Welcome to the DBS analyst briefing. You've heard the media briefing, so we can go straight to Q&A. I think the first question we can start with is Yong Hong from Citi. Yong Hong, please go ahead and ask your question.
Yong Hong, can you hear me?
Thanks. I would just take two or three questions. Firstly, on dividends. Based on the earnings prospects so far, could you remind us on the thinking behind raising your dividends by SGD 0.24 higher per year than your capital return equivalent of SGD 0.60 annually across three years? I just wanted to get a sense on how confident you are to sustain these, and any update from the MAS on the potential lifting of your penalty on capital in terms of what is asked and what you have delivered. Second question on loans. Are you seeing a little bit more opportunities to capture enterprise spending or corporates catching up on IT to investment across the regions? Should this be reflected through your volume growth for the rest of this year? Finally, on your digital assets slide, could you give us some color on how these flow through your P&L?
Also, is this digital asset offering something that is well thought out by your wealth plans? These are all my questions.
Thank you. Your first question was around dividends. We will answer that. The second question was around enterprise spend.
No, loans.
Oh, the growth in loans. Sorry, I was spinning myself. The third question was around the digital growth around the digital asset ecosystem, right?
Okay. You want to do the dividend one and I'll do the loans one and the...
Hi, Yong Hong. This is Sok Hui. I think we communicated this quarter. We said our CAR ratio came down by 0.4%. Half of that was just the capital return and share buyback. Consistent with that communication, you'll continue to see that we are committed to the capital return, the dividend, as well as the share buyback over a three-year period, right? You can take that as something that we have committed to unless you know something that's really unforeseen. On the step up, I think the board will review at the end of each year. That's when we normally do it, Q4, to see whether we will lift it by about SGD 0.06. That gives you a SGD 0.24 lift. I think when we look at the trajectory, we should be able to still commit to this year and probably next year.
Yeah. Looking at the SGD 8 billion of stock, which we have declared before, SGD 3 billion was for share buybacks and SGD 5 billion was the capital return. As you know, we have three levels of dividend. One was the corporate dividend, one's the capital return, and one's the share buyback. In terms of the share buyback, we've done about 4%. In terms of the capital return, you know we've committed to do the SGD 0.60 for three years. That's because it's part of the stock. It's fine. The flow, as long as we are stable on our income, around SGD 11 billion or so, we can still pay around 60+% of that. That should be fine. I think, depending on where rates land, but I think we can still afford to continue to keep the pace. The second question was loan.
Loan growth is in the region.
Loan growth in the region. Forward-looking. I think, you know what we are seeing is we are seeing sort of muted growth in Hong Kong and China, but better growth elsewhere. Singapore is still, for large corporates, still strong. As I said, the government land sales program has been pretty active. There's still quite a lot of deals to be done there. There are still TMC data center deals in the pipeline, all quite pretty chunky and pretty solid with hyperscaler off-takers, etc. That's pretty strong. The renewables, especially in the renewable infrastructure as well, is strong. You know, cables and connectivity infrastructure spend is strong. As you know, we brought a project finance team. We built a very solid project finance team several years back.
They have been leading a lot of the more complicated deals where we structure, we originate, we set up PPPs and off-takers, and we have ECA coverage around that. We're leading a lot of these deals now in the region. It's a long-term pipeline, but it's something that we've built over the long term. In short, you know we should see continued sort of slow and steady non-trade growth in the IBG business from TFT, real estate, renewables, and upstream metals and mining, etc. That should mitigate some of the downdraft in Hong Kong and China. The third question was around digital assets. I think if you look in our annual report, you will see that we said we made SGD 13 million in digital assets last year. This year, we're running at more than three times that.
It depends on where the regulations go in the region and how many players come in. I'm optimistic that we have and had a head start. My team are all over this. They're talking to all the major players. We're all over the new regulations. Our strategy is to be the infrastructure player, but also an exchange. As you heard me say, we want to originate, issue, list, trade, custodize, do the payments and settlements, bank the ecosystem, manage the collateral, manage the reserves. It's a holistic coverage. It's not just, "Oh, I want to do one thing." You know it's not just, "Oh, I want to do stablecoins," or, "I want to do trading," or, "I want to do listing." It's really the whole suite. So far, you know very profitable, actually. It's a good business.
Thanks. Can I just follow up on my first question? Any update from the MAS on the listing of your penalty in terms of what was asked of you and what has been delivered?
Oh, you mean the operational risk capital penalty, is it the multiplier that they applied on the operational risk capital penalty? They're not communicated so far on when that will be lifted.
That is 70 basis points of the other BA, right?
It's about 0.4% of CET1, but.
Okay. Thank you so much. These are all my questions. Thank you.
Okay.
Next question from Jayden from Macquarie. Jayden, can you hear?
I was just wondering if you could sort of talk us through the drivers. Is that more point in time because of some hedging, or has something sort of structurally changed?
Could you repeat the question from the start?
Okay. Sorry about that. I just wanted to understand better the non-SGD rate sensitivity. I think during the media briefing, Su Shan mentioned that the sensitivity to a fall in U.S. dollar rates would actually be positive. I just wanted to understand, is that because of some point in time hedging, or has something changed? What would be the drivers of that? That seems to be a bit of a difference with the past. Thank you.
So the...
Okay. It is a snapshot of our balance sheet at that point in time. We have a net total liability of about SGD 40 billion in other currencies, primarily U.S. dollars, that is floating. For us, as long as rates go down, which they haven't in the U.S. dollar space, that will give us some savings.
It's largely in the TNM book. The GFN book is basically funded on a short-term basis, and that's the bulk of the SGD 40 billion that we are talking about.
Yeah, obviously, you know, we hope to continue to grow that liability. It's been a war cry for us to keep growing our deposits, and whether it's SGD or U.S. dollars, that's a big focus for the team. It depends on how much we grow that book by.
Okay. Thank you. Just to understand the SGD 40 billion liability that's floating, how fast could that sort of swing back to an asset? Another question I had just on the Singapore dollar rates. I think you mentioned that it makes sense to look at them in separate buckets, right, given the whole flow-through is broken down. What's your assumption on SORA between now and year-end when you think about the guidance to us? Thank you.
Do you want to take the U.S. dollar one?
Okay. Jayden, this is Philip Fernandez. I'm the Corporate Treasurer. To pick up on your questions, let me take the U.S. dollar one first. That particular sensitivity, essentially, it's two parts. One is, as we said, within the markets business, we have a sensitivity. We've also put on some central hedges. Those have a duration of about three years average, although there is a distribution around that. I would say it's pretty much structural if you're looking at it over a three-year horizon. That's point number one. Your second question was SORA. You know SORA has really gone down a lot relative to the U.S. has not moved. Singapore dollar rates have gone down a lot.
We're looking at rates staying at around the current levels, around the 1.7 handle or so, given that a lot of the softness in the rates has really sort of precut the Fed, if I could put it that way. Those are assumptions behind the NII guidance that Su Shan mentioned earlier.
As I said, you know, Jayden, the SORA is very, very volatile because a lot of it's driven by the FX. Increasingly, also, I think we talk to clients who borrow in Singapore dollar. I think more and more people want to lock in a rate because they can't deal with the volatility now. Like in a mortgage pool, more of our new clients will say, "I think I'll just do a two-year fix," for example. I won't be surprised if SMEs start to see that trend as well. They're already doing it through IRSes, right? SORA is a lagging indicator of what banks posted before, and it really is hugely volatile. It's very hard to predict, to be honest. I would say then have a view on the exchange rate. I think better we do that and have a view on the forward rates.
That could be more instructive on where you think SORA can be on average.
Yeah, thanks for your thoughts. I was just thinking that if the Sing dollar continued to strengthen, that may put some more downward pressure on it. Thanks a lot for talking through the assumptions and the sensitivities.
I guess if the change strengthens and it strengthens too quickly and you are the Monetary Authority, it depends on what the MAS does, right? Do they drain? Do they sterilize, whatever? Do they change policy? It also depends on our trade numbers and how we are in terms of our competitiveness versus our peers in the region. You're right. If the region currencies go up as a block and our SGD is affected, then you will see some corrective action. Generally, it's a double-edged sword, right? You're right. If the Sing dollar strengthens, then yeah, Sing rates will be affected adversely. If the Sing strengthens, you will also see more flows into Sing. We are the biggest bank here, so we tend to get more than our fair share of the outsized flow into Sing, which we can then deploy, especially if it's cheap.
As I said in my call earlier, you have to, whatever happens to the Sing rates, you just have to mitigate. You can't be a sitting duck, right? When it's volatile, Bill and the team, Andrew and the team, they will just milk whatever they can from the volatility and try and protect our balance sheet. Build that fortress balance sheet. As the business, we look at low rates and we go, "Okay, go out and grab market share, right? Grab market share on deposits, grab market share on wealth, whatever it is, grab market share on dollars, grab market share on AUM, and mitigate those effects or rate volatility with volume." Does that make sense?
Okay. Great. Thank you so much. I really appreciate it.
Thanks, Jayden. Next question from Nick Lord from Morgan Stanley.
A couple of questions from me. The first is just on the assets and the management of the wealth management business. Can you give us any disclosure on net new money in the quarter, and just any sort of commentary you have about sort of investor appetite? Maybe your competitors are saying that the Q3s remain very strong. Just any comments on that. Then just on going back on to your comment on the interest rate sensitivity, just in terms of the hedge, have you been able to put on more this quarter, or are we seeing that run down, obviously, as we see hedges roll off? I guess because we've had an inverted yield curve, you may not have had the same opportunity to lock in in the last six months though.
Okay. On net new money, I think we set the figures just now, right? The net new money for PBTPC was about SGD 9 billion, which was outsized. Normally, it's SGD 5 billion- SGD 6 billion. We had a very good Q2. Treasures was up about SGD 2 billion. Total was up about, for wealth, was up about SGD 11 billion-SGD 12 billion. Treasures up about SGD 3 billion. Total for wealth was up about SGD 12 billion. I also said that Sok Hui and the team were really focusing across the wealth continuum. It's the high end, but it's also the mid end. It's also the low end, right? There is a structural growth in wealth needs in Asia. I think the DBS brand has stayed solid, you know, reliable, and digital bank speaks well to our branding. There is this structural organic growth. They will continue to grow that. What was the other question?
Other question?
Just on the hedge, whether you continue to ask for hedge.
Oh, the rollout of the hedges, yeah.
In the first half, we were able to replace about SGD 29 billion of maturities at a 60 basis points- 70 basis points lift. There will be about the same magnitude of maturities coming in for the second half. I think we can roll over broadly the similar kind of yields. We have a duration and hope is about two to three years. That will sustain us for the while that we hope it's kept lower.
Okay. Perfect. Can I just ask one more question after we're all going to do some of the Evecrypto, the digital asset side? Obviously, we're reading lots of stuff about this at the moment. One of the comments that keeps on coming up is that it can be used as a cheap way to make payments, especially international payments. I just wondered if you agreed with that because obviously, the source of a lot of those comments is crypto companies. As a bank, would you agree with that, or do you think that the existing way you make international payments is cheaper?
Okay. I will start, and then Soon Chong , our Head of DBS Taiwan, can chime in. At least for Asia, our real-time payment rails actually work, right? In Singapore, FAST works. In Hong Kong, FAST still works. In India, UPI works. In China, we all know how good the day-to-day 24/7 payments, local domestic rails are actually working quite well. You have the cross-border payments, which we have a product called GlobeSend, which maybe we haven't marketed to the analysts enough, but we will. That's our answer to Wise or Revolut or Monzo, right? Which is, again, harnessing what domestic payment rails are at cross-border, using the current payment rails. Because it's domestic 24/7, you can also effect that very efficiently through ledger transfers and using our cross-border and domestic rails. Is there a huge use case for tokenization on private chain to work?
There is if you have a lot of people that you need to settle with 24/7 or a lot of merchants or a lot of payments and settlements, millions, if you will. Yes. If you just want to do the odd transfer, then no, the government rails work, right? I mean, Soon Chong , you want to chime in? I've got a TTS Head here.
Let me answer the question. I think that there are many ways of building international payment. We have a lot of products and services, one of which is what Su Shan mentioned about. For low-value cross-border, we have GlobeSend and a lot of other ways of delivering payments. They are cheap, available 24/7, cost-effective, and deliver the goods for our clients. In international payments, I think you're referring to correspondent banking and very stablecoins might be a basement for that. I think that for most contexts, large value, trust, security, international payments today work. There might be certain contexts today whereby the payment delivery mechanisms don't really do the work. As we talk about where stablecoin could be a use for that, I think there are a lot of pieces and parts.
A lot of it will be regulations, whether there's going to be adoption, how the compliance is going to work, so on and so forth. We're closely monitoring the space to look at the contracts where my national payments can be improved. I'm going to capture a good share of the economics of those activities.
Nick, I think where it could serve a purpose is if you live in a country where you don't have a stable currency. If you live in Latin America or Africa and you want to buy goods from JD or Alibaba and whatever, then having a stablecoin to pay for your supplies from Asia would be helpful, right? You then need to on-ramp and off-ramp it. You need to send money to USDC or whatever into Hong Kong dollar stablecoin, which then goes off-ramp into RMB, right? There is a use case there which we want to work in as well. There are opportunities kind of tying maybe more the emerging market trade-related flows where they don't have a stable currency themselves.
I can't see governments rushing to facilitate that because that flies in the face of monetary policy management for these countries, right? As Soon Chong said, we have to monitor the regulations. We're a regulated bank. We'll play where we're allowed to play. We see opportunities in the infrastructure and being a trusted partner for the big players, the sanitized players, if you will. We see also opportunity in the overlay stuff, right? Whether we talked about the structured notes or OTC derivatives or custody or listing or whatever it is, on-ramp, off-ramp. We see a lot of opportunities in that. That is very scalable. That business is very scalable. That's something my team and I want to continue to grow in line with the regulations.
Perfect. I think that's very interesting and useful. Thank you very much.
Thanks, Jayden. Next question is from Harsh from JP Morgan.
Hi, Harsh.
Okay, great. Thanks. A couple of questions. First, I just wanted to understand the payout slightly better. I understand volume over margins, but volumes come with RWA growth. Right now, at least till 2027, we are paying out 75%, right? About SGD 4 of EPS, around SGD 3 of payout. If we end up getting RWA growth, plus there's buyback on top of it, the question is, how much are we comfortable with two things? The 60 becoming 66, does it only go up the regular dividend in 4Q 2025 or is 4Q 2026 also a given now with such a big rate move? Second, how do we think about the actual minimum CET1 that we would get to organically, let's say, over the next two years?
You're asking about the ability to step up the dividend in the fourth quarter, right?
Yeah. For this year, two questions. For this year and next year, because if I remember correctly, last quarter, at least my read of your or Sok Hui's comments was that SGD 0.06 increase in December 2025 will happen and even FY 2026 will happen. What is the CET1 if we end up getting faster RWA growth over, let's say, next two years?
Oh, yeah. The RWA growth we factored in would eat up about...
Can I try to understand your question? I think we are talking about the step up, right? I think if we do some simulation, we are okay with stepping up SGD 0.06 end of this year. Based on some simulation, we should be comfortable stepping up SGD 0.06 in 2026. It's harder to call if we look further out because there's just too many moving parts, right? We have to see how much of the RWA growth will be needed and what kind of payout ratio it will imply from our organic growth and earnings.
I think your question on RWA step ups, yes, that will happen as our loan growth goes up alongside deposit growth. It's important to also realize that our deposit growth delta is much higher now.
A lot of that spare deposit is being deployed into MAS bills and HQLA, which is no RWA. It's actually ROE accretive and doesn't absorb RWA, and it gives us more earnings, right? That's the other prism to take. Granted, if Sing dollar rates collapse, that is going to be a big headwind. If there's war, that will also be a big headwind, right? We'll have to see at that time in place. I think to Sok Hui's point, 4.25- 4.26 are probably okay. We simulated with flat earnings between now and then that we can probably pay that SGD 0.06 step up this year and next year.
Right. On a fully phased in, we are at 15.1%. The minimum where we would be comfortable with, let's say, two years out is 14%. Unless it starts hitting early 14%, that's still okay to keep that payout going?
Yeah. 14.3% is still above our management operating range guidance of between 12.5%- 13.5%.
Okay. Great. Thanks. The second question is on the private banking flows. Two questions. One, are you seeing more flows in Singapore dollar versus, let's say, U.S. dollar? Has there been any shift with dollar weakening? Second, how much, what proportion of your portfolio is now discretionary management, and how has that changed over, let's say, the last three to four years?
The inflows of deposits, right? Yeah. For Sing dollar, the year-to-date system grew by SGD 47 billion, and we kept our share of that. We were up year-to-date SGD 20 billion . Foreign currency, year-to-date, the system was SGD +51 billion, and we grew by SGD 8 billion.
Right. You're getting a bigger share of Sing dollars, which should be. Is it, are your clients shifting from USD to Sing dollars was the question effectively?
You're seeing, you know, on the margins, some shift, certainly. The Sing itself for international investors is not, you know, other than, you know, you buy the SGX, you know, an ETF or whatever, it's still not a natural, you know, liquid currency yet. For some of the PB clients, yes, you are seeing a shift, a reduction in the U.S. dollar overweights. You are.
Makes sense. Thanks. Sorry, on the discretionary portfolio, what proportion of your AUM is there and how is that changing?
Discretionary portfolio.
Yeah. The PB side discretionary portfolio, we've seen quite a strong growth as well. We've crossed SGD 11 billion already of our AUM.
Okay. Still small. Okay. Thanks.
No, that's just our own managed. If you take all the third-party funds and all, there'll be much more.
Of course. If you're talking about discretionary as in our own, yes, then that's 11. If it's a third-party fund, that's actually been growing quite robust. Maybe I'll reach offline for that. The one technical question, exit limit, what is it?
For June or July?
Give me both.
Yes, you want both? I knew you were going to say that. It was SGD 195 for June and SGD 1.
So 195.
198 for June and 195 for July.
All right. Thanks. Final question on digital assets. One of the biggest ones, do you have deposits on public blockchain or not yet? Or is it still on private permission blockchains?
Private permission blockchain.
Okay. Has MAS regulation evolved where you can?
We did want agents to go on the Polygon chain.
Yeah, but that was an experiment, right?
Project Orchid. Yeah, yeah.
Okay. Have you gone commercial or are you looking to go commercial with a public blockchain tokenized deposit?
Depends on regulations. It's hard to say. Never say never. As I said, a lot of regulators still want to control their monetary policy, right? Right now, a lot of the flows are still on permissioned blockchain. It's the bank-to-client closed-loop system.
Yeah, no, the reason I'm asking that is exactly that because Singapore is pro-blockchain but not pro-crypto.
Correct.
The biggest institutional users of on-off ramp are the large crypto players, like someone offering crypto ETF and all of that. If the regulation is not there, then while you have one of the best-in-class capability, you are kind of limited to high net worth or a very small group of players. Hong Kong is moving ahead. The U.S. has moved ahead. Is there a risk that Singapore kind of gets left out, or is there some kind of way to be relevant in the DLT world without exposing retail guys to crypto? What are your conversations with MAS? Singapore seems to be kind of getting behind on that.
Yeah. It's a very, very timely and very good question. We've been engaging them constantly and daily. Certainly, when Hong Kong MA came up with their ordinance, I suspect that may have also put some pressure on us. We play in both markets, right? We're both in Singapore and Hong Kong. We're also actively looking at ADGM. Other than high net worth, we also provide services to the crypto natives and the market makers and the institutional players. I think MAS is okay if we do B2B. They're just not okay if we do B2C. To be specific, they're not okay if we do B2B2C. They're okay if we do B2A credentialed investors as well.
Yeah, B2B2C.
Yeah, the irony is, the B2B is also B2B2C ultimately. As long as we're not in that B2C chain, I think they're okay. The B2B flows are growing, actually. They are growing, and I see opportunities for us to continue to grow that. Whether Singapore or Hong Kong or potentially Abu Dhabi, we'll see. It's all, Harsh, it's moving very quickly now. As I said, we've developed or are developing the muscle to play in the whole chain. We've got to figure out what's the low-hanging fruit that we can build on. We've built already, as you know. We've done, because we've done so well this year, I said to the team, "Hey guys, let's not waste our head start. Let's continue to build on what we can be good at," right?
I don't want to do this too quickly and then fall foul of the law and not do this correctly. I'd rather do this slowly but surely and be that trusted banking partner because you're going to see the volatility and you're going to see some, I think, some bad players emerge again. We want to make sure we don't fall into that trap. I do think there will be rising demand for a good player to play in the infrastructure. I want that good player to be us. We have the ambition and we have the ability and we just have to continue to execute.
Got it. Thanks a lot.
Thanks, Harsh. Harsh, can I just add one thing? You asked about exit NIM in June and July. I will say that, frankly, you should expect actually some slight decline, some marginal decline, partly because we are bringing in so much deposits. The deposits that we are bringing in actually give us additional net interest income. We deploy them at a margin of more than 1%. It's quite good business. The key here is that we are focused on NII growth. Whatever we bring in can be dilutive to NIM and be dilutive in some sense, which doesn't worry us. You know what I mean? We are focused on bringing more deposits. The deposits come in. They don't earn the 2% margin that we have, say, in the second quarter. It's something that we are focused on doing.
Thanks, Sok Hui. The next question is from Melissa from Goldman .
Just on this AUM and deposit growth that you're having, we want to just understand a bit. The numbers are pretty high, as you mentioned, versus your peers. Is it more market share gains? Is it just that the amount coming into Singapore is very large and that's why we're seeing the SORA fall as well? Is a large part of it coming from your Taiwan business that you're doing very well? Can we get just a bit of color of this high growth?
You know, Melissa, it's not just Singapore. It's Hong Kong. It's China. It's actually across the board. Chinese flows into Hong Kong have been remarkably strong. Our team in Hong Kong has done a really good job, both in the priority and private banks, to get more than their fair share. Singapore continues to be, you know, to grow. The flows are also, you know, very international and very mixed. We also have the flow back from people who don't want to buy SGS or Treasury bills, right? That requires a lot of work. We do a hell of a lot of AI, machine learning, and modeling to make sure that when every one of these bills mature, we're there to nudge them to bring their money back to us, right? That's all the work that we need to do to keep our deposit share and growing. Is it structural?
I do think it's structural. I do think, you know, families are realizing that they need to plan. They need to structure. They need to do more. Our team has just focused on make sure you're in it, the estate planning. Your first conversation has to be, "Have you thought about the future? Have you planned?" Once you structure, so you go in, you do the wealth planning, you do the insurance for the children, the grandchildren, you do a trust structure if you need to. For the lower end, you don't need to. Once you're in and you can finance the ULI or whatever, you're in, it's very, very sticky. After that, the wealth fees will start to come in.
I was looking because Harsh also asked a question. Tse Koon might have the answers on the AUM, but I was looking at how much more we're making now on discretionary, which is third-party funds and in-house discretionary. The first half of last year, we made SGD 200 million. This year, this first half, we're making SGD 213 million on that. I think it's growing by some 15% or so, you know, year on year. The percentage of recurring income is about 15% as well. Bank assurance is growing even more. Bank assurance is growing by very high double-digit growth. That's also very long-term and sticky. It's all down to the strategy and execution. If you can bring in the new clients, first, it comes in as net new money, then you structure it into estate planning, trust, and insurance. You layer in the funds, third-party funds, in-house funds.
You overlay with FX, interest rates, and structures, and equities, or bonds, whatever they want to do. You have a solid wealth offering. The key is to keep the continuum. You don't just focus on the top end. You focus at the retail focus before they get rich. As they get richer, they do more with you. They don't have to change the RM. They don't have to change the UX. It's all in the same wealth pack, right? That's key.
Right. Just in terms of this, would you say more than half of the new AUM this quarter came from Hong Kong? Also, between Hong Kong and Singapore, in terms of the AUM deployed, is Hong Kong more likely than Singapore in terms of the mix, or would you say they're roughly equal?
No, actually, our AUM growth, I would say, has been very broad-based, right? We have got two booking centers in Singapore and in Hong Kong. Hong Kong is primarily really booking for North Asia, which includes customers from Hong Kong, Taiwan, China, right? A lot of these clients, because of their own business interest, etc., have also a whole bunch of offshore wealth that's been created. That's kind of where we get a lot of the net new money as well as the investments that AUM grows from. Singapore is definitely bigger because Singapore is a center not just for North Asia, but also for Southeast Asia, for Middle East, North Africa, South Asia, as well as for Europe, right? Because of that, Singapore is bigger.
Yeah, Melissa, I think to just follow on what Tse Koon said, the world is getting very fragmented and bifurcated, and people are looking for backup plans or insurance policies, right? The U.K., after the Western non-dom laws came out, there was an exodus of funds. Some of it went to Dubai, some came to Singapore. Similarly, if the Swiss inheritance tax laws are passed, you might see an exodus as well from Switzerland. There's a lot of money moving around financial centers right now. I do think that structurally, Singapore can play to win, and structurally, DBS can play to win. We need to continue to invest, and that's what the team is doing. Tse Koon and the team are continuing to invest in getting good people to bring in this new growth path.
I think the way we're doing it, start with domestic, start with the wealth continuum, and then build strong wealth centers in all our core markets. China, we have a strong wealth center. Hong Kong, we have one big wealth center, we're building another one. The number of walk-in customers from China is just amazing. I think having that, and then Singapore, of course, our headquarters are also strong, and then looking at other growth corridors as well. That's the plan.
I think, if I may just add, if what you are asking as well, it's not just about net new money, but AUM growth. Of course, certainly, in this kind of first half of the year, we did see a rebound of the market in Hong Kong, right? A lot of Chinese stocks in Hong Kong, we've seen a rebound. On the back of that, indeed, we have seen customers actually deploying a fair amount of this. The good thing is that today we are seeing both, I mean, a resilience kind of play between that market as well as the U.S. market. Because of the rebound, yes, indeed, we have seen an AUM growth on that front. The AUM growth is not necessarily just booked in Hong Kong because likewise, we would have clients who are booked in Singapore with AUM holdings on those Hong Kong-based securities, right?
Right. Thank you. I think the next question on asset quality, it has been a very good run so far on asset quality despite what's happening in the world. I just wanted to get a sense from you, is there anywhere we should be worried on what we should be aware of, or do you think we are on a good path for the next year and a half?
Melissa, I don't want to be complacent. We continue to stress test like mad. Anything coming new, not new, we just stress test it. We've been very, very conservative, maybe too much so. Especially in China and Hong Kong, we've been very conservative on real estate there, very conservative in Hong Kong, very conservative in SME, very conservative in consumer unsecured loans. We've been very conservative. A lot of our asset growth is really in the large corporates, in MMC, in technology, software companies, data centers, renewables. Big, big, big players, SOEs, etc. I think we found a way to be more predictive and preemptive in our credit assessment. Building models that have sort of line of sight on predictive cash flow, we're very cash flow-based as a bank. We're less asset-based.
A lot of our LTVs might be already quite low, say less than 60% if it's property, but we're very cash flow-based, right? My first return is always going to be the operating cash of the business. It's not going to be having to sell your asset to pay me back. That's been the rigor discipline that we put in for the last five years. That seems to be working out, especially through COVID and through all these tariff issues. I also have to make sure that we're not too overtly conservative, right? The SME guys are working on tight algorithms around program lending, etc., which we're going to see. For example, in India, when we did some of these program lending, it's worked really well because India, with SME, we have their operating accounts. We see who they pay. We see how they receive payments.
We are very on the ball on what the cash flows are for SMEs. That's good. As I said, with the large corporates, I'm comfortable that we've deepened our relationship with the key big players in the region. These are all large corporates, and they have multiple cash flows. I hope we are not being too conservative. Is it the honest feedback? I'm comfortable with stress tests, Melissa. I don't think we've missed anything. If we did, our GP reserve of SGD 2.6 billion should be more than sufficient. The GP overlay should be more than sufficient. If we miss anything, touch wood. I don't think we have. It's my honest answer.
Yeah, that's good to hear. Just lastly, very quickly on the hedges, you said that it's two-year duration. When the Fed kicks in, as you said, you get an advantage. Let's say if we go into next year, there's still expectations of, you know, three more Fed cuts. Post-BEP, when the hedges do roll off, does it mean that, you know, for next year, we won't see anything? The year after, we'll start seeing some of the NIM pressures come back in as the hedges roll off. Is that a correct way of thinking?
Melissa, this is Phil again. The hedges are quite spread out, right? We have them over a range of tenors. When we quoted three years, that's the average tenor of the U.S. dollar hedges, right? You should think about it as a certain amount rolling over each year. The rate at which we replenish depends on a few things. What you quoted was actually the short rate, the policy rate. Remember, there's also a term structure instead of government curve. If that term structure reasserts, then you can still get a pickup on redeployment. It all really depends on what the term structure looks like in 2026, 2027. Everyone on the street will have their own view on what the shape of the curve is going to be. I hope that gives you some color as to how we do our hedging.
Right. Thank you. Just to confirm, you have U.S. dollar hedges. Do you have Singapore dollar hedges and Hong Kong dollar hedges, or mainly just U.S. dollar hedges?
U.S. dollar and Sing dollar hedges.
Okay, thank you.
Thanks, Melissa. We only have time for the last question from Akash.
Akash from DBS. I'll keep it quick. I just have three questions. The first one is, the guidance on the NIM net floating assets was very clear, SGD 90 billion of floating assets and how the math works around it. Based on your simulations, as the hedges roll off, what is this SGD 90 billion going to look like, let's say, June end of next year or December end of next year? How does that number change? That is my first question.
I would say, Akash, that our Corporate Treasury division is actually very nimble. I think we take a view of rates and then we are flexible with whether we want to do more fixed or more floating. Not really anchored on, you know, we must roll off and therefore we must fix rates. I think it's a read on the external environment. What we've proven is that we actually do make good calls and we are sharing with you the sensitivity so that you can do your own simulation at this point in time.
We know exactly how much matures when, and sometimes these hedges were done earlier when rates were actually lower. When we rehedge them, actually, you have a yield pickup, some or not. It is, there is a different time and different rates.
It's quite hard for me and for us to answer it definitively, to be honest. I would say based on our experience so far and based on our ability to be nimble and ability to kind of catch, you know, market sensitivity, I think we've been okay.
I think the reason I'm asking this question is because my understanding was that hedges only delay the NIM transmission. They don't structurally change the NIM transmission that you're going to see. At this point, obviously, DBS Group Holdings is seeing less NIM compression versus peers because of the hedges. At some point, this will change, right? Is that not the right way to think about it?
Maybe we can step in, Akash. This is Phil, right? Remember that, you know, when you think about NIM, that is really a function of the install base. As we deploy surplus deposits, and a big chunk of that is going into HQLA, as Sok Hui mentioned earlier, we're getting margins above 1% on those deposits. It's going to blend down the NIM. That's why, you know, NIM doesn't pay dividends, right? NI pays dividends. We are focused very much on NI growth. The NIM may come up, but the ROE will go high because you're taking deposits, making a margin of 1% in terms of deployment. The risk rates on that, and this goes back a little bit to the earlier question on CET1, you will not see such a downdraft on RWA because that's what Su Shan said. They're putting it into HQLA.
I hope that gives you some color on how to think about it.
Understood. Thank you. The second one is just on Hong Kong commercial real estate. As you might have seen, some of the Hong Kong banks started booking more provisions for their commercial real estate exposures. I just wanted to check, how has your thinking evolved on it? If you could specifically comment on New World, which you have talked about in the past, and if you could talk about the provision coverage that you have on the Hong Kong commercial real estate book, commercial real estates.
The Hong Kong commercial real estate book is about SGD 17 billion exposure, SGD 12 billion in mixed use, SGD 3 billion in office, and SGD 2 billion in retail. It is mostly in the large name, the large top-tier blue chip names. The LTV is 60%. A lot of what we've seen in terms of the pain has come from the mid-cap and SME sector. As you know, we had some provision for that in the last year or so. We managed to, actually, all those that we had, you know, NPAs, we managed to sell and, you know, we managed to recover. There is liquidity in the market. It's just that the prices have to be realistic. Having said that, though, I think when I look at the names of our current exposure, I'm quite comfortable. All these guys, you know, got strong cash flows.
They're all conglomerate, big names and blue chips. They're all hunkering down. I think they're going to be all right.
I see. Does that also mean that you don't actually have made any provisions for this book, the blue chip names at this point?
You're not coming across very clearly. I was asking whether the real estate sectors in China and Hong Kong, do we set aside sort of additional general provisions?
Yes, do you have provisions?
Yes, it's part of the overlay that we set aside as well.
Okay. Understood. Just the last question is on the current pickup in the net new money that you saw. Again, trying to understand what caused this shift from SGD 4 billion, SGD 5 billion, SGD 6 billion to SGD 9 billion. I think what you're suggesting is this can actually sustain at this level because there are structural drivers behind it.
Sorry, you're saying that net new money? The SGD 9 billion net new money.
Yeah.
It was SGD 9 billion this quarter as opposed to SGD 5 billion-SGD 6 billion we normally get.
Correct.
Is it sustainable or was it, you know, a spike?
Okay. I do think that it should be sustainable. I look at it more from an annual basis, right, rather than a quarterly basis, to be fair. There are times when the movement of funds will be affected by various kinds of activities from the underlying clients because sometimes they have a monetization event in their businesses, etc. If I look at it on an annual basis, I think the kind of numbers we've seen on an annual basis should be something that's sustainable.
I've kind of done above SGD 20 billion on an annual basis for the last few years. There can be volatility quarter to quarter, but Tse Koon's referencing the annual runway.
Correct. We're looking like a SGD 20 billion-ish kind of a number annually. I think that is something sustainable.
Okay. Understood. Great. That's all my questions. Thank you very much.
Thanks, Akash. Okay, that's about all the time we have. Thanks, everyone, for dialing in. We'll see you next quarter.