Okay, hi everyone. Welcome to the analyst briefing for our first quarter results. As usual, if you have a question, please press the raise hand function, and then we'll call upon you to unmute yourself and then ask your question. If I don't say your name and the firm you're representing, please do so yourself. So, without further ado, we'll start with the first question from Akash from UBS. Akash, you can unmute yourself.
Can you hear me?
Yep, we can hear you.
Okay, fantastic. Thanks for the opportunity, and congrats on a strong start, Su Shan.
Thank you.
My first question is just, you talked about the first-order risks. Can you help us quantify them a little bit? So, specifically, what is the total loan exposure to trade sector? And within that, how much is U.S. directly? And then related is, what is the loan exposure to the SME sector?
Okay, so for the first-order impact, it was really around the exposure is roughly 1%-2% of our total loans. But these are all large corporates with pretty good financials. So I honestly don't think it's going to be too significant on the downside.
Got it. So when you say, what is this exactly, 1%-2%? Is it like U.S. trade-related companies or?
So it's within the sectors I talked about, so autos, metals, and mining, consumer discretionary, consumer goods, etc. It's really our exposure to them. So actually, even then, if you do an RCF, for example, you don't know how much of that capital goes into financing what they sell to the U.S., correct? So it's really dependent on the overall creditworthiness of the underlying client, which, as I said, these are all big names, so they should be okay. Nonetheless, the actual figure of the total exposure is around 1%-2% of our total loan book of these industries that will suffer the most impact on the first order, which is autos, metals, and mining, and consumer discretionary.
Okay, understood. And would you be able to update us on the SME exposure?
SME exposure. Total SME exposure is SGD 12 billion. Most of that is actually in Singapore and Hong Kong. So that's more the second-order impact, right, of consumers spending less, lack of consumer confidence, or these investments, etc. It's quite small. As I said, both the SME book and the unsecured consumer book, which will have some second-order impact. We've been very circumspect in the last few years, and we've been very cautious. So both those books are quite small at SGD 12 billion and SGD 14 billion, respectively.
Understood. Thank you. Second is on the wealth management. So you talked about the net new money for this quarter. And when we look at the AUM slide, it's actually the AUM went up quite a bit, right? I think five or six billion quarter on quarter. From one other bank, yesterday we heard that they also had some net new money, but the valuation impact was negative. So net AUM was flat. So I'm just wondering, how did AUM go up six billion when your net new money was around three billion and then valuation impact would have been negative? Was there some FX impact, do you think, or how do we explain that?
The net new money that we give is only for the Private Bank. So it's the high end of the wealth segment. And that was a figure that I said was the net new money, which was actually about three, but because there was some transitory two-ish billion of assets which went out in March, and then some of that came back in April, there was noise around that net figure. But if you look at the wealth figure, which is the number I think you saw, which is 432 billion, that's for all three wealth segments. It's PB, TPC, and Treasures. And what I said to the street just now was, I actually think that's the better figure to focus on if you want to measure the profitability of the wealth business.
But the market always focuses on the PB, net new money, for whatever reason. So that's fine. But if you want to look at the wealth business, my feedback is look at all segments, because if you're looking at consistent growth and the velocity of growth and the structural growth, you should look at all segments, because Asia has wealth creation in all three segments.
Yes, that makes sense. But I think the numbers that were shared in the past quarters, which have ranged from like 6 billion net new money, was that also just for the PB segment?
Yeah, that was just for PB. So PB last year, I think they were averaging SGD 2 billion a month. And that was good. And obviously, that's what we're aiming to keep. But it does depend on sentiment, on lumpy flows, on how you can structure stuff, a lot of trust, family office type AUM that tends to be a little bit lumpy. But anyway, as you know, we've invested in new RMs. New RMs are bringing in new assets and new clients. And we are reaching out to continue to grow that sort of new pipeline. But the more organic and I guess more sticky, if you will, is to look through the lower segments as well. Because the lower segments, you get their retail flows and you get their wealth flows, right?
You get the income, you get their CASA, you get their credit card, you get their mortgage, you get their wealth, and you do everything for them. It's a lot stickier.
Got it. Understood. And I think DBS has obviously climbed up the ranks in terms of total AUM. When we look at the private banks around Asia, you're number three now. Are you setting a target to be number one, number two in a few years' time?
No, the gap between us and number two is quite high. The gap between number two and number one is quite high. So that's the good news, right? We still have a lot of work to do, a lot of upside to aim for. But yeah, we are ambitious and we're investing, and we've got a great team running it. But the wealth fees are dependent on market sentiment and where indices go and volatility of markets, right? So the wealth fees will move up and down with the markets. But the important thing is to look for structural and consistent structural growth, and also to look at the profitability of our business. And my colleagues run a very tight ship, and it's one of the most profitable PBs in the world, actually, from a cost income perspective and the productivity per RM perspective.
We've been investing on things like generative AI, the Wealth Copilot, and the contextual nudges through the iWealth app, etc. There's a lot of both personal HR investments in people and the digital investments in platforms.
Got it. On the net interest margins, we talked about the sensitivity earlier. I think what we also understand is that the hedges, half of the hedges are about to roll off mid this year, and then the rest of them probably will roll off next year. Is that still the plan? Are you kind of putting on new hedges in place to further delay this transmission to net interest margins?
Really, we assess the interest rate environment each time and make our decision then. It's a bit hard to read and tell you. The interest rate curve is really flat. I mean, it honestly doesn't make sense to hedge here, right? The rates are too low. But we've already hedged, as I said, we've hedged a third of our book. And the hedges don't come out till end of next year. So there's some coming off this year, but the bulk of it is really next year.
I see. I think that's a bit of a change from the previous understanding that we had. So you're saying one third of the book is hedged, majority of it comes out end of next year? Okay.
One third is hedged.
A couple more questions, Su Shan, on the guidance. So on the non-interest income, there was a slight change. So you said, I think it used to be high single digit for this year, and now it's mid to high single digit. I just want to get a bit more color on which part of non-interest income are you most worried about at this point? Is it wealth management? Is it the deal activity? Or is it loan-related fees or something?
Oh, so on fees? Wealth management fees are still growing in the teens. As I said, it depends on where the market goes. That's the kind of volatile bit, which we have to be more nuanced. If we see a complete meltdown in the second half, then we have to be more circumspect then. But if not, it should be a sort of steady 12%-15% for wealth management. The loan fees were record high this quarter. The pipeline remains good. But as I said, the second half then depends on whether the deals get canceled or not, right? Actually, our team is very, very busy. But because of the lack of clarity on tariffs, there will be in the second half people that will press the pause button on some of these big deals. What was the other?
So there's wealth fees and loan fees are the main fee income.
Okay, understood.
Oh, yeah. Investment banking, as you know, I mean, actually, ECM was going to come back, especially in North Asia. But it depends. I mean, if ECM comes back in the second half in Singapore, we've got a lot of deals in the pipeline, but we have to see if the pricing is okay. So I mean, the good news is the deals are there. We want to execute. The bad news is we are market dependent, right? So I think the key is to invest in the structural growth. So the long-term structural growth investments and platforms and people are there. The deals, the customers are there. Then whether they come through or not will depend on where the market goes.
Understood. On the GPs, general provisions, I think there was, again, a slight change in the language. So it said earlier that GP writebacks can be used in context with the SP guidance that you had. Now it says there are GP buffers to cushion. So should we read it by saying that there's only GPs will be used only in extreme scenario? But if your SPs were to kind of go up by five, 10 basis points, that will still be absorbed through the earnings. Or am I reading too much into it?
I think we'll assess in each quarter, so like I said, we are going to update our MEVs. We'll do a more thorough analysis, and it could well be that we are already adequately provisioned, and we may have capacity to release, so we won't rule that out.
Yeah. We thought it would be prudent to take this 200 GP because we saw what happened to the markets after April the 2nd, and honestly, we didn't know where the market was going to go, but we thought, look, let's just be overly cautious and take this 200 because we can, and when we should, it's prudent. Having said that, as Tommy had alluded to, we do have this 2.6 billion GP overlay, which is still there.
If you suddenly get some lumpy SPs in the second half, God forbid, but you never know because these things can happen in a very, very bad scenario. I do believe we are adequately provided for through this overlay.
Got it. And then on Panin Bank in Indonesia, so I think you must have heard this from many investors as well. A lot of investors worry if, as a new CEO, you have enough bandwidth to kind of do something like that, or if DBS has enough experience in Indonesia to kind of it just makes it very challenging if a bank doesn't have a lot of experience in a particular market. And then thirdly, if it's overall like a right fit for DBS or not. So I just wanted to get any comments that you can share on how you think about these things, how you answer these questions.
Yeah, so Akash, I often sound like a broken record, but here goes. We are focused on three things. The first is, do we know how to do it? Can we integrate it? The second is, is the price right? The third is, does it fit in with our strategy, right, and all three things have to be a solid tick before we go ahead, so we're not cavalier when it comes to deals.
Great. That sounds very encouraging. Thanks, Su Shan. My last question is, you also had this comment on one of your slides which said diversification of trade currencies and reserve assets. I just wanted to get your high-level thoughts on what are you seeing? What do you mean by that? Is it different currencies, or is it different asset classes? What is it exactly?
Oh, okay. So I guess when your customers start seeing these volatilities in interest rates and currencies, they start thinking about not being over-reliant on anyone, right? So if you're over-reliant on one currency, you kind of want to make sure that you have diversification. And so that's an opportunity, right, for us as we help our clients. Like for trade flows, right? If trade flows between, you know now increasingly trade flows between the Middle East and China, particularly, are now denominated in CNH, right, International RMB. And with the recent volatility in US dollars and U.S. treasuries, we also see clients saying, okay, maybe I should take some risk. The market's done well, take some risk off the table, diversify into a different bond or different currency bond or different sovereign bond, right? And also payment modes, right? You never know, right?
If there is outright war, and as I said, we prepare for all scenarios, including the most black swan or black swan events. If there's outright war, if the dollar gets weaponized, if SWIFT gets weaponized, then you need alternative pathways. So we think a lot about alternative pathways. It could be digital, it could be blockchain-based payment pathways, it could be CIPS, it could be still SWIFT, whatever. So it's just preparing our clients for the absolute worst-case scenario, having an alternative pathway. So if it does happen, okay, you know what to do, right? I think this is what we're planning for. As I said, stay resilient across all risk scenarios, including the black swan that you really hope doesn't happen, but if it happens, we've got the playbook. We go and execute the playbook.
Understood. Any particular currencies that you're seeing more demand for from your clients?
It's a mixed bag. I mean, people who were short the yen have covered the yen. They were short the Swiss franc, they've covered the Swiss francs. As you know, a lot of our domestic wealth clients have seen dollar. So it's a good mix, actually.
Okay, got it.
That's everything we need to move on.
Yeah. Thanks very much.
Thanks, Akash. Next question from Anand from BofA. Anand, go ahead and unmute yourself.
Yep.
Okay, great. Su Shan, let me ask the M&A question in a different way. I completely appreciate your thought process in terms of what all goes into deciding to do a deal. But what I wanted to understand was either in India or Indonesia, what is the strategic need you actually see to do an M&A, especially by a full bank, right? How would you justify that? And why I ask this again is looking around your peers or any other M&A in terms of full bank acquisitions, the success rates have been very, very low. I appreciate kind of Citi, other things. All the bolt-on deals you have done in terms of assets have been very good success. But these full bank acquisitions rarely are a success. How do you think about it and how do you go about?
Do you have a preference between India, Indonesia, Malaysia as well? It would be great to hear your thoughts on that.
Okay. So as you alluded to, I mean, certainly since I've been here, we've done several from SocGen to ANZ to Citi Taiwan, LVB. I would say all of these have been pretty good fit. Some of them have been more game-changing than others, and it has to line in with our country strategy, right? So across our markets, we want to grow wealth. If the bank in question has a good wealth footprint, that's a great plus, right? And if it's something that's complementary, that means they don't have the same clients as us, it's also a great plus. And if it's something that it doesn't come with a lot of hair, right? By hair, I mean unknown NPLs, unfunded pensions, very archaic systems, IT systems, or unknown unknowns, right? Or just noise. Obviously, there's often a trade-off between price and noise.
And so if it's super, super cheap, but there's some noise and we can crystallize the noise and ring-fence the risk, then we might look at it. So your question was, how does it fit in with our strategic need, did you say? Or how do we think about it? I hope that answers the how do we think about it question.
No, that's helpful. Yeah. So basically, my question was build versus buy in these two markets, and you are not a very small player. You're a decent-sized player. Just to understand the build versus buy thought process you have in these markets.
Oh, okay, so India now, I think we are at a size where we've got enough of the buy on the base. If we were to buy anything else, I think it has to be additive and accretive immediately, especially around, let's say, potentially wealth or digital wealth or something, something forward-looking. We like deals that bring us forward, not backwards, right, so deals that bring us backwards means you have a lot of work to do. All my teams will be very busy integrating and cleaning up messes and whatever. That's quite difficult, and as most of you alluded to, if you don't have the right people or the bandwidth, then you don't want to take your eye off the ball for what's future, more future forward, right, so we look for what can take us more towards the future.
Or if it's something more traditional, then what can help us to leapfrog? And the price must be right and we have the right people. Often, if we don't have the right people, we hire them. So when we did LVB, it's fair to say we didn't have a lot of the leadership in place, but we beefed up our leadership and we created what is called the National Distribution Network precisely to do that. It's been a game changer for us in terms of positioning and posturing in India. Like for example, in South India, we're bigger than quite a few big Indian companies. And that gives us the footprint to both acquire and cross-sell, right? So the branch network that we have in India today, it's one bank, right?
So one of the big things that we're doing is to create a one-bank strategic intent where both CBG, IBG at the branch level, at the BU level, in all our core markets, work closer together. So we cross-sell across the franchise better. And the India branch network is a good example of this where the SME bankers and the wealth bankers and the CBG retail bankers work holistically with the branch managers to ensure that connectivity across the BUs.
Sure. Thank you.
Sorry, I've veered away from your question, but I hope that gives you a sense of when we buy, it's got to come in with stuff. The stuff, if it's difficult to do, then we may or may not do it. It depends on the price and the people. And then we want to make it as forward-looking as we can, right? So it's not just traditional banks that we look at. We look at fintechs. We look at wealth tech. We look also at the more future-forward stuff.
Sure. Absolutely. That makes a lot of sense. I just have one more question on capital management, and with all these things happening and some change in rate cut outlook as well, and any change in your thought process on capital management, and not only the quantum, also kind of the mix of capital management with respect to payout ratio versus share buyback, etc., and of any change in thought process, some color would be great. Thank you.
Okay. I'm going to kick off, and then I'll let Sok Hui supplement. So currently, we don't see a need to change our capital management with regards to, I guess you're thinking about more around the dividend policy, right? And the reason I don't think there's a need to change is because, number one, what we committed on in terms of the buyback and the step-up of SGD 0.15 will come from the reserves that we had, from the stock that we had, right? So the SGD 0.15 step-up for three years will cost us about 1.7 times three years, right? And then so that's about SGD 5.1 billion. Then we've got another SGD 3 billion that we've committed to do share buybacks. We've done a bit of that during the recent meltdown. We'll continue to do that. So that SGD 8 billion from our stock, we're able to do that.
The SGD 0.60 that we said we're going to pay out per quarter will come from earnings. And as I said, as long as we keep our ROE between the 15%-17% range, barring any Black Swans, then that is also okay, also potentially in the bank for the next couple of years also. You want to supplement?
Yeah. So I think Su Shan has summarized it. If you look at our CAR today, and we use the final phase-in, and you compare the 15.2% to the sort of higher end of our target range of about 12.5%-13.5%, so take 13.5%, we'll have a surplus of about SGD 8 billion, as Su Shan said, SGD 3 billion in share buyback in progress. And the plan is to do capital return in some form or other. For the first year, the board has already committed to SGD 0.15 per quarter, making SGD 0.60 this year. And equivalently, if we continue with that kind of ROE, we should be able to repeat that for another two years. That's actually to sort of manage the surplus capital position that we have.
Then on an ongoing basis, we said we can actually do the step-up in ordinary dividend, but that has to depend on how we do for each year. And if we are talking about 15%-17% range, I think we can afford to step up SGD 0.06 in the last quarter and then a full year of SGD 0.24. And that probably we can do it over the next two, three years.
Yeah. Okay. Thanks. I think the next question is from Harsh from J.P. Morgan.
Hi, Harsh.
Hi, Harsh.
Harsh, you can go ahead and.
Yeah. And that comment on dividends was fantastic. Thanks for that. The other bit on margins, we saw CASA ratio inch up a bit and LDR going down a bit. These are on period end numbers. Are the similar trends holding for period averages as well? And the follow-on question to that, would we getting into next couple of quarters, should we expect both? Where shall we expect? Let me rephrase it. Where shall we expect CASA and LDRs to trend? And then I have a follow-up on details on them.
Okay. I mean, we expect CASA ratio to continue to trend upwards. It's been a good quarter for us. April is looking good as well. So as rates come down, CASA goes up. And that's both because of the market cycle, but also because of the structural work that we have done as a team to ensure we get more deposits, hopefully, than our peers, and that we are more price inelastic than our peers. And the work done, that structural, is a lot of data mining, a lot of preemptive nudges to customers, a lot of hard work around operating accounts for SME, etc., etc. So I'm constructive on the CASA ratio continuing to move up, barring any big accidents. On the LDR ratio, I can kick off and my colleagues can opine. But as I said, right, loans depend on the quality of loans. Don't manage LDR, right?
Manage for quality and ROE of your loans. And good quality loans are good credit loans. We've been very credit-aware. And so we will not grow loans for the sake of it, right? So we grow franchise loans and good quality loans. And that's what we have seen. My colleagues in the syndicated finance deals in green loans as well , the IBG world, the structural loans where we are actually the lead with the MLAB, with the MLB bank, and we're also doing the advisory work and the fee that comes with it. That's good quality loans. So that's been strong in the first quarter. It probably remains strong in the first half. Unfortunately, I can't say it's going to be strong in the second half because I don't know, because of what we're seeing around the uncertainty.
If the uncertainty continues, then that good quality sliver of non-trade loans will probably inch down, but because we've done a lot of the heavy lifting in the first quarter and the first half, we should continue to at least have the income continue from that, but the new loan growth may be more muted in the second half. Trade loans, it's down to pricing and supply chain pivots, and if my colleagues are able in the trade side to pivot to the higher growth corridors, which they're working hard to, then that could also be resilient, but the names there are not as high, and they're more lumpy and more seasonal, then the wealth loans depend on market sentiment. As rates come down, that should also be steady to up if the markets are strong. If the markets are down, that will fall. Mortgages are pretty flat.
We gauge what will run off, and we price correctly. And we price based on what our marginal cost of funds are. But so far, we've been in the last few launches we've done relatively well, particularly in Singapore.
Right. Thanks for that.
And as I said, SME loans and consumer unsecured loans, they're quite small. It's SGD 12 billion and SGD 14 billion, respectively. And we've been more circumspect there and very cautious, actually.
Yeah. Makes sense. Thanks for that. The second bit is on SORA. Come off quite a bit. There is a very significant competition in the mortgage market in Singapore on fixed. Some of the banks doing very thin spread over SORA as well. And if I heard you right, I think exit NIM was 209. So given this combination of very sharp decline in SORA, which is almost unhinged from the US dollar rates, should we expect more significant weakness in NIM in second and third quarter? Or given your hedges and given the scope to increase LDR and improving CASA, it kind of stabilizes closer to exit NIM?
I'll share the NIM so we can amplify. I think our SORA-linked book is not as high as you might think it is, and our mortgage book, actually, we do a lot of analysis on how we want to price, who we want to price for, and we want to get the cross-sell, right? So we don't want to join the money-losing price war. That's not our strategy on mortgages, especially in Sing dollars, and a lot of our Sing dollar book, I think half of our Sing dollar book is now hedged, right? So that's the good news, and you're right. I think most of us saw the SORA draw, but SORA is actually quite illiquid, right? And because of MAS's trilemma, they can't control SORA, so their big tool is still the Sing dollar, and they manage through that mostly.
A lot of it is more the SMEs and the mid-cap that are more SORA-based. And we've actually advised a lot of them. And this has been good for our fee business, actually. They had to see this big movement before they hedged, right? So they lost the opportunity last quarter. This quarter, when they see intraday big SORA moves and the forward curve collapses, they will lock in a good rate. So the clients have been quite smart, right? They've been locking in good rates. For us and for mortgages, as I said, we do a lot of work. We don't willy-nilly price down. We price for clients where we think we can get cross-sell around wealth fees. Then we might price a little bit down on the mortgage to get the client on board and to get the cross-sell around wealth.
When we have clients that have their mortgages due, we also gate them, and we try and bundle products so that it's not just a race to the bottom. Sok Hui, you want to amplify?
Yeah. So Harsh, maybe the way to think about our Sing dollar book, it's not just the loans. It's the Sing dollar assets. And Sing dollar assets include loan substitutes, include interest rate swaps, fixed rate that we have taken to hedge the SORA book as well. So you think about a SGD 240 billion book, half of that is already in fixed rate. So the amount of SORA loans under the floating rate category is only about SGD 30 billion. So we are not as exposed to a steep decline in SORA. And the other thing to note is that part of how we compensate for this decline in net interest rate is that we are seeing strong inflows of low-cost CASA. That was not in our original plan, but with the recent volatility, that is actually helpful in increasing our net interest income, which we can then deploy profitably.
So there will be net interest accretive might be a slight pressure on NIM, but overall, it's a good trade that we want to do. So we are encouraging sort of our businesses to bring in low-cost deposits.
Yeah. CASA is king.
Yeah. Thanks. And then final one. If I heard you correctly, half of your Sing dollar book is hedged. Is that? I'm trying to understand who's on the other side of the hedges because my previous understanding.
So when we said hedge, it will include mortgages, which are already on fixed rate, right? So they don't move. So that would be considered a fixed rate exposure. Some of it are deployed by our corporate treasury department in fixed rate instruments. Then we have got interest rate swaps that we sort of hedge over floating rate that becomes a fixed rate instrument. So there are a few levers that we have, and that's why half the portfolio is in fixed rates.
Right. But here's my worry on that. Yes. Technically, mortgages are fixed, but within two years.
Sure.
By and large, it gets repriced.
All of these are three-year time frame. Yeah. These are all for three-year time frame.
And it is a rolling two years, right? So you will have a lot of these supposedly fixed guys coming up for market repricing literally every day. So that's what I'm trying to understand. What happens to NIM? So even if it is technically hedged, in next six months, how much down? Because your Sing dollar CASA ratio is fantastic at 80-odd%. That's where my worry on NIM is.
I guess you look at the mortgage portfolio, fixed rate actually would be lower than sort of a floating rate, and customers have a preference to take fixed rate this time. So it's actually not a problem to roll over at fixed rate because that's customer preference in this environment. So when it comes up for renewal, they will get repriced again, most likely at fixed rate. 2.52%. Yeah. Because the floating rate today, actually, the mortgage rates are actually higher than fixed rate.
Right. And sorry, the last question on the interest rate swaps, are they the Sing dollar book or are they US dollar book? The question I'm asking is because on the US dollar book, there are a lot of people who take the other side of the trade. But you're so big in Sing dollar market, can anyone, if you want to hedge a big part of your portfolio using IRS and SING, it's very difficult for other people, other banks to take the other side of it. So is it Sing dollar book in IRS or US dollar book in IRS swaps, IRS hedges?
We are both. Yeah, we are both, and we can't do it. We can't clear the entire stock that we want to take in a single day, but we do it over time. We take what we can and we manage it. We've been managing it quite well.
Great. Thank you so much for that.
Thanks, Harsh. I think we need to move on. Next question from Jayden from Macquarie.
I just wanted to come back and link a couple of the topics before on M&A and capital management. Obviously, we've sort of committed to the S$5 billion over the next three years on special dividends and the buyback. But is there a trade-off if we were to do any particular M&A where we would have to revisit it? Or are we saying that that's being pre-committed? Any M&A has to fit into new organic capital generation. How do you sort of think about the trade-off there for your shareholders?
With the SGD 0.60, that's about a 64% payout ratio. We're still accruing a few billion SGD a year, which we can accrue and pay for whatever future M&As we need to pay for.
I think the other point to note is currently we are complying with this transitional CAR at 17.4%. We do have a bit of buffer to do some small M&As within that range as well. Because over time, we'll make more profits like Su Shan said.
Yeah. Yeah. That's really helpful to know. And I guess the next question I had is on the general allowances. So I know that we sort of moved to 1%. We've obviously raised it. I think earlier you spoke about the SGD 2.6 billion of overlays. But what's your sort of thought process around what's the right level of GPs? I think one of your peers raised them yesterday, and they talked about having to raise them further. But how do you sort of think about what's the right proportion of loans or any reference points you're using? Just wondering if you'd take next quarter to raise it again or something.
So we stress test our portfolio, right? And as I said, it was the first order, second order stress test that we do. And then we look at the probability of default. And based on that, we take those GP allowances. And given what I detailed there, I think most of it, if anything, will be in the second order. And we have been pretty cautious around mid-cap SME and consumer unsecured loans. I do think we are sufficient. But you cannot predict accidents or fraud or massive war-like scenarios. So if the Black Swan does happen and you get these outsized bankruptcies that are unexpected, that's when the GP overlay of 2.6 will have to kick in.
Yeah. I think 100 basis points is actually a good number. If you look at, I guess, what you heard announced yesterday by a peer, I think they are moving from 80 over% to 90%, and that would actually require them to take it over a period of time. We are not in that situation.
Our coverage ratios are.
Our coverage ratios are 137%, and that's an increase of 8 percentage points during the quarter, which again, is pretty strong, and if we take collateral into account in the denominator, so it's total provisions divided by NPA less the collateral, and we use for sale value, we're at 230%, so I think we are quite robust, so short of something that really triggers something very unexpected, I think we would, I would say we're adequate for now.
Yeah. That's really interesting. I guess it comes down to a relative position at this stage, which is totally fair. But I appreciate the insights there. Thank you for taking that one. And maybe my final.
We're very conservative. I think we've been very conservative, but that's good. Better to be too conservative.
Yeah. No, that's really helpful. My final question is just around trade finance. I think during the commentary, you suggested that you were very open and looking at potential opportunities to look at trade with the realignment of corridors. I'm just wondering, are you seeing those proposals come through from your clients now, or is it more just that you're sort of prepared for that and you're willing to grow if the opportunity presents? I'm sort of wondering how your clients are responding, if at all, at this stage. Thanks very much.
Yeah. I think clients are all looking for new avenues of growth, right? And be it sort of, as I said, Northeast Asia to India, Asia to Middle East, China to Middle East. And then outside of trade, also investing in new industries like the new technologies, AI, generative AI, humanoid robots, drones, etc. We are putting industry knowledge into these growth industries, and we're putting trade folks to mine these new trade corridors. One is more because of tariff, and one is structural. And that's why I said the quality of the loan book growth is important for us. And we invest in franchise growth where we see structural growth opportunities.
Thanks.
Okay. Thanks very much.
The next question is from Melissa Kuang.
Hi, Melissa.
Hi, Melissa.
Just back in terms of your provision buffers that you have. I mean, if we recall back to COVID period, you talk about these buffers, and we have gone through that already, and you haven't released them. So in terms of this stress test that you have done in these buffers, are they, as per COVID, and when you take this additional buffer this quarter, are you assuming that things can be worse than COVID? Just wanted to better understand.
So, Melissa, you recall during COVID period, I think we stepped up within a year. We took SGD 1.8 billion in that year. So that was a huge GP that we put on, and we said we will monitor for signs that, I guess, the business becomes open, whether airports are reopened, etc., etc. And we sort of didn't release that provision. And lo and behold, we then have the Ukraine war, and then there'll be more stress scenario. So what we do is each time we update for the latest macro scenario, we kind of stressed it. And this time round, we don't have the numbers as yet, but we have added in SGD 200 million just as additional buffer. So just to clarify, we have not actually released the provision that we have built up since COVID. And we do use fairly stressed type of scenarios in our models.
I would say that based on what economists are all putting out on tariff walls and all that, I think those lower GDP numbers, unemployment rates are actually well within our model estimation. It's just been prudent, and we'll see and size it going forward.
Yeah. Melissa, the other thing to note is in the last few years, we've already been reducing our China asset book, right, because the China slowdown started several years ago, and our exposure in ASEAN is relatively small, tiny, actually, so overall, we're quite comfortable with the exposures, but as we said, we were not complacent.
Right. So am I right? This SGD 200 million is largely because you had very good PPOP, and that's the number that you have decided to take. I mean, you did some stress test, but it's not like something really greater than what you were expecting versus COVID. That's why that's not a big delta. Okay. And then just the next one in terms of capital, you mentioned earlier as well that you are capital generative at current payout levels. The SGD 8 billion is gone. So by the end of this year, we'll likely still have excess capital. Also, perhaps by then, MAS can consider with the release of the lockup that you have. In that case, how can we think about optimization of balance sheet?
Do you think in this environment, there is still scope to then do like what HSBC has done, still come out and do a bit more in terms of perhaps buybacks or specials?
What HSBC has done is to announce a buyback. I think theirs is a half-yearly program. So I think they announced it with results, and then they said they'll do an amount every sort of half year. In our case, we actually said we'll do it over two to three years because we do want to take sort of the opportunity to stagger it in some way, although we are in the market most of the time. But we do less if the share price is on the higher side. And when there was a correction, we did a lot more. So that's our approach to share buyback. But the SGD 3 billion is actually meant for a timeframe of two to three years.
So does that mean that until we are finished with the program, then we may add more?
Correct. Correct.
Okay. Got it.
That's why I told you we are now at about 9%.
Okay. Understood. All right. Thank you.
Thanks. Thanks, Melissa. Next question from Nick Lord from Morgan Stanley.
Hey, Nick.
Hey.
Hey.
A couple of questions from me. Thanks for taking the question. First of all, just a little bit to go back to wealth. I mean, obviously, given as the PB net new money, is it possible to give us the net new money for the whole part of the pie? And also, if you could maybe talk a little bit about sort of what's happening to percentage of invested assets within your AUM total. And if you could talk about any sort of changes you're seeing in product preference or investment preference from your clients. And then I have another question on deposits.
Okay. So the wealth AUM, as we said, has grown quite nicely. They now stand at SGD 432 billion. And that's up from SGD 4 billion-SGD 6 billion at the end of last quarter, fourth quarter. And 56% of that is invested. First quarter was a good mix. What was pleasing for me was there was a lot of it was also investments in bancassurance. And when you see clients do bancassurance with you, that means it's sticky and it's long-term. But it was widespread across the board. There was a lot of equity structures as well, and some discretionary third-party funds as well. And as I said, the treasury customer sales growth was at record high. That was across the franchise, not just wealth, but also corporate and retail. Where do we see the trends?
Wealth fees, unfortunately, does depend a lot on where markets go and animal spirits and consumer confidence. So April was a bit more muted. May was seeing a small recovery, some recovery. So first quarter was really excellent. So you might see some muted sort of performance quarter on quarter, Q2, Q1. I don't know. Depends on where the next two months go. But year on year, because of the structural growth that we have, the structural growth that we have gotten ourselves ready for, we should still see teens, low to mid to high teens, depending on where the market is, growth and wealth fees year on year.
Okay. Perfect. Thank you. Just before I go on deposits, just a request. I mean, as you've pointed out, wealth has been growing well. As you've pointed out, it's going to be a big driver of your returns and your growth going forward. It would be useful, I think, for us to be able to track it and value it properly, to have disclosure on things like net new money every quarter, maybe split by PB and non-PB. I think that would help us a lot. And then just in terms of deposits, I mean, obviously, we've spoken a lot about the Sing Dollar book and SORA. I just wonder if you could talk about what's happening in terms of your US dollar deposit book, which is obviously a very large part of your funding book.
I assume that foreign currency CASA inflow that you showed on the presentation pack was mainly U.S. dollar, but if it's Hong Kong dollar as well, please let me know. But what trends are you seeing there? Are you able to continue to push that CASA up through sort of transaction banking? Are you expecting any change in people's preference to hold U.S. dollars in deposits if we see these tariffs sort of accelerate?
Okay. Across the quarter, when we saw deposits grow, it was really across all currencies. It's not just Sing dollar. It was U.S. dollar and Hong Kong dollar as well. As rates go down, I do expect CASA growth to continue, as I said. For the SME and for wealth, it's less lumpy. For the large corporates, it could be lumpy. But if rates are low, then the lumpiness will be less lumpy, if you will. It could become sticky, right? There is an element of flight to safety, Nick. Being a safe bank and, I guess, a Singaporean bank, good credit rating is extremely helpful in times of stress. So I'm telling everyone, let's just continue to focus on growing that.
Do you see pickup in MNC, US dollar CASA?
Oh, so specific.
I'm just trying to get a trend as to what different customers are doing and what they're doing with their money flows, if you like.
I'll have to come back to you on whether specific. I mean, but the trend, and as I said, at least sitting in Asia, we are speaking to a lot of clients who are thinking, "Should I be more diversified in the currencies I hold?" That's a very natural conversation. So if you're an Asian client and you have multiple currencies, then you will want to be more diversified. But if you're a Western MNC, you sit in the U.S., or you're a European and you sit in mostly euros, my sense is both the European and the Western MNC clients are still pretty dollar-based. But the Asian MNCs and the Asian clients, both wealth and corporate, will be more nuanced in being true dollar-based, perhaps.
Okay. That's very useful. Thank you. Thank you for the call.
Thanks, Nick. We have one last question from Yong Hong from Citi.
By the way, I just found out that the corporate loan book sorry, the corporate deposit book grew by SGD 2 billion in mostly foreign currency.
Yong Hong, go ahead. Ask your question.
Yes. I just have two questions. So, firstly, if you look at your balance sheet, your deposits growth, growth of your assets, HQLA position, and profits growth in 2024, so could this accelerate, and how does this impact your NIM, your NII, and your capital positions over time, especially these assets obviously have a different return than loans?
Yeah. So if we have more of the CASA deposit inflow, today our NIM is at 2%. We said 2.09% exit rate. So we might not be able to deploy at 2% margin, but it will be net interest income accretive. So we accept that maybe there will be a slight decline in NIM, and that's acceptable trade-off. But it will be good for our business as we take in more of these deposits. The deployment is generally for excess deposits into safe assets with good ROE, so we don't expect them to chalk up capital, too much capital if they are held in sort of government securities and safe instruments.
These assets, particularly, they don't carry risk weights, right?
Sorry?
Are these assets' risk weights?
Depending. But usually, they carry very low risk weights. There may be a slight risk weight for duration or something, but they're very small.
Over time as these?
RWAs generally is zero, actually. Yeah.
Yep. And over time as these excess deposits continue to come in, over time as you build up this position, then could your RWA density continue to come down over time?
On an overall basis, yeah, it could be.
And second question on M&A, how does the recent volatility change your view on inorganic growth? And a follow-up to that is, how much excess capital do you have on your books for organic deals after setting aside capital distribution to shareholders and growth prospect?
Yeah. So I mentioned earlier, if you sort of take the CET1 in 15.2% versus the higher end of what we would like to target in this environment, 13.5%, you have the excess capital that we have already got a plan to return to shareholders. And because our dividend payout ratio from organic growth is still 60%-70%, I think you have the ability to accrete capital organically over time. And the capital CAR ratio is actually at 17.4% today.
Okay. So basically.
We have flex.
Okay. So.
Flexibility to plan for. We have a lot of flexibility and levers for sort of capital deployment.
And your question on whether the recent volatility changes our strategy or our stance, the short answer is for M&A, these are long-term decisions. And we still want to be an Asian bank. We still want to be a future-forward, digitally enabled, transformative bank. And we still want to be a wealth management-focused bank. So whatever that comes our way that fits into the strategy and the pricing and we can onboard it and can integrate it well, we'll look at it. So those long-term levers don't change. The price might change because the markets have changed, but the long-term levers and decision around those long-term considerations don't.
Yep. Yep. Yeah. I was just actually looking for the answer on the price. So potentially, in terms of the price, there could be a changing factor in this environment. Okay. These are all my questions. Thank you.
Thanks, Yong Hong. I think that's about all the time we have. So thanks, everyone, and we'll speak to you again next week.
Thank you. Thank you, everyone.