Good morning, and Welcome to DBS fourth quarter and full year financial results briefing. This morning we announced record full year net profit of SGD 6.8 billion, up 44% from the previous year. Return on equity rose to 12.5% from 9.1% a year ago. Fourth quarter net profit was SGD 1.39 billion, a 37% increase from a year ago. To take us through the key highlights today, we have with us our CEO, Piyush Gupta, and our CFO, Chng Sok Hui. Without further ado, Sok Hui, please.
Thank you. Good morning, everyone, and a very happy Lunar New Year to all. Let's hope the Year of the Tiger brings with it strength and vitality.
DBS full-year net profit rose 44% to a record SGD 6.8 billion and return on equity rose 3.4 percentage points to 12.5%. Strong business momentum mitigated the impact of lower interest rates and lower investment gains from the high base in 2020. Loans grew 9%, the fastest rate since 2014, and both fee income and treasury markets income rose to new highs. Fourth quarter net profit rose 37% from the previous year to SGD 1.39 billion as business momentum was sustained over the quarter. Loans grew one percent from the previous quarter, and net interest margin was stable at 1.43%. Fee income rose 9% from the previous year, led by transaction services and cards. Expenses were unchanged from the third quarter at SGD 1.67 billion.
Asset quality was resilient and the balance sheet healthy. Non-performing assets declined 13% or SGD 814 million from a year ago, with bulk of the decline occurring in the fourth quarter as two large non-performing loans were fully repaid. As a result, the NPL rate fell from 1.5%- 1.3%. General allowances of SGD 447 million were written back during the year as weaker exposures were repaid and portfolio quality improved. General provisions overlays established in previous years were maintained. The specific allowance charge was SGD 500 million for the year or 12 basis points of loans, well below pre-pandemic levels. As a result, total allowances amounted to SGD 52 million.
The Common Equity Tier 1 ratio was 14.4%, well above regulatory requirements and above the group's target operating range of between 12.5% and 13.5%. 2 one-time items were recorded in the fourth quarter. The first was a gain of SGD 104 million on completion of the purchase of the 13% stake in Shenzhen Rural Commercial Bank in October 2021. This gain arose as the purchase price was fixed at book value at negotiation, but by the time the transaction was completed, the net book value has grown. Hence, the gain is recorded as income under accounting rules. The other one-time item was SGD 100 million contribution to the DBS Foundation and other charitable causes. The board proposed a final dividend of SGD 0.36 per share, increasing the annualized dividend by 9% to SGD 1.44 per share.
Slide three. Full-year net profit rose 44% to a record SGD 6.8 billion. Total income declined 2% to SGD 14.3 billion as record fee income and record trading income were offset by lower net interest income and lower gains on investment securities. Net interest income declined 7% or SGD 666 million to SGD 8.44 billion. Net interest margin fell 17 basis points due to the full-period impact of lower interest rates and the decline more than offset the impact of 9% loan growth. Fees rose 15% or SGD 666 million to a new high of SGD 3.52 billion as most fee activities grew by double-digit percentages.
Other income declined 5% or SGD 125 million- SGD 2.33 billion as record trading income was more than offset by lower investment gains from a high base. Expenses were 5% or SGD 311 million higher at SGD 6.47 billion. Excluding the full year impact of Lakshmi Vilas Bank as well as the impact of government grants received, underlying expenses were well controlled, growing by 1% over the previous year. Total allowances fell to SGD 52 million compared to SGD 3.07 billion a year ago, comprising an SP charge of SGD 1.35 billion and a GP charge of SGD 1.71 billion in 2020. In 2021, specific provisions fell by 2/3 to SGD 500 million or 12 basis points of loans.
There was a write back of general provisions as weaker credits were repaid, portfolio quality improved, and some general provisions were transferred to specific provisions when loans turned non-performing. The general provision overlay was maintained. Slide four, fourth quarter net profit declined 18% from the previous quarter to SGD 1.39 billion, as total income declined 8% to SGD 3.29 billion. Net interest income increased for the second consecutive quarter after several quarters of decline. It rose 2% or SGD 36 million- SGD 2.14 billion as net interest margin stabilized and loans grew 1%. Fee income declined 8% or SGD 73 million- SGD 815 million due to seasonal effects. Other income declined 41% or SGD 231 million- SGD 338 million due to lower trading income as well as lower gains on investment securities.
There was a maiden contribution of SGD 26 million, representing two months of associate income from the 13% stake in Shenzhen Rural Commercial Bank, which was completed in October 2021. Expenses were well managed and stable from the previous quarter at SGD 1.67 billion. There was a general allowance write back of SGD 34 million compared to SGD 138 million in the previous quarter. Specific allowances were little changed at SGD 67 million. As a result, total allowances amounted to SGD 23 million. Slide five, f ourth quarter net interest income increased for the second consecutive quarter after five consecutive quarters of decline. It rose 2% from the previous quarter to SGD 2.14 billion as loans grew 1% and net interest margin stabilized at 1.43% compared to a year ago.
Net interest income rose 1% as loan growth of 9% was partially offset by a 6-basis point decline in net interest margin. Most of the decline in net interest margin occurred in the first half. Full year net interest income fell 7% to SGD 8.44 billion. Net interest margin fell 17 basis points to 1.45% due to the full period impact of interest rate cuts in March 2020. The lower net interest margin was mitigated by broad-based loans. We continued to deploy surplus deposits to low risk liquid assets. The deployment is accretive to net interest income but accounted for a 7- basis point headwind to net interest margin. Slide six, in the fourth quarter, loans rose 1% or SGD 6 billion in constant currency terms to SGD 415 billion.
Non-trade corporate loans grew SGD 5 billion, led by Singapore and Hong Kong. Consumer loans grew SGD 2 billion, with housing loans up SGD 1 billion as new bookings in the previous quarter continued to be strong. Trade loans were stable as demand for commodities moderated with lower activity in China. Over the year, loans expanded 9% or SGD 34 billion in constant currency terms. This was the fastest rate of growth since 2014. The broad-based growth was led by SGD 18 billion of non-trade corporate loans and SGD 10 billions of housing and wealth management loans. Trade loans grew SGD 4 billion with the growth concentrated in the first half. Slide seven, deposits grew SGD 15 billion or 3% in constant currency terms in the fourth quarter to SGD 502 billion. Compared to the previous year, deposits grew 7% or SGD 32 billion.
Current accounts and savings accounts or CASA grew 12% or SGD 41 billion- SGD 381 billion as strong inflows continued for a second year. The CASA growth allowed more expensive fixed deposits to be released, improving the quality of the deposit base. As a result, the CASA ratio rose 3 percentage points to a record 76% of total deposits. The loan to deposit ratio rose 1 percentage point to 81%. Liquidity was ample. The half year liquidity coverage ratio of 133% and the net stable funding ratio of 123% were both comfortably above their respective regulatory requirements of 100%. Slide eight, f ull year gross fee income rose 15% to a new high of SGD 4.06 billion, with the first three quarters the three highest on record.
Wealth Management fees increased 19% to a record SGD 1.79 billion from higher sales of investment products and bancassurance. Transaction services fees rose 13% to a new high of SGD 925 million from growth in trade finance and cash management fees. Investment banking fees grew 47% to SGD 218 million as fixed income fees reached a new high and equity market fees grew from a low base. Card fees rose 12% to SGD 715 million as combined credit and debit card spending reached record levels. Loan-related fees were stable at SGD 413 million. Fourth quarter gross fee income was SGD 954 million, 9% higher than a year ago and 7% lower than the previous quarter. Growth from the previous year was broad-based across transaction services, cards, investment banking, and wealth management.
Slide nine, f ull-year expenses rose 5% to SGD 6.47 billion. Excluding costs relating to the Lakshmi Vilas Bank and the previous year's government grants, underlying expenses were well managed, rising by 1%. The cost income ratio was 45%. Fourth-quarter expenses were unchanged from the previous quarter at SGD 1.67 billion. Compared to a year ago, expenses rose 6%, mainly due to government grants in the previous year. Slide 10, f ull-year Consumer Banking and Wealth Management income declined 8% from a year ago to SGD 5.32 billion. Loans and deposits income declined 25% to SGD 2.26 billion as the impact of lower interest rates was moderated by higher volumes.
The decline in income from loans and deposits was partially offset by a 14% rise in investment product income to SGD 2.22 billion and a 3% increase in card income to SGD 755 million as the combined credit and debit card spending reached record levels. Assets under management increased 10% to SGD 291 billion. We maintain our domestic market share for savings deposits and housing loans. Slide 11, f ull-year Institutional Banking income increased 4% from a year ago to SGD 5.98 billion. Cash management income fell 17% to SGD 1 billion due to lower interest rates. The decline more than offset strong growth in other product categories. Loan income grew 9% to SGD 3.30 billion. Trade income grew 5% to SGD 757 million.
Treasury product income grew 13% to SGD 764 million. Investment banking income grew 33% to SGD 161 million. GTS deposits grew 12% to SGD 186 billion. Slide 12, f ull year treasury market income and treasury customer income were both at record levels, rising to SGD 3.21 billion in 2021. Treasury markets income increased 5% to SGD 1.51 billion from strong performance in equity and credit trading, surpassing the previous year's record. Treasury customer income increased 13% to a new high of SGD 1.71 billion from strong performance in equity and FX sales, with consumer banking and institutional banking each accounting for half the amount.
This chart shows that treasury markets income has doubled from the low levels in 2017 and 2018 to SGD 1.5 billion in 2021. Similarly, treasury customer income has also grown 1/2x from five years ago to SGD 1.7 billion in 2021. The treasury markets business continues to benefit structurally from massive digitalization. These improvements mean that we can expect treasury markets income to average SGD 275 million a quarter or SGD 1.1 billion a year, up from the previous guidance of SGD 1 billion a year. We expect treasury customer income to grow steadily. Slide 13, Hong Kong i n constant currency terms, Hong Kong full year net profit increased 27% from a year ago to SGD 1.19 billion.
Total income rose 1% to SGD 2.48 billion as fee income and other income both rose 21%, offsetting an 11% decline in net interest income. The decline in net interest income to SGD 1.39 billion was due to a 30 basis point fall in net interest margin to 1.25%, mitigated by 11% loan growth in constant currency terms. Fee income increased 21% mainly from investment and product sales, bancassurance, and cash management. Other non-interest income increased 21% from higher treasury customer sales. Expenses rose by a modest 2% to SGD 1.06 billion. The cost income ratio increased 1 percentage point to 43%.
Asset quality was resilient, with allowances falling from SGD 332 million in 2020 to almost nil in 2021 due to lower specific allowances and a general allowance writeback. Slide 14, a sset quality improved as non-performing assets fell 13% during the year to SGD 5.85 billion. Most of the decline occurred in the fourth quarter, mainly due to the repayment of two large NPL. The NPL rates declined to 1.3% from 1.6% a year ago. Slide 15, f ull year specific allowances fell by two-thirds to SGD 498 million or 12 basis points of loans, benefiting from write-backs of resolved NPLs. They were well below pre-pandemic levels of around 20 basis points of loans. Fourth quarter specific provisions were SGD 67 million or 6 basis points of loans.
They were stable from the previous quarter and 1/5 of their level a year ago. Slide 16, a s of December 31st , 2021, total allowance reserves stood at SGD 6.8 billion, with SGD 2.93 billion in specific allowance reserves and SGD 3.88 billion in general allowance reserves. The reduction in specific provision reserve was mainly due to write-backs for NPL that were fully resolved, attesting to our prudent provision standards. During the year, there was a general allowance write-back of SGD 447 million as weaker exposures were repaid and portfolio quality improved. General provision overlays were maintained. General allowance reserves remained prudent. The reserve exceeds the regulator's minimum requirement by SGD 0.4 billion and our SGD 1.1 billion above Tier 2 eligibility. The surplus acts as a buffer for the total capital adequacy ratio.
Allowance coverage was at 116% or at 214% when collateral was considered. Slide 17, c apital continued to be healthy. The Common Equity Tier 1 ratio was 14.4%. This will change from the third quarter and from the first half. On the conservative assumption that the operational risk charge for the digital disruption is not lifted before the consolidation of Citigroup's Taiwan consumer business and there is no further capital accretion, the Common Equity Tier 1 ratio would be 13.3%, which is at the upper end of the group's target operating range and well above regulatory requirements. The leverage ratio of 6.7% was more than twice the regulatory requirement of 3%.
Slide 18, In line with our policy of paying sustainable dividends that grow progressively with earnings, the board recommended a final dividend of SGD 0.36 per share for the fourth quarter, which is subject to shareholders' approval at the AGM on March 31st, 2022. The SGD 0.36 per share is an increase of 9% or SGD 0.03 per share. The increase was moderated due to the additional operational risk capital charge. This brings the total dividend for the 2021 financial year to SGD 1.20 per share. Barring unforeseen circumstances, the annualized dividend going forward is SGD 1.44 per share. Based on the previous trading day's closing share price, the new annualized dividend yield is 3.9%. Slide 19, In summary, we achieved a stellar set of results despite the low-interest rate environment.
Our broadly diversified franchise saw robust loan growth and record fee income amidst a recovering economic environment. Expenses have been well managed, and we have reaped the benefits of prudent risk management. Our strong financial performance and capital ratios have allowed us to increase our dividend by 9% to SGD 0.36 per share per quarter. The increase is in line with our policy of paying sustainable dividends that grow progressively with earnings. We have set aside a further SGD 100 million for the DBS Foundation and other charitable causes. Business pipelines in 2022 remain healthy, and we can expect to benefit from rising interest rates. We expanded our footprint in India, the Greater Bay Area, and most recently in Taiwan. Together with our new digital platforms, these will provide additional growth engines for the future. Thank you for your attention, and I'll pass you back to Piyush.
All right. Thank you, Sok Hui. Let me echo Sok Hui's words. Gong xi fa cai. Hope the Year of the Tiger is great for everybody on this call. As usual, I have a few slides to supplement what Sok Hui has already covered. Why don't I just go through them very quickly? My first slide is just a quick reflection on last year. You know, as we did our own scorecard and appraisal for last year, it is quite clear that from a financial strategy and business standpoint, this is probably the best performance we've had in certainly the entirety of the last decade.
As Chng Sok Hui pointed out, notwithstanding the collapse in interest rates, you know, we've lost about SGD 3 billion of revenue because of interest rates between the summer of 2019 and now. That notwithstanding, we've been able to deliver a record profit. If you look at the underlying texture, the profits pool has been very, very broad-based. Loan growth of 9% we spoke about has been fantastic, the fastest we've grown in seven to eight years. That's been broad-based. We were helped in the first year by some of the ESG tech loans in Singapore. If you look at 2021, it's been Singapore, Hong Kong, the property sector contributed, the TMT sector, financial institutions, consumer mortgage, wealth-related loans, so quite a diversified balance sheet growth.
Perhaps more important, the deposit growth has been spectacular. Between 2020 and 2021, our CASA growth has been SGD 140 billion. Now, that's actually dramatic. It's changed our CASA ratio from the high 50s to now 76% CASA ratio. As you think about the environment we're going into, a rising interest rate environment, the structural shift in our CASA ratio is going to be extremely beneficial for us in coming periods. Our fee income was very strong. 15% growth in fee income is actually quite spectacular. Again, that was diversified. If you look within that, wealth management was very strong, 19%. Transaction banking grew 13%. Cards grew 12%. Investment banking grew 40%, 47%.
Other than the loan book, it was actually quite a diversified, very strong fee growth. We've seen some pickup in momentum overall. If you take cards, as an example, our total card spend is now higher than it was in 2019. That's debit plus credit cards altogether. In fact, the fourth quarter spend was 10% higher than the same period a couple of years ago. Now, it's true that within that, the mix is a little bit different. Travel related spend is still down. Because travel related spend is down, the income hasn't actually fully caught up. Travel related income tends to be higher. Cards income is slightly a bit lower but overall spend is actually caught up quite nicely. Wealth Management reflects a fantastic growth across the board.
Our net new money for the year was north of SGD 11 billion, which is very good. Our AUM growth was about SGD 25 billion, which is solid. We continue to see these flows of money and the momentum in wealth management to be repeatable as we go forward. Finally, treasury was fantastic. Treasury markets for most houses last year was a soft year for FICC. For the market business as a whole, we're one of the few houses which shows year-on-year growth. We grew 9% year-on-year in markets, which is actually quite good. That reflects not just the FICC, the equities, derivatives, et cetera. That came not just from trading, but that just came from customer activity as well, which again grew double digits.
No matter which dimension of the top line you look at, extremely strong performance. At the same time, because we didn't know what was coming, we managed expenses prudently, and I'm actually quite pleased that we did a fairly good job. Our nominal growth rate is 5%. That reflects the grants we took in 2020, and it reflects the add-on of Lakshmi Vilas Bank. If you back those out, our expenses grew 1%, which is actually fairly well managed. You can see that in our headcount. Our headcount for the year has actually shrunk and that's despite continuing to add technology people. Finally, asset quality benefited a lot obviously from higher repayments. Our NPA formation was low. In fact, the NPAs have come down to 1.3%. SPs were contained.
Because the portfolio improved, general provisions were reversed, even though we've still kept our overlay position, the general provision. Therefore, no matter how you look at it, top line, expense line, credit line, a pretty solid year. If you look forward to, you know, where we are in the business and where we're going, I expect overall the business outlook to be fairly consistent with the guidance that we gave at the end of the third quarter, notwithstanding some headwinds we saw in the fourth quarter and early this year. What were the headwinds? Clearly, the markets, you know, were choppy, markets tanked, and that has impact on both the Treasury markets business as well as to some extent the Wealth Management business. People do less activity when the markets are choppy.
Notwithstanding that, our Wealth Management business actually grew year-on-year. Treasury markets were down, but much less than global competitors. Most people saw a 20%-25% drop in the fourth quarter. We saw an 8%-9% drop in the fourth quarter. Now there is some headwinds in markets, some headwinds on Wealth Management fees. There were also some headwinds on the mortgage book as the new sets of rules kicked in in Singapore in December, and so bookings slowed down a tad bit. We've wound up the year therefore slightly slower than we've seen the first three quarters. As we look at our pipeline going forward through the remainder of this year, I'm pretty confident, like I said, that our guidance for third quarter will stand up. We said mid- to a high single digit's loan rate, loan growth.
I mean, we won't get the 9% we got last year, but 6%, 7% loan growth we think is quite possible from the pipelines and what we're looking at right now. What are the uncertainties? Obviously, on the one hand, if there's policy error in the sense that we wind up with massive increases in interest rates which take economies into recession, we've not factored that into our outlook. At this point in time, though, we think it's unlikely. Even if there are 7% or 8% rate hikes, that would take rates up to about 2% levels, and 2% levels are still manageable. If the central banks find that inflation is too sticky and therefore rates get back to 3%, 3.5%, 4% levels, then that's another story.
That's not our base case. The other uncertainty of course is China. China continues to be slower, and it's a big question mark is the Omicron impact in China. If China continues to keep its domestic economy controlled in terms of mobility, that might have some impact on consumption expenditure. A little bit of uncertainty, but despite that, as I look forward, our pipelines are looking good. Our wealth management business has continued to look strong. The loan pipelines are looking good. Therefore, like I said, our guidance on the top line is still pretty much intact. Of course, what is the second big part of the outlook is rates.
We've given guidance last quarter that we think that we have an upside of $18 million-$20 million per basis point. That continues to be the case. You know, we've been quite sensible in modeling it. We recognize that there's some surplus deposits we have. We assume deposits will flow out. We assume there'll be some repricing in deposits, et cetera. But net-net, the commercial book will benefit quite substantially as rates go up t hat's a positive. Our expense growth will definitely be higher than it was last year. Last year, we grew 5%. This year, we think 6%-7% expense growth is possible, and that's because we, like everybody else, have had to adjust to wages in the second half of last year.
That wage growth of the second half of last year will flow through into the numbers this year. At the end of the last quarter, I said we probably still have you know, mildly negative jaws for this year, which is that expense growth might be slightly higher than revenue growth. At that stage, we were looking at about a couple of rate hikes. If we get more than that rate hikes, if for example, if we get a quarterly rate hike 25 basis points through the year, it's quite possible that we might wind up with a flat or neutral jaws. If you wind up getting even more aggressive rate hikes, then of course we will be benefited even more. Outside of operating profit, our credit outlook continues to be very good.
Asset quality is resilient. Sok Hui showed you the numbers on SP, GP, et cetera, for the year. Next year, we expect our total allowances to be at about the same level, you know, between the SP and GP, which is somewhere between SGD 0-SGD 100 million for the year. Again, as best as we can see right now, we should be able to do that. SPs might keep up a bit, though we have no line of sight to any deterioration in our portfolio right now. But we do have the belief that the portfolio will continue to improve, and therefore, we might be able to continue to release some general provisions to take care of that eventuality if that happens. I did want to make this point on franchise expansion.
Again, Sok Hui spoke a little bit about it, but I do believe that we did extremely well over the last couple of years to judiciously grow our franchise in meaningful and significant ways. First, as you know, we've done three organic transactions over this period between the Lakshmi Vilas one, the Shenzhen Rural Commercial Bank, and now, Citigroup Taiwan. Our projections suggest that by 2024, when all of these are completed, the Taiwan will get completed in the middle of 2023, these three transactions should add, you know, somewhere between SGD 1.2-SGD 1.3 billion to our top line, and close to SGD 0.5 billion to our bottom line. They're going to be quite material in terms of accelerating our growth trajectory, as we go forward.
Second, we really did extremely well to capture customer wallet share and grow the flow volumes in the last two years. Some of these numbers are actually quite dramatic. Our payment and collections business, for example, the volumes are up 200%-400% between 2019 and 2021. In value terms, we've grown our payment and collections from SGD 50 billion- SGD 175 billion. That's almost a fourfold increase. That underlies a large part of our fee growth as well as our balances growth, so that's very strong. Similarly, you take digital FX. The total volumes of our digital FX have grown from about SGD 20 billion- SGD 40 billion in this period of time, 100% growth, and the transaction throughput is even stronger.
We believe that over this period of time, our digital capabilities have shown up in terms of the significant increase in volumes and shares that we've been able to get, and we think this is sticky, so this should continue to help us as we go forward. Finally, we've tried to diversify the franchise by several new initiatives that we launched over this period of time. We believe that in this year, 2022, these initiatives should give us circa, you know, SGD 80 million-SGD 100 million of incremental income. The investment banking activities, our Securities joint venture that'll give us SGD 40 million-SGD 50 million, hopefully. We've already had a good start. Our funds businesses, the proceeds that we did, some of the DBS Digital Exchange, et cetera, should give us another SGD 40 million-SGD 50 million.
Therefore, we believe that the capacity to have improved our franchise over this period of time has actually been quite important and will come through quite nicely in the years to come. A quick comment on the disruption we had in November. As you know, I pointed out our customers have the right to expect more from us. The disruption was 38-39 hours. That's unacceptable. Even though the bank was functioning, people would have come to the bank, people would have got on the phone, the reality is people are used to the convenience of banking digitally, and if you can't get digital access, then that's certainly unacceptable. We've confirmed the problem was due to a malfunctioning access control server. Now, the way our topology is, we have four of these access control servers.
There's redundancy built into it. There's active replication built into it. Nevertheless, one of those servers malfunctioned. We've had two sets of reviews done already from you know the experts at this, and they've not been able to replicate the problem of why that server actually malfunctioned. Nevertheless, we've learned a lot from the reviews, and it's principally around our incident management and our recovery process. It took us some time to figure out what the problem was and some time to fix it, and frankly, we could have done a lot better in terms of the speed to recovery. We have another independent review going on right now that's doing an overarching view to confirm and validate our system architecture, our fault tolerance of our system makeup, our overall protocols and processes.
I'm sure we'll learn from that and continue to improve and make sure our recovery processes in particular are a lot more robust than they were. We take this seriously. As you know, I've came back, and we apologize to our customers. You have a right to expect more from us. Hopefully, we can put this behind us and be able to get back to a more robust set of performances as we go forward. Finally, we've taken the opportunity, as Sok Hui pointed out, to you know leverage both our very strong capital ratios and extraordinarily strong performance for the year and do that by reflecting it in an improvement in our dividend. We're growing our dividend 9%.
Actually, truth be told, we think we have the capital and our profitability, and the power would have allowed us to do even better. Because of the operational risk surcharge imposed on us, we've had to moderate that dividend growth down. You know, we'll keep an eye on the capital adequacy at such time as the operational risk surcharge gets lifted at some time in the future. Nevertheless, we were strong enough, and we not only were able to improve dividend, but we were also able to contribute back to community. We've added another SGD 100 million to our foundation and charitable activities.
One of the things the pandemic has shown is that we all need to be conscious of our commitments, not just on the environment front, but also on the social front. Hopefully, this top-up in our commitment to the foundation will allow us to do more for society and for community at large. Why don't I stop there and we are happy to take some questions?
Thank you, Piyush. We'll now take questions from the media. In order to ask a question, please raise your hand. You can find that in the Reactions button in Webex, or if you're dialing in via Webex audio, you can also raise your hand by pressing star three. We will try to get to as many of you as possible. Before you ask a question, also request that you please state your name as well as the media house you represent. Let's give a few moments to see whether anyone has any questions. We'll take the first question from Rebecca. Rebecca, over to you, please.
Hi, good morning. Happy Lunar New Year and thank you so much for today. I'm Rebecca from S&P Global Market Intelligence. My question is, with your growing loan size and the rising interest rates, you've said that the asset quality will still remain resilient. How do you expect your NIM to evolve this year? Thank you.
Well, Rebecca, that's a good question because it's a call on how many interest rate hikes to see. You know, depending on which forecaster you look at, that could be anything from three to seven . I think the last three slides I saw had seven somebody said the Fed is likely to hike it every cycle, so kind of hard to tell how many rates hikes you might see. Also, the timing of the rate hikes matter. For example, if you see 4 rate hikes, 1 at the end of every quarter, the fourth-rate hike at the end of December doesn't add to this year at all. We modeled if we just see a rate hike at the end of every quarter, then our average NIM for this year will get close to 1.50%, 1.49%, 1.50% levels.
Exit NIM for the year will be close to 1.60%, 1.58%, 1.60%. If you assume rates go back all the way to where they were in the summer of 2019, there'd be eight cuts since then obviously that should take our NIMs back up to the levels we used to have two years ago.
Okay. Thank you.
We'll take a question from Goola. Goola, please go ahead.
Hello. Yes, thanks for the presentation, and Happy New Year to all three of you out there, and also Happy Valentine's Day, obviously. Can I ask these questions? How could we think about a 100-basis point rise in interest rate impact on your net interest income? That's the first question. The second question is how should we think about your cost-to-income ratio in 2022 and 2023, given that it was a little bit high in the fourth quarter of this year? Also, how will inflation impact your MEV model? And will that have an impact on your ECL one and two? I mean, if inflation rises too much, would you have more ECL one and two put aside? Just an update, what is the level of your management overlay?
On your operational risk capital charge, how much higher would your dividends have been if there was no operational risk charge? Is this just a one-time charge? That's it. Thanks.
Another question. First was the impact of interest rates on our net interest income.
Net interest income.
You want to take that?
Yeah. I think you've seen the slides. We've guided that is about 18-20 basis points increase. This is sensitivity to Fed rate. Assuming the 100 basis points that you're talking about, then it's SGD 1.8 billion-SGD 2 billion. Of course, it will take time to play out. You'll get a quarter, 25 basis points increase at end of March, June, September. You have to sort of do your modeling to get the effects over time. That is the idea, SGD 18 million-SGD 20 million per basis point.
Goola, I think it's worth reflecting that we've reckoned that we've given up about SGD 2.8 billion-SGD 3 billion of interest income in the last two years. That's because there were 3 rate cuts in the tail end of 2019, and then there were 5 cuts in March 2020, so 8 rate cuts. That basically SGD 3 billion at that stage was about SGD 15 billion per rate cut per basis point. Since then, our CASA book has increased quite substantially, and therefore, we've actually been able to get some more leverage, some more beta than we had going down. That's how we get that this number. Quite clearly in our model, we've been conservative. We know all of the money won't stick. We've assumed about 25% of the money will flow out.
We've assumed a degree of repricing that will have to happen. That notwithstanding, we actually have some fairly substantial beta to rising interest rates. Your second question was on cost-income ratio. You're right, the fourth quarter cost-income ratio is about 50%, last year it was about 48%. This generally reflects the fact that the fourth quarter income tends to be slow season, seasonally. That I often joke, traders tend to go off on holiday in December. Therefore, December is always a very soft month for a large part of our activity. That's what reflects in the cost-income ratio. The outlook for cost-income ratio for the coming year is really more a function of the income growth than the cost. Our costs continue to be very well controlled.
This year, if you ignore you know the grants we got last year and LVB, our costs are 1% up. We continue to drive structural and strategic cost management into the system. We're very judicious about our headcount growth. The outcome of whether the cost-income ratio improves from this year's 45% levels or not is really a function of your first question, you know, how much interest rates take and how much of that SGD 2.8 billion-SGD 3 billion of income are we able to claw back. Your third question was inflation and what is the impact, likely impact of that. You know, as best as we can tell on our large corporate book, which is the largest part of our exposures, we are very robust. We've done bottom-up and sectoral.
Many of these companies have gone through some pretty severe crisis in the last two, three years. We think that'll be fine. I think consumer book and the mortgage book is also unlikely to be impacted. The area to watch if inflation is very sharp, and rates go up sharply would be our SME book. Now, SME book is not that big for us, but that's where you might expect the cost of goods to start impacting the SMEs. Rate hikes have already begun to impact them, and if rates go up sharply, then they'll have to worry about debt servicing as well. That's the area to look at. Now, the flip to that is in the last three years, we've been really managing the book very tightly.
As in Hong Kong, we started doing that three years ago with the supply chain issue. In the last three years with the COVID, we've all, frankly most banks, have been very focused on making sure that book is tightly managed. Therefore, while I will keep a close eye on the SME book, I'm not anticipating any substantial or significant or material impact either to the SP levels or the need to keep increasing GP. Frankly, if you look at the last quarter or two, our portfolio is improving, and as the portfolio improves, we're having to reverse our general provisions either because weak credits pay down or the tenant reduced and so on. So, I'm not anticipating anything much different in the coming quarters. Your question on management overlay was the fourth question.
Sok Hui, it's about SGD 1.5?
Yeah, it's SGD 1.5.
It's about SGD 1.5 billion of management overlay. Just to clarify, we always keep some management overlay. I don't think anybody should assume that we'd ever reverse out the entire management overlay. I think it's fair to assume that as the economy is open and as the virus situation falls behind us and China stabilizes a bit, we do have the potential to be able to release some of that. Your last question is what the dividend would be, and that's a highly theoretical question. When we discussed with the board in the middle of the year these actions, we set up a game plan and glide path for how we could increase dividend over the next year. Our payout ratios are low.
Our payout ratios are still only in the 50% range. Our capital adequacy is very strong. Even if you take Basel final 2028, we are well over 14%-14.5%. If you factor in the Basel transition arrangement, which by the way are transitional for the next six months, our capital adequacy is now the 15%-15.5%. We do have a lot of capital, and we come up with some arrangements for how we could return money back to shareholders. Now, obviously, we've got to be mindful of the capital set up. We moderated down. We didn't have any specific numbers in mind.
We'll move on to our next question from Prisca. Prisca, please go ahead.
Hi. Thanks for the presentation and congrats on the good results. I have a question about the update on the disruption. Does the bank see the SGD 913 million requirements having any impact on its investment and hiring plans in the coming quarters? And also, when does DBS expect that this requirement will be lifted, going by its current status of independent master?
Well, the first is no, because our investment hiring plan is impacted by expense plans, cost income ratios. They're not moderated by capital. What the capital charge does is causes us to focus on our dividend policy, causes us to focus on our business selection because of the incremental capital charge. It doesn't really impact our investments and our hiring plans. We've already said that, you know, it's already been reflected in our dividend decisioning. In terms of how long it takes to remove the charge, frankly, this is MAS prerogative, so it will be out of place for us to speculate. I do think two observations are appropriate. One, a large part of what we need to do, which is focus on asset management and recovery process, we've got underway.
We have another, a third review finished by the summer. So, I'm fairly confident that we can fix all of our bases over the next couple of quarters. The last time we had to fund the charge about a decade ago, the MAS took 14 months to reverse it. If that gives you any frame of reference. Like I said, I don't want to speculate. The MAS could take much longer than that.
Another question from Timothy. Timothy, could you please also identify the media house you represent? Please go ahead.
Hi, I'm Timothy Goh from The Straits Times. So, my question to you is, are there any plans to expand the DBS Digital Exchange? Is there a roadmap for rolling out digital asset trading to retail investors given the growth in that market?
Yeah. I think what we are doing with those tools is actually just spend all of Saturday discussing this, so it's been top of my mind. What we're going to focus on in the first half or in the first three quarters of this year is to make the access to the digital assets a lot more convenient, but still in the accredited investor space. Today, what happens is that we've gone 24/7, but our customers still need to call and speak to bankers. The first order of day is to make it all online, make it self-service, make it instant, and make sure the end-to-end processes are robust to be able to support that.
At the same time, we started doing the work on seeing how we can, in a sensible way, take it out and expand it beyond the accredited investor base. That includes making sure we have appropriate thinking about suitability, we have appropriate thinking about potential for fraud, et cetera. Relatively by the time we nail all of these things down, I think we are looking more like the end of the year before we can actually take something to market.
Thank you so much.
A question from Anshuman of Reuters. Anshuman, please go ahead.
Hi, Piyush. Thanks for this opportunity to ask a question. I want to check with you, can you talk a little more about some color about the different businesses that are driving growth? How is it different from the previous year when you had record results? The second point is obviously, rises in interest rates would help DBS. Apart from that, you would see strong drivers of growth beyond interest rate increases, especially after a strong year. Thanks.
Yeah. Anshuman, if you look over the two big businesses, or three big businesses, if you will, which have secularly driven our growth now for some years. The question is really do these continue to stand and in fact can they accelerate? The first is, we all know, Wealth Management. Wealth Management, you know, from being a mid-single digit contributor to the bank, today, it does, you know, +20% of the bank's performance. The good thing with the Wealth Management business is it's increasingly getting even more broad-based. We are not just in the large and private banking space, in the private client space, in the mass affluent space, but we're able to take those products even to the mass market space.
Today, almost 18%-20% of our wealth activity is actually retail, both bancassurance, digital portfolio, robo-advising, and so on. The balance 80%, which is in the affluent and up, is just growing remarkably well. As I mentioned before in earlier comment, we look at our performance for last year. We saw not just increase in net asset AUM; we saw new money. We also saw a lot more discretionary money. Almost SGD 10 billion of our AUMs are now in some way, shape, or form discretionary money. That used to be SGD 2 billion a couple of years ago. The nature and quality of that wealth management business have been great, and I'm pretty confident that will continue to grow.
If you look at the last five years, you know, in 2020, we grew 19% off the chart. We've never grown less than 10%, 11% actually was our lowest. We've grown somewhere between 11%-20% every year for the last five years. Can we continue to get, you know, circa 15% growth rate in the business? I think we can. The second big thing that's been a big driver for us is transaction banking. Transaction banking is the other business. Cash management is up 10x in the last decade. Similarly, trade, open account trade, supply chain financing, et cetera, has been very robust, very strong. We grew 13% in transaction banking fees last year. As you know, transaction banking obviously is a big provider of the lending.
A lot of the CASA comes from there. I think the fact the data points I gave on our volume growth, that is really the best way to think about it. You cannot get 200%-400% growth in payment volume, collections volume, consumer, corporate, without something happening. Perhaps the something is the digitization we've been able to do, the APIs we've been able to create and plug in. We have over 1,000 customers in Asia who we plugged our API connectivity into. That's showing up in the volume, and that's showing up in the CASA growth as well as the fee income growth. Again, we believe we've only scratched the surface. There is just a lot more opportunity to continue to drive that part of the business.
Now, outside of those two, the third big thing that's happened is our market business, and that's both on the trading side as well as the customer franchise side. That reflects to my mind, to a large extent also digitization. We've digitized the heck out of that business in the last two, three years. We're using not just algorithmic tools, we're using sentiment analysis, we're using digital distribution, we're using data to improve our actual, you know, process cost play, the journey management we're doing with that. I think all of that is coming through quite nicely. That's our third big engine of growth, and that continues to improve every year. Some of our core businesses are doing well, like lending. Because we've automated and digitized, and so we're doing a lot of algorithmic lending.
We've got lending models now for SME lending and supply chain. That's holding and making sure that part of our core business is quite robust. Our investment bank is growing nicely, both fixed income and ECM. I'm pretty hopeful that the China activity will give us some impetus even though the numbers are small. You know, we make circa SGD 200-SGD 220 million I think we made last year in investment banking. As a percentage growth, it'll be attractive. As an absolute dollar number, it doesn't move the needle that much. For me, it's a longer-term game. I think if we continue to get the China piece right, this can again be a meaningful contributor to us in days to come.
Okay. I'm afraid, that's all the time we have for today. Thank you very much for attending, and we'll see you next quarter.
All right. Thank you all.