Good morning, everyone. Welcome to the DBS Analyst Briefing. You've already heard the media briefing, so we can go straight to Q&A. Some very brief instructions before we start. If you'd like to ask a question, please press the raise hand function, and then we'll call upon you to unmute yourself. Can we request that you put yourself back on mute after you've asked your question so we can avoid any echo? Without further ado, the first question is from Yong Hong from Citi. Yong Hong, go ahead.
Hi. Hello. Thanks for the opportunity, and happy SGD 100 billion market cap. I have three questions. Maybe I'll ask them one by one. My first question is on loans. I think the non-trade corporate loans were great, and I think there was also some currency impact. Is this too early to take it as a sign that the borrowers are accepting that rates will be higher for longer, and would that be upside to our low single digits full year view? Just wanted to get some sense if this momentum can continue for the year.
I think it's too early to say that. I think it's correct. So we had strong momentum in the first quarter. Our pipelines for the second quarter are solid, but nowhere near as strong as the first quarter, for example. So at this point in time, changing our guidance of low single digit loan growth, also the revised outlook on rates, that rates will continue to stay higher, means I think we'll continue to see some headwinds in the Hong Kong book as well. So yeah, I mean, short answer, I think it's too early to make a call.
Okay. Got it. My second question is on your.
Sorry, Yong Hong, maybe just to add, we show actually in the CFO presentation, the loans are stated in constant currency. So the growth of SGD 6 billion this quarter is in constant currency terms.
Okay. Got it. Thank you. My second question is on your guidance. I think 6%-7% of income growth versus low 40% cost-to-income ratio. I think based on these two guidance seems to imply some slowdown in your top line and some pickup in OpEx. Just want to confirm if this is what you're guiding for.
Yeah. The slowdown in top line is because of uncertainty. First quarter was very strong. And first quarter, our first quarter generally tends to be stronger, and the fourth quarter tends to be weaker, partly because of the market conditions in the beginning of the year and the end of the year. So I think it would be unrealistic to take the first quarter and multiply by four as an example. So I do think that we'll see some moderation in growth as you grow through the year. In terms of expenses, what we got, full year expense, a high single digit, we're keeping that. We don't expect any unusual growth in expenses either. But when you look at the income projection with the expense, you actually wind up in the very low 40% range.
Okay. Got it. And there's still non-interest income that could potentially come from your non-interest income. For example, your wealth management, your treasury customer sales was exceptional this quarter. Do you expect that to moderate over the course of the year?
Well, the wealth management was very strong. So far, the momentum's continuing. But part of the strength in wealth management came. Wealth management is also animal spirits. So people feel good about the macro environment. And if you remember going into January, everybody figured rates were coming down. And so a lot of people were more open to putting money to work in the markets, right? So if rates don't come down, if Powell says something and the animal spirits recede, then you wind up seeing some headwinds. I mean, there is some certain correlation between market sentiment and the wealth management fees. So that's the thing which is a little uncertain, whether we can continue to get the same growth as we got in the first quarter, unclear. But like I said, we started the second quarter with the same momentum.
Okay. Got it. My last question is on capital. I think even if you're enlarged capital base, you continue to accrete capital. And if you assume these MAS penalties get lifted, there will be another 90 basis points to your capital ratio. And you add that 100-150 basis points transitory relief from your baseline framework. Just wanting to get a sense on how are you going to manage this excess capital in a short to end-of-medium term.
Well, we're going to obviously have to keep looking at our capital position and our opportunity return. We're going to do that through the year because what you said is correct. Right now, we are accreting a lot more capital than we are paying out. And so obviously, that's not sustainable. So yes, we will evaluate it through the year.
Yong Hong, just a clarification. The impact of the additional OpEx charge is 70 basis points, not 90 basis points.
Okay. Got it. Yeah. Maybe I'll go back to the queue.
This is applicable to the Singapore dollar operating income only.
Yeah. Thanks for the clarity. Thank you.
Okay. Thanks, Yong Hong. The next question is from Aakash from UBS. Aakash, go ahead.
Great. Thank you for taking the question, and congrats on a blowout quarter. The first question is, again, on loan growth. I think you're sounding a little bit more optimistic. You're not necessarily extrapolating the loan growth momentum. But if I can ask at the margin, is this slightly better growth coming from better gross demand, or is it lower repayments when you compare it to last year? What sort of trends are you seeing there?
Gross demand, Aakash. So the repayments, actually, the only place we're seeing higher repayments now is really still the Hong Kong book. The rest of it is, I mean, some people borrow for short term and repay. In working capital, that happens all the time. But this was all a lot of demand. The commodity complex, I think, both energy, I think oil prices going up meant there was more borrowing there. But soft commodities also, there was more borrowing there. Yeah. So the demand was broad-based, particularly India. So India, where the chunk of that loan growth came from India, that's also quite broad-based.
I see. And you mentioned commodities and some of the loans in Singapore. But is there something going on in the manufacturing or technology-related sector as well, or that's not really showing up yet?
Yeah. It wasn't in the first quarter, but in our pipelines, we are seeing some very decent pipelines in the energy complex. We're seeing some decent pipelines in manufacturing and minerals and some in TMT. So yeah, there is some in the manufacturing complex as well, though it wasn't the bulk of the first quarter growth.
Okay. Got it. And then the second question, Piyush, is back on capital. I think it's pretty clear that you need to do more than what you have committed so far in terms of the core dividend increase every year. The question I'm wondering is, last quarter, when I asked you this question, I think you said that the MAS was not really restricting you, but maybe the optics were not correct. You do a special dividend in Q4. The question I'm asking is, in second quarter, do you think with this hurdle removed now, it opens up the door for you to do a special dividend, or would you still focus more on a core dividend increase or an off-cycle increase kind of thing, which?
I guess the honest truth is that we haven't evaluated it at the board. So it would be remiss of me to tell you how we might think about it. I think the underlying premise that we are accreting a lot more capital, that is true. And so we will evaluate it at the board over the next few quarters on what is the best way to return it.
Okay. And this can happen before Q2 as well, right? Because that's in the board meeting happens every quarter.
Yeah. It could happen. I mean, there's nothing to prevent it from happening in Q2. But like I said, let me hasten to add, it's not something we've evaluated yet.
Okay. Got it. Thank you. The third one, I don't know how much you can comment on that, but some clients that I'm talking to are suggesting that there is this chatter that you're going to retire this year. Can I ask you for any comments on that?
No. I'm not retiring this year.
Okay. Great. Very good to hear. Thanks, Piyush. The fourth question I have is just on the so the higher rates and higher for longer environment, I think right now is good for the company, good for margins, and good for the stock, which kind of makes sense and is, I think, the right view. But at some point, this will start becoming a problem or a concern for asset quality. So from your perspective, if this scenario one where rates don't rise, how long does it take for them to stay at this level when your NPA formation starts rising? Or scenario two, if they actually do rise further, then what level of rates do you think your NPA formation starts accelerating from the current level?
So I don't know the answer to that. As I've said before, I would have expected NPAs to be higher already for the last 12-18 months, right? And we've been sort of all girded up for that. We built up reserves. We kept up overlay cushions because I fully expected that rates where they are, you should see a lot more NPA and cost of credit. So it has been one of the big unknowns to me why we are not seeing it anywhere in the world. And by the way, it's not just in our book or in Asia. You're not seeing this pickup anywhere in the world. And there's a lot of speculation. And part of it, for the first couple of years, people thought it was the fiscal spending support provided by all the governments.
But I have to believe that a lot of that must have run its course by now. I do think that there's an element of excess money sloshing around. I mean, the $4.5 trillion that the Fed printed, I think that just has a huge bearing on availability and liquidity around the board. So maybe there's an element of that. But I don't know. The short answer is I don't know why you're not seeing more cost of credit. But as we do our forward-looking stuff, all of our companies, all of our individuals, they're all quite resilient, except the one piece. You begin to see a pickup in this thing in the consumer book. So if you look at our SPs for this quarter, we had almost zero in the corporate book. The entire SGD 115 million of SPs is almost entirely the consumer book.
The consumer book is inching up. It's now still nowhere near its peaks. It's nowhere near where it was in GFC or whatever. It's at least 20%-30% lower than those levels. But you can see that the higher interest rates are beginning to stress. Some stress is beginning to be seen in the consumer book. Similarly, SME and mid-cap, I would have expected a lot more by now, not seeing it this marginal pickup in delinquencies, but nothing to write home about. If rates continue the way they are another year, two years, does that shoe begin to drop?
Like I said, I've been expecting it for a year, so I won't be surprised if you begin to see more stress, which is one of the reasons why we're just hanging on to the excess reserves we built up. We've not reversed them because just the high-interest rate environment just gives me reason to pause and figure at some stage it might come.
Got it. So two follow-up questions on this, Piyush. One is, you do have some 70-80 basis points of excess provision buffer. So with that on the book, why do you think your credit cost can go from 10 to 17 to 20? Why will they normalize? Why will they not stay at 10, and you can use that buffer to take care of any NPA pickup that is happening? And the second question is, I think if you go back to your comment about why it's not very clear why the credit cycle has not deteriorated, I think the nature of this credit cycle is also very different, right? So typically, in a credit cycle, we do see a lot of increase in leverage. Loan growth is very strong in the early parts of the cycle, which causes NPLs. This time, that was very different.
Loan growth was actually negative for a while, for a number of years at a system level. So is that one of the reasons do you think why you won't see any systemic problems, but there might be some idiosyncratic in the CRE space and stuff, right, in Hong Kong or in the U.S.?
Yeah. So let me start with the fourth observation. I think that's I didn't talk about them. I think that is one of the reasons. Both the corporate actually, at a sovereign level, countries are much stronger and have far more flexible exchange-rate policies, and reserves are much stronger. So country-level crisis that you've seen in the past, I'm not seeing that. Leverage in the system has been much lower. So borrowing was much lower across the board. So what you're saying is right. And therefore, you're right. I mean, I'm not seeing that other than idiosyncratic stuff in some sectors. So I'm just being prudent. The second observation you have is also correct. We have actually four bites at the cherry. First of all, our current SPs are at 10, right? And so even I'm sort of baselining at 17-20.
So I have a lot more cushion in my current baseline. Then my second bite of the cherry is my income, this thing. We generated SGD 3 billion in the first quarter. So even if you wind up with a few hundred million more credit, we have the earnings capacity to be able to take care of it. My third bite of the cherry is the excess reserves are built up. We've got SGD 2 billion in overlays. So if my earnings are not enough, then I still have SGD 2 billion to take that. And then my fourth bite of the cherry is capital. We still have enough capital. So when I say that we are very solid, we have a very solid balance sheet, it's because I do think that right now, our income statement and our balance sheet are so robust, we can take a lot of pain.
But could the situation be more painful than it is now? That's my only comment, that yes, it could be more painful than it is. Right now, it's just too unbelievable.
Got it. Understood. The very last question I have is, I think if I heard it correctly, you mentioned that you're now assuming two rate hikes this year versus five rate cuts last quarter. Is that correct?
Yeah. The market's pricing 40 basis points. And so I'm still of the camp, well, till Powell's yesterday's statement. I was still thinking that we'd get a June, July rate hike and then another one or rate, sorry, rate cut. I said rate hike even earlier, the rate cut. I was still of the view that you start seeing two rate cuts. But with Powell's statement now, it could be that there is even less likelihood that they cut rates. But right now, we are currently thinking maybe one, June, July, one, September.
Okay. So it's rate cuts, not rate hike. Got it. Thank you. I think that's all my questions. Thank you.
Okay. Thanks, Aakash. Next question from Jayden from Macquarie.
Hi. Thank you very much for the opportunity. And yeah, well done on an excellent quarter. A couple of follow-up questions just on the outlook for net interest income. I think during the media briefing, you said, Piyush, that there was maybe SGD 100 million of uplift. Sounds like that's assuming two rate cuts this year. I guess my question would be, if there's no rate cuts at all, is that number higher? And then secondly, is there some potential uplift if you see more opportunity to manage the liabilities a bit more proactively? I mean, the domestic system is really flush with liquidity, and it sounds like there's not a huge sort of pipeline for loans based on your previous comments. So just wondering what your thoughts were on sort of the sensitivity for NII from here.
I think if there are no rate cuts, there is more upside. That's correct. So right now, our projection is based on two rate cuts like I just described. So if there are none, I think there will be more upside, yes. And then on managing our deposits, we've actually been quite sensible about how we manage our deposit pricing. And so I don't know if we have a lot more opportunity to be sharper on deposit pricing. We have a large CASA ratio. And on CASA, our payouts are very small. A large part of our savings book, we pay out just 15 basis points. So there's not a lot more opportunity to be sharper on deposit pricing. At the same time, in some cases, you still need, you can make a positive margin, but you've got to pay the market rate.
The Singapore government is issuing Treasury bills at a yield of between 3.5-3.7. It ranges around that. So if you want to pick up any money in the fixed deposit space, you've got to match the T-bill kind of or you've got to at least keep in mind the T-bill benchmark. Right now, it still makes sense to pick up some of that money because, like I said, you can still make a positive carry if you bring in money at that rate.
Okay. Thank you. And my next question is just on the wealth fees. You obviously integrated the Taiwan business, and you're now by far the largest foreign bank in Taiwan. How much of the growth in wealth fees is from that Citi franchise, and how much more do you think you could do? Because I know that on the media call, they're asking about India, but I would expect that your value proposition in Taiwan is actually very interesting. So did you have any color you could share on that?
Yeah. I indicated before, our total wealth fee growth for the quarter is some 45-odd%. And if you exclude the Taiwan business, it's 35%. I think Taiwan accounted for about 12% of the growth. You've got to remember, 47%-35%. So about 12% came from the Taiwan business. But your observation is completely spot on. So we are finding tremendous value on both sides of the franchise. On the DBS customer base, Citi had some product capabilities which are additional and accretive. And we had to bolster ourselves up because we had to make sure those are available to Citi customers. So, for example, online equity trading, we did not have that, but Citi was providing it to their customers. So we had to build that capability. Of foreign exchange, Citi had much better, more robust foreign exchange products than we do.
So we've been able to layer that on and provide that to our customers. In the first quarter, we're already seeing that our customers are, therefore, improving the yield on the AUMs because we are doing more with them. Similarly, on the other side, the Citi customer base, they were actually not very strong in structured product and structured notes, which we manufacture, and it's a big mainstay of our wealth offering. By being able to offer that into the Citi base or bancassurance into the Citi base, we are getting better outcomes from the Citi base as well. This is still early days. I mean, we integrated in August, so we really had two quarters under the belt. I'm actually quite energized by the upside I'm seeing on both sides of the franchise. I do think there's a real opportunity there.
That's very interesting. Thanks a lot, Piyush. Really appreciate it.
Thanks, Jayden. The next question is from Melissa from Goldman.
Hi. Thank you very much for taking my questions. Congratulations on the very strong quarter. Just in terms of your NIMs, maybe can we give a little bit of a color? In terms of the HIBOR pressure, what was perhaps the NIM compression that was coming from that? And then maybe the NIM in terms of the repricing higher, how much we had. And can you just, again, share how much more of this repricing that we could see in the next quarter, like in second quarter? With HIBOR now a bit more stable, do you think we can see a NIM expansion? Also, just looking forward, much forward into next year in terms of NIMs, you have done hedging before. I just wanted to kind of think about your hedge position now and how much that would help in terms of next year.
Could we still see a better NIM outcome versus what we expected with more hedging or perhaps if you had done more hedging for next year? That's my first question. And then second question in terms of NPA formation. I know you mentioned on the call it's just quite small. It's business as usual. But do you think you can give more colors to what drove the NPA formation increase this quarter? Yep. I'll just stop there. Thank you.
So the Hong Kong HIBOR so certainly, HIBOR came off quite a bit between fourth quarter and first quarter. I think it's 55 basis points on the one-month rate. So the impact to the group NIM is actually two basis points. So we guided that this quarter, we had two basis points increase in commercial book NIM helped by the duration portfolio but offset by HIBOR. So the HIBOR impact was actually two basis points.
Your other question on NIM. So you're right. We put on hedges. Our total fixed-rate book is SGD 184 billion, right? It was SGD 180 billion at the end of last year. So SGD 16 billion of that book repriced, but we also added another SGD 4 billion. So we actually put on duration of an additional SGD 4 billion. And when we put on duration, the bulk of the duration is between two and three years. So we're not going out very long on the yield curve. I'm still kind of wary of what might happen to the long end of the yield curve. So we don't want to take too much of a risk on that. But even going into the belly of the curve at the three-year point, it gives you a very decent 2% lift in your yields, right, which is what we're trying to do.
So now, as you said before, this year, SGD 40 billion of our book is repricing. Of it, SGD 16 billion happened in the first quarter. The balance SGD 24 billion will happen in second, third, and fourth quarter. A large part of it is front-load. If I remember, out of the SGD 40 billion, about SGD 27 billion or SGD 28 billion happens in the first half. So I want to say about another SGD 10 billion-SGD 12 billion will reprice in the second quarter. And all of this repricing gives us that lift. The third and fourth quarter is a smaller portion. It's about SGD 12 billion repriced there. But all of this, when you put in, it starts flowing into that incremental yield that we get, that insulates us. On the other hand, as you know, we have headwinds on NIM which come from two things. One, obviously, if you start seeing rate cuts, then you see headwinds.
Also, as you know, there continues to be a gap between the U.S. dollar Fed funds rate and the domestic rates in Singapore dollar and Hong Kong dollar, right? So the HIBOR gap was unusually high, but all through cycle, we don't get the full benefit of the dollar hike. And so there's a little bit of headwind from there. And there is headwind because of repricing of CASA. That continues to be the case. So our deposit beta is today at about 40% in the last quarter, which means whatever has been hiked globally, we've passed on about 40% of that in a blended way to our customer base. And as rates stay higher, the deposit beta keeps edging up. Now, it's less than I thought it would be at this stage, but it still heads up. So all of these are headwinds to NIM.
The repricing of the fixed asset book is the tailwind to NIM. When you balance all of that together, our modeling suggested that we will see relatively stable or marginal decrease in NIMs from last year's exit level. I think we're on track. I haven't seen the modeling around next year and what we're going to see next year. But if you assume that there is no change to the rate outlook, I think it'll probably be somewhat of a continuation of this year's trajectory.
Maybe just to add that as we guided in the fourth quarter last year, we are not actually optimizing to the hill, meaning if we had not consciously put on some duration in the two to three year, we actually will get even higher net interest income. But because we are actually adding duration, we are prepared that there will be some opportunity costs as we trade off short-term for longer term. That happened in the fourth quarter. It has happened again in the first quarter.
Your second question on NPAs. Actually, NPAs are interesting guys. For example, one of the NPAs is in Myanmar where the underlying company is performing well, but the government has exchange control regulations. And therefore, they're unable to remit the money out of Myanmar. So we've had to move it into NPA and take a loss. Another case is in India where the joint venture between one of our clients and a UK-based firm, and they've decided to unwind the joint venture so that they're going to go into some kind of distribution agreement. And so we're having some challenges with that situation. So that's another NPA.
A third is a residential project in Hong Kong where we haven't taken any SPs, actually. Our loan-to-asset is very low in the 20s. But we've had to take that because there was a default somewhere in the system on that loan. So it's quite widespread in terms of NPA formation. There's no trend or trajectory there.
Right. Thank you. Thank you.
Thanks, Melissa. Next question from Harsh from JP Morgan.
Yeah. Hi. Thanks, Piyush. A few questions. First, on margins, thanks for explaining the moving parts. Is it fair to say that, as Sok Hui also mentioned, that with ROE so high, is it more likely that you would give up a bit more on NIMs to ensure that the longevity of. To handle on NIMs, let's say, in 2025 and potentially longer? So what I'm getting to is, let's say, if you can get two, three, four basis point higher over the next two, three quarters, you would rather let it go and ensure either duration or market share so that we get much longer NIM outlook, a visibility on NIM even when rates start coming off. Is it possible to do that? And is that what you are looking to?
Yeah. So in a nutshell, yes. The short answer is that's exactly what we're doing. There are two things. One, you asked me this question the last time. That's still the case. One, we are not first, I'm not managing to NIM. I'm managing to increase income. I'm managing to longevity, to making sure that we have some stability in that income over the next two, three years. So you asked me last time whether we'd give up some market share in the mortgage market in Singapore to protect the interest income. The short answer is yes, and we're still doing that because right now, the market is pricing mortgages at 3%. They're pricing fixed deposits at 3%. And I don't know how that makes any sense. And so we've been quite disciplined on that front. Similarly, your point, Sok Hui said this as well.
We could just take the assets which are repricing and put them into central bank placements. Today, central bank placements in any currency, whether it's in China or here or anywhere, or just short paper issued by the central bank, gives you much better returns than going and buying two-, three-year paper. Much better means 30-40 basis points you can improve if you do that. But the problem with that is that that's now. It gives you the returns for one month or two months. What happens when the rates start falling off? And so we are compromising, and we are trading off the short-term interest income and NIM, in that case, interest income as well, and just locking in the rates as we can. But also, we're being sensible. We don't want to go too long out on the first of all, yield curves are inverted.
So even going further out doesn't make me more money. But at the same time, I'm unclear about what could happen to the yield curve in the long tenors. But the mid-tenors , I think, are sensible. It protects our income into 2025, 2026 quite well without giving up too much income in 2024.
Right. So basically, what I'm trying to get to is if we get, let's say, one rate cut or two rate cuts or five rate cuts so one or two rate cuts, is it still we can get a flattish NIM ±5-10 basis points over the next year or two? Of course, if it's five rate cuts, then you can't. So how much of insurance you have been able to buy with this duration longevity?
I don't have a specific answer, Harsh, because I haven't done the modeling and the numbers going forward. We can probably do it offline and tell you. But I think it's another way to think about it, right? I told you our fixed-rate asset book is about SGD 184 billion. If you look at our total commercial book, total assets, they're probably about SGD 550 billion-SGD 600 billion. So it's about one-third of our book is locked in, and it tends to be locked in for two to three years. That's the insurance we're buying on one-third of the book. That's one way to think about it.
Yep. Got it. Thanks. The other bit is on the capital. We have had that discussion. It'll be good to get a refresher on how do you think about the pros and cons of special versus regular, buyback doesn't make sense at that price, and potentially M&A. How do you think about all these three uses of capital?
I think they're all good uses of capital. As you know, M&A, all the M&As we've done have been sort of bolt-on and manageable. So capital for M&A is even if you use it, it's a few hundred million dollars. The maximum we put to work was with Citi, Taiwan, which was also sub-$2 billion. So yeah, there's nothing obvious that is huge which would eat up a lot of the capital. And our capital surpluses are running to several billion. So you're really looking at returning capital. And returning capital, both of those, special dividends, ordinary dividend hikes, special dividend, and the other ways are all on the table because we are accreting so much capital.
If you look at our first quarter, even with all of the extra SGD 0.54 and the larger bonus shares, our payout for the quarter is still in the very low 50s. And therefore, if you're really going to return all of the surplus capital, that payout is going to have to go much, much higher. And so we have to, obviously, think about the ordinary dividend, or we've got to think about special and so on. I mean, again, like I said, I don't want to be premature because this is a board discussion. It's not just a management call. And we will evaluate that in the coming quarters.
Right. Yeah. So on that, is there because right now, SGD 10 billion looks defensible this year, maybe next year substantially. But then if you have much sharper rate cuts, it becomes a bit of an issue. What I'm getting to is, is there a payout percentage limit because at some point in time, you will see significant balance sheet growth. So that's where that special versus regular that as in, is there any guidance or anything that you think that beyond this, we should not go above, let's say, 60% or 70% payout even on a medium term because that will constrain your ordinary dividend at some point in time?
We don't. Our policy is never architected around payout rates. Our policy is architected around making sure that we can pay sustainably growing dividend over time. And so you're right. In a sense, we do think about that, that we don't want to have to go back and cut dividends. And therefore, as long as we can make sure that the dividend posture is such that we don't have to go and cut dividends, then we can afford to pay. But we don't necessarily take a payout prism on that.
Yep. Yeah. The final one, Piyush, probably a different way of asking. It has been a phenomenal earnings that DBS promoted in our discussion till now. This year, you very clearly said you would stay with DBS. But as you look at, let's say, next three years, what do you see yourself what are the challenges that you are setting up yourself for? And is it still DBS three years from now, or is it something bigger that you're looking for? Thank you.
First of all, three years, who the hell knows, right? It's a long period of time. But I think the better way to answer this question is we are very robust succession planning at every step in the every level in the organization. And we've had that for 10 years. So I think all of you guys should take one reassurance in the fact that all our senior first of all, we have stability. But wherever we've had loss of senior management, we've been able to fill it internally. And we've been able to grow our people across all of our things. My management committee of 20 is all homegrown. So we groom and grow our talent. We move them around. We give people exposure. We give people experience. We have a very, very solid team.
The reality is that we've had a great earnings, but it wasn't a Piyush Gupta story. If you look at the senior management team, it's a very stable senior management team and has collectively worked over this for a large number of years. So I wouldn't make too much of a big deal of whether I retire in three years or five years. That's not the defining question to me. The question is, do we have enough momentum in the business? Are our strategies sound? Is our execution capability robust? Is the culture in the company long-lasting? I think the answer to all of those is yes, yes, yes, yes.
Absolutely. That's great to hear. Thanks a lot, Piyush.
Thanks, Harsh. The next question is from Jonathan from UOB Kay Hian.
Yeah. Good morning and congrats on the very strong results. I have two related questions relating to the contribution from associated company. They are down 16%, sorry, they are down 19% year-on-year. Firstly, is the performance of Shenzhen Rural Commercial Bank poorer than expected? And then secondly, do you see this weakness persisting to the subsequent quarter for the rest of the year, or will we see a turnaround? Thank you.
I'm looking at Sok Hui because I didn't think it was down. Actually, it's doing quite well. Sok Hui, why is it down year- on- year? I didn't notice it.
Let me just come back to you quite quickly. Maybe you take the next question.
Yeah. So in short, the Shenzhen Rural Commercial Bank is doing well. So we are not seeing a problem in the performance. And if anything, because we increased our stake by 2%-3%, the contribution's gone up, not down. So there must be something with Sok Hui. I'll check and get back to you on.
Okay. That would be great. Thank you.
Okay. Thanks, Jonathan. We have a follow-up question from Yong Hong Tan from Citi.
Hi. Thanks for taking my follow-up questions. Maybe just two follow-up questions. I think I heard or read about the Fed comments this morning. But on the flip side, just curious if you have done any sensitivity to your earnings if the Fed were to hike by 25 basis points or even 50 basis points further. Just want to get some initial thoughts if this will be net positive or negative to your earnings considering wealth management, funding costs, and asset quality.
It's very hard to say. In the last quarter, I'd said that there is a trade-off. At this level, if rates go up, obviously, it helps our net interest margin. But on the other hand, like I earlier said, I'm wary of the cost of credit. Even at these levels, I've been wondering why it's not increasing. And if there are further rate hikes, I definitely think you'll see more cost of credit. And then the second thing, what I talked about, animal spirits as well. So if the sentiment in the market worsens, then it impacts our investment banking fee, it impacts our wealth management fee. So I think net-net from here on, it's a bit of a trade-off. If rates increase more, I think you could see a wash.
Jonathan, coming back to you on your question on share of profits of associates, I think NETS was actually one of the contributors. So you should see it across all the three banks. I think it's just got lower profits for the quarter versus last year.
Yong Hong, did you have another question?
Oh, yeah. Okay. Maybe a second follow-up question will be on ROE. I think there could be some mark-to-market unrealized losses in your equity this quarter with the rates staying higher. But I think that shouldn't be too big. But just wanted to ask if you have any updated views on where your ROE can be for this year.
So yeah, there will be some mark-to-market. But it's not big. First quarter was almost nothing for FVOCI. So far, I think there's $200 million in this quarter because rates have held up. But it's not huge. But ROE, it's hard to call. Our long-term guidance, we said, is 15%-17% in a normalized interest rate environment. I think the safest thing I can say is I think we can beat the top end of that in the course of the year. But I don't have a specific number for you.
Okay. Got it. Thank you.
Thanks, Yong Hong. We have a follow-up question from Aakash from UBS.
Great. Thanks for taking my question. Again, just a very quick one on wealth management. I mean, this quarter did feel better than Q4, but I think it still didn't feel 45% better. So I just want to understand the very stellar strength that you've seen in wealth management. Was it coming on the back of certain products or certain markets which might be hard to sustain even if the rates environment and macro stays like it is today?
Yeah. So I wondered that. Out of the 45%-47%, 12% is base year Citi effect. So because we added Citi in this year, we didn't have it last year. So the knockback of.
So it's 45% Q-on-Q, 45% Q-on-Q.
Oh, because there's a.
That's a Q- on- Q, right?
Seasonality.
Seasonality.
A massive seasonality. The first quarter is always very, very robust. And then the second thing, you've got to compare this thing. I mean, the total thing comes from the fact that we've also collected a lot of money, right? We raised SGD 24 billion, SGD 48 billion, and then SGD 6 billion this quarter, right? We added SGD 54 billion in net new money in the last couple of years. And you take that money and figure that there is a 10% shift from deposit to investment. That's a lot of money that goes into investment. And the second is actually across the board. The people invested in bonds. The investors started to buy a lot. The uptake was structured products with equity underlying. So people are quite constructive on the view on the equity markets. So it was actually quite across the board. There is no pattern in that lift. It's very active.
Got it. On the net new money, I think one of the concerns some investors had was this money is coming so rapidly. How much of it will actually stay with DBS was one of the questions that was being asked. Have you seen any attrition in that net new money, or does it continue to stay with the bank and keeps coming in?
Well, it continues to stay with the bank. Typically, the money comes in, it's like 50% in deposits, 50% gets invested. And slowly, we try and convert more and more of that into investments. If you look at our AUMs, our AUMs are nicely up. I think SGD 367-odd billion. Some of that is obviously market action. Prices have gone up. But a lot of that just represents that the new money that's come in is stuck with us.
Right. And now that I think the wealth management of DBS has really become quite gained a critical mass in terms of the top five ranking in Asia, usually, wealth management firms set targets for themselves. Are you setting any such target in terms of AUM for DBS wealth management, let's say, five years from today?
I don't like to operate that way, right? So we are not number three in Asia in terms of AUM. But if you compare us to number two and number one, which is HSBC and UBS, there's a massive gap. UBS is still like 3 x our size in Asia. And HSBC is at least 30%-40% larger than us. So obviously, there's a lot of upside. For us, the key thing is to focus on the fundamentals. How do you continue to bring in new customers, and how do you get greater share of wallet of the customers that you do bring in? And whatever your net growth in this thing is an outcome of that. So as long as you focus on the basics, bring more customers, grow our share of wallet, the business will keep growing.
Okay. Great. Thanks a lot for that.
Okay. Thanks, Aakash. We have no more questions in queue. I'll bring the call to an end. Thanks, everyone. We'll speak to you next quarter.
Thank you.
Thank you.