Okay, good morning and welcome to DBS's first quarter 2023 financial results media briefing. Joining us on the line today we have our CEO, Piyush Gupta and CFO, Chng Sok Hui. To start, Sok Hui will take us through the first quarter highlights, followed by Piyush who will give additional color on the quarter and outlook going ahead. They will be speaking to presentation slides that can be found on our DBS investor relations website, you might want to follow along. Following that, we will open the time up for Q&A. Without further ado, Sok Hui please.
Thanks, Edna. Good morning, everyone. We start with slide two for those who have the deck in front of you. We achieved another record performance in the first quarter. Net profit rose 43% from a year ago to SGD 2.57 billion. Return on equity reached a new high of 18.6%, more than a percentage point above the previous record of 17.2% in the previous quarter. Total income increased 34% to SGD 4.94 billion from a 66 basis point improvement in net interest margin, as well as healthy business momentum. Loans grew 3% while fee income trends improved.
Commercial book total income rose 44% to SGD 4.67 billion, while Treasury Markets trading income normalized to SGD 269 million, in line with our guidance of about SGD 1.1 billion of trading income per year. The cost to income ratio improved 7 percentage points from a year ago to 38%. Asset quality was healthy. Specific allowances were at 6 basis points of loans. General allowances of SGD 99 million were taken as a prudence measure to strengthen general provision reserves. Compared to the previous quarter, net profit rose 10% as total income was 8% higher. Commercial book total income rose 6% from loan growth of 1%, a NIM increase of 8 basis points as well as fee income growth of 29%. The balance sheet remains solid.
Deposits were boosted by flight to safety inflows in March, including from wealth management net new money. Non-performing assets fell 3% from the previous quarter as new NPA formation remained low and was more than offset by repayments and write-offs. The CET1 ratio was at 14.4%. The board declared a dividend of SGD 0.42 for the first quarter. Slide three. Compared to a year ago, commercial book total income rose 44% to SGD 4.67 billion. Net interest income grew 69% or SGD 1.38 billion to SGD 3.38 billion from loan growth and a net interest margin increase of 104 basis points. Net fee income fell 4% or SGD 40 million to SGD 851 million as higher card and investment banking fees were offset by declines in other activities.
Other non-interest income increased 22% or SGD 78 million to SGD 432 million from higher Treasury customer income. Note that Treasury customer income is reflected in other income of the commercial book, while the Treasury markets trading income is featured separately under Treasury markets income. Treasury markets trading income normalized to SGD 269 million in line with guidance. Expenses rose 14% or SGD 238 million to SGD 1.88 billion, led by higher staff costs. The positive jaw of 20 percentage points resulted in a 7 percentage points improvement in the cost to income ratio to 38%. Specific allowances fell SGD 105 million to SGD 62 million, or from 15 basis points of loans a year ago to 6 basis points as asset quality remained resilient.
General allowances of SGD 99 million were taken as a prudent measure to strengthen general provision reserve. There had been a write-back of SGD 112 million a year ago. Slide four. Compared to the previous quarter, commercial book total income increased 6%. Net interest income fell 1% in nominal terms and rose 2% on the day adjusted basis. Loans grew 1% while net interest margin increased 8 basis points. Net fee income was 29% or SGD 190 million higher, with a growth led by wealth management, investment banking and loan related fees. Other non-interest income rose 35% or SGD 112 million from higher Treasury customer income. Treasury markets trading income was 32% or SGD 65 million higher from the seasonally lower fourth quarter. Expenses fell 4% or SGD 81 million due to non-recurring items in the previous quarter.
Expenses were stable on an underlying basis. General allowances of SGD 99 million were taken compared to a write-back in the previous quarter. Specific allowances were unchanged at 6 basis points of loans. Slide five. Commercial book net interest income rose 2% on a day adjusted basis from the previous quarter and 69% from a year ago to SGD 3.38 billion. Net interest margin rose 8 basis points from the previous quarter and 104 basis points from a year ago to 2.69% as assets repriced with higher interest rates, partially offset by higher deposit costs. Treasury Markets' net interest income was a negative SGD 113 million.
As explained in the previous quarter, this is due to net interest margin compression for its fixed income instruments, as well as higher funding costs for its non-interest-bearing and mark-to-market assets, which are generally offset in non-interest income. Treasury & Markets' total income, net interest income, plus non-interest income is a more accurate reflection of its performance. This quarter's SGD 269 million was in line with our guidance of SGD 235 million per quarter. Combining the commercial book and Treasury & Markets, the Group's net interest income grew 50% from a year ago to SGD 3.27 billion, while net interest margin rose 66 basis points to 2.12%. Compared to the previous quarter, Group net interest income grew 2% on a day adjusted basis, while net interest margin was 7 basis points higher. Slide six.
Loans grew 1% of SGD 4 billion in constant currency terms during the quarter. Non-trade corporate loans rose SGD 4 billion, led by Singapore real estate acquisition financing. Trade loans increased SGD 1 billion. Consumer loans fell SGD 1 billion, due mainly to wealth management loans. Slide seven. Deposits rose 1% of SGD 5 billion in constant currency terms during the quarter. As in the past year, CASA deposits declined during the quarter as customers switched to higher yielding instruments such as T-bills and fixed deposits. We saw a flight to safety inflows of deposits and wealth management net new money in March as a result of market events. Net new market flows almost doubled to SGD 3.6 billion in March, compared to a monthly average of SGD 2 billion in 2022. For the first quarter, net new money inflows totaled SGD 6.2 billion.
Our liquidity remains strong with the LCR of 147% and NSFR of 118%, well above regulatory requirements. Slide eight. Fee income. Gross fee income of SGD 1.01 billion was slightly below a year ago. Wealth management fees fell 11% to SGD 365 million. Transaction service fees of SGD 230 million were 4% below the record a year ago, but were in line with recent quarters. These declines were offset by a 21% increase in card fees to SGD 227 million. Fees from non-trade activities and investment banking were stable. Compared to the previous quarter, gross fee income was one-fifth higher, due partly to seasonal effects. Fees from wealth management, investment banking, and non-loan related activities were higher. Card fees declined due to higher year-end spending in the fourth quarter. Slide nine.
This chart, which we have introduced, shows the year-on-year % changes for total net fee income, as well as for the two major drivers of fee income over the past year, which are cards and wealth management. Total net income, shown on the beige line, fell 20% in January, continuing a trend of year-on-year declines in the first half and second half of 2022, when it fell 9% and 16% respectively. The declines reversed in February and March, when total net fee income rose 9% and 1% respectively. As a result, total net fee income in the first quarter was 4% lower compared to a year ago at SGD 851 million, as shown in the earlier slide.
Cards continued to grow strongly in the three months of the first quarter, sustaining the double-digit growth in the first half and second half of 2022. As shown in the slide, previous slide, card fees for the first quarter rose 21% from a year ago to SGD 227 million. Wealth management, which is the largest component of fee income, shown in the gray stack, fell 29% in January, in line with the declines in the first half and second half of 2022. The declines were due to base effect from the war in Ukraine and the subsequent concerns over inflation and the pace of interest rate increases, which affected wealth management activity. Wealth management fees were flat in February and March versus a year ago.
As shown in the previous slide, wealth management fees for the first quarter fell 11% from a year ago to SGD 365 million. Slide 10. The first quarter cost to income ratio, which had been higher than 40% in recent years, improved to 38%. Compared to a year ago, expenses were 14% higher at SGD 1.88 billion. The increase was led by higher staff costs. Compared to the previous quarter, expenses fell 4%. We had taken non-recurring items in the fourth quarter, including an accelerated depreciation for some fixed assets and a special award to staff. Expenses were stable on an underlying basis. Slide 11. Asset quality remained resilient. Non-performing assets fell 3% from the previous quarter to SGD 4.95 billion. New non-performing asset formation was offset by repayments and write-offs.
The NPR ratio was unchanged at 1.1%. On Slide 12. Specific allowances remained low in the first quarter at SGD 62 million or 6 basis points of loans. They were stable from the previous quarter and two-fifths the level a year ago. Slide 13. Total allowance reserves stood at SGD 6.27 billion, with SGD 2.44 billion in specific allowance reserves and SGD 3.83 billion in general allowance reserves. During the quarter, general allowances of SGD 99 million were taken as a prudent measure to strengthen reserves. Allowance coverage rose to 127% and to 229% after considering collateral. Slide 14.
Other comprehensive income was positive in the first quarter, partially reversing the losses for full year 2022, with the changes due to cash flow hedges and fair value to other comprehensive income debt instruments as interest rates ease. Other comprehensive income from cash flow hedges was SGD 445 million. Cash flow hedges of SGD 33 million or 6% of the commercial book and are used to transform floating rate loans to fixed rate via interest rate swaps to stabilize net interest income. The swaps are mark-to-market while the loans are not. This accounting asymmetry creates artificial volatility to other comprehensive income which reverses over the life of the swaps. Cash flow hedge reserves do not affect capital adequacy computations. Other comprehensive income from FVOCI debt securities was SGD 292 million as bond prices improved.
The remaining other comprehensive income items recorded a loss of SGD 223 million. They mainly reflect the impact of foreign exchange translation from investments in overseas branches and subsidiaries. Slide 15. Our fixed income investment portfolios amounted to SGD 104 billion, divided almost equally between fair value through OCI and held to collect, which are accounted for at amortized cost. Government securities accounted for SGD 51 billion or half of the portfolio. Singapore and U.S. government securities amounted to SGD 28 billion, with the remainder spread among the other major markets we operate in, as well as Japan. Supranational and other bank securities accounted for SGD 16 billion of the investment portfolio. The remaining SGD 37 billion is in the bonds of our corporate customers, which we are familiar with. These bonds are supplementary exposures to our loans to them.
The weighted duration of the investment portfolio is short. It was under two years for the fair value through OCI portfolio and 3.6 years for the held-to-collect portfolio. Of the total portfolio of SGD 104 billion, SGD 87 billion are high quality liquid assets as defined under Basel rules. Slide 16. The group's CET1 ratio declined 0.2 percentage point from the previous quarter to 14.4%. Profit accretion was offset by fourth quarter ordinary and special dividends of SGD 0.92 per share, as well as higher risk-weighted assets. The CET1 ratio of 14.4% remain above our operating target range of between 12.5%-13.5%, while the leverage ratio of 6.4% was more than twice the regulatory minimum of 3%. Slide 17.
The board declared a dividend of SGD 0.42 per share for the first quarter, unchanged from the previous quarter. Barring unforeseen circumstances, the annualized ordinary dividend is SGD 1.68 per share. Slide 18. In summary, our record performance, including achieving an ROE of 18.6%, reflects the structural improvements we have made from our ongoing digital transformation as well as the benefit of higher interest rates. Our ability to sustain business momentum as well as customers' trust during a quarter marked by market stress are the result of our solid capital position, prudent risk management, diversified business lines and nimble execution, underpinned by an ongoing digital transformation. Our business pipelines are healthy and asset quality resilient. Our multifaceted franchise strengths will enable us to continue supporting our customers and delivering shareholder return. Thank you for your attention. I'll now hand you to Vish.
All right, thank you, Sock Hui. I have three slides. One, some brief comments on the quarter and then a couple on the outlook. The first slide is number two. As Sock Hui pointed out, our return on equity hit 18.6%. It is reflecting the fact that, as you know, we took general provisions increase of about SGD 100 million. Actually, our underlying models would have required us to reverse out SGD 100 million. We actually put in an overlay of close to SGD 200 million in general provisions. I'll just talk about it in a minute on why we did that. If you assume that we hadn't taken that discretionary provisioning, our ROE would have been close to 19% actually.
Our business momentum for the quarter was actually very healthy. I mean, notwithstanding all the stress and strain in the global financial markets. The corporate loan portfolio has done well. Sock Hui said we grew by SGD 4 billion. That's pretty solid. It was in a real estate transaction in Singapore was noteworthy, but beyond that, we grew in commodities, we grew in TMT, fairly well diversified corporate loan growth. We also saw some loan growth in trade, but trade, as you know, is episodic, so it depends on the pricing. The fee income was what was really pleasing to me. January was obviously on a year-on-year basis still soft, and that's because of base year. January last year was before the Ukraine war, so the numbers were high.
Feb and March for the first time in a year, our numbers came up to flat to last year's level. We're not seeing the decline in fee income. It was broad-based. We saw the growth in wealth management, we saw the growth in card, we saw the growth in loans. Fairly solid progress with fee income. Our net new money inflows continue to be strong. You know, last year we averaged about $24 billion for the year. This year, first quarter, we continue to see that. We are a tad bit more than $6 billion of inflows in the first quarter. Our expenses were well managed quarter-over-quarter. They're stable. The high number is really, again, base year effect.
As you remember, we did some salary actions in the middle of the year. For the first half of the year, the number will optically look higher, but the second half of the year will allow us to catch up. We still believe that, you know, full year should be okay. Asset quality remains quite resilient. Our specific provisions, as Sok Hui pointed out, only 6 basis points. Our NPAs actually came down. The 1.1% number doesn't show it, but they came down by SGD 200-300 million of NPAs. That's actually partly because low new NPA formation and also we're getting repayments on some of our older NPAs. I guess you could ask, if that's the case, why are we adding up a couple of hundred million SGD in management overlay?
The short answer to that is this high interest rate environment is not precedented. Therefore, we're just being abundantly prudent and cautious in case there is some stress that comes out of the system in the later part of the year. There's nothing that we're seeing right now. In fact, I can talk about that a little bit more as I take you to the next couple of slides. If you move to slide three, which is the outlook. The overall business momentum for the balance of the year is still looking relatively healthy. It's quite interesting, while we're seeing a slowdown in the US and Europe, even in the West, I think there's a 50/50 chance that the economy, certainly the US, escapes a recession.
It might have some really slow growth, but might escape a recession. If you remember a couple of quarters ago, a recession was seen to be a certainty. Closer to home, we think China, 4.5%, 5% growth this year is quite likely. Hong Kong is seeing the positive impacts of a rebound. We think 3.5%-4% growth you'll see over there. Even the other countries, the larger countries, India, 5.5%, 4%. Indonesia, 5%. By and large, this part of the world, Asia, might be relatively resilient. Singapore is looking soft, but even Singapore, the leadership pointed out that we're likely to escape a recession through the year. The large corporate loan book, I think is going to be relatively okay.
Our pipelines are looking healthy. We think we're going to get growth. As I pointed out, trade is episodic. It goes up and down. It's difficult to forecast where that might wind up. Our moderation that I referred to is really two things. One, in the consumer space, the mortgage book in Singapore, I was hoping we'd get about SGD 2 billion of growth this year. On the back of the latest tightening measures, we might not be able to get to that number. It's still very early to call. Our bookings in the first quarter are beginning to turn around. You know, a couple of quarters after the tightening measures, in fact, our bookings got back to SGD 1 billion a month, so it's actually quite optimistic.
We'll have to watch and see what the impact of the new measures are. I do think it won't be draconian in the sense that, you know, 88% of our book is first-time buyers, and the first-time buyers are not impacted by all of these new measures. Hopefully it won't be a huge difference, but I do think we will see some headwinds in that space. The other space where we see some headwinds is in the wealth management margin financing, the term loans we give for wealth management products. The reason for that is people are quite well cashed up. At these high interest rates, they'd rather put their own money to work than borrow from the bank.
In fact, in the first quarter of this year, as wealth management fees started going up, we started seeing people draw down from their deposit account into their investment account without actually borrowing. We might see some challenges in trying to grow up that particular part of the book. Therefore, you know, our loan guidance, I've said 3%-5%, earlier I said mid-single digits. It's still kind of hard to say. You know, we could be at the top end of that, we could be a tad bit lower. The fee income growth also, as some analysts have pointed out, we've narrowed a little bit. I was hoping we'd be able to get double-digit growth.
I now think we might miss that by a little bit, and that's principally because, you know, of the turmoil in March, and the aftereffect of that. I think the wealth management, while it is stabilizing, the rapidity of change, the growth rates might not come through at the level at which we'd expected. Also, investment banking, you know, on a quarter-on-quarter, in fact, year-on-year, the investment banking was good, but some of that was early in the quarter. January started off quite strong, both for fixed income when we did some BCM stuff. In March, April, that slowed down a bit because of the market conditions and market turmoil. We've done activity, but it's mostly been private placement activity on the fixed income side and more secondaries and rights on ECM.
The uncertainty around the investment banking business is a function of what the markets are going to wind up doing over the next few months. Nevertheless, underlying some pockets are strong. Cards is quite strong and continues to be. Our spend is up some 30% over the pre-COVID levels. Overall fee income in cards is growing nicely at 20%+. I think that will continue to do so. Travel is beginning to continue to pick up. As I pointed out before, travel used to be about 15% of our card spend. It's still only at about the 12% level, so there is still some upside in the growth in the travel category, and that obviously is very attractive for fees. Next slide.
Our NIM, the area where we actually are a little bit short of what we're expecting is the NIM line. One of the things we showed a NIM of 212 for the quarter. One of the big challenges we saw was in Hong Kong. HIBOR normally tracks the Fed rates, LIBOR and the Fed rates very closely because of the fixed exchange rate between the US dollar and the Hong Kong dollar. This time around for this quarter, HIBOR is running some 50, 60 basis points below the US rates. This just because of a lot of liquidity in the Hong Kong market. Some of it I think is because people have switched their borrowing to China onshore because it's cheaper to borrow China onshore.
The drive of 50, 60 basis points in HIBOR is causing a NIM drag of between 3 and 4 basis points for us in our total book. What that means is that if it wasn't for the HIBOR break, the 212 would have been closer to 215 or 216 basis points. Now, the outlook for HIBOR in the coming months, later part of the year is still uncertain. The HKMA seems to be trying to reduce the aggregate balance in its accounts, but the HIBOR pickup is still very gradual and slow. It's difficult to say whether we get any lift from there. Overall deposit repricing continues, though it is slowing down.
You know, the bulk, about 70, we think 75, 80% of the deposit repricing is done, but we still have another 20% odd to go, which will happen slowly through the rest of this year. There will be continue some impact from that. On the other side, we're obviously benefited from the fact that, about 22% of our commercial book, is yet, of the interest rate bearing assets, is yet to reprice. We expect that to reprice a large chunk of that in the rest of this year and next year. We will get some cushioning of our NIM from the repricing of that commercial book. We put all of that together, I do think NIM probably peaked, but I do think NIM decline will be very gradual.
The last three months, February, March, April, NIM has been pretty flat. It's in the 2.11%-2.12% range. While I do see NIM beginning to creep down, it will be gradual. Overall for the year, we probably average somewhere between 2.05% and 2.10%. Expense, we are maintaining guidance between 9% and 10%, cost income ratio should be nicely below 40%. Asset quality, we maintain the SP guidance between 10 and 15 basis points. As you know, the first quarter is only 6 basis points, you know, we'd have to see a pickup in SPs in the second half of the year to get to the 10-15 range. Right now we're not seeing any signs of stress.
Delinquencies are not up except in very small pockets in Hong Kong and China unsecured. If I just look at the data, I don't see that SP coming through. The problem is because the high interest rates and the slowing economies, this SP number might pick up in the second half, we're just being cautious as we come up with our forecast. When you put all of that together, we do think we'll get a full year return on equity, which is likely to be over 17%. You know, overall, I'm hopeful that this will continue to be a solid year for the bank. Why don't I stop there and be happy to take questions?
Thank you, Piyush. We can now take questions from the media. If you have a question, kindly raise your hand. You can find that in the reactions button. We'll just give you a few moments to do that for the media. When I call on you, please accept the invitation to unmute yourself. Before you ask your question, kindly also state your name and the outlet, media outlet that you represent. Let's see if there are any questions. First question to Chanya. Chanya, kindly unmute yourself and go ahead and ask your question.
Eventually. Hi, can you hear me?
Yes. Hi, Chanya. I can hear you.
Hi, Piyush. Congrats on the numbers. I have three questions. The first one on Credit Suisse. How much flows did you get from Credit Suisse Wealth in recent months? SGD 3.6 billion net new money in March, how much of that came from the bank? Related question: Did DBS sell Credit Suisse AT1 bonds, and you have a number on your clients' loss from such bond? Second question: Any update on your investigation into the March digital banking disruption? Third question: Are you seeing much challenges from the banking crisis in the U.S.? Is it stopping at the JPM rescue of First Republic? Thank you.
Chanya, on the actual number that we got from Credit Suisse, we don't know. It's hard to estimate. I had indicated earlier that I think we've been beneficiaries in the last year of inflows because of this flight to safety. Some of those inflows are from North Asia, some of those inflows are from other banks, including the troubled banks in the US and Credit Suisse. It's hard to unravel how much comes from where. I am afraid I don't have an answer for you. On the AT1s, yes, you know, we sell AT1s as part of our overall portfolio to our clients. As you know, of our, you know, total SGD 309 billion of assets under management, about half of that are in deposit form, half of that are in assets.
Call it about SGD 150 billion in assets. Of the SGD 150 billion assets, the Credit Suisse AT1, I think is about SGD 140 odd million of that. It's actually a tiny percentage of the total investment portfolio of our clients. On the digital update, it's too early to say. We know, you know, what caused the problem. It is still the access control and authentication servers. There were some bugs in that application which caused this to happen. As you know, it is different from the previous incident because all of the measures we've taken over the last 12, 16 months were helpful. In about, you know, 50% or 60% of our customers were able to get in through the day.
We had to bring down the system for a couple of hours in the afternoon just to bring it up to 100%. As you know, there's a committee that's been formed. It's an independent committee being run by the board. We've appointed a third-party qualified person to review the incident. We are also engaging a couple of independent technology advisors for the committee. I think we should be able to get some insight into the committee's report in the next couple of months. I think hopefully by July or so. Your third question, the U.S. banking crisis. Frankly, you know, we've not seen too much direct impact of the banking crisis anywhere in the world. Dollar flows still exist.
Dollar liquidity is still quite ample. We haven't seen any outflow of US dollars from anywhere in the region. I think some of the challenges that you see, whether it's First Republic or SVB and so on, are fundamental challenges around interest rate risk management. You know, managing the interest rate risk on your banking book. I think in, you know, all of these cases, they're so almost idiosyncratic. They're result of people assuming a lower interest rate environment for a long time and therefore, you know, putting on a very long duration for a large percentage of the book. Now, that doesn't apply to us. As Sok Hui pointed out, the duration of our book is under three years. It's a small part of our book. It's not a large part of our book.
I see. Thank you, Piyush. just to recap, on question about Credit Suisse. You said, you sold about SGD 140 million AT1 of Credit Suisse to clients. Is that the right number?
I think that's about correct, yes.
Okay. Thank you so much, Piyush.
Thank you, Chanya. Next question to Oultra.
Actually, Chanya, the better way to answer that question is our clients chose to invest in AT1s that included about $140 million of Credit Suisse AT1s.
I understand, yeah. Okay, got that. Thank you so much.
Okay, next question to Oultra, from Reuters.
Good morning.
Go ahead.
Yeah. Hi. Hi. Good morning. This is Oultra from Reuters. I have two questions, basically. The first one would be, why do you see NIM to gradually decline going forward? Is it because of the reversal in the interest rate hike cycle? What's your view on that? The second questions would be, more directly related to what happened like yesterday. What's your view on the latest, like the First Republic Bank's rescue and collapse, and how what can we learn from this? Yeah. Thank you.
Well, on the NIM decline, I think, you know, one of the reasons is from the last quarter we started presenting our results for the commercial bank separately from treasury and markets is so, to draw attention to the fact that the commercial book NIM is actually very robust and continue to grow. That's because, you know, our assets keep repricing up and the spread on the asset book increases. What is happening, however, at these high interest rate levels is that the treasury and markets book, is actually beginning to bleed. If you look at last quarter and this quarter, both quarters, our net interest income in the T&M book is negative. We're actually running a loss on the T&M side.
That's because you have to fund at these high interest rates and T&M, therefore, on the interest rate income side, they lose money. They make it up on the non-interest income side because T&M, they don't think too much on whether, you know, whether it's interest income, non-interest income, they're actually making it up on the non-interest income side. As Sok Hui pointed out, we should really look at T&M in totality. In totality, they make about SGD 275 million a quarter. That's not changed. It's the split between interest income and non-interest income that changes. T&M is for us, a large portion of our total book. It's about 19% of the total assets of the bank. The drag we get from the T&M portfolio actually comes through in our overall NIM.
Why do we think NIM is probably declining? Because the increase of rates has pretty much passed through. We don't think the Fed fund rate is going to go up much more. Maybe one more rate hike. The rate hiking cycle is pretty much done. We don't expect a reduction in rate. What you will see is that there will continue to be deposit repricing. In the course of the last year, about $90 odd billion of our deposits repriced. We think another $30 billion-$40 billion of deposits have to reprice in the balance part of this year. That repricing means the cost of funding will gradually go up, whereas what we charge customers is pretty much toppish at this stage. That will put some downward pressure on NIM.
On the other side, what happens is that, as I pointed out, we have 3 years of duration in our book. In fact, the loan book is only 2.5. Some of the loans will continue to reprice. A lot of them will reprice in the balance 9 months of this year. Some will reprice next year and thereafter. These are countervailing forces. The cost of deposits is going to continue to creep up. The loan book is, some of it is going to continue to reprice. When you put all of that together and model it, we think that you'll start seeing a gradual decline in our overall NIM. Your second question was First Republic.
I thought I answered that for Chanya. I can maybe just reconfirm that if you look at First Republic, best I can tell from reading their statement there, while SVB was impacted by the long duration of their bond book, First Republic is impacted by the long duration of their loan book. They put on a very mortgage book, which was an interest-only, non-amortizing mortgages, which are 15, 20 years in tenure and duration. When you have these long duration assets which can't be repriced and your funding cost starts changing, then the economic value of that book starts suffering. Most banks have some duration. The question is always one of balance. In our case, like I said, our duration, percentage of duration is short. It's short.
It's south of 30% of our overall book, and the average duration is that under three years. Therefore, we don't see the same kind of impact that you would if our duration was 10-15 years long and it was 70%, 80% of our book.
Okay, next question to Goola, Goola , please unmute yourself. You can go ahead and ask the question.
Hello. Can you hear me?
Yes, Goola
Okay, thanks. Yes.
Yes, we can.
Congratulations on the record earnings. I have a three questions. The first one is in terms of your own AT1 and Tier 2. I think Sok Hui mentioned, I think about three months ago, that there are plans to redeem those as you transition to Basel IV. What will these be replaced with? Is it likely to be CET1? If it is, will this affect your dividend payout in any way? That's the first question. The second question is on your commercial property exposure in the U.S. and China. I know you can't talk about your customers, but in particular with the S-REITs because there may be some stresses there. Just wondered if you could talk about your LTVs in this commercial property exposure outside of Singapore.
Finally, Digibank, This is not a negative question. Has there been any competition from the new digital banks? If you could outline what you see from them with your Digibank. Thanks.
Sok Hui, you want to take the AT1?
Goola, just to reaffirm what we said and guided previously. Our AT1, we've got SGD 2.4 billion, so we do not need to sort of refinance when it comes up. Meaning that our Tier 1 ratio is actually quite strong under Basel IV regime. We expect it to go up by about 2 percentage point, and that should be sufficient to cover any AT1 sort of instruments that mature. It doesn't affect the dividend payout because we are talking about the buffer during the transition stage. It doesn't affect the final CET1 number that we would also be reporting. Do you have any sort of further questions or is that clear to you?
Okay. That's clear. That's clear. Thanks.
Okay.
On the commercial property exposure, Goola, as you can imagine, the bulk of our commercial property exposure is 90% of it is in Singapore and in Hong Kong. Two cities comprise the bulk of the exposure. Singapore, I'm not worried. Hong Kong, on the commercial property side, again, our clients are very high in the top conglomerates and the big Hongs, so I'm not worried about that either. The residual 10% of our commercial property book is around the world, includes some exposures in the US, in the UK, in China, and they're again, very high-end obligors. All our stress testing against that hasn't given us any cause to worry. By and large, on average, our LTVs on our commercial property book are relatively low.
They tend to be in the 40s, 40%-50% range. I don't have specific data with respect to S-REITs on me, but all the stress testing that we've done on the entire portfolio has covered everything, including the S-REITs, and we're really not seeing any stress in that whole book. Your third question on the competition, you know, frankly, I think I made this point before that even if you look at countries like the UK where the digital banks have been operating for about a decade or China, where there's some large digital banks like Ant, et cetera, the relative impact of that on the incumbent banking system has been marginal at best.
The market share of the high street banks in the U.K. hasn't budged, and neither has the market share of the policy banks and joint stock banks in China. Even if digital banks are successful, their take-up and shift in market share is glacial. It'll take a long, long period of time before you start really seeing the impact of any of that on an incumbent banking system. In Singapore, honestly, we're still not seeing any material impact. A lot of people have experimented with opening accounts with many digital bank competitors, but the actual outflow of funds and money is not very large. Many, some of them have started lending products more recently. Again, I think the total size of the lending universe is not very large. I don't expect it to have material impact from a, you know, macro financial, or overall financial system well.
Okay. Can I ask just one more question on the, on the REITs part? You know that some REITs have debt that is unsecured because they talk about unsecuring their portfolio. Does this debt rank pari passu with the equity holders, or do you get first dibs in the unlikely scenario that something goes very wrong with those REITs?
Generally, I don't know the specific answer, specific transactions and how they're structured. Generally speaking, unless we are a Swiss bank, the normal rule is the greater hierarchy means equity ranks last.
Oh, okay. Okay, thanks. That's it.
Okay, there don't appear to be any other questions. Just going to give a few moments in case anyone has a final question they want to ask. Okay, there don't appear to be any other questions. Thank you, everyone. We've reached the end of the media briefing. The analyst briefing will start in five minutes. Thank you.