong enough, okay? Should something happen. So that's where we are. And we're actually watching that portfolio very closely. But as a group, my GP portfolio diversification, I think it's more than sufficient to take any of these shocks should they arise.

[Unknown Executive]

Another question from Business Times.

[Unknown Analyst]

When do you see your NIM at the end of this quarter and by the end of the year? Then the second question is just to talk about healthy drawdown of mortgage loans in Singapore. So do you expect further cooling measures from the government?

[Ee Cheong Wee, executive]

If you look at the property market, right, you look at the recent launch of [indiscernible] okay? The response was very good, right? All you get excited. It happens to be one of our project, okay? First of all, the location is good in the merchant environment. Secondly, it's also because of limited supply, given the COVID situation, okay?

Difficult to get water, construction delay, as a result of that, this project happens to be -- from the timing standpoint, it was a good timing. And if you notice the typical profile of some of these successful launches is many parents are actually helping the children to buy, okay? Because the control is already very tight. As far as Singapore, as far as bank is concerned, we control the affordability. There's no way you can have a spiked-up situation and you can't afford to buy because you can't do it. So the parent will come in.

So these are the typical so don't take it as it's a blanket thing. I still a little bit on the cautious side because, yes, Singapore, we have the benefit of foreign people coming in. But I think these are something, how sustainable? We don't know, we don't know. I would still -- I would still like to be a little bit more prudent when it comes to real estate market because it's a long-term investment. You have to make sure that you are able to afford whether the market is going up and down. Now on the rate, I believe there is a scenario that we are working on. If you look at the Fed the way they adjust the rate -- what is our internal.

[Wai Fai Lee, executive]

So if you really look at where the rate hikes are and the impact to us, right? You could argue that the last rate hike does not affect us because it came off the -- in the second half. And the other aggressive 75 basis points was in May. So half way through the portfolio. So we can -- we grew 9 basis points quarter-on-quarter, which means that we can sustain more than that, okay? It's quite easy for us and we are confident that we can sustain that at least for the next 2 quarters and maybe even improve on that because of that because of that.

So looking at it, I mean, a lot of these are scenarios. Looking at whether we can grow NIM by another 20 basis points, I think it's a possibility. Okay? So you could argue that 1.6%, we could exit probably at 1.9% or even better -- so the third quarter. By end of the year by the end of the year.

[Unknown Executive]

Okay, from [Nikkei].

[Unknown Analyst]

[ Francis from Nikkei ]. In terms of taking business in Citi's business in terms of taking over in the Citi business, Indonesia seems to be a bit delayed compared to 3 other countries, and the retaining rate is also lower than 3 countries. I guess any specific reason?

[Wai Fai Lee, executive]

Indonesia, we are getting some clarification with the regulators, okay? Because the regulatory requirements is a bit steep, okay? And we find that in order to fulfill those regulatory requirements, we take a bit longer okay. Especially, if I can't touch anything on the customer because customer confidentiality until LD1. So I think it's something that we are negotiating -- it's not a problem with approval, okay? The regulators are very supportive of the deal.

So these are sort of technical questions on combining some of those details on. So it's taking a bit longer and more complex and the different regulators have to deal with Indonesia, it's a little more complex. So -- but the operations side, the people side and the support from regulators and some of the customers' partnership, I think those have been all very positive, okay, even Indonesia.

[Ee Cheong Wee, executive]

And in the overall scheme of things, I think Malaysia, Thailand is a [indiscernible] of the acquisitions, yes.

[Unknown Executive]

We have a next question from [indiscernible].

[Unknown Analyst]

Just to clarify one thing. Wee said that you have a 24% market share in mortgage. That's for Singapore specifically, right, mainly? And my second question is about Myanmar. So I mean, with the development and you have a franchise there, what is your thought on sanctions and the situation in Myanmar and via ESG lens, do you think that Singapore or UOB should continue to be investing there?

[Ee Cheong Wee, executive]

I think as far as Myanmar is concerned, we go according to the sanctions, right? If it's sanctions there's nothing we can do, right? But the people there is still in place, the country head is still there. So we -- I'm stating the [ not a good ] statement. But obviously, we are -- it's a holding strategy and I hope politically, things can be resolved.

And the whole ASEAN leadership is talking about how we can further improve and open up Myanmar. But I still think it's a country that with 100 million population, if they put their act together, we are in for the long haul, right. But at the moment, I think we are basically supporting our customers, in fact our customers are not going there, what can I do from there. But so far, it seems okay. It's no riot, nothing. It's still peaceful. We just have to wait how to resolve it.

[Unknown Analyst]

But you observe sanctions through, right?

[Ee Cheong Wee, executive]

Yes.

[Unknown Executive]

We have a question online, by [ Prisca from Esteem ].

[Unknown Analyst]

I think for the presentation I have a question about loan growth. I noticed that it's been downgraded from mid- to high single digits last quarter to mid-single digit now. So are there any specific factors that have been considered in adjusting this target? Or is it largely due to the slowdown in growth that you expect? My second question is on CASA. Do you have a rough time line of when you expect to raise the CASA rates?

[Wai Fai Lee, executive]

CASA rates, or FD rates?

[Ee Cheong Wee, executive]

I think as far as the loan growth is concerned, it's a reflection of how the overall market economy as well as sentiment, okay? I mean today, if I were to tell you, it's a high single digit, you may not believe me, okay? We are just putting a very sensible projection. It is still a projection, right? And so we have to actually to track the development, if the market turnaround is better, sure, why not? Our people are there to actually serve our customers base. But as a projection, I would say is relevant to what it is today, right?

The market is slowing down. Inflation is coming in. So we tend to take a -- and also, our customer is actually -- you don't just look at loan growth. There is a lot of paid down, right? A customer, good customer, they say, I want to pay down the loan, right? So you still have to generate more loans. So it's not as straightforward as just loan growth, right.

[Wai Fai Lee, executive]

So I think like Wee Cheong said, it's a reflection of the market and the customers. The customers themselves are also turning cautious. So if they are turning cautious, then it's reflected -- but like I said, if the environment change, we do have the balance sheet strength to support them. So this is just realistic.

Your second question on when will I raise FD rates, I think we are debating that [ ALCO ]. It's always when do I raise FD rates after that, when do I raise housing on rates? I know that's the next question that will come. So those are -- we are watching as to how our funding there. We are hopeful that our CASA funding will be a bit stronger to -- so that I don't have to avoid aggressive FD rates to protect funding needs.

As a consumer bank, that's our strength. And wholesale has actually improved on their CASA capabilities with all the new systems that's going in. So besides retail FDs wholesale CASA has been a strong part of sustaining that. So it's the balance. It's a balance. At the end today, we will look at the market competition. We also look at our funding book strength to see whether we need to increase in order to do that.

And if we do that, do I get back into housing, mortgage rates as well. And they are the whole thing that we are discussing. So this is something that we are serving. There are still some strength of liquidity in the corporate world, whether that's enough. So basically give us some time. We observe the market. We observe on funding. We also observe competition.

[Unknown Executive]

Thank you, Prisca. Okay. We will move back to [ Golar ] on the short term.

[Unknown Analyst]

How does your portfolio -- your loan portfolio repriced? Is it -- has it -- I mean, are they that short term? Or is it over 3 years or 5 years, can you reprice them with a higher rate?

[Wai Fai Lee, executive]

So technically, there are 2 things, okay, where we talk about maturity of the loans. So if you look at the loans profile, we just disclose less than 1 year to day 41%. It used to be 21%, now it's 41%. So which means that from repricing from a structural standpoint, every 1 year, the $140 billion of loans, I have to negotiate with the customers.

When you negotiate the customers, there are 2 things like 1 is looking at where the base rate will be. And number 2 is whether you have to increase the credit spread. But [ 81% ] of my portfolio is variable. Okay, which means that variable means that you can -- you will be adjusting it according to base rate. So if the base rate comes in and you think about short end today, we are saying that we'll go up. All those will be repriced okay?

So the repricing impact the flow-through will be 80% within 3 months. So that's actually very fast. The second part of our portfolio is that we have actually increased the U.S. a little bit U.S.-based. And U.S. is the flow-through that is actually most obvious.

So the SORA -- sorry, the SORA part of it as the rate goes up and SORA rate has gone up quite significantly more than Singapore rates, we will have the quickest flow-through. So 80%, you'll see that variable. From a structure standpoint, 1 year itself, I can reprice and add to the credit spread, but the repricing impact of the short-term rates will flow through very quickly, probably within 3 months.

[Unknown Executive]

Just a very quick time check. We only have time for 1 more question, maybe okay from [ CNE ].

[Unknown Analyst]

Can I just get an overview on the outlook for the company. And going forward, what are some key drivers of growth do you guys expect and headwinds that you guys expected for?

[Ee Cheong Wee, executive]

I think as I articulated, I mean, there are few things we are looking at, the flow, FDI. This is something that we strongly believe in our ASEAN franchise, the connectivity business coming from different parts of the world flow in to Asia. In Singapore, we will be able to capture it, and then spill over effect, to the whole ASEAN that's one thing.

The wealth management side, I think this is something if the market is stabilized. I think that will be an area that people can take advantage of the lower price. And also the -- you can see the consumption has been also picking up, right? Credit card has been, right, with the COVID situation, there is a pent-up demand of people want to travel the consumer side, especially we are a big consumer bank.

If you look at the Citibank portfolio, they are actually all faring quite well, right? So these are the -- and also sustainable financing, as I said, there is a lot of investment going on. So these are the bits and pieces that I think should be able to generate the growth.

[Unknown Analyst]

The headwinds, the challenges.

[Ee Cheong Wee, executive]

Well, the headwind, as I say, the market is uncertain. I don't believe there is a strong headwind. I believe there is a slowdown in the market. That is our view, and that is our house view and I believe in Asia that we are -- as I said, we are a net exporter of commodities. The trade flow and all these things, I think, is important for us.

[Unknown Analyst]

One last question. Going back to the loans to the Chinese developers. I know your, either CEO and CFO, has said that it's manageable and all that. But I'm just wondering the 2 points. One is, what are the mechanisms that the bank have in place to make sure that you can detect early signs of distress that perhaps in a scenario that they couldn't repay back the loans.

And number two, I mean, there's a growing dissatisfaction among investors with regard to the property turmoil in China and especially with the developers. And UOB has also commenced a lawsuit against Shimao. So maybe if you can comment about those 2 points.

[Ee Cheong Wee, executive]

No, I think as far as -- in China, basically, we are more in the wholesale space, okay? I mean wholesale banker will tell me they look at the customers, look at the leverage of the developer, the quality of the developer. This is where the first line of defense, right? You to make sure that there's a credit worthiness.

If the gearing is low, I mean, if the market were to slow down, I mean they can take on the balance sheet, there's no issue, right. But if you look at the newspapers, some of this mismanagement, this is something that it can happen to any countries, right? I cannot comment on all this. So that parties just have to deal with it. If it happens to be not so good customer bank will have to do deal with it. But our selection process, our credit criteria is very robust now. Especially in China, we don't have a big exposure. And most of our China operation actually is small, the flow business, right?

The competitive advantage for UOB today is more the ASEAN, not so much in China. So China, we are supporting our franchise customer going to China, right? And most of it are actually we are supporting some of the Chinese company coming to ASEAN. This is where we have the competitive advantage, I cannot compete head on with a Chinese bank, right? They are too big, too powerful in their own domestic market.

[Unknown Executive]

Thank you, Mr. Wee; Thank you, Mr. Lee. So that's all the time that we have today. Thank you, everybody, for joining us this morning. And we wish you a very good day ahead. Thank you.

[Ee Cheong Wee, executive]

Thanks.

[Wai Fai Lee, executive]

Thank you.