Hi everyone, welcome to the DBS Fourth Quarter and Full Year Briefing. We have some people who are here physically, some people on the line. We'll start with the questions in the room first. For those of you on the line, if you have a question, please press the raise hand function and we'll come to you at the end. So, can we have the first question? Akash?
Sure, thanks. So once again, Piyush, thank you very much for exceptional leadership. I think I personally have learned a lot, a lot, a lot from you, so thank you very much for that. First question is, I think, will you be involved with DBS in any sort of capacity in the next 12 months?
No. As of 2021, zero.
Sorry to start with this rude question, but I think a lot of investors are wondering. There's so much optimism around DBS. I think one of the things that people worry about is what's going to happen to your holdings. Can you comment on that?
What are my holdings?
Yes, of DBS.
You got to be pragmatic. The large part of my net worth is in one stock. You guys are at this figure. You need to diversify. On the other hand, how many other opportunities you get gives you a 6%, 7% dividend yield in an appreciating currency and with a regular track record, TSR growth of 14% over like 15 years. The truth is I can't think of a better investment opportunity, but I mean, I also need to think about diversifying over time. Yeah, I'm not trying to sell all my stock without my best performing. Last year, you think about Barbell, right? My returns on my portfolio are Barbell. DBS gave me 50%. Everything else gave me like 10%, 12%. So I know it tells you you'd have to be dumb to exit the DBS part of the portfolio.
Except your Bitcoin.
Bitcoin gave me more. Bitcoin gave me 300%.
So you won't be selling 100% of your savings?
No, no, no. Very bullish on DBS's prospects.
The second question is, I just wanted to check again on the net interest margin. So now I think we understand the sensitivity to rate cuts and how things can be more resilient. But I think there's also this angle of rising sensitivity through the year, right, as your hedges roll off. So I think some told us in the past that SGD 55 billion of the SGD 180 billion portfolio is going to roll off this year, which means your sensitivity.
Actually, no. We actually did more in the fourth quarter than we were planning to. So originally, we were planning to do about SGD 60 billion of them. We actually bought SGD 68.7 billion of fixed assets because the rate spiked and the income moved around. So we actually now have a SGD 200 billion fixed rate book this year. We thought we'd wind up there at about 190. We're actually about SGD 200 billion in the fixed rate book. But we have about 50 to 55, which will roll off this year. And I think the question Su Shan correctly answered. It's unlikely that we'll put a lot more duration because you're not getting a pickup at this stage. So the stuff which is last year, whatever rolled off and what we put on, we got a 170 basis points pickup.
This year, what's rolling off and we put on in the early part of the year, you get a little bit of pickup. Later part of the year, you get no pickup. It's marginal.
Will that have an impact on the towards the next?
Go down through the year. There are two or three things. At this stage, we have sensitivity of SGD 4 million still, right? Sensitivity will start increasing back from here. We're driven by two things. One, slowly as the fixed income, we decide not to replace and sensitivity goes up. That's correct. The second is depends on how much CASA starts flowing back. The second part of the sensitivity is money moved to fixed deposits. So fourth quarter CASA came back. If CASA continues to come back, then obviously that increases your interest rate sensitivity when you have more CASA. But given the nature of our book, so to speak, we are up SGD 18-20 million sensitivity. In the way the fixed income this thing rolls out and the CASA comes back, I think we'll probably wind up at SGD 6 to SGD 7 million by year end.
Why don't we go for four, five to six ?
Is that included in the guidance that you have at the moment?
It's to this.
NII being slightly up is basically including.
Includes that.
Which brings me to the second question. So your guidance for NII changed slightly quarter on quarter. From last quarter, it was stable. This quarter is slightly up, but didn't have any impact on your PBT or net profit guidance. So I'm thinking in your mind, it's not very material change.
Think about the thing, right? Interesting guidance. You take SGD 4 million per basis point increase, the Fed cut I mean, we originally assumed 100 basis points, 25 a quarter. So there are 50 basis points a year. Now we're assuming that you'll get 25 in September, 25 in November. We look at the delta and the impact on that income. It's like sub SGD 100 million. It's between SGD 50 million and SGD 100 million.
50 to 100.
Then you have some trade-off on the other side. You don't know what it does to loan growth and where it goes on. We assume somewhere between SGD 50 to SGD 100 million upside there.
Okay, understood. The second question is just on the NPLs. So you did take higher SPs this quarter. And I think if you look at the NPLs.
We didn't take higher SPs this quarter. What I think Sok Hui pointed out, our SPs have been fairly consistent. We have lower recoveries this quarter. So the net SP looks higher. And that's because we've been continuing to get very steady recoveries. So we have some strong recovery in the pipeline. They just didn't drop into this quarter. It's building over into Q1.
But I think from the NPL mix perspective as well, there was some increase in the Hong Kong book.
The Hong Kong book NPL increase is partly exchange rate, if you look at this thing. But certainly, the two places where you can see we took increased cost of credit, which we're all concerned around. And I gave you this thing in the third quarter. It shows up in the performance summary in the half and half. But they were both third quarter events. So in the third quarter, we had idiosyncratic issue with an auto distributor dealership in China. And I pointed out this, I thought misstatement of financial statement, but it was one-off. It was really hard, but we wrote it off. So it shows up in an SP charge, but doesn't show up in an NPL in China because we wrote it off right away.
Then the second thing in the third quarter I indicated is that the real estate portfolio in Hong Kong is deteriorating. So our watch list has increased, and we took one of those into NPL in the third quarter as well. But the good news is that in the last quarter, I'm actually encouraged. We've done now two and a half transactions, half because it closed in January, and we did two. And in all of those, we've been able to exit and recover our loans. So our loan-to-values are quite good. The market, our valuations are quite up to date, but we were able to clear both those at a market clearing price of about 30% below what this one. So if you drop price, you can sell the property. And so in all three cases, we'll recover that.
Which is why the NPL has gone up for Hong Kong, but we haven't had to take a lot of SPs. It's a very good thing.
What's your sense if rates continue to remain higher for longer? If outlook probably shifts to one rate cut this year or something like that, then do you see incremental stress on the Hong Kong book, or when New World is making the papers?
Hong Kong SME will have some stress, and we've been deliberately reducing our asset exposure in Hong Kong SME as a result of that, but there was one idiosyncratic sort of Pepsi-related loan that hit us last year, and I don't see that repeating itself this year, so rates have gone down four times last year, so the Fed cut 100 basis points. So that will give some relief to the Hong Kong SMEs, and we need to remain cautious, so in short, yeah, I mean, higher rates, higher for longer rates will create some stress, both in the consumer and the smaller SME book, but I think there has been some relief. There's some cash flow relief now for them.
I think the thing is the high interest. I mean, surprising to me, we haven't seen most cases. We expected this thing to see more defaults. In the course of last year, if you look at this thing, our delinquencies in both consumer unsecured and SME have been going up every quarter. But they've still been lower than the highs of the past. And so there is still some either the residual benefit of the government support programs or people's severity; it's still not hit. I look at the NPL rates, SP rates; there's nowhere near, even like three or four years post-COVID, it went up much higher. I look back at '09, it went up much higher. Look at SARS, it went up much higher. So it's been lower than those. If rates go up, could it go up in this thing? Yes, it could.
I mean, I've seen it at least three times in my own cycle that it can get up slightly higher. The good thing, though, which is why I keep saying we've been so prudent with our GP. We've hung on to our SGD 2.4 billion GP overlay through COVID, the two years after COVID. Most banks were reversing GPs. We didn't touch it because I'm still not sure when some of this might come to bite. And we don't have any big stress. I don't have any large this thing that I'm worried about. But at the low end, our books are not very big. We have SGD 15 billion in consumer unsecured, and we have SGD 13 to SGD 14 billion in SME. So it's not a big book. It's 10% of our total bank. But still, if it goes up, we have enough provisions.
As I said, we're comfortable. We're not complacent. The work that we've done, Cynthia, around risk management, coming up with credit scoring that's preemptive and predictive and strengthening our collections process and the way we operate, I think will be helpful and has been helpful.
Fantastic. A couple more questions. So just one on wealth management. And I think I heard what you said. Wealth managers are up 40% year on year, weakness on quarter on quarter, which is understandable.
37 if you exclude Citi dividend, but still, that's still the 40%.
I think based on the net new money trends you talked about, so S$21 billion for the year probably means like a S$5 billion sort of number for Q4, if I'm correct.
6.
6 billion. So it's pretty strong, right, compared to the run rate this year.
Trends are also pretty strong.
And markets were also very buoyant in Q4. So there were elections and volatility. So in that sort of context, a 15% drop QoQ in wealth management is what surprised some investors. I think people were expecting that wealth management has been doing so well. Q4 might actually be slightly better than that. So I'm just wondering, is that something that surprised you as well, like 15% drop QoQ in Q4? Or was it in line with expectations?
Wealth management, I think it's seasonal. You always see fourth quarter drop. So we don't think it's actually unusual. We think it's actually a pretty strong quarter.
There's always this seasonality. We just 15-20%. But I was saying that because last quarter was so exceptional, you probably would have seen like a 5% drop instead of 15%.
Last quarter had a half-year impact from.
Citi Taiwan as well.
Half months from Citi.
Oh, in the base?
Yes, of course. That's right.
No, we're talking about Q and Q.
Okay, cool. I understand. Then I think.
There's nothing that we saw, so people are still, money's still coming to us. People have been investing, and activity has been quite strong. It's just the fourth quarter. Just look, there are two businesses where either people go off on holiday on the 15th of December. Trading always suffers because the trader, they work 11 months a year. By December, they shut their books, and I think that also psychology applies to all of us individuals, so most people tune off by mid-December, then they come and rebalance the books in January.
It could be also waiting for Trump to come in and see how it pans out.
Yeah. And then I think last questions, Sushan. So you talked about transformative technologies, GenAI. Just wondering, given DeepSeek is so relevant right now, has that changed anything in terms of your projections, thinking materially for DBS?
I think for sure, cost savings from my tech colleagues.
Have you changed your targets? Have you changed your assumptions?
Oh, we're doing a lot of work there. We're doing a lot of work to see how we can optimize our technology. We've done a lot of work in building resiliency in the last 18 months or so, and that's bearing fruit. And the way we've organized our tech now is really a lot more resilient and a lot more forward-looking, right, and also quite agile, and so with that in mind, I have challenged all our different teams to come up with both vertical and horizontal use cases that they can harness with generative AI and what kind of efficiencies, capacity release, and better top-line growth we can harness from these new ways of doing business, new ways of organizing, new ways of touching the client, etc., so that's all work in progress right now.
Okay, fantastic.
I think I don't think DeepSeek itself, what it tells you is democratization of AI will happen. Within a week after DeepSeek, ChatGPT came up with the next version and everybody. So the fact that it can be done more cheaply and be done faster is just going to democratize GenAI even more than we anticipated. But we've already spent a lot of time building. I'm convinced that what we're doing is right. So you've got to build your underbelly. So you've got to make sure, otherwise you can run massive risk with this. So we spent a lot of time in the last 12, 15 months building models. How do you make sure they're appropriate? How do you make sure the checks and balances? How do you make sure you can hallucination? What is okay?
So we have a very robust way of now taking GenAI, applying it to what we're doing. Sushan, we've got a very ambitious program for how we rethink many of our operating models leveraging some of this stuff.
Thank you. Perfect.
Yeah, thanks so much. And again, just echo what everybody else has said. Thank you all. Thank you very much for all your assistance over the last few years. It's been really appreciated. Thank you.
I have two questions, actually. The first is just following up on Hong Kong. Can you talk a little bit about loan growth? I mean, you've contracted much more in the system. The system's down about 2.8%. You were down about 6%. So I just wonder if you can talk about whether that's a new on-risk taking there or why that's happening. And then if you could talk a little bit about, I'm just interested, you said you've sold on these properties. I'm just interested in what sort of buyers you've got for these properties at the moment and how you're able to sell these properties to stress funds of just normal people. And then just if you could give us a little bit more color on sort of how we should think about wealth management this year. So there's a lot of volatility, a lot of uncertainty.
Maybe rates aren't coming down as quickly as we previously thought. So what does that mean in terms of your thoughts, I guess, relative to where you would have been in terms of net new money flows this year and also the pace at which you can switch into investing ourselves?
Okay. So for Hong Kong, you're right. We have been reducing our overall exposures. We've been circumspect on the Hong Kong commercial real estate for a while now. And so taken collectively, both Hong Kong and China, we have been, as you know, pretty risk-aware. So where we've been pivoting is really the outbound. If you grow your loan book, it's really more in the outbound where you can make some more, where there's more structural growth, if you will. And the Hong Kong strategy has been actually to pivot more to wealth management. So that's where there has been growth as opposed to the more IBG type non-trade.
The big difference between us and the system is only mortgages. So we are not in the mortgage market. And Sebastian took us out of the mortgage business a decade ago. And whatever loan growth system, loan growth you see is mostly the mortgages. And since we're not in the mortgage market, our loan growth looks disproportionate.
So on who's buying the real estate, I mean, these are not big ticket items, but we are hearing there's some interest from funds, distressed funds.
We sold one. The first one was actually a quasi-refi, but into one of the big banks. They put in and co-invested in it. The second was a private equity fund. So sold it. And the third one that we're in this thing is strategic. Somebody wants to build it. The Chinese are willing to buy at the right price. So you look at some of the discussions that are happening with the large case that we talked about before. A couple of the Chinese SOEs have put in bids, but they're putting in bids at their prices. If the family agrees, then those deals can go through. And those prices are actually well over our motivation.
From what I'm hearing also, there's some of this money also sitting behind funds that are sniffing around. Your third question was around the net new money.
Wealth management.
Wealth management overall. Okay. So as I said, right, I think the team has done a great job in being really disciplined and focused on net new money. And it's a process, right? You've got new RMs, you've got new clients, you've got net new money. And as they get bedded down, then that net new money can be brought into stickier structures, be it trusts, estate planning, insurance, etc. And the rest can be invested according to the risk profile of the clients. So from the very high end to the lower end, we've built a wealth continuum where we just chug along with this very disciplined process. But our central kitchen, if you will, is the same central kitchen. That's why compared to most banks, we're not siloed in our segments. We're able to harness cost efficiencies both physically and digitally.
And the growth area is also in the internationalization of the middle band, so the international treasury, which is the priority banking wealth management band, is to us quite exciting. That's growing, and we need to harness that growth by doing better onboarding, better cross-border, etc., so there's some growth potential there. The ultra-high family offices as well. There's some growth potential there. We've started doing things like VCC structures, better trusts, advisory estate planning. There is a lot of wealth transfer happening now, even in Asia, between the first and the next generation, and that in itself creates an opportunity because as the wealth transfers to the next generation, the next generation might want a new bank, hopefully. The next generation might want to link it more with their businesses or more private equity, for example, and that's where the one bank can come in.
Because unlike most pure private banks, for example, DBS has a strong business bank, commercial bank, and corporate bank. And so if we're able to harness or combine the wealth creation with the wealth management and be risk-aware on both sides, I think that also makes for a good sticky longer-term relationship.
It's the hardest number to budget for this year. We budgeted 15% growth in the wealth business. Could we hit the ball out of the park? If anyone's listening, you could. But it's very uncertain because to me, one of the biggest risks we have is the uncertainty that Trump creates. Our business, as you know, a lot of it is sentimental. So if the markets sell off, if Trump creates anxiety, people stop putting money to work, you could also suddenly, you've seen it before in the last, you suddenly hit a wall and people stop putting money to work. So it can happen. It's a high beta business. Even though you think it's a steady, stable business, high beta based on sentiment. Our annuity business is about 15%. The other 85% is a sentiment business, right? So are people putting money to work?
Are they trading? Are they doing commission? So if things continue and the animal spirits stay unleashed like they are right now, we could do a lot better. On the other hand, if there's a market correction, there's a sell-off of 20%, the big seven crap out, we could also get. So it's sort of trying to be in between.
We'll try to get more in the annuity bit, right? So that you have hopefully less volatility. That's a conversation. It's a long-term structural conversation you have with these families. You say, "Look, put some into the strategic asset allocation." Then you keep some for the tactical bits, right? Your structured products and what have you. It's really a balance between having that slow, steady, recurring income, which we're having those conversations, and it's gradually moving. That tactical trade the market as volatilities go up or go down trades as well.
Thank you.
Jaden McCoy.
Yeah, thank you. So just a couple of follow-up questions. Firstly, more mechanical just on the NIM. MAS eased on the slope, which should be positive for SORA. So just wondering if that's factored into your guidance and any thoughts around the impact. And the second thing is more strategic. I think, Su Shan, you said no comment to Malaysia earlier. But just wondering, what would having an onshore bank bring you? What would it allow you to offer your client versus what you could do in the default state as an offshore bank? How much additional upside could there be to having that versus the status quo? And secondly, how would that fit with the capital management? Because I think you very clearly sort of enumerated that the SGD 8 billion has been sort of thought about.
So any thoughts around allocation towards that sort of thing versus just returning to shareholders?
So I think we assumed a 65% pass-through from the Fed into Sing Dollar. We haven't calibrated that for MAS policy because it goes up and down sometimes. Sometimes the pass-through goes through higher, sometimes it's lower. We generally tend to assume long-term cycle, you'll get 65% pass-through. That's what we calibrated into our guidance on. If it turns out that SORA is higher than that, then there could be some upside. You've got to start with assuming that of the 1% cut, 65% flows through into SORA. Then if you have a couple of percentage points cuts later, then also 65% will go through. That's another option.
Yeah, but you'll be in this kind of nice environment where the Fed's on hold, and obviously, the Sing Dollar rate should be rising because the cuts you're assuming will be very late in the year from there.
But Sing Dollar rates also function a lot of other things. So I've tried to modulate it. It's not easy. So I've just figured that if you look through cycle in the noise, you get about 65%. You're right. You could be at a point in time where rates could move up. But you take HIBOR. I assume HIBOR should be typically 80, 90 basis points off the US rate. So this is the Fed fund rate. You look at the last three months, year-end, and the HIBOR went up, climbed massively. Then they collapsed massively. So the swings are quite volatile these days. Another Malaysia thing. Right from my beginning of my tenure, I've sort of talked about three and a half countries that interest me. I said China, India, Indonesia, and then half is Malaysia.
Half is Malaysia because it's not big enough to matter in some ways, but because of the contiguity to Singapore and what we can do across the thing, it's always been interesting. Because of the G2G environment, we've never been able to get a look into the country, but we've always had interest to be able to go in. With the Johor Special Economic Zone, it actually makes it even more interesting. I do think there's a real opportunity for companies to leverage Johor for the supply chains, and we're seeing that from our clients. We're seeing our data center clients, our tech clients, even Singapore-based clients are actually saying, "Okay, could we use Johor for something or the other?" Now, what we can't do today is ringgit lending. I mean, ringgit lending, right? so we can do the dollar lending.
The dollar lending, the nature of the businesses, we do the top clients. So we can do the YTLs and those sorts of the world. They do a lot of dollar currency. But we can't participate in local currency deposit taking or lending. And that's something that you would have an upside where you could actually do that. And if there is a lot more local currency activity on the back of Johor, you could participate in that. Both from capital and P&L. In the short term, it's not that material, right? I mean, we don't take a large amount of capital. And it doesn't actually, if you look at the P&L projection, that's also, I call it half. You'd be lucky to add another SGD 70 to SGD 80 million bucks, SGD 100 million bucks to your P&L if you did something.
So interesting, not imperative is how I like to define it, right? If you could get something done. Now, in terms of capital allocation, when we said we have SGD 8 billion surplus, we've already factored in a couple of billion that we're keeping aside to do M&A transactions. We don't do the big M&A. If you have to do a big M&A, then that's different. But most of our M&As are in the hundreds of millions. We have enough firepower to do that outside of the.
Thank you.
Thanks. Two or three questions. First, Piyush, thanks again. 15 years, phenomenal earnings and all the best for your next one. One on the PB profitability. You have had growing your own timber, all of that low cost. But at some point in time, now you have become so big in kind of AUM. Other people will poach your people. So at some point in time, that cost advantage probably goes away, right? So how do you think about
your employee turnover was for last year in PB?
So again, so either do you have to pay up or as in trying to understand is the cost-income ratio, is it bottomed? Is it stabilized? How do we think about that? Because top line, because this is one part which is growing so well and continues to grow.
I'm fairly confident that we can hold the 50% cost, and by the way, 50%, we are across all three segments. The PB segment, the private client segment, and the affluent segment, all are 50%. The nature of the costs are different. The PB segment, we pay up obviously more for the big bankers and others. In the bottom end, we don't have to pay so much for the bankers, but the return on AUM is better on the one hand, and we spend more on digital, on technology and branches. But when you balance it out, we have 50% on all three segments. We've been able to retain that now through the last, whatever, decade. We'll continue to do that, and I do think that apart from the continuum that we have, the continuum not only helps us on the client side, it helps us on the RM side.
So we do groom a large part of our team. We grow people. The second thing is we're not, we don't pay over the top. And we make no secrets of that. Even when we go, we're not hiring people at over the top. But when we ask Sarah, why do you prefer staying on with DBS? You could make more money if you went to join Julius Baer or something. I think our platform makes it easier for them to function. So they trade it off in their mind. They might get a higher commission rate, but at DBS, it's easier to function. The franchise comes together. They can get the investment bank to participate in their deals. They can get the consumer bank to do their credit card and the mortgage that they need when they do this stuff. We can put leverage. We're not capital constrained.
So they, in their own mind, say, "You know what? I might get a higher rate somewhere else, but I can do 30% more when I'm on the DBS platform." So net net, I probably make more money with DBS than I make with.
The key is to create stickiness in the relationship, right? Institutionalize the client, create long-term stickiness, right? Be it whether you're there in the corporate bank, so you've got funding in the corporate bank and you see the cash flows, the dividend flows, then you go in in a private bank or even a priority bank. You know the cash flows. You know how to make it sticky. You know the wealth transfer. You know the next generation. You know what's needed: Keyman insurance, life insurance, whatever. So once you create these sticky products that are very long-term, you institutionalize the client. And if the RM is a good RM and you've got good advisors around it, it's good structures around it, it's just nice, steady annuity income.
Over the next three years, let's say, yeah, the beta side aside, we should assume flattish cost-income ratio at 50-odd% for.
Our business, it's an ROE of 60%, the business, and it's an unbelievable business. You look at the trajectories, massive growth in wealth in the region. I think you get double-digit growth just from holding market share. For us, we've got this thing to be able to last year, we had 100 RMC. When you talk about what could happen in wealth, RMs hit their peak production in year three. Year one, they're still settling in. Then they start talking to the client saying, "I want to move you." Year two, you get substantial risk. The first year, RM will make less than SGD 1 million. Second year, you get too close to a SGD 2 million.
By the third year, they start contributing the SGD 3.5 to SGD 4 million bucks that an RM can make. So we did a big scale-up last year. We consolidated. So we could do more. So I think double-digit growth you get with market, and then you can outperform that if you're doing better than market.
And then you add generative AI and some AI modeling into the mix, whether it's for retail wealth or the private sector. You get more promise, right? That the RM or the investor can now, investment counselor can now manage more clients because they've got tools to help them to scale.
Imagine and stuff that you talked about.
Okay. Thanks for that. Second bit on asset quality. Could you quantify how much of Hong Kong exposure you have sold, offloaded, and which are
only two, three deals.
I mean, they're not that easy in this market. Everybody is in the same boat as you. People aren't lining up, and then to sell, you got to drop price. And most of the developers are not that willing to drop price unless they're back against the wall, so the ones that we've been able to do is because they've hit the back-against-the-wall situation, and then you push and work with them and sell. Proactively, few people are willing to sell. Everybody's holding out. I think you'll see change this year because rates won't drop. I think most people are holding out saying rates will come down, then that gives them an extended lease of life, but I think you'll start seeing more sales and more of this thing happening this year.
Thanks for that. And the final one is on the 15 cents. You say it's a capital return dividend. But if I think about $3 per year on around, let's say, after buyback, 2.8 billion shares, that's $8.5 billion. 4%-5% loan growth consumes about another 2. You are still retaining capital even after paying 75 cents. So how do I square that capital return dividend?
Because you're the only, you're a greedy analyst, is all I can say. SGD 3 billion capital share buyback last quarter. SGD 5 billion more we are now going to give back this year. You should be happy SGD 8 billion of capital giving you. They say, "Oh, but why can't you do more?
I'm absolutely happy. What I'm trying to understand is that after this, you're not using 11 and change. You're using sub-11 billion, using your capital consumption as a less capital.
S$11 billion profit.
So S$11 billion profit, you have to pursue this S$0.06 step up. It starts heading to close to 70%, S$0.65. So you take 30%, one-third of the S$11 billion is, you right? So you have about S$3 billion of net capital accretion every year after the payout of the S$8 billion. So when you go back to say, "Do I have some cushion so I can do another M&A? I can support my loan growth goes more than 3%-4% if I have some cushion for that." Then we'll see at the end of three years it turns out that we've got more capital than we accreted or the capital requirements drop. Then we take another look.
Absolutely. So what I'm trying to get to is the SGD three billion buyback that you have started. What is the pace we should expect? Is it SGD three billion?
We haven't even started yet. Because in October, in November, December, we had to buy back for employee shares, right, so we bought 4-5 million shares, but that was for the employee scheme. We didn't cancel, then we run into this blackout window, so we need to start now. After this, we need to start the buyback, right, and we'll do it consistently.
So what I'm getting to is, is there a possibility? So basically, it's more about the pace of buyback. Is it more of a SGD 1 million per year, or is it more closer to SGD 2 million to SGD 3 million per year?
We calibrated against some models. If prices are high, we're going to do less. If prices for whatever reason.
Define high prices.
So we do standard deviations and models that run so that we do not buy at the peak. S$4.3 billion, right? Yeah.
Yeah. Because the question ultimately is that, yes, you are doing a lot of things for that. This is phenomenal. Very, very few banks globally have done what you have done. So awesome. But if you are still accreting capital, depending on what is the pace of buyback, if it is 500 to a billion, then it is one thing. If it is SGD 2 to SGD 3 billion, it's a completely different. So that is something which will be determined at.
They will tell you next quarter after I'm gone.
All right. That is all. Thank you.
Melissa Goldman.
Thank you, Piyush, for all that you have done.
Thank you.
No, and yes, and Liz Bowser of Citi in Singapore, thank you so much for all that you have done. Thank you so much.
You're not allowed to hold shares, right? You guys aren't allowed to hold shares.
But then it's still in domestic, right? It's still part of our reserves, pensions, somewhere there.
Because I read the last couple of months, so many ministers have come and told me that they're going to retire because of DBS stock.
Yeah. So I just had a few follow-up questions, firstly on the capital. So in terms of the S$0.24 step up, so we're still going to do that until it hits 70%. So is that?
No, I didn't give a 70% guideline. I said it starts getting up. Because remember when we said when we started doing that, we said we can afford to do this in the medium term. We've done a couple of years. I do think that we have the capacity to keep increasing SGD 0.06 for the next couple of years. Then I'll leave it to the team to figure out how much more they can do beyond that.
And then we still have to lock up, right, with MAS in terms of the IT. So does that give you a bit more firepower to consider more capital returns? Or is that tucked away for an organic growth? What is that used for? Then maybe moving on to ROEs, 15%-17% was your long-term target. So now with rates higher for longer and 18% ROE, and with you paying out, does that change? Are we going to the 17 and maybe push up and a bit higher or?
Don't look at me. Look at her.
Where we could be. And then last, just housekeeping on the NIM, right? What was the exit NIM? And the SORA pass-through was quite high versus the 65%. So has it been done? What was the hedging policy on the Sing dollar book? So what we feel in the first quarter. Did I get it right? You said NIMs would be expected to be down? I think Sushan gave the figure of 2.1.
2.1, 2.1, yeah, something like that.
Yeah, and then just sneaking in one last question. You mentioned management changes. That will happen. Just checking if we would still be here as she promised to continue on slightly close?
We're locking her up. We couldn't lock up you, so we'll lock up Sophie.
I mean, that's all my questions, but so the ROE question, I think you have to be realistic that the 18%, you have to factor in the tax, right? Effective this year, that's SGD 400 million. That is going to be the big driver of how we sort of have to just calibrate it a bit lower. You can factor that in, but is that the only thing, like just the tax and then the long-term sustainable ROE of 15%-17%? Are we now very comfortably at the higher end and maybe push a little bit as you carry out all that?
It depends on the continued growth of wealth management. So there you have sort of the market swings. But as I said, right, the key is you get your constant net new money. You get your good RMs to stay. You just snowball that. And as I said, it's across the segment. It's not just PB. It's also the middle. It's also the lower end. So our view is get the high ROE business and get that churning well and you get an increasing sticky base. Come what may, whether it's that you'll get the icing from a nice market. When the markets are no good, you hopefully have it. You have some cash, CASA, and then you also have discretionary. We're trying to move some more into sort of more recurring fee. Then you should build a buffer for that, well, right? So that's higher ROE business.
So the 15%-17% is based on an assumption of a long-term neutral rate of about 3%. So if rates stay north of 3%, that tends to lift it closer to the 17% side. If rates head to 3%, then it gets to that rate. That's the single biggest variable. What do you model the interest rate outlook as? And when we get 15%-17%, it is an assumption that rates will go back to a 3% normalized rate. If it doesn't, then inflation is high and sticky. Rates stay at 4%. There's upside. So it'll be closer to the 17% than the 15%. Then we had three other questions.
The lockup.
So I said we've got a few other things in our pocket. So the MAS capital is about $1.5 billion, which we haven't factored into our at some stage, they will release us from it. So that would be also an additional thing on top of it.
The NIM to exit NIM.
Actually, the exit NIM is not. There's also still some noise. The right way, I carefully said, our guidance NIM is closer to 212. I think that's what your outlook should be. Your starting position for the year is about 212-ish. The ups and downs that we lived last year, even though I saw some analysts commenting on NIM with a positive surprise, it's noise.
So the hedging is both on the U.S. and the Sing.
So hedging on both.
Yong Hong, City?
Yeah. Just following up on that question. I think the 15%-17% ROE targets that you gave out two years ago, does that include whatever capital planning that you have released today? Because just factoring what you have done in the capital return of SGD 0.15 or SGD 1.7 billion this year, that's already 50 basis points left to your ROE. Just curious if whatever you have done today.
Remember when we did the investor day, we said that we were going to achieve this on the back of what Piyush mentioned, rates of at least 3%, and we showed you that we have to do capital returns. Otherwise, it will continue to be a drag on ROE. We have factored that.
Maybe just some clarity on your net interest margins in this quarter was helped by your easing Treasury markets book. Does this negative part can be positive? Because I think since you.
In the past, Treasury always used to make money on the interest income. It's only in the last two years that they've been funding higher than they've been, and then they've been giving it up on the swap, but if you look at the negative drag from Treasury by the fourth quarter, it has reduced a lot, and if you look at this thing, it's coming down quite, so it's not impossible that this breaks even in terms of.
A large part of that is actually funding equity structures, right? So if you buy equity, you don't get returns, but you have a cost of funding the equities. So the equity product that you sell to your PB customers, etc., they all appear under the other income line. So you only have the net interest expense. That's why it's always a drag.
Finally, I think you guided about SGD 400 million in your BPS. But I think because obviously the Singapore book is a moving number, just curious what is your tax rate that you have done to calculate that SGD 400 million impact from your BPS?
Just take this year. This year is about 12.5%. So if you take the delta, 2.5% that you have to pay, that's SGD 400 million.
To the group basis, you are 15%.
You look at Singapore.
Most of other places, we are over 15%. It's only the Singapore net group, this thing, that we are under 15%. We're going to top up.
Singapore book, you will move to 15%. Whatever concessionary tax, they'll be gone.
It's all gone. It's all gone. Under the badge.
Thank you.
That's why we sold properties also. Because they all come under the new regime where you actually have to get tax. Even though under the old regime, capital gains tax is not provided.
There's no questions online, so last question from William. Go ahead. Go after.
I'm just on the duration part. I think you said that you prefer not to extend, but because the agreement is flat. But since you're looking at two rate cuts, I was wondering whether it still makes sense to extend given that your ROE is?
So first of all, look at this opportunity. So the rates move around. So if we get an opportunity, we will. And then there's some asset classes where you can extend and you also get some credit pickup. So if you went and bought Ginnie Mae today in the dollar book, you can still get a pickup. So not that we won't do anything, but it won't be a systematic program that we've had so far. We'll look at the opportunities to extend where it makes sense.
And on OpEx, I think your OpEx on a full year was a bit missed versus a higher than consensus estimate. So I was just wondering what growth amount you are budgeting for this year and then what programs or what investments you are looking at for this year?
We're budgeting mid-single digit.
This year is high only because I.
Last year.
Yeah, last year I targeted cost-income ratio. The cost-income ratio is 39.9%. We had the opportunity to take in some more expenses like paying the staff a special bonus and doing some fixed asset improvement and give Su Shan a clean sheet to work from.
Just one last question I have on Malaysia. I'm just wondering what is the best if you're looking at it, which would be the best form to enter for you to go in? Could you not expand organically or do you definitely take a minority?
We're not. There's nothing which is cast in stone, right? As a general rule, going in and taking a new license is very hard. If you want to start de novo in a country and be the 12th bank in the country where we are, we try that. You would do that, but then you'd be very, very focused. They asked us as part of the Johor Economic Zone, could you do something only in Johor? Yeah, maybe we could do this thing. So it depends on what the regulations are and what the shape are. If they tell us, "Okay, we'll give you a license only for Johor to do something," we'll still look at that.
They're both in the court.
Last follow-up from Harsh.
Yeah. This is on the Temasek stake. Let's say if we do buyback and it starts hitting that close to 30%, technically, what are the various options available? That is a hard number, that 30, and that's when you stop your market.
Technically, the first one.
What are the various options?
Right now, we have SGD 3 billion. We still have headroom of another SGD 3 billion. We could do without hitting the 30% on top of this first three. So we have some push. Second technical option is that Temasek can go apply for a whitewash to the SEC and to stock exchange so that they're not forced to do a general offer at 30. I think they would be very careful about going and looking for special deals. But technically, you could do that. The third is obviously they can keep trimming down their stake and creating more headroom. And the fact is that when stock prices are at 45, they're also somewhat tempted to create monetize and create liquidity, right? So all of these depends on what their outlook is and what their portfolio is and do they need more?
So, on your calculations, this SGD 3 billion, another SGD 3 billion, and that is still okay without hitting the 30%?
Yeah, without Temasek taking action.
Without them taking action, we could do another.
We can do a perpetual type of buyback.
Sorry, what is that?
Meaning if they trim at the edge, you can always do more buyback, right?
Yeah.
Thank you.
All right. Thank you all. Thank you again to the media.