Okay, good morning, everybody. Welcome to DBS's second quarter 2022 financial results briefing. I was just reflecting that it's been a while since we had one of these physical briefings with COVID. It's really nice to see so many faces here today. Well, this morning we announced first half net profit of SGD 3.62 billion. Return on equity was 13.3%, and second quarter net profit was SGD 1.82 billion, the second highest on record. We have with us today our CEO, Piyush Gupta, as well as our CFO, Chng Sok Hui, to tell us more. Without further ado, Sok Hui, please.
Thank you. Okay, good morning, everyone. We achieved a strong first half performance with net profit of SGD 3.62 billion, 3% lower than the record set a year ago. Return on equity was 13.3%. Business momentum was broadly sustained over the first half. Loans grew 3%, while fee income streams, other than wealth management and investment banking, rose from a year ago. Net interest margin increased after three years of decline. The cost income ratio was at 44%. Second quarter net profit was the second highest on record, rising 7% from a year ago to SGD 1.82 billion. During the quarter, NIM expansion accelerated to 12 basis points as the impact of interest rate hikes was felt more fully. The increase boosted net interest income by 17% from a year ago and 12% from the previous quarter.
The higher net interest income more than offset a decline in non-interest income due to weaker market conditions. As a result, total income rose 6% from a year ago and 1% from the previous quarter. Asset quality was stable. Non-performing assets fell 1% during the quarter, while the NPL ratio was unchanged at 1.3%. Specific allowances were at 11 basis points for the first half. General allowance overlays were maintained. Allowance coverage was stable at 113%. Capital was healthy with the CET1 ratio rising 0.2 percentage points from the previous quarter to 14.2%. Liquidity was ample. The board declared a second quarter dividend of SGD 0.36 per share, bringing the first half dividend to SGD 0.72 per share. Slide three.
First half net profit of SGD 3.62 billion was the second highest on record, 3% below the high a year ago. Total income was up 1% to SGD 7.54 billion. Business momentum was broadly sustained, and net interest margin rose due to high interest rates. The gains were offset by lower wealth management and investment banking fees due to weaker market conditions, as well as a moderation in treasury markets income from the previous year's high. Net interest income rose 11% or SGD 445 million to SGD 4.64 billion. Net interest margin increased five basis points after three years of decline. Loan growth was sustained at 7%. Fee income fell 9% or SGD 162 million to SGD 1.66 billion.
Lower wealth management and investment banking fees more than offset growth in other fee activities. Other non-interest income declined 13% or SGD 187 million to SGD 1.24 billion as investment gains fell due to less favorable market opportunities. Other non-interest income also included an associate contribution of SGD 85 million from Shenzhen Rural Commercial Bank. Expenses were 5% or SGD 172 million higher at SGD 3.3 billion due to higher staff costs. Total allowances were stable, with specific allowances declining from 18 to 11 basis points of loans. Slide four. Second quarter net profit rose 7% from a year ago to SGD 1.82 billion, making it the second highest on record. Total income increased 6% to SGD 3.79 billion as higher net interest income more than offset lower non-interest income.
Profit before allowances rose 4% to SGD 2.13 billion. Net interest income rose 17% or SGD 365 million to SGD 2.45 billion. Net interest margin rose 13 basis points to 1.58%. Loans grew 7% from a year ago. Fee income fell 12% or SGD 100 million to SGD 768 million. Fees from wealth management activities and investment banking declined, but were partially offset by higher fees from loans, cards, and transaction services. Other non-interest income declined 10% or SGD 62 million to SGD 570 million as higher trading income partially offset lower gains from investment securities. In the quarter, Shenzhen Rural Commercial Bank contributed SGD 42 million in associate income. Expenses were 7% or SGD 115 million higher at SGD 1.66 billion from higher staff costs.
Total allowances fell to SGD 46 million, with specific allowances declining from 14 to 8 basis points of loans. Slide five. Second quarter net profit rose 1% from the previous quarter. Business momentum was broadly sustained from the first quarter, and net interest margin expansion accelerated as the impact of higher interest rates was felt more fully. These gains were offset by a decline in non-interest income from weaker market conditions. As a result, total income grew 1%. Net interest income rose 12% or SGD 267 million from a 12 basis points rise in net interest margin and loan growth of 1%. Fee income declined 14% or SGD 123 million. Fees from wealth management and investment banking were lower as market conditions further weakened, while loan-related fees moderated from record levels.
These declines were partially offset by a 9% increase in card fees. Transaction service fees were in line with recent quarters. Other non-interest income fell 15% or SGD 99 million. Expenses were little changed. Total allowances were stable, with specific allowances declining from 15 to eight basis points of loans. Slide six. Second quarter net interest income increased 12% from the previous quarter to SGD 2.45 billion, significantly faster than the 2% quarterly increase in the first quarter. This was on the back of an accelerated expansion in net interest margin. Net interest margin rose 12 basis points during the second quarter to 1.58%. The increase was faster than the three basis points in the first quarter, as the impact of the Fed rate hikes was more fully felt.
Loans grew 1% during the second quarter, bringing the growth over the first half to 3%. First half net interest income increased 11% to SGD 4.64 billion, as net interest margin rose five basis points and loans grew 7% from a year ago. Net interest income growth will remain strong in the coming quarters as net interest margin is boosted by the steep increases in interest rates. Our net interest margin was slightly above 1.80% in July, more than 20 basis points above the second quarter levels. Slide seven. Gross loans amounted to SGD 431 billion. They grew 3%, or SGD 14 billion, in constant currency terms over the first half. Two percentage points or SGD 8 billion of the growth was in the first quarter, and one percentage point, or SGD 6 billion, was in the second.
In the second quarter, non-trade corporate loans were SGD 2 billion higher, led by drawdowns in Singapore. Trade loans grew SGD 4 billion. Housing loans and wealth management loans were little changed. Over the half year, growth was led by both trade and non-trade corporate loans, with housing loans and wealth management loans stable. Slide eight. Over the first half, deposits grew 5%, or SGD 23 billion in constant currency terms, to SGD 528 billion. Fixed deposits grew SGD 25 billion, while CASA declined SGD 2 billion. The growth in fixed deposits was largely in foreign currencies. It was used to fund foreign currency loan growth, replace more expensive commercial paper, and preempt expected CASA outflows. Growing foreign currency fixed deposits has enabled us to maintain our surplus Singapore CASA deposits, which continue to earn us attractive returns in a rising interest rate environment.
The deposit flows over the past six months have been in line with the assumptions used to derive our net interest income sensitivity of SGD 18 million-SGD 20 million per basis point of U.S. Fed fund rates. Our overall CASA ratio of 72% is 13 percentage points higher than before the pandemic. Our liquidity remains above regulatory requirements, with a liquidity coverage ratio at 142% and a net stable funding ratio at 118%. Slide nine. Fee income. Second quarter gross fee income was SGD 917 million, 7% lower than a year ago and 10% below the previous quarter. Compared to a year ago, wealth management fees declined 21% to SGD 337 million as market conditions continued to weaken, dampening sales of investment products.
Investment banking fees also fell by 54% to SGD 30 million. The declines were partially offset by increases in other fee activities. Card fees increased 23% to SGD 203 million as travel spending continued to recover to pre-pandemic levels. Transaction service fees rose 4% to SGD 233 million, and loan-related fees rose 3% to SGD 114 million. First half gross fee income was 7% lower than a year ago at SGD 1.94 billion. The decline was due to lower wealth management and investment banking fees. Fees from cards, loan-related activities, and transaction services were all higher. Slide 10. Expenses. First half expenses rose 5% from a year ago to SGD 3.30 billion due to higher staff cost. Second quarter expenses were little changed from the previous quarter at SGD 1.66 billion.
Compared to a year ago, expenses increased 7%. The cost income ratio was 44% for the first half. Slide 11. Segment income, Consumer Banking and Wealth Management. First half Consumer Banking and Wealth Management income rose 6% from a year ago to SGD 2.88 billion. Income from loans and deposits increased 33% to SGD 1.50 billion, driven by an improved net interest margin and higher volumes. This was partially offset by a 16% decline in wealth management investment product income to SGD 973 million. Assets under management rose 3% to SGD 294 billion. We maintained our domestic market share for savings deposits and housing loans during the past 12 months. Slide 12. Second quarter wealth management total income rose 14% from the previous quarter to SGD 753 million.
While non-interest income for investment product sales was affected by weaker market conditions, it was more than offset by significantly higher net interest income from deposits as higher interest rates boosted net interest margin. We also attracted faster net new money inflows, which doubled to SGD 6 billion during the second quarter from an average of SGD 3 billion in recent quarters. The inflows enabled us to maintain the overall assets under management at SGD 294 billion, despite lower investment values due to the market volatility. Slide 13. Institutional Banking. First-half Institutional Banking income rose 13% from a year ago to SGD 3.39 billion. The growth was broad-based across loans, trade, cash management, and treasury fees, and partially offset by lower investment banking income.
Cash management was a standout as income grew by 51% to SGD 752 million, driven by high interest rates and a 12% growth in deposits. Slide 14, GTS. Second quarter global transaction services total income rose 45% from the previous quarter to SGD 674 million. The increase was due to a 76% increase in cash management income to SGD 480 million as it benefited from higher interest rates and continued deposit growth. Deposits rose 2% from the previous quarter and 12% from a year ago. The sustained deposit growth is a testament to our leading cash management capabilities, which have enabled us to win new client mandates as well as deepen wallet share with existing clients. Slide 15, Treasury and Markets.
First half Treasury and Markets trading income and treasury customer income were both lower compared to the record levels a year ago. Treasury and Markets trading income fell 25% to SGD 702 million due to less favorable market conditions. Lower trading income from rates and equity derivatives was partially offset by a stronger performance in FX. Gains from the investment portfolio were also lower. Customer income fell 8% to SGD 838 million as sales to consumer banking customers were affected by weak equity market sentiment. This was moderated by higher Institutional Banking sales as heightened market volatility resulted in more hedging activity. Slide 16. Hong Kong. Hong Kong's first half net profit fell 6% in constant currency terms to SGD 593 million. Total income increased 1% to SGD 1.29 billion from higher net interest income and trading income.
Net interest income rose 5% to SGD 738 million from loan growth. Net interest margin fell 12 basis points to 1.18%, mainly due to higher funding costs, which was more than offset by 9% constant currency loan growth. Fee income fell 12% to SGD 354 million from lower wealth management and investment banking fees due to weak market sentiment. Other non-interest income rose 15% to SGD 200 million from higher trading income. Expenses rose 8% to SGD 539 million. The cost to income ratio was 42%. Total allowances increased 61% to SGD 43 million, due mainly to a lower general allowance writeback. Slide 17, NPL. Asset quality continued to be resilient. New non-performing asset formation in the second quarter was below pre-pandemic levels.
First half new NPA formation, which included a significant exposure in the previous quarter, was offset by repayments and write-offs. As a result, the NPL ratio was stable at 1.3%. Slide 18, Specific Allowances. The resilient asset quality resulted in first half specific allowances declining 35% from a year ago. Specific provision charges amounted to SGD 235 million or 11 basis points of loans, compared to 18 basis points a year ago. Second quarter specific allowances were SGD 68 million or eight basis points of loans. They were 59% lower than the first quarter and 58% lower than a year ago. Slide 19, General Provisions. Total allowance reserves stood at SGD 6.69 billion, with SGD 2.96 billion in specific allowance reserves and SGD 3.74 billion in general allowance reserves.
The general allowance reserves included SGD 1.8 billion of overlays built up in prior periods which were maintained. The SGD 6.69 billion of allowance reserves resulted in an allowance coverage of 113%, or 199% after considering collateral. Slide 20, Other Comprehensive Income. Other comprehensive income was impacted by higher rates through cash flow hedge movements and mark-to-market losses on fair value through OCI debt securities. The cash flow hedge movements accounted for the majority of the negative other comprehensive income. They are due to accounting asymmetry and do not affect capital adequacy computations. Cash flow hedges are used to transform 8% of 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 will reverse over the life of the swaps. Adjusting for the Cash Flow Hedge movements, the first half 2022 total comprehensive income is SGD 2.27 billion, and net book value per share at the end June 2022 is SGD 21.67. Slide 21, capital adequacy. The Group's Common Equity Tier 1 ratio rose 0.2 percentage points from the previous quarter to 14.2%. Profit accretion was partially offset by dividend distributions. Risk-Weighted Assets were little changed as loan growth was offset by improved netting arrangements implemented during the quarter for exchange-traded exposures.
Our Common Equity Tier 1 ratio of 14.2% remained above our target operating range of between 12.5% and 13.5%, while the Leverage Ratio of 6.2% was more than twice the regulatory minimum of 3%. Slide 22, dividends. The board declared a dividend of SGD 0.36 per share for the second quarter, bringing the first half dividend to SGD 0.72 per share. Based on yesterday's closing share price and assuming that dividends are held at SGD 0.36 per quarter, the annualized dividend yield is 4.5%. Slide 23, in summary. We delivered a strong financial performance in the first half despite challenging market conditions. Sustained business momentum and net interest margin expansion enabled us to offset pressures on markets-related income.
Looking ahead to the second half of the year, we expect continued expansion in net interest margin on the back of rapidly rising interest rates. While macroeconomic uncertainty persists, we have proven abilities to be nimble and to capture opportunities. The growth in total income will improve our cost income ratio in the coming quarters, even as we judiciously invest for the future. Ongoing stress tests indicate that our asset quality remains robust. Thank you for your attention. I'll now pass you to Piyush Gupta.
All right, thanks, Sok Hui. I just have a couple of slides, but as usual, I'll amplify just some comments of Sok Hui's, and then we can take questions. The first is, you know, the macro outlook. We have a base case, and I have to say though that I'm not as confident about the base case as I normally am. I think the cone of possibilities is quite broad, frankly. Our base case is still that you will get a soft landing in the U.S. Interest rates peak somewhere, you know, call it 3.5% or so. You start seeing inflation getting tempered, and it's likely to happen. Already seeing some slowdown in energy and in the commodity prices.
I think the base year effect is going to make a difference into the headline inflation rate in the coming months. If that happens, you will see a mild recession. You've already seen a technical recession in the U.S. last two quarters. Overall, I think there'll definitely be a slowdown and possibly a mild recession. Now, in that base case, I think the flow through to Asia continues to be relatively contained. Asia will also slow, but I don't see a recession happening in our part of the world. In this scenario, currency depreciation is also manageable. I don't anticipate a taper tantrum kind of situation. You're seeing that there's currency weakness in the rupee and the rupiah, but it's been well contained. That continues to be our base case.
The reason I highlighted tail risk is, like I said, the cone of possibilities is quite wide at this point in time. What could go wrong from the base case? It's quite clear that the Russia-Ukraine conflict is anybody's guess. Therefore, if, you know, Russia continues to put the squeeze on gas, oil, etc., and you have a cold winter, it is possible that energy prices, gas, fuel, flash up as you go into the second half of the year. I think the food crisis situation is also unclear. There were lots of shipments from the ports, but at the same time, food supplies have been short. What happens to yields in the back end of the year is also not entirely clear.
All the situations you could wind up with higher inflation and stubborn inflation, including social unrest in some cases on the back of food. Now if you have a higher inflation, I think the central banks will have to push through with more aggressive interest rate hikes. I think all the central banks have made clear that inflation is priority number one. You could see that come through. Now, if you do see that, I think then you can start expecting more significant slowdown subsequently. You could have a deeper recession. You could have a deeper recession in the West, and then the impact on that in Asia will also be more material if that were to flow through. You'll see the usual consequences. You could see more sharp weakening of currencies, et cetera. Again, not an impossible scenario.
I think it's a low probability scenario, but not impossible. The other area which is uncertain continues to be China. China's COVID policies are unclear. Do they really start opening up after October, or do they continue to protract? You know, the issues in the property sector, some of the concerns around possible systemic risks coming from that, those are all relatively unclear. Again, our base case is that the situation continues to be controlled and managed, but on the tail risk event, you can never call it. You know, something could go wrong. However, if you look at our outlook in those things, our outlook is really predicated mostly on the base case situation, right? I think that right now we're seeing reasonably good momentum on the loan book.
Our first half loans were a tad north of 3% growth. As best as we can call right now, our pipelines are good, so the non-trade loans, we should be able to get another percentage point of growth in each quarter. That should get us to, you know, certainly the mid-single digits that we have previously given guidance to. I think that's still on the cards. On the non-loan income, on the fee income side, the opening up of the economy is giving us some tailwinds in some areas. Credit cards, for example, are strong. Transaction banking is holding up. Those are the good pieces. On the other side, wealth management has been the biggest challenge. Wealth management fees are down 20% for the first half of the year.
I do think that the fees have bottomed out in the second quarter. If you look at the last couple of months, they're not headed further south. They're sort of hanging there. Therefore, I think we've seen the bottom. If anything, if the markets turn more constructive, there might be some upside, but you can't say. Right now, continues to be somewhat uncertain. Altogether, our fee income is down about 9% for the first half of the year. Based on just a weak first half, I don't see fee income going up for the year. The overall fee income for the year will be negative. When you look at the overall business momentum, I think balance sheet's looking okay and constructive. I'm seeing some growth in businesses overall.
Credit cards and other annuity streams are doing well. The wealth management and capital markets, by the way, both are uncertainty. Capital market is small for us, but that's also an uncertainty. The big upside, obviously, is NIM, interest rates. The interest rate flow-through has been quicker and sharper than we anticipated. First, the Fed policy actions have been quicker. These two massive 75 basis point hikes were unexpected. On top of that, the flow-through to the Singapore dollar has been stronger than we anticipated, and that's just because of the strong dollar, weak Singapore dollar. We've been seeing far more active flow-through. It's somewhat slower in Hong Kong because HIBOR took time to catch up.
Overall, at this point in time, in the guidance we've given, that we have sensitivity of SGD 18 million-SGD 20 million per basis point on rates, that's coming through. It's quite consistent, so we're quite confident about that. As Sok Hui indicated, July, even though our second quarter NIM was 1.58%, June exit was about 1.65%, July is already 1.80%. There's quite clearly a good momentum on the NIM side. As a consequence, we think our cost income ratio will continue to improve. I think we are headed, I think we should be sub 40% cost income ratio by year-end, given everything. That gives us the capacity to actually make some judicious investments.
As I've indicated before in the past, you know, when the income line is difficult, we tighten our belts. When we have some more room to play, then we can start making investments which I think are prudent investments to make for the future. We'll probably do a little bit of that. Most important, our asset quality continues to be solid. It's resilient. You know, we do a whole range of stress tests, and we've been quite conservative on our stress testing assumptions. We've tested oil at SGD 200 a barrel. We've tested interest rates going to 6%-7% in our SME portfolio. We've tested deep recession, 30% drop in, you know, cash flows and EBITDA of our customers.
On most of those situations, our asset quality is actually quite resilient. We feel confident about where we are. As Sok Hui pointed out, on top of that, we have these large general provision buffers. We have SGD 1.8 billion of the overlay which we haven't touched so far. Even if you do see some unexpected pickup in credit costs, I think we're in very good position to be able to handle that and to be able to absorb that. Those are the only additional comments and observations I had. Happy to take questions.
If I could request, as you ask your question to either speak into a mic in front of you, or we have some roving mics we can pass you, just so that the people on the live stream can hear your question loud and clear. We'll take the first question, please. Maybe [Tanya] first and then? Okay, [Gulah].
Sorry. She'll pass it to her. I just wondered whether you could explain the difference in NIMs based on SORA versus SOR and SIBOR, and how this affects the NIM versus what you used to report? What portion of the portfolio is on SORA? I'm just wondering. That's one of the questions, because I don't really understand that part.
You know, the rate at which these things are moving up changes, but in time, they all catch up. All you're looking at is timing differences in the rates between SORA, SOR, and SIBOR. If you look at, I got them to print out this thing for me right now. At this point in time, three-month LIBOR is running at about 2.6%, right? SOR is running at about 2.5%, 2.47, 2.5%, because SOR reacts more quickly. The SIBOR is currently running at 2.05%. SIBOR will get up and catch up to higher levels. SORA is the slowest. SORA is the slowest because it's a backward-looking compounding of rates, and therefore it's not a forward-looking view, it's a backward-looking view.
The market SORA right now is at about 1.9%. In some cases, so in the mortgage book, for example, all of the mortgage loans are calculated on a backward-looking three-month SORA. You know, MAS publishes the SORA rate every day. We take the three-month average of the SORA rate, and then we price the mortgages for the next month based on the three-month average of the past. What that means is slowly the three-month average keeps picking up. There's a timing difference in respect of when the SORA loans catch up. That's really the key difference around this.
In actual fact, the SORA-based loans for us, out of our total SGD 165 billion-odd of Singapore dollar loans, the SORA component of that is about SGD 35 billion or so. Chunk of that SGD 30 billion-odd is in the corporate book. The consumer book, the mortgage-backed SORA loans are quite small, SGD 3 billion or SGD 4 billion.
How does the NIM, because your NIM on the SOR will be more narrow than on the SORA, won't it?
No such thing.
No such thing.
So it's the-
Is there a margin above SORA or is it?
No, no.
Does it work like that?
Eventually the base rate shouldn't matter, right? It's, you're only concerned about the timing difference, right? The SOR NIM, the NIM on SOR-based loans went up very sharply, quickly. The NIM on fixed rate loans won't go up till the fixed rate reprices. That'll take two years, right? The NIM on SORA-based loans will go up more slowly, but will catch up eventually. If rates start dropping, the reverse happens. The NIM on SOR-based loans will start coming off faster, and the NIM on the SORA-based loans will start coming off slower. It's a timing difference.
Right. I'm just wondering, in terms of the China business, what, you know, because your outlook is a little bit downbeat. What's your outlook for your own China business based on the overall market?
Well, my outlook is downbeat because there's uncertainty. You know, China's GDP growth for the second quarter was only 0.4%. At this point in time, as you can see, the Chinese have also given up their 5% or 5.5% target GDP growth for the year. Even to get a 4% GDP growth, you need to have very strong growth in the back end of the year, and both fiscal and monetary policy stimulus. Without a doubt, there is slowdown in China, and a lot of that is driven by the COVID policies. The economy is not opening up, and so consumption and retail sales are being impacted. Now, when they open that up is anybody's guess. We don't know.
Therefore, what we are doing is being quite judicious and prudential about continuing to grow the China business. Solid business is long-term business. We're not seeing any problem in the business. The growth opportunities are slower than you'd anticipate because the whole economy is running a little bit slower. Now, having said that, like I said, if you look at our loan growth and our loan pipelines, those are robust and those continue to be from across the world, including our China clients overseas.
Finally, on the allowances and the NPL, you said there was one NPL that you had that was quite sizable in the second quarter.
Well, our NPLs have not been sizable this year.
No.
If you look at our NPLs, they've, you know, hardly moved. We had one case in the first quarter, one in the second quarter, but our recoveries and repayments have more than covered it up. Our NPL ratio has been flat. Our total NPLs haven't moved. They're about the same level. Our ratios haven't moved. They're about the same level.
Okay. Tanya?
Yes. Hi. Hi. Good to see you all today. Three questions. Can I have NIM guidance for the rest of the year? The exit number looks quite strong, but what number do you see for the rest of the year? Secondly, a little bit more on China property market. Do you expect to see contagions spilling out? Third one, Piyush mentioned judicious investment, and your CET1 ratio is quite strong. Are you looking? Can you give colors on potential investments? Given China's slowdown, what do you see in India?
Sok Hui, NIM guidance.
If you're talking about NIM guidance, I think with the exit rate or having achieved one point above 1.80% in July, we expect to hit 2% sometime in between third and fourth quarter.
I guess beyond that, and we don't know how many rate hikes there will be. Also the direction of travel of Singapore dollar, U.S. dollar is uncertain. In the first half so far, the pass-through rates from U.S. dollar to Singapore dollar have been extraordinarily high. I think those will correct. You won't get the same kind of pass-through rates in the back half of the year. As Sok Hui said, and the likelihood will be well north of 2%. Right.
Thank you.
Your second question on real estate contagion. There's already real estate contagion, because as you can see, most of the Chinese real estate companies, especially the second tier companies and private companies, are finding it difficult to access liquidity. And therefore, most of them are not able to refinance bonds easily other than perhaps in the local market, or be able to get financing. There's already a spread of this thing. Bonds of most of the companies sold off in the last few months. I mean, it's the shades of systemic risk. The question within that then is, you know, does it apply to everybody?
Our own view is that the top end of the market, the state-owned enterprises who are really solid, and this is just one line of business for them, they don't get impacted. So far, they've not shown any signs of impact either. Your third question was on investment. You know, the main opportunity for us is to continue to invest in technology. We pace our technology investments, but two things have happened. One, because of the, you know, challenges that the technology sector itself is facing, many tech companies are laying people off. You know, a lot of tech companies are not able to source and keep talent. This is a great time for us to go and look for and add to our talent bench in that environment.
As you know, we continue to grow our data capabilities. We continue to grow our blockchain capabilities. Some part of our investment is really to continue to dial up our technology capabilities and our technology bench at this point in time. We think it's opportune. We continue to invest in India. We're bullish on India. India growth rates have been very strong. Full year growth rates are still anticipated at about 7%. Second quarter was, I think, some 14% or something. We're also doubling down on the Indian investments for the growth that we need. This was, again, something that we'd already planned for. There's not extraordinary on top of that.
Can I just follow up? Because recently the government in India kind of allowed more foreign investment in a bank called IDBI.
IDBI.
IDBI, sorry. Is it something that you are looking at or would be interested?
No. We've, you know, as you look at our track record, we are strong believers. We've just done LVB, we haven't even integrated that. We've integrated everything, but the technology integration has to happen in the back end of this year. For the next few years, we want to spread that investment and make sure we can make it pay. We're not in the market to do anything else right now.
No. Not looking at IDBI.
No.
Thank you.
Go ahead. Yeah, Priska.
Hi. Thanks for the presentation. I have a question about your outlook for customers' debt servicing abilities. If you know higher inflation and higher interest rates, how do you see those abilities going forward? Also on the staff expenses, the 7%, could you give some color on what that involved? For your China property exposure also, what's the size of the loan book there in onshore real estate?
On the sensitivity to higher interest rates, as I normally do, if you look at three sets of our customers in the large corporate space, which is the bulk of our exposure, there is a tremendous degree of resilience and capacity. Corporate balance sheets are in relatively good shape, and so most of our customers can handle a reasonable increase in interest rates without suffering cash flow problems. Obviously, this varies a little bit by sector. Some sectors are more challenged than others, but generally speaking, across the board, there's not too much of a problem. In the SME sector, as I told you, we have stressed our portfolio at 6% and 7% rates. Most of our portfolio is in Singapore and Hong Kong.
We stress the portfolio at substantially higher rates than they pay right now. I think we are okay partly because the SME sector has already gone through a lot of stress testing in the last three, four years. We've tightened those exposures over time. It's also a very well-secured portfolio. The bulk of the lending in SME is a secured lending against property and invoice financing. Again, we think delinquency will go up, but nothing to be alarmed about. The last portion is the consumer piece, and that also if you break into the bulk of our portfolio is the mortgage book in Singapore, SGD 60 billion-SGD 70 billion of portfolio.
Like most banks, when we do the debt service ratio calculations, when we give the loan, we already factor in a 3.5% interest rate. Even when rates were like 1% or 0.8%, we already assumed 3.5%, and that's how we did the affordability calculations. As long as rates stay within 3.5%, that has already been factored into our cash flow and affordability calculations when we give the loan. It's quite solid. Which is why if you look at the history of Singapore mortgages, they don't impact, they're never impacted too much by interest rates. They're generally impacted more by unemployment. If there is no job, then you have a problem.
I think the thing to watch is if you have a massive spike in unemployment, then we'd go and worry about the delinquencies in that portfolio a little bit more. Interest rates by themselves doesn't cause so much of a challenge. The last is the unsecured consumer book. In our case, it's less than SGD 10 billion. It's not, again, a large part of our business. In that book, by and large, interest rates are capped. If you look at credit cards, unsecured loans, in some countries by regulation, you're not allowed to charge more. In most other countries, because you're, you know, businesses, your rates are normally quite high, 18%, 20%, 22%. It's unlikely that you raise rates.
What happens is that businesses, you wind up taking a shrinkage in your margin as opposed to passing on that rate to the consumer. That means the consumer is not that affected, when that happens. Overall, we're not, actually, we stress tested high interest rates, but we're not seeing too much of a negative impact on our portfolio or asset quality, in those kinds of scenarios. Your next question was?
Staff expenses.
Staff expenses. You want to take that, Sok Hui?
Yeah. Staff expenses, I think, is not unusual in this market. You know, the sort of pressures on technology, resources, people. We have increased our sort of base salary rates for employees, and we have also taken on more people. You see it in the performance summary, that we have added staff headcounts as well. They contribute to the growth. I think we are pacing it, and I think we consider it moderate in today's environment.
Just to follow up a little bit. Hiring in Singapore or in which region?
Some of that hiring actually reflects conversion of contracts into permanent staff across the board. Again, with the technology thing, but we're hiring across the region.
I see. Thank you.
Your third question was? Oh, China property. Our total China property, if you say what is the onshore exposure and onshore book in China, it's only SGD 2 billion. But our total exposure to China property effectively is closer to SGD 16 billion. The rest of the SGD 14 billion are not booked in China. They are booked in Hong Kong, Singapore and overseas. The bulk of that, the majority of that is the large state-owned enterprises and foreign companies. You know, people like CapitaLand, et cetera, would be part of that. That's the large part of where our exposure is. We have a small amount to some REITs, which are also relatively okay because the, you know, it's all completed projects and the cashflow paying.
The smallest amount we have is to some privately owned companies, but they're the top end of the market, so we've not seen a problem with them.
Maybe Kelly first from [Business Sense ], and then after that, Zaobao .
Right. Thanks for taking my question. I have a question on CASA. Can you share more about DBS's CASA pricing strategy? 'Cause I suppose the bank has been moving fast to raise deposit rates for customers, but that also increases the cost of funds. Just wanted to get some color on that.
Yeah. If you look at the nature of our CASA business, there's a large chunk of it which is non-interest bearing. That is people leave money with us as part of their operating business. In the dollar book, for example, most of the CASA comes from corporates. When we do cash management and we go and sign them up for doing the receivables payment, payables, et cetera, just the natural flow of the business means money comes in and lies in our accounts with us. We generally don't pay interest on that. That part of the CASA book is pretty much zero interest bearing for the long term. Right?
There is some part of that which is priced, so it's price sensitive and people can take the money away, and then we compete in that market and make sure the price is competitive so we can hold onto the sticky component of that. On the Singapore dollar book, again, we have the same distinction. We have a chunk of stuff in fixed deposits that gets repriced because we pay up. We have a big chunk in what we call something called the Multiplier Program. The Multiplier Program is an opportunity for people to raise rates. We just announced last week that we're taking the rate on that up to 3.5% on the Multiplier Program. That goes up in proportion.
We also have a large chunk of it, which are salary accounts and loans account, which are a lot more sticky. The pace at which the rate goes up on that tends to be far slower. If you look back historically, or you can see at different rates in the market, you know, what happens to the base savings rate in the country, it doesn't move very much.
Oh, Oi Lai from Zaobao.
Yeah. I have a question on the SME borrowing cost due to the higher interest rates. Can we have a sense of how much have the financing costs increased? Just now you mentioned delinquencies will go up. Will it cause the NPA ratio to go up as well?
Yeah. As I said, if you look at the overall increase in rates now, it's gone up by about 2.5%, the total hikes. The flow through into the Singapore system is about 1.75%-2%. That's what the rates have gone up by for most SMEs. Yes, if rates continue to go up, delinquencies will increase. Like I said, in a stress testing, it's not material. If delinquency increase then eventually NPAs will go up. You know, the 1.3% NPAs now, they might, you know, creep up. We haven't modeled it, but it won't be very material. It's not huge.
Heidi from CNA.
Yeah. Are the higher net interest incomes expected to go forward to continue to make up for the lower, you know, investment gains and fee incomes?
Yes. More than make up. If you look at the nature of our book, we are about 60%-65% balance sheet, you know, interest income. The non-interest income is about 35%. When you get big gains on that 65%, they more than make up for any headwinds on the 35%, which is non-interest income. Also, the lift in the interest income is quite sizable and the non-interest income is pretty much leveled off. I don't see that falling too much more.
Now Anshuman.
Hey, Piyush, thanks for this. Want to check with you. I mean, again, from the outlook and the comments you make, it looks like one of the first few quarters that you are sort of more cautious than you have been over the past, sort of four, five months. What do you sort of, what would you highlight as would be the biggest changes in the quarter over the past quarter, which is making you so cautious? Or what do you expect, sort of one or two key challenges, you know?
Yeah. Anshuman, I'm not just I'm so cautious. I'm you know still expecting to grow our loan book at SGD 4 billion-SGD 5 billion a quarter. Obviously that's not overly cautious. I think it's the question's really uncertainty. There is just too much geopolitical uncertainty right now, and that's hard to translate into what does it do to the macroeconomy. It's very hard to forecast what happens to Russia and Ukraine. Does it protract? What happens to gas prices? What happens to oil prices? What happens to the food situation? What happens in China before and after the October party conference? Because geopolitics is hard to predict, the spillover on that, on the macroeconomy becomes very hard to predict, you know, what you could see as a consequence of that.
The big uncertainty, underlying uncertainty is inflation and what will the central banks do to control inflation. That's the second order impact of that. Because both those things are quite uncertain, the subsequent, you know, effect of that on, you know. Right now the market is split on whether you get a deep recession or you get a high inflation. I mean, those are extremes, right?
Is this, I mean, again, as a bank, obviously you benefit from higher interest rates, but is the challenge that interest rates don't rise so much?
Well, not South Asia, India and Bangladesh. I can't say that for some of the other South Asian countries. Indonesia's coming in at about 5%. Several of the Southeast Asian countries and Asian markets are holding up. If you continue to have a slow China, and then if on the back of rates you start having a slow Europe and U.S., then of course Asia will slow.
Can I just ask, there's a slide on page 20, and I'm just wondering how this affects DBS, because I wasn't quite sure I followed it. Is it just the net asset value that it impacts?
Yes.
That's just a temporary impact?
Yes.
Because I know that it goes up. It's just temp.
You're talking about the Cash Flow Hedge?
Yes, the Cash Flow Hedge. I'm not quite.
It's just accounting asymmetry. Regulators recognize it, so they tell you not to take it into account in the capital ratios. The only impact is to the book value.
If I could just ask, I mean, in terms of wealth management also you highlighted as one of the biggest challenge sort of in the first half. How do you see this? I mean, obviously it depends on the markets. Generally, with Singapore attracting more flows, more businesses, right? How do you see the outlook for that? Secondly, also, just to clarify, you had said total exposure to China is about SGD 16 billion. That's Singapore dollar or U.S. dollars?
Singapore dollars.
Okay.
On wealth management, actually, it's an interesting thing. We've had a solid wealth management because we've had a lot of new money flow. We've got almost SGD 10 billion of net new money in the first half of the year. SGD 6 billion in the second quarter. That's double of what we normally get. And as a consequence, our AUMs are actually up. If you compare us with most of the private banks, everybody's AUMs are down because when the market sells off, the asset values come down. For our AUMs to be up, that means whatever asset values came down, we made up for it by getting new money into the system. Also because we have slightly more deposits in our wealth management base than a lot of other PB's.
Overall, we've got a lot more money and that part of the story is good. The other part of the story is that like most banks in Asia, our actual annuity income on that thing is on the low side. What we make through actual clocking and regular fees is not more than 10%-15%. The bulk of the income we make through trading activities of our clients. When clients are worried, they just step out of the market. Therefore, that's what's happened right now. Clients are not in the market, so they're not buying, selling, they're not trading. That activity is a function of market confidence and market pickup. When stock markets are rising, people tend to invest. When stock markets are falling, people tend to get out of the market.
The underlying question is what happens to the markets in the back end of the year? Again, not an easy call to make. If you had to ask me, I'd say China's bottomed out. In fact, it started recovering a little bit in the last quarter. Whereas the U.S. markets have still had headwinds. Again, if you look at the last week or two, you've seen some recovery. If you assume that the markets start recovering and you start seeing more confidence in the system, then the wealth management activity will come roaring back. Because we have the AUMs, the money is there.
Okay.
Is there a question from J.P. at the back?
Hi. Yeah. Mr. Gupta, Ms. Chng, good morning. We were talking a lot about China just now. I do wanna ask also about DBS's recent acquisition of Citi's retail operations in Taiwan. Where are we on that timeline? What sort of upside do you expect moving forward from those operations? Has your outlook perhaps changed given the slightly higher geopolitical tensions and temperature surrounding Taiwan over the last couple of days also? Give us your thoughts on that, sir, if it's possible.
The actual integration or closure of that transaction will happen only in the third quarter of next year.
Okay.
I think August is what we plan for the integration to happen. We've been working on it actively now. We've got the technology work going on, the integration of people planned.
Mm-hmm.
The final integration will. Is it August next year?
It will happen in the third quarter.
Okay.
Yeah, about third quarter next year is when it'll happen. The overall impact on our numbers is actually quite good. I think we gave some this thing the last time. I think it's about SGD 800 million-odd on the top line. Do you remember that roughly?
Yeah, about SGD 800 million on top line. Full year effect, we expect about SGD 250 million to the bottom line.
Yeah, about SGD 250 million at the bottom line.
Mm-hmm
SGD 800 million on the top line. Your third question in terms of geopolitical tension, actually it doesn't bother us very much. We debated this extensively before we did the trade. You know, what could happen vis-a-vis China, Taiwan, et cetera. Our overall view is that, you're betting on the future of whether you can continue to make a good business with the consumer, because it's really a consumer business in Taiwan or not. Irrespective of what happens, you know, whether you have geopolitical tension, China, Taiwan, there's more to think. We think the economic activity at the consumer level in Taiwan on a secular basis is not going to be. It's a 23 million country. 23 million people. It's got a decent per capita income.
To assume that that's going to go under, you'd assume that, you know, everybody either leaves the country or there's a massive, you know, complete collapse in Taiwan. It's not clear to me why China would want that to happen, even if they went and decided someday to go and take over Taiwan. Why would they want the Taiwan economy to collapse? By the way, we debated this extensively, and so there were all views to and fro. Our net assessment was that, you know, as a bank in Asia, we've made large commitments not just to Taiwan, but to Taiwan, Hong Kong, China. If there were a big event and a geopolitical event, then I shouldn't be worried just about the Taiwan investment. I should be worried about one third of DBS's entire North Asian business.
Frankly, I should be worried about all of our Asian business. Because if there was a big geopolitical clash, let's assume a third world war, I can tell you it's not going to be limited to Taiwan. It's going to impact all of our businesses in all of Asia.
Okay. Follow-up question on a different topic also. It's the theme here that's been highlighted that market conditions have been very tough. We've seen investments and markets really take on a lot of challenges, including that of digital assets and cryptocurrencies. I know DBS has a digital exchange. It's something DBS been looking for into. Has the recent challenges or meltdown or crypto winter, as some people call it, changed perhaps the outlook or the strategy for DBS with regards to their digital exchange and perhaps any holdings of cryptocurrency that maybe DBS might have, if they have any?
First of all, we don't have any holdings of cryptocurrency.
Okay.
I've said before, you know, my personal holdings of three coins took a beating.
Okay.
I'd already sold some coins before, so I'm net-net also okay.
No holding on for dear life there. Okay.
No, you know, interestingly, our trading volumes on the exchange in terms of number of coins and the number of coins we have under custody has gone up, and it went up in the second quarter right through the crypto winter. The value, of course, has come down sharply because the value of all of these cryptocurrencies has come down so much, right? If I had to just look at the number of coins being held and the number of coins being traded, that's gone up.
Mm-hmm.
I think frankly some of the uncertainties around the players today are very helpful, 'cause our positioning in the exchange is that we come from a regulated player. Our, you know, the DDEx is regulated as a market operator. Our custody is regulated in the bank. Even Vickers, which actually serves as an intermediary, has been regulated as a payment service operator. We are kosher, we have scrutiny, we apply banking standard level. Our position therefore is that we are not one of the, you know, Wild West kind of exchanges. We are a solid exchange.
Because of what's happened, I think that's going to help us further because people are more and more inclined to want to deal with situations and players and counterparties where you don't have these huge blips and ups and downs, and you can, you know, lose all your money. I think it's going to help our position.
Mm-hmm.
Now, the pace of growth, it depends on when the risk appetite comes back and, you know, if and when, currencies move up, so that's harder to call. We stay committed. I guess sometime in this quarter, we will be opening up for our accredited investors to do self-directed online activities. So far they could only do it through their relationship manager. They'll be able to do it through their digibank and other applications in the back end of this year. On the back of that, we think a lot of the wealth people are still quite keen on that as an asset class.
All right. Only three Bitcoins on your part, sir?
Personally?
Yeah.
When I bought, I bought five, then I sold two.
Okay.
I recovered my money, so the three I'm still okay with.
Okay. Just checking. Thank you, sir.
Okay, on that note, I'm afraid that's all the time we have for today, so we'll draw this session to a close. Thank you very much.
Thank you.
Thank you.