[Non-English content]
[Non-English content]
Welcome to the 2018 annual results briefing of BOC Hong Kong (Holdings) Limited. I am Kenny Law, Company Secretary of Bank of China Hong Kong. Before we start, I would like to draw your attention to this slide, which set our disclaimer regarding forward-looking statements. Please also note the adjustment to the reporting basis that has been made in today's presentation. Now, let's start our results briefing. First, I would like to introduce our senior management team. Mr. Gao Yingxin, Vice Chairman and Chief Executive. Madam Wang Qi, Deputy Chief Executive. Mr. Yuan Shu, Deputy Chief Executive. Mr. Zhong Xiangqun, Chief Operating Officer. Mr. Wang Bing, Deputy Chief Executive. Madam Sui Yang, Chief Financial Officer. Ann Kung Yeung Yun Chi, Deputy Chief Executive, and Mr. Stanley Yung, Chief Credit Officer. Today's agenda is divided into three parts.
First, our Chief Executive Gao will start with a strategy review of 2018. Then our CFO Sui will give a report on our financial performance during the period. Finally, Chief Executive Gao will discuss our outlook and strategy for 2019. Then we will open the floor for a Q&A session. Now, Chief Executive Gao, please.
Good afternoon, ladies, gentlemen. Before we start, I am pleased to introduce our new Deputy Chief Executive. They are Madam Wang Qi. Our DCE overseeing legal compliance and operational risk management, as well as economics and strategic planning. Mr. Wang Bing, our DCE overseeing the corporate banking. Both of them have worked with BOC for long time and have strong banking experience. I believe that they will make a great contribution to promote our long-term sustainable growth. Now I will give our strategic review for 2018. In 2018, the global economy continued a mild recovery, but the regional economy had become more divergent. Against this backdrop, we continued to pursue our strategic goal of building a top-class full service and internationalized regional bank. We actively responded to market change and firmly pushed forward our business priorities, therefore enhancing our high quality development and achieve a healthy financial performance.
In 2018, our profit attributable to equity holders grew to HKD 32 billion, up 12% compared with profits from continuing operation in 2017. Our ROE improved by 73 basis points to 12.83%. The board recommended a final dividend of HKD 0.923 per share for 2018. Including the interim dividend, our full year dividend would be HKD 1.468 per share, an increase of 7 cents per share from the previous year. Our dividend payout ratio is 48.5%. In 2018, we continued to maintain our edge in key areas and further strengthened our market position. Our personal custom structure was optimized with 27.3% growth in private banking clients and a 17.5% growth in mid to high-end customers. The number of small enterprises customer with business integrated accounts increased by 15.7%. We also maintain our leading market position in the residential mortgage business.
We remained the top mandate arranger in the Hong Kong and Macau syndicated loan market for the 14th consecutive year and maintained our top ranking in IPO receiving bank business for 8 years in a row. Leveraging Hong Kong SAR government's tax policy for corporate treasury centers, as well as our own competitive advantage, we retained our market leadership in cross-border cash pooling business. We strengthened our institutional business and maintained a strong relationship with major central bank national treasuries and the sovereign fund. We sharpened our competitive advantage in RMB business. Our RMB clearing volumes account for about 75% of total global offshore RMB clearing volume in last year. We were appointed by China Securities Depository and Clearing Corporation Limited as the sole clearing bank in Hong Kong for H-share full circulation.
We provide 90% of wholesale Forex banknotes in Hong Kong, and also a major wholesale Forex banknote supply in the Chinese mainland. We helped our customer issue green bonds in USD, EUR, and RMB, accounting for nearly 30% of that issue in Hong Kong in 2018. Our integrated service capability continued to improve. We remained leader in the UnionPay banking card business in Hong Kong. Our custody business achieved an asset size of HKD 1.1 trillion . The size of MPF asset managed by BOCI-Prudential Trustee Limited increased by 11.6% year on year. While the standard new insurance premium of our BOC Group Life Assurance Company Limited grew by 8.2% year on year. In February, the development plan for the Greater Bay Area was unveiled with a clear positioning of the Greater Bay Area. Hong Kong is one of the most competitive economies in the world.
Through opening up and pursuing system and institution innovation, it can play a valuable role in the Greater Bay Area development, which will instill new growth impetus in Hong Kong. There will be more opportunities for Hong Kong people and the business sectors. In the future, the flow of goods, people, capital, and the information within the region will become even smoother, creating huge demand for corporate investment, financing, wealth management, and cross-border payment. This will bring massive upside for us in the areas of livelihood finance, technology finance, and green finance. BOC Hong Kong has truly aligned itself with national strategies, and continued to facilitate Hong Kong's integration into the national development plan. Our role is not just as a player, but also a promoter and an enabler.
Focus on resolving the major key obstacles in account opening, payment, and wealth management for Hong Kong residents going to the Chinese mainland. We launched compelling products and service, including BOC Dual Currency Card, mutual brand recognition for wealth management customers, cross-border e-payment apps, and smart terminal for merchant payment collection. Recently, we obtained regulatory approval from the People's Bank of China and became the first bank in Hong Kong to offer remote account opening service on pilot basis. For customers who need to open a mainland bank account, customers in residence in Hong Kong now can complete account opening procedures all in Hong Kong, saving the trouble to show themselves in Bank of China mainland branch. This will facilitate their mobile payment consumptions more convenient in the Chinese mainland. In 2018, we successfully acquired the business outlets of Bank of China, our parent bank, in Vietnam and the Philippines.
Together with the BOC operations we acquired in Laos in this January, our service coverage has now extended to eight Southeast Asian countries. During the year, we adjusted our regional management model and further clarified the management mechanics and the organizational structure. We strengthened our collaboration and provided great support to our Southeast Asia entities in order to achieve solid and sustainable growth. The net operating income before impairment allowances of our Southeast Asia entity was HKD 2.287 billion, up 27.6% year-on-year. Customer deposits and loans grew by 70.1% and 20% respectively, maintaining relatively high growth paths. The non-performing loan ratio was 1.14%, down four basis points from the end of 2017. Guided by our customer-centric principles and technology-led strategy, we reshaped our organizational structure and further optimized our innovation mechanics so as to pursue faster digitalization.
We stepped up the payment service capability of our credit card business. For personal customers, we launched BoC Pay cross-border e-payment apps. It can help satisfy the needs of Hong Kong residents in making small value, high frequency, cross-border mobile payment. For local merchants, we provide BoC Bill, integrated payment collection service that supports a wide range of payment methods, including different kinds of credit card, Alipay, WeChat Pay, UnionPay, QR code, and FPS. We simultaneously launched our Faster Payment System service with Hong Kong Aim and have seen a steady increase in both the number of registered customers and transaction volumes. We continue to deploy technologies such as AI, big data, and blockchain in the building of our intelligent platform, data platform and open platform. As the vital part of digital banking strategy, our mobile banking saw an actively user growth of 63.5% in the year.
After a year of preparation and diligence, we just recently officially obtained a virtual bank license. BOC Hong Kong, JD Digits, a subsidiary of JD.com, and Jardine Matheson will join hands to form a virtual bank. Its key strategy goal is to achieve fintech development, financial inclusion, and better customer experience. The VB will employ the latest technologies and integrate the online and offline ecosystem. It will provide user-friendly, convenient and secure financial service to deliver a brand new customer experience. In order to ensure our solid operation with customer-centric principles, we continue to enhance our bank culture. We have redefined our values and culture, which are cascaded throughout all aspects of our work, including operating management, customer service, staff relationship, risk management and others. Our values are to respect customer interests, meet regulatory expectations, and support the group's development strategy.
During the period, we have further enhanced the standards of our risk management, compliance and internal controls, while upgrading our regional risk management system. Based on our customer first principle, we streamlined our personal banking structure to generate strong support from product and channel units. We also further strengthened our capabilities and responsiveness to meet diverse needs of customers wherever they visit our branches. We established our innovation and optimization center, which serves as a testing ground and incubator for new innovative projects. Driven by digitalization and using agile management method, we have sought to speed up innovation of products, service, and business so as to meet the changing demands of customers and respond to a competitive environment. We constantly adhere to our people-oriented principle and care deeply about our employees development.
We continue to refine our long-term incentive and restrictive mechanism and push forward the implementation of our corporate culture. These efforts will serve as good foundation across different stages of our long-term sustainable growth. I will wrap up my strategy review for 2018 here and hand over the stage to Madam Sui Yang, our Chief Financial Officer, to introduce our financial performance in 2018 for you.
Thank you, Chief Executive Gao. BOC Hong Kong realized a satisfactory growth in 2018 with solid financial indicators. Our profit attributable to equity holders increased 12% year-on-year to HKD 32 billion. Our total assets increased 11.4% to HKD 3 trillion, while our total liabilities increased 11.1% to HKD 2.7 trillion. We maintained good ROA and ROE of 1.16% and 12.83% respectively. During the year, we optimized our capital structure by issue $3 billion additional tier one capital securities, as well as redeeming $877 million of our outstanding subordinated notes. Our total capital ratio was 23.1%, up 2.71 percentage points compared with the end of 2017. At the end of December, our total customer deposit reached HKD 1.9 trillion, up 6.6% from the end of last year, notably faster than the market average.
Our market share in Hong Kong rose by 0.13 percentage point to 14.21%. We take various measures to drive deposit growth and optimize our deposit structure, including enhancement to our payroll services, wealth management, and integrated payment solutions. Our personal deposit grew by 8.9%, with its proportion of total deposits increased to 48.9%. We also grasped the opportunities arising in the cash management, settlement, and custody businesses, as well as from our role serving as main receiving bank for IPOs to attract corporate deposit to the group. At the end of December, our total customer loans increased 10.5% to HKD 1.3 trillion. Our market share in Hong Kong rose by 0.67 percentage point to 12.64%. Both loans for use in Hong Kong and loans for use outside of Hong Kong grew at a relatively rapid pace.
We continued to deliver on our commitment to the local market and improved our approach to commercial customers and the small retail enterprises in Hong Kong by providing convenient and effective financial service solutions. We also enhanced our mortgage services capabilities and achieved steady growth in residential mortgages. By collaboration within BOC Group, we provide a diversified range of financial services to mainland and Hong Kong going global enterprises, as well as to corporate in Southeast Asia. We proactively managed our assets and liabilities and capitalized on our rising trend in market interest rates. As a result, we widened our loan-to-deposit spread and achieved a higher average yield on our debt security investment. The scale of our average interest-earning assets increased steadily, and our asset liability mix was further optimized. Our net interest income increased by 13.1% year-on-year, while our adjusted NIM was 1.63%, up 19 basis points year-on-year.
Our net fee and commission income decreased 2.5% year-on-year to HKD 11.3 billion, primarily due to lower loan commission and volatility in capital market. In response to market conditions, we continue to focus on the development of mid to high-end, as well as cross-border customers. Fee income from security brokerage and insurance business increased by 5.5% and 16.6% year-on-year respectively. Thanks to our integrated business platform, our fee income from traditional business grew by 10.1% year-on-year. We captured the market opportunities and achieved steady growth in fee income in credit card, currency exchange, trust and custody, as well as payment services. Our operating efficiency further improved, while our operating expense rose by 9.6% year-on-year to HKD 15.2 billion. Our cost-to-income ratio dropped 0.4 percentage point to 27.9%, constantly lower than market average.
Within this, staff costs increased by 9.2%, mainly due to annual salary increment, as well as increase in high count and performance-related payment. Business expense, including premises and equipment expense, as well as depreciation, increased by 6.8%, mainly due to an increase in expenses on the optimization of system platform and IT infrastructures. We further enhanced the effectiveness and the qualities of our risk management, providing a solid background for sustainable development. The group classified our impaired loan ratio was 0.19%, better than the market average. Credit cost was stable. Provision remained sufficient, with our coverage ratio at 227%. We consistently enhanced our liquidity position. Our average LCR in 2018 was 145.6%. Our Net Stable Funding Ratio was about 120%, both were higher than the regulatory requirement. This conclude my review of our financial performance.
Now I would like to hand back to CEO for our key strategic priorities of 2019.
Thank you, CFO Sui Yang. Looking to 2019, our operating environment remains challenging. At the same time, we also see sign of promise. Specifically, China will further push forward its opening up policy and supply side reform. The accelerated development of the Greater Bay Area provided fresh impetus to Hong Kong's economy. Moreover, Hong Kong's market still has vast potential demand to be unlocked and served. The Southeast Asia's market also has broad prospects for further growth. All of this will bring new business opportunities for us. In 2019, we will strictly follow our strategic goal and strengthen our execution capabilities with a customer-centric philosophy. We will focus on three strategic market. First, our core market in Hong Kong. We will fully strengthen our foundation in Hong Kong for sustainable development in every aspect. Second, our key market is Greater Bay Area.
We will build up our integrated competitive advantage, focusing on livelihood finance. Third, our growth market is Southeast Asia. We will increase our synergy and development quality by adopting differentiated positioning and bespoke strategy for each country. We will strive to build three strategic capabilities. First, the technology-led capability. We will pursue digital bank transformation by promoting technology innovation in infrastructure construction and application capability.
Second t he full service and internationalized service capability. We will strengthen our integrated business platform and leverage our IMB franchise to develop our capability to offer comprehensive and global financial services. Third, the regional management capability. We will further improve our matrix management model and regional management to provide full support to our regional development. Further, we will establish three cornerstones of our business development. First, we will reform our corporate culture that supports our strategies and meets regulatory expectations. Second, we will further improve our risk management systems and compliance controls that befit our position as a full service internationalized regional bank. Third, we will enhance our human resource management that is strategy-oriented, highly standardized, effective, and also in line with market-based practice.
In 2019, we will make gradual steps towards our strategic goal, supported by our confidence in achieving earnings growth, steady increase in loans and deposits, as well as healthy risk indicators, while always creating greater value for our shareholders. That ends our presentation. Thank you. We will now open the Q&A session.
Okay, now is the Q&A session. The Q&A session will be mainly conducted in Mandarin. If you have to ask questions in English, we have a colleague here to help translate, and you can use the simultaneous interpretation devices to hear the answer. As you are all familiar faces, I just call your name. But before you ask questions, please briefly introduce yourself for the convenience of others. Okay. Gary. First question from Gary.
Thank you, Management. I am from HSBC. I would like to ask a question about the asset adequacy ratio. Concerning asset adequacy of 17.9, actually is some distance from your counterparts, both in Hong Kong as well as overseas. How can you try to top this up, and how are you going to invest this? Is it that you are going to wait for an opportune moment for you to reinvest this? Concerning the demand for loans in the market compared to the second half of last year, it seems that the demand is picking up. Is it that you have an open mind in order to look for targets for M&A, in order to identify or open up new sources of assets for the group?
Okay, I am going to ask CFO to answer this.
Concerning adequacy ratio. So, $3 billion of US have not been redeemed. So our adequacy ratio is now at 16.8. So it is at a satisfactory level. If you look at the existing situation, even though the demand for capital is increasing because in future we have to launch TLAC. However, if you look at our own group now in terms of development of our loans and also in terms of looking for opportunities for M&A, we actually are adopting a very proactive attitude in order to look for opportunities. If you look at our own situation, I think we have to maintain a very good level of capital adequacy. Of course, even more importantly is to come up with the right strategy in order to invest our capital in the right manner.
Let me add to that. For BOC, three years back, I am talking about BOC Hong Kong. Starting from 3 years ago, we have already started restructuring all our Southeast Asian business under the umbrella of BOC Hong Kong, and this has been ongoing and rolling forward year after year. This strategy is now moving ahead very nicely. Last year, we have completed the coverage of three further locations in Southeast Asia under our umbrella. So we are moving in that direction. If you look at our capital adequacy level, we have to look at the demand for organic asset growth within our group, especially with regard to increase in loans. Because after our Southeast Asian business has come under BOC Hong Kong's umbrella, many large infrastructural projects in Southeast Asia and also many large Hong Kong customers actually are making a lot of big investment in Southeast Asia.
So there will be a lot of demand from that sector. So now that Southeast Asian business is now under our umbrella, we believe that there will be a very good growth momentum coming from that quarter. So there will be organic growth in lendings in Southeast Asia. The growth rate is going to be on the fast side, just like last year. Because of these two reasons, I believe that the present rather high level of capital adequacy level is the correct approach.
It's regarding asset quality. Asset quality seems very stable right now. Can you talk about whether you saw any corporate downgrades from especially your China exposure? The second one is more on an outlook question. How do you see the slowing economy then feed through into the provision charges for next year?
[Non-English content] All right. Let us talk about risks. In English, please.
To address your raised question on the China exposure. This year, we released our additional appendix showing the loan book China exposure. You may be aware that our total, the NPL ratio of this loan book China exposure was only about 0.12% versus our group level results, versus 0.19%. It's better than our group overall performance. Well, I think from the credit cost basis, I think the effect of the Sino-U.S. trade tension right now is more stabilized, although it's not yet finalized, but we still keep cautious about the latest development. Having said that, well, any unexpected hiccup, I would say we have competent to maintain our credit cost, okay, in a reasonable range, either way close to or similar to last year.
Winnie.
Next, Winnie, please.
Thank you, management. Bank of America, Winnie Wu. About the NIM. The U.S., it seems that there are lower and lower expectations of raising the interest rates for the U.S. Perhaps they will even lower the interest rates. But I see that the NIM is still rising for you in the fourth quarter even. I would like to know from the BOC Hong Kong, HIBOR may be lowering and the U.S. interest rates as well. From what you can see in terms of pricing for the customers and also in terms of deposit rates, what can you share in these regards, please?
Our CFO, please.
I absolutely agree with you. If you look at the American interest rate movement, it seems that the market is now cooling off its expectations for continued increase in American interest rate. Our conclusion is that there is little likelihood that American interest rate will continue to go up. Because between Hong Kong dollar and USD, there is the peg currency arrangement. Also there is a big difference between LIBOR and HIBOR. During the past few years, you can see that the Hong Kong Monetary Authority keeps making moves in order to make adjustment to make sure that the Hong Kong currency exchange rate is at the right level. We believe that the NIM will be back to the normal level. But exactly how fast will that adjustment be, we do not know.
We still have to look at further changes in the Hong Kong dollar exchange rate movement before we can be sure. We have been introducing a lot of reform, and that has already yielded work. Concerning 2019, concerning NIM's outlook, we believe that it will remain stable. This is because if interest rate continues at its present level, then last year's big drop is going to be reversed this year. This is also because we have done a lot of work in order to take advantage of the situation. As for the increase in loans that the president has already pointed out, we believe that the growth is going to be satisfactory. So we have to be prepared on both fronts. We have to manage our liquidity risk properly. At the same time, we hope that we can see that the NIM will be at the right level for us.
I want to add, because recently, it seems that recent signs are showing that there is little likelihood that the American interest rate will go up. So for Hong Kong, for the interest rate for assets, that is going to be the situation. In Hong Kong, concerning debt, concerning the deposits trend of becoming fixed terms and car size drop, also are showing a reversing trend. Also for debt, we believe that the same situation will also apply there for debt. Next question, please.
Thank you. I also would like to ask a question about NIM. Because you are the only bank that is for Q4, there is still a widening of the gap. So I just want to know, why is it that for Q4, your NIM performance is still so very strong? During the past year, we see that you have made 2 disclosures of NIM. One is headline, one is underlying. For 2018, for the whole year of 2018, the 2 NIMs actually are more or less brought on the same level together. For Q4's NIM, it seems that there is not going to be a lot of impact from headline, as well as underlying, as well as FX swap impact.
Our CFO will answer the question.
Let us clarify. The swap is something that is ongoing for us. It is a wealth management strategy. For 2018, these two numbers are indeed very close to each other, and our strategy, nevertheless, will remain. For FX swap, we will continue according to our situation. In the future, we will still disclose underlying and the headline NIM. As for Q4 improving from Q3 basis, well, actually, it's not been easy. Every day, we have been monitoring every deposit cost. Every day, we are looking at the pricing, and it's really not been easy. From our own bank's point of view, for the deposit and loan interest differential and also our pricing and also investment, we will be trying our best in these areas.
Later. Thank you very much for giving me the opportunity. I'm from China Capital. I have a question concerning the mainland domestic capital allocation and also in loans growth. Well, in the past, after spinning off Nanyang Commercial Bank, there had been a lowering of loans, and it is less than 15% now. Just now, the management had also mentioned for the Greater Bay Area, this is another area of focus of business for us. I would like to know about the capital allocation going forward. Further, because there are some changes in liquidity policy in the mainland. Will there be pricing changes? Will it come down in terms of pricing? A further question, can you give us some guidelines?
Two days ago, Hong Kong issued three virtual bank licenses, and we are one of the awardees. There's a lot of changes and fast changes in terms of the services provided by banks in the mainland and financial institutions in the mainland. Hong Kong had been more stable. But with the licenses issued, how would that affect the banking industry, whether it is loan granting in deposit taking, et cetera? How would it change the Hong Kong banking system, please?
Well, let me take the first question. The second question will be answered by my Chief Operating Officer. He happens to be the President of the virtual bank that we are about to set up. For loans in RMB. That's what you're asking about. There are not many RMB loans that are being made to domestic China market. In the past, there may be some business from interbank sector. Because of the changes in onshore and offshore RMB interest rates, and I recall that several years back when this particular business sector was developing very fast, the situation was more or less stable. Now it is not accounting for a very large slice of the business.
As for corporate loans being made to domestic China market during the past few years because of capital control and also forex control and because of various of these conditions. For offshore banks making loans to domestic China market, they are being subject to a lot of restrictions. You mentioned that because of the Greater Bay Area development strategy, I understand that many, many sectors and industries are now making a lot of proposals and suggestions, and many relevant consultants are pushing very hard for this. A lot of innovations are being made. So within the Greater Bay Area, we've got Hong Kong and also nine other cities and townships in Guangdong. So we are talking about both way capital pool and cash pool. Loans mainly are to go in the direction from Hong Kong to mainland China.
Because on mainland China, a lot of talk is ongoing about how the financial sector can provide sufficient financing support for SMEs and also other enterprises. So on mainland China, the liquidity is now changing. Hong Kong, of course, has a lot of advantages and competitive edges here.
So if we're able to make use of Hong Kong's banks capital for making loans to Greater Bay Area, so that Hong Kong banks can penetrate the Greater Bay Area and support the enterprises there, and support people's livelihood there, then that would be the right direction to go. That would, of course, include mortgage for property purchase and so on and so forth. I think many players are actually thinking along these lines. Everybody has got expectations, and we are no exception. So this is my answer to your first question. As for virtual bank, I'm going to ask the virtual bank's president to give you an answer.
Thank you for your question. We're very happy that we are being granted a license by the HKMA for setting up a virtual bank. Concerning virtual bank, to put it simply, it is the provision of banking services in the cyber environment without going through physical banks route. So that will provide one additional option for SMEs and so on and so forth. Virtual banking has very clear positioning. For mainland China, for e-payment and also for cyber banking, of course, there have been very rapid developments. For cyber banking, of course, there is already a market for it, and also it impacts on people's livelihood very severely, and also intensively. E-payment and cyber banking are now in great demand.
Because of that development, we're now setting up a virtual bank. We've got three objectives. We want to supplement the development of fintech and innovation of fintech, and also we want to improve customer experiences. We really want to provide additional channels of business for our banking group. So we want inclusive banking to be implemented very effectively for the benefit of our customers, so that we can really get around the present obstacles as well as sticking points and bottlenecks that our physical banking services are in face of. In terms of modus operandi and in terms of our rules of engagement, those will all be very different from physical banking operations. For instance, our IT structure will be very different from physical banking and it will be a much more cyberized approach.
Also in terms of modus operandi, because everything is being done online. The modus operandi will be very different from physical banks. Also for our customers, we are going to try to achieve inclusive banking for them. We want the younger generation that has already embraced cyber banking to really benefit from our virtual banking. Our SMEs will also, through our virtual banking, get even more services than they are at present getting from physical banking. We can really cover very small loans from several thousand HKD to several hundred HKD. Also we can have a very small scale financing for e-shop that is being set up on the environment. We have got a lot of very mini scale enterprises and SMEs that can benefit from our virtual banking services.
Through virtual banking, we will be able to really bring banking operation down to a very minuscule scale to benefit small enterprises. Also the coverage of services will be much expanded compared to physical banking. For instance, we will be able to hit a lot of niches compared to physical banking. Our customer services are going to be much more expeditious and also much faster, and also much more effective. In terms of channels, in terms of products, in terms of customer experience, in terms of modus operandi, our virtual banking will be very different from physical banking. We can really nicely complement physical banking. We believe that
We can really push the present physical banking modus operandi more and more towards going digital and also going cyber. Thank you.
You.
Last question, Jamie. I have a few questions. Thank you for the opportunity. First of all, about risk capital. CET1, I see that it has increased significantly. For risk capital, year on year, how would it change, please? We see that there is an increase of about 10%. For our internal rating system, has there been any major changes or is it just because for this year, the customers that we have this year are basically safer?
The second question, about credit cost. The Q4 provision is lower than Q3. Similarly, in terms of our ECL model, are there any changes or is it just because Q4 there is a slower loan granting? Another question about Southeast Asia. If we look at page 10, there are some numbers disclosed. If you can you perhaps give us a little more information or guidance? Right now you talk about the NIM. Can you talk about the NIM and perhaps the credit cost and is it higher than our traditional market or lower , please?
Our CCO will answer the first question.
I will be speaking in Cantonese or English. English then. To answer your question is that, because this RWA issue is that it is not that our bank can easily change that. Because of this internal rating is under very strengthened governance by HKMA. To directly answer your question is that our selection of a customer, because we have to make sure control our RWA growth as well as the return issue, we selectively choose more good quality customer. Hence, also answer your second question.
Because of this type of good quality customer, the assumption of the ECL with the impairment charge will be lower as compared. To be exact, the Q3, if you just compare with Q3 and Q4, I would say, the major issue for the impairment charges because the first Q if you look at the first half of 2018, versus the second half of 2018.
I think the major issue is the macroeconomic factor during the two different period changed quite substantially because of the Sino-US trade tension. Having said that, for the Q4, actually we do not have any major adjustment on the macroeconomic sector because we already factor in the possible implication. That is why for Q4, you will say our impairment charge does increase substantially. Going forward, I will say for this year, it will pursue unless there is any adverse development. Otherwise, this macroeconomic sector should not have further implication on us. For the NIM disclosure-
NIM for. You can first talk about risk.
Oh, for the credit cost.
In ASEAN country, yeah.
For the credit cost of the ASEAN country. Actually, we did not disclose that. But I would say, in other way you can protect the asset quality. Right now, I think, up to the last year, the NPL ratio of our ASEAN entity, okay? According to local reporting standard, they dropped by 4 basis points to 1.14%. Because after these two years integration, we put a lot of effort, no matter from the risk management system, policy, credit assessment skill, tools, monitoring. I would say, we have confident that the asset quality should have room for further improvement.
Huh?
[Non-English content] As for the NIM of ASEAN countries, we do not have a disclosure. I would say that the NIM is better than the group. The improvements on NIM is also better than the group. Thank you very much. See you next time.
Thank you.