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United Overseas Bank Ltd
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Good morning, and welcome to UOB's First Half 2023 Results Briefing. I'm Wendy Wan from the Group Strategic Communications team, 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.
Thank you. Good morning. Thank you for joining us today. The global growth outlook continues to be uncertain. External demand has been soft. Concerns about commercial real estate are also spreading from the U.S. to other developed markets, but we expect Southeast Asia region be relatively resilient.
Thanks to a more moderate rate environment, while pickup in tourism and demand for services will support growth. The region is also benefiting from supply chain diversification. Companies and individuals are diversifying the asset overseas, including to Singapore plan quality.
I believe UOB is well positioned to capture some of these flows with our extensive regional footprint. Amid this backdrop, we continue to deliver a commendable set of results after a strong start of the year.
Our core net profit for the first half year reached a record SGD 3.1 billion, up 53% year-on-year. For the second quarter, core net profit rose 35% year-on-year to SGD 1.5 billion. There are general market concerns on asset quality, and we are keeping a close watch. There are no major concerns. We are comfortable with the exposure and credit quality of our commercial real estate portfolio. Most of it is in our home market, Singapore.
Our portfolio in developed markets consists of mainly network clients with strong sponsors. Our total credit costs were higher this quarter largely due to a specific exposure in Thailand, and we don't see any broader systemic concerns. Our guidance remains at 25 basis points for the rest of this year. Our overall loan portfolio remains sound with healthy provision buffers.
We continue to operate from a position of strength, with robust CET1 at 13.6% and liquidity ratios well above regulatory minimum. And with that, we are pleased to announce that the Board has recommended an interim dividend of SGD 0.85 per share, representing a payout ratio of 49%.
Now let me touch on our core business segments. Our retail business benefited from diversified revenue drivers, enhanced scale and synergies. The Citi integration is progressing well. We are on track to achieve our annualized revenue uplift of around SGD 1 billion from the 4 ASEAN markets.
We completed the integration in Malaysia last week. Our Indonesia acquisition should close by end of this year. As for Vietnam and Thailand, we target to complete integration next year. We continue to grow our customer base in these markets. We now have more than 7 million retail customers across the region with the right profile.
Now in terms of cut spend, we are 2x industry average. And we are doing much more to reach out to our regional customers. We recently launched a regional cuts campaign and private bank brand refresh. Our strength in the region now put us in a sweet spot to garner more international collaboration to fulfill the aspiration of our customers. One example is the exclusive early bird access to the Taylor Swift concert in Singapore next year.
The Citi portfolio and strong consumer spending has boosted credit card fees, which jumped 51% year-on-year. Total retail deposits also grew strongly year-on-year, 20%. Wealth management fees were softer due to weaker market sentiment, but we saw SGD 12 billion of net new money inflows year-to-date, bringing our total AUM to SGD 165 billion.
UOB TMRW is now in 4 markets: Thailand, Indonesia, Singapore and Malaysia. And we continue to enhance our UOB TMRW with digital offerings to uplift customer experience across the region. Of the more than 7 million retail customers in the region, more than 3/4 assess our service digitally.
UOB TMRW is among the top-rated banking apps in Malaysia. Position us well to serve the incoming Citi customers digitally. Our wholesale business performed well with a solid set of results and positive loan growth despite a challenging operating environment.
While loans dipped year-on-year, we saw growth quarter-on-quarter. We remain disciplined in our underwriting, focusing on good quality credits. Our strength in connectivity put us in a good position. Cross-border income grew 17% year-on-year, now accounting for 23% of our wholesale banking income. Transaction banking income now accounts for more than half of total wholesale banking income.
CASA held up quarter-on-quarter despite higher interest rates. We are seeing good new client acquisition in supply chain verticals as we roll out our financial supply chain management platform to the regional countries. The macroeconomic environment for the rest of the year could remain challenging, but our balance sheet remains strong to weather volatilities and to seize the right opportunities as they come. Investing across our franchise remains a key priority so that we deliver stable and balanced growth to market cycles.
Our guidance for this year low to mid-single-digit loan growth with a focus on high-quality customers. Margin to remain stable at current levels. In fact, last night, just you heard the announcement, I think margin could potentially actually reach a bit higher. And we expect high single-digit fee growth.
Disciplined cost management as we complete the Citi integration in the remaining market, we expect the onetime cost substantially roll off by end of the year. And credit cost at around 25 basis points for the rest of this year. And I thank my colleagues for their teamwork and dedication.
Thank you for your support. Now, Wai Fai can take over to elaborate on our financials? Thank you.
Thank you, Ee Cheong. Good morning, everyone. Nice to see you all so early. Okay.
On the results itself, we recorded another strong quarter of core net profit at SGD 1.5 billion and ROE of 14.1%. Against the same quarter last year, core profit was 35% higher. Of course, if we included the one-off costs relating to the Citi integration, net profit would have been SGD 1.4 billion. Net interest income increased this quarter contributed by a longer day count.
Net interest margin moderated by 2 basis points as excess liquidity was deployed to lower yielding high-quality assets. Fees income eased quarter-on-quarter as loans-related and wealth fees stayed soft on weak market sentiment. Trading and investment income registered another record quarter, backed by customer flows as well as continued strong performance in trading and liquidity management activities.
Cost-to-income ratio, excluding the one-off Citi, was unchanged at 40.9% from disciplined spending. Asset quality stayed resilient with NPL ratio at 1.6%. Our specific allowance increased due to the one major corporate account in Thailand that Ee Cheong mentioned. We have also set aside more preemptive general allowance this quarter, resulting in total credit costs rising slightly to 30 basis points.
Our capital and liquidity position remain healthy with CET1 at 13.6% and NSFR at 121%, respectively. For the businesses, year-on-year retail operating profit surged due to enlarged franchise with the inclusion of Citi. The process also grew along with the wider interest margins, while credit cards and wealth management activities picked up from a year ago.
Post sales saw double-digit growth from last year, led by margin expansion and strong customer-related treasury income, while cushion the softer lending activities this year. Global Market capture trading opportunities amidst the market volatility and was impacted by the steeper cost of funding. Our retail customer base continued to expand post the Citi consolidation. Collectively, we have now about 7.3 million customers in the region, of which 78% are digitally enabled. I think we'll cross 8 billion by end of the year when Indonesia get integrated into our network.
In the first half of the year, we saw a 47% increase of new-to-bank customers compared to the same period last year. And of this, 56% will acquire digitally, which points to the power of the TMRW franchise and the platform that we actually put in. We further grew our multi-market partnerships to cater for our customers' growing lifestyle needs. We now have 45 strategic and core brand partnerships across multi-markets.
I think the Taylor Swift show, which Ee Cheong highlighted, this is one of the results of our strong regional customer base and the strategic partnerships. Net credit card fees displayed a solid 51% growth compared to the same period last year, if Citi contributing almost 1/4 of this. We see sustained customer spending within the region.
Our assets under management increased 19% from a year ago, mostly from the net new money inflows that Ee Cheong mentioned. We hope to deploy most of this -- more of this into wealth management products in the coming quarters when market sentiments improve. Our omnichannel strategy continued to serve customers has proven to be highly effective. Omnichannel customers contribute 2x higher average revenue generation compared to the rest of our customers due to the multiple product holdings and the more frequent transactions.
Our wholesale business showed steady results despite an uncertain environment. We continue to focus in providing business connectivity across the region. Cross-border income grew 17% and the number of suppliers and distributors within our financial supply chain management rose 35% year-on-year. Our Global Financial Institutions Group income rose 25%, while income outside of real estate, hospitality and financial institution sectors rose 28%. This shows that diversification, in fact, of our supply chain when we wanted to move into areas that are more relevant to the regional customer base.
Across the region, our cash management platform is seeing significant growth in transaction volume and cashless payments. As for the details of the results, I think I let you read it on your own. And let me go through the key financials at the NIM like -- I think there's a lot of interest on NIM, especially after this morning's Fed announcement.
Net interest income rose 1% quarter-on-quarter. Like I say, it contributed by a longer day count. Cost of funds pressure has eased as the marginal cost of repricing of fixed deposit has declined. Interbank securities margin sustained at 1.1% as excess liquidity was proactively managed and deployed into higher-quality assets.
So as a result, you notice that our loans NIM actually improved. And because of some of this excess funds deployment, the overall NIM narrowed to 2.12% this quarter. Actually, that is improving NIM. Our exit NIM is actually at 2.14%. So I think we are hopeful with the announcement by the Fed, and we can -- we will watch where margins would be. We actually expect margin to stabilize in the short-term with the Fed hike maybe with some upward license.
Fees income softened this quarter. Loans and trade-related fees declined due to slower lending activities. Recovery of wealth fees was hampered as investor sentiment remain cautious following the U.S. banking crisis in the early part of this year. There was some one-off adjustment to cut fees expenses last quarter as we rebase our partnership schemes following the enlarged retail portfolio. So that's the other advantage when you have scale. Excluding this, cut fees continued its growth momentum since the inclusion of Citi from the fourth quarter of last year.
Trading and investment registered another record quarter. Customer-related treasury income held up, setting a new high last quarter, supported by demand for hedging activities. Trading and liquidity management activity saw another quarter of strong performance as we proactively manage excess funds to optimize our return amidst the market volatility. Cost-to-income ratio was unchanged at 40.9% this quarter, supported by strong income growth as well as continued disciplined spending, including the one-off Citi, the cost-to-income ratio would be 44.1%.
We expect the one-off cost to be significantly lower next year after the completion of the operational merger of Malaysia, which we have just completed in Indonesia by the end of this year in Thailand in the first quarter of next year. So by next year, my 3 key big markets, we have completed my operation integration.
As a result, the one-off cost will come down significantly. The overall asset quality of our loan portfolio remained resilient with NPL ratios unchanged at 1.6% from last quarter. The new NPL formation included the one unexpected major corporate accounts in Thailand. All nonperforming accounts has been adequately provided for.
For specific allowance, specific allowance increased this quarter mainly from the single corporate exposure in Thailand. However, we continue to set aside general allowance this quarter on prudence, bringing total credit costs to 30 basis points. So again, if you think about it, if you exclude that one-off, total credit cost would be a normalized 25 basis point even for this quarter as there is no indication on broader systemic concerns.
The total group allowance was SGD 5.1 billion, of which I think you look at it, the part was in general allowance or GP as economy [indiscernible]. More important, the general allowance coverage on performing loans stayed significantly higher at 1%.
We believe our prudent provision results will be adequate to caution us against any potential downside risk from credit migration. Core operating profit for the first half of 2023 surged to a new high, with growth seen across all markets. ASEAN-4 performance, of course, was boosted by the Citi portfolio in Malaysia, Thailand and Vietnam. Indonesia only come in later part of the year. And then the non -- the North Asia itself benefited from recovery of some benchmark rate, especially in Hong Kong.
For the first half of the year, loan demand was moderate due to the uncertain macro environment. However, loans growth momentum was slightly better in the second quarter, increasing by 1% from the first quarter. We are hopeful of a stronger second half. So that is highly dependent on the recovery of China and the stability of the interest rate outlook.
We maintain our focus on good quality credits in view of the uncertainties ahead. We continue to see strong inflows of funds. Customer deposits grew 1% quarter-on-quarter alongside the loans growth. CASA to total deposits ratio remained stable at 47.6%. I think more important is that the absolute CASA level has stabilized quarter-on-quarter. And in fact, it has actually grown slightly year-on-year after 4 quarters of decline last year.
I think everybody remembered the challenge that banks face of funds moving to FD. I mean that shows that our focus in offering the best value to our customers, focusing on the CASA trend going forward, is showing results. Our funding and liquidity position stayed robust with LCR at 167%, NSFR at 121%. I think these are all well above regulatory ratios.
Again, our CET1 was steady at 13.6%, backed by strong earnings and efficiency and efficient RWA management. I think in appreciation of the support from our shareholders, the Board has recommended an interim dividend of SGD 0.85 per share in view of the stronger earnings.
I think this is 42%, if you see higher than the first half of 2022 dividend of SGD 0.60 per share. I think we are committed to a consistent and sustainable returns to shareholders. I think we appreciate shareholders at stake through us when we did the Citi purchase, and some of those are actually showing results.
With this, I conclude my presentation and pass it back to Ee Cheong before we start the Q&A.
I think before we open up for the Q&A., let me just highlight a few on to maybe a focus on what the [indiscernible] going forward for UOB. And we believe the uncertainty ahead as I articulated in my speech, we cannot control the external environment. What we can control is at UOB level, we have been investing and building for the future.
For example, the wholesale banking, we have spent SGD 800 million over the past 8 years to build capabilities, regional payments, trade and cash platform. As you can see, the result, this are all double-digit growth at which we are now powering our connectivity business. Everyone can talk about connectivity, but without infrastructure, difficult. We've gone through that journey for the last 8 years. So the cross-border income and transaction banking income, a lot depending on the economic activity, but we have the capacity to grow.
Now in retail, we have invested in organic and inorganic. With our Citi acquisitions, in fact, our -- we actually accelerated our technology platform to cater for the Citibank customers. And you can see the Malaysian operation is already operationally merge with the bank. And the next few countries, given our standardizations, I don't foresee any problem get it done. And our customer base has actually grown beyond 7 million.
Initially, when we acquired Citibank, we actually put 10% attrition customer base. But now actually, the customer base has actually grown -- grown more than that. You look at the Taylor Swift, I'm sure [indiscernible]. Our credit card applications grew 45%. Our debit cards application grew 131%. So people want to get our credit card to apply for the concert.
So all these things, it demonstrates the power of big customer base not only just Singapore, in the region. And there is, in fact, actually much more to harness with our bigger customer base, our digital TMRW platform, data infrastructure, AI and more, so we'll continue to cross-sell. And all these things happened because we started a decade ago, we standardized our regional IT platform. And now we are reaping the benefits. All of you here for me for a long time, I think you believe in long-term. So we continue to invest. And if you look at the integration with Citibank, Malaysia is smooth because of the standardization and that will cut across the 4 markets that we are in.
So our multiyear investment have boosted our capacity to grow in the medium-term, and that will serve us well into this challenging time in the near future. So I'm happy to take the question.
Thank you, Mr. Wee. We will now move on to the Q&A. [Operator Instructions] We will start off with those in the room with us. First question, please, from Bloomberg.
Congratulations, UOB for this very good sets and also share price jump at the beginning.
I didn't look at it. Let me check.
Quite visibly. I have some questions. The first one, could you please share the NIM outlook for the year? Is it going to stay at the exit number of 2.14%? Second question, could you give more colors about the Thai corporate account? What -- at least what business that is in? The third one, color on the inflows of SGD 12 billion. And fourth one, how much are you spending on AI for your banking, the investment in AI? And last one, could you please also partner presale for Cold Play?
Not this year for Cold Play. Too late.
Next year.
Why don't we take some of this.
Okay. Maybe I'll start with the financials. The first question is on the NIM and where we are. Like I said, my exit NIM in June is around 2.14%, okay? So you can see that the pressure on costs, okay, has actually come down effect. I think those of you that follow us in Singapore, we were the very aggressive leading the FD hikes. We are also very aggressive leading the FD rate decline. But we are also watching the reaction of the market because we have to stay relevant to competitors as well. And we think that there will be a floor to that.
But the good news is that the replacement cost of FDs today is lower than what we took in last year, okay? And mainly because there's a disconnect between the fed rate hikes and the strength of the Singapore economy because of the flow of the site to quality. So there's a lot of excess funds in Singapore. As a result, we can be very competitive in pricing, especially the Sing dollars cost of funds. So that helps our margin, okay? And I showed in that [indiscernible] in there, our loans margin actually went up even for the quarter.
The overall margin was because of the excess funds that we place. And we took the opportunity, and we took the decision to continue to garner this because we are still having pretty positive carrier to the interbank because in the short-term itself, we are still getting [ NS ] placements at [ 4%], which is a reflection to do treasury [indiscernible] [ over 4% ]. So we are not negative in there.
Of course, we saw the U.S. after yesterday's rate hike of the 2 years coming down. 2 years was a very sharp inverse U-curve in the U.S. market. And some of this with the expectation and with the fact guiding some of those that they think that the short end will come down a little bit. And we will look at this, but we are comfortable that we are relevant, and we'll redeploy some of these funds.
So on a technical basis, if the Fed had increased rates itself, my loans, you will have the big lift. Okay? So we are hopeful that we can stay above the 2.14%. But like I said, we will have to manage where it is. But we are having a more positive outlook in NIM going forward, especially after this morning's Fed announcement. What's the second question?
Second question about, I think, accounts...
Of Thailand.
Which sector?
Its in the manufacturing sector. Actually, I think you know. You follow [indiscernible]. So I think you know the -- it's in the manufacturing sector, unfortunately, is account -- or set by fraud, and we decided to take the prudent stand. In fact, we provide 100% of it, okay? So that if there is any recovery, it will be upside to us. We took the prudent stand of providing, but we are confident we'll get something back. But so that we just want to get rid of it, that doesn't affect my balance sheet and my results going forward. So I fully provided for it. And then we'll see where the court order goes. But like I said, I have isolated the negative downside to our results. You had a question on the...
On the AUM. Are you going to take that?
Yes, it's okay. So this mainly, like I said, it spreads, right, over -- especially in the [ PV ] space. I think the focus of some of the family offices, we are getting some of the money coming in, but they are also having a new breed of the RMs in there, getting some new customers that are actually more active placing with us. So it's actually quite a good spread because of the refocus of our private bank. We've got new [ 8 ] RMs and all, and we actually had a new focus in there. So we are confident, although we are behind the market that we will have to catch up. But at least, it will contribute -- and the next phase of growth we are looking from private bank because I think from the high net worth, the margins uplift has taken us so far. Private bank will add to that for us going forward. You have the other question on...
Not only just a private [indiscernible] sector banking basically serves.
Very good. And spending on AI, please.
Actually spending on AI is a misnomer's, in the sense that we have been spending on digital, looking at models, using interpretation. And today, they're coin out the word AI. Mainly because of the generative AI that's actually catching the market by storm.
A view of that is that it's still at the experimental stage. We are experimenting it, but we are not comfortable with the open platform. We are hoping for somebody, maybe Googles or what to bring it into a private platform, which we are actually working with them. Then the investments that we go in, we will be a bit more comfortable. Because don't forget, using of AI and all is very sexy, but we have to make sure that our customers, especially the ethics -- the ethical use of data becomes very challenging. So we are putting our arms around that in the government space.
Meanwhile, we are using it for experimentation that are noncustomer related. Those I think we can do very well. They can write my CFO speech without us doing it. So those things, they can do very well. But relating to customers itself is a very controlled environment, mainly because, like I said, it's still at the infant stage, and the governance around it is not very clear.
So MAS and all are working on that to make sure that we stay in line. I think we are leading the -- one of the committees with MAS to explore use of AI and the governance around it, especially on the ethical use of data, which is a big concern rather than where it can be. But like I say, AI and previously, we talked models. We're already using those interpretive models, predictive models to some extent. And your last question, sorry.
Cold Play presale next round.
I think specifically, I have no idea. But I think the marketing agents, people who are introducing all these lifestyle products are actually looking at us as a very attractive partners, right, given our base. And if you can see the breakdown of Taylor Swift, not only just Singapore, the application came strongly from Malaysia, Vietnam, Thailand. And people cannot get ticket. And 6 shows, people cannot get ticket. And that is the power of the base, right? And I'm sure with this, people continue to look at UOB to see how we can further -- and Taylor Swift is a little bit unusual, right? Unusual. But this is a good start for the bank.
Congrats on the good results and Taylor Swift boost to credit cards. I have 2 questions. The first on your forecast for fee income growth, I noticed that you downgraded it from double-digit growth previously to now high single digit. Could you give more color on why the forecast has been downgraded and...
That is for the fees, right?
Yes. And your outlook for this?
Especially the credit card fees is okay. You can see the growth is quite good. But wealthy, I think, given the market uncertainties and given our philosophy of not product push our customers. So you can see the AUM actually stay with us, which is a good thing. We can use the money to fund our loans and deposits. But if they don't invest in products, right, your wealthy will come down.
But as a long-term player, I'm happy with it because market is uncertain. The last thing I want is my customer going to invest and they lose money, right? It is still a very uncertain market. So yes, the AUM gone up, the fee gone down. But as far as the bank is concerned, we continue to capture our customers.
Second question on digital banks. Are you worried because the 2 digital banks I think based on deposit caps and you don't have software requirements that you'll be significant and the accounts have -- so what's the outlook for that?
I welcome all this competition, but we have grown -- we will continue to grow. I think competition is healthy. We are always watchful of what our competitors are doing. But so far, I think we are able to manage it.
Next question from [ Forbes ].
Congratulations on the results. Just looking at the customer numbers, I think around end margin in the first quarter, you reported about 7 million customers. Now you're reporting 7.3 million. Does that mean you added 300 million customers just in the second quarter alone -- 300,000, right?
Yes. So most of those are the organic growth because the impact on Malaysia, Thailand was already taken in last year. So I think -- of course, we have Vietnam, again, that was a small base. So most of those like Ee Cheong said, we are quite comfortable that we're actually having to -- actually seeing increase of both the Citi and the UOB customer base, okay, which shows that the -- at least the Citi customers are welcoming us, and not dropping off. But at the same time, the value proposition that we have on this enlarged partnership platform and our product offerings are also attracting new customers. So yes, most of those are organic growth.
Of the 300,000, how many were -- can be attributed to the Taylor Swift? 50,000?
No, I think Taylor Swift applications, a lot of people apply, but some of them may not be able to get it because the backroom is not able to support that, okay? I don't have the specific number, but you can see the application is quite overwhelming, okay? But ultimately it's better to have a bird in hand than 2 in the bushes, right? The fact is they are applying for credit cards. They see the potential of owning a UOB credit card, not just Taylor Swift. It will be something else, right? So hopefully, then we can take this opportunity to cross-sell.
Actually, the impact is not as big as many as you think, mainly because of the limited time, okay, where we announced to -- and if it's a few hundred thousand, my branches people will die. So that's why it's both a combination between debit and credit card and not only credit card like pesos in Vietnam, where the first income level are not so high. The debit card search was extreme. Okay. So I think it's a combination. This is just one revenue for acquisition. More important is after Taylor Swift make sure they stay. Yes, I think that what is more important for us.
And you could understand outside of Singapore, there is still a lot of work to be done. We are competing with a lot of all the big domestic banks. This Taylor Swift has really give us a big, big advantage, okay? The whole regional consumer right now is, say, UOB.
In that regard, are you looking at, a follow-up question, other Southeast Asian markets, like, for instance, noticeably you left off the Philippines when you acquired the bank, it went to Union Bank of the Philippines. But do you have plans to deepen your...
I think, well, we are always on the lookout. We're always on the lookout. But I think at the moment, I think we just integrate Malaysia, I think we still have a handful of challenges that we have to make sure that we indicate well. And the amount of money that we pay, we want to make sure it's profitable to start off. So that this 4 market is actually quite handful for us really.
Thank you, John. Can we have the next question from [Gullher]?
Congratulations on a very good result. And of course, on the dividend increase, I have one -- sorry, I have 3 questions, okay. The first one is, okay, for the Citi customers that you've on-boarded, are they on TMRW, you'll be TMRW? And have you managed to cross-sell other products, such as deposits, et cetera, because a lot of them were the unsecured. So I just wondered that they're buying other products. And then the -- can I just ask on the Chinese property exposure. This is a specific question. Does this include like the REITs and the property trusts as well in your, I think, SGD 2 billion or something.
SGD 2.8 billion.
SGD 2.8 billion. Yes, that's it. And the risk is, of course, on the -- when Basel IV is coming in this month or next month or next year. June, next year. Okay. But there are some different risk weights on different types of loans. So I'm just wondering, will you maintain your current loan sorts of profile? Or will there be any changes? Because there are more weight, they seem to be more weight on things like mortgages, which are secured and better than other things. So how would that affect your outlook for your -- I mean, the customers you onboard in the future?
I think Ee Cheong can elaborate. Probably first is your question on Citi portfolio. You are right, because Citi is strong and secured. We are probably strong and secured and wealth. So there is a huge opportunities that we can cross-sell in and how much of those are digitally acquired. The Citibank's portfolio of digital penetration is slightly higher than UOB. So these people are quite digitally savy. We will get able to do that on after operational day 1. Mainly because if I want to go into the wealth and deposits, they need some of them, they need some of the only channels that we have.
So by end of this year, I think Malaysia was where we saw a huge uptick after the OD1, and this is where we think that we can work on the potential. And technically, when we look at some of those on both side itself, we have also been introducing Citi products into UOB before the operational merger, okay? And some of those are also the -- customers are benefiting from that, and you will get the full impact only after operational merger.
So Malaysia has just done that. We will look at Indonesia, by end of this year and Thailand by early next year. Meanwhile, on their own, they are not dropping off. In fact, it shows their confidence. They are -- also both the Citi and the UOB even customers base are actually increasing, which was very surprising to us because we thought the Citi customer base will drop off, but it actually stayed and increase. We show their confidence on UOB. So that's probably the question.
Can -- I'll take the last question. I remember that you have on Basel. Basel IV comes into effect June, but it has a 5-year transition period. Under the new Basel proposal, there are certain industry asset classes that are different. The most obvious is what you highlighted on mortgage. Okay, mortgage has a very generous RWA treatment, which a lot of people estimate that depending on where you are, if you move at the base of 25 RWA to whether 15%, 16%, there will be capital implication.
So we have actually factored in. Of course, then you can look at the impact, who is the biggest Hitler because a lot of people use the 25 basis point as a guide of RWA. SME actually has more favorable treatment because I think realized -- most of them realize that after the crisis and some of the SMEs are actually not as bad, okay, where previously, they were very punitive, okay, on the first phase and also to encourage economic activities. Some of the bigger boys by FI and funds, they actually brought it up. That means they think that they are a little bit more punitive. This people previously, they are too generous and all.
So overall, we are actually repositioning our business, but we're actually positioning not immediately, but because we have a 5-year transition and the business people already have the implication of both. Plus the important thing is can you reprice upwards. I think that is a challenge to the market. And if we are the first in the market, nobody follows. At the same time, you have to be careful that in 5 years' time, you'll be caught with high RWA, if you are not. So that is the balance that we have. We have our system in place. We are working through the business line, looking at where the possibility are. What's your second question?
Chinese property exposures, I suppose.
We talk about the Chinese profit exposure, of course, of the SGD10 billion that we have in China, this -- a lot of this are real estate of manufacturing in China. We don't do REITs, okay? A lot of these are completed projects that most of them are completed projects, and they are quite healthy, okay, in the sense that when we look at LTVs, et cetera. So we don't fund REITs in onshore of the SGD 2.8 billion.
Actually, our franchise from Singapore.
It seems that Vietnamese -- Singapore goes...
Yes, we do have a portfolio of people like the GICs and all that. And some of the Chinese [indiscernible] investing in China, which is the strong founder that we are comfortable with. We are quite comfortable with the China exposure. There was a lot of concerns, obviously, on China weakness, et cetera. That's moved from the consumer side now to the manufacturing side. Like I said, we have been monitoring that. We brought that down slightly. The last time we disclosed this or [indiscernible] billion, we brought it down to SGD 2.8 billion. We are not growing that, but we are pointed very closely. So far, it looks okay.
Thank you, [ Gullher ] from the Edge. Any questions? Okay, from Bloomberg.
Dexter from Bloomberg. I just wanted to ask, you mentioned in your remarks just now that you're concerned about commercial real estate [indiscernible]. Try to clarify how wide do you think is this?
He's trying to address the market's concern.
So I'm just curious what are your sense of it? How -- what's your spread? And on Singapore real estate markets and what you think of it so far, especially it's still quite heated even though...
Well, I think Singapore is a little bit unique. I think given our -- the flow of funds coming to Singapore, right? And given the geopolitical risk, Singapore seems to be the [indiscernible] of attracting people to come. And the liquidity will help. Actually if you look at the office space and all these things, I think it's still very good and manageable.
Outside of the Singapore, I think the concern more on the U.S., okay? But our position is very, very small. And these are good sponsor and it's very well collateralized loan-to-market value is actually about 50%. So we are not really concerned about that.
And then a follow-up. In terms of China's recovery obviously been slowing, like do you guys see installing even further? Or do you see more stimulus coming in the sense? And the other thing I have is that just when you talk a lot about AUM coming in. Have you all had -- there has been quite a bit of concern on MAS [ frauds ] and say about money laundering and things like that. Do you have more difficulty in kind of like internal time frame of getting approvals and doing a lot of due diligence on these [indiscernible]?
Well, this is part in parcel of banking, right? We have to make sure that we do the right thing to admit the right customer profile. I think this is, in a way, business as usual, okay? China, yes, short-term, I think there is some short-term volatility, but I still believe China, you look at the debt level of the country, I think they will continue to grow. Short-term, yes, I believe there is some pick up here and there. The consumer is spending the confidence but in the long-term, medium-term, I'm still very confident of China.
Thank you, Dexter. Any other questions from the floor?
Can I just ask on the -- sorry, can I just ask on the -- because you're expecting a total credit cost of 25 basis points by the end of the year. So are you expecting the credit cost to come off in the second half because it's now totally 30 basis points?
The total -- only my second quarter its 30, my first quarter was 25. So you can average it. No, I think what we are saying is that the way that we are guiding it the next 2 quarters will be back to normal, okay? We are trying to manage it downward, of course, but what we are saying is that the next 2 quarters will not be at 30. It was only a mixed situation in the second quarter. We are moderating down and sticking to our guidance for the next 2 quarters.
So the full year, if you think about it, mathematically, it could be 26, 27, okay, when you average out. But like I say, that's the guidance that we obviously will be managing and hopefully do better as we talk.
And then the management overlays, is it -- have you kept them as they were last in the first quarter? Or...
I think when you look at my total GP level, I think, come down. I mean, that shows you that I do have a lost strength in there. In fact, we went up from the 2.9 something to the 3.1. So that's probably where we are. The measure overlay, we continue to take a look. Some of it, we are actually passing it back to the business, okay, in the sense that if you think about -- because our view is that with the high interest rate, okay? And the Fed itself says that interest rate is back to 22 years ago, the high.
Under those environment, the credit cost will be very different, okay, going forward from what we used to look at. So that's how we are positioning ourselves. And we felt that if you really look at -- historically, we were around 28% credit costs over the last 10, 15 years, but we are actually -- with some of the credits that we are bringing it down and with the diversification.
So what we are trying to tell the market is that we are coming to position ourselves for the long-term and the market expectation of how credits will perform will be different from a higher interest rate and now the top is higher for longer, right? I think that's the talk in the market. And that's probably where we are. And we think that it will be around that 25 basis points that we talk about.
Does AI or anything help in modeling or this generative AI? Is there any help in modeling or...
Not in credit yet because I think in behavior, yes. In credit, there are tools in there, but credit skills, sometimes there is a lot of human interpretation -- we don't trust our...
Yes. I do not take [indiscernible].
I don't think so. Not yet I think...
Just checking if there are any questions online. If not, I think we can take one last question from the floor. Anyone else? No? It seems like our Taylor Swift is doing very well and has been the talk of the town. Okay. So meanwhile, please continue to hold our cards and apply for more cards. And that's all we have for today. Thank you for joining us this morning, and we wish you a good day ahead. Thank you.