Good morning, and a very warm welcome to DBS' second quarter and first half 2020 financial results briefing. This morning, we announced first half 2020 net profit of SGD 2.1 billion, 26% lower than a year ago, as we conservatively set aside more allowances to fortify our balance sheet. Operating performance was strong with profit before allowances rising 12% to a record. To take us through the numbers we have with us our CEO, Piyush Gupta, and our CFO, Chng Sok Hui. Without further ado, Sok Hui.
Thanks, Edna. Good morning, everyone. Thank you for joining us today for our results briefing. First half 2020 was a story of two halves. The first quarter carried over the strong momentum of 2019's record performance, but ended with the onset of the global pandemic. The second quarter saw a far more challenging business environment and sharply lower global interest rates. Compared to a year ago, net interest income rose 1% to SGD 4.79 billion. Loans grew 5%, but their positive impact was countered by a sharply lower net interest margin in the second quarter. Fee income rose 1% to SGD 1.51 billion, as a 14% increase in first quarter was offset by an 11% decline in the second quarter. Investment gains increased threefold from the same period a year ago. As a result, total income grew 7% to a record SGD 7.75 billion.
Expenses were stable and a positive draw of 7 percentage points lowered the cost income ratio from 42% to 39%. Profits before allowances was 12% higher at a record SGD 4.71 billion. The strong performance enabled us to conservatively set aside SGD 1.26 billion of general allowances in anticipation of a more challenging environment in the quarters ahead. This boosted general provision reserves by 50% to SGD 3.80 billion, 24% above MAS minimum requirements. Higher general allowances also contributed to a 25% increase in total allowance reserves to SGD 6.72 billion. This lifted allowance coverage above 100% to 106%. After taking collateral into account, allowance coverage was two times.
Excluding a significant exposure in the first quarter, underlying NPA formation was stable. The NPL rate at 1.5% was unchanged from its level in 2019. Specific allowances almost doubled to SGD 672 million or 30 basis points of loans, with all of the increase due to a significant exposure. Liquidity was ample. Deposits grew 9% over the first half from SGD 54 billion of current and savings account inflows. The liquidity coverage ratio and net stable funding ratios were 134% and 121% respectively, comfortably above regulatory requirements. The core CET1 ratio was 13.7%, also well above regulatory requirements and even above the group's target operating range of between 12.5% and 13.5%.
The board declared a second quarter dividend of SGD 0.18 per share in line with MAS guidance. Net interest income grew 1% or SGD 46 million to SGD 4.79 billion. Loans grew 5%, led by non-trade corporate loans. This was offset by a 16 basis point decline in net interest margin to 1.74%, with most of the decline occurring in the second quarter. Fee income grew 1% or SGD 16 million to SGD 1.51 billion. Increases in Wealth Management and loan-related fees as well as brokerage commissions were offset by a decline in card fees. Second quarter fee income was lower than the preceding quarter as business activity slowed from lockdowns across the region.
Other non-interest income rose 42% or SGD 430 million to SGD 1.45 billion as profits were realized on fixed income portfolios which had appreciated with lower interest rates. Trading income fell 6% to SGD 752 million as a decline in the first quarter due to wider credit spreads was moderated by an increase in the second quarter. Treasury customer income was higher in both quarters. Expenses were stable from the same period a year ago, and profits before allowances increased 12% to SGD 4.71 billion. Total allowances of SGD 1.94 billion were taken in the first half, a five-fold increase from the same period a year ago. General allowances increased by SGD 1.31 billion, while specific allowances were SGD 303 million higher due to the significant exposure in the first quarter.
Net profit declined 26% from a year ago to SGD 2.41 billion. First half net interest income increased 1% from a year ago to SGD 4.79 billion. Loan growth of 5% and deposit growth of 13% were offset by 16 basis points tightening of net interest margin to 1.74%. Net interest income fell from SGD 2.48 billion in the first quarter to SGD 2.30 billion in the second quarter, when most of the net interest margin decline occurred. First quarter net interest margin was little change from previous quarter at 1.86%, before falling to 1.62% in the second quarter. The decline was triggered by sharp cuts in global interest rates as central banks responded to the pandemic.
A considerably more flush balance sheet with excess deposits deployed into low risk liquid assets also contributed to the decline in net interest margin by at least 6 basis points. In constant currency terms, loans grew 3% or SGD 12 billion in the first half to SGD 381 billion. Non-trade corporate loans expanded SGD 20 billion, led by drawdowns in Singapore and Hong Kong. The expansion was moderated by a SGD 5 billion decline in trade loans in the first quarter and a SGD 3 billion decline in consumer loans from lower wealth management borrowing. Non-trade corporate loan growth was split evenly between the first and second quarters. Virtually all of the decline in trade loans and two-thirds of the decline in consumer loans occurred in the first quarter. Non-trade corporate loan growth is expected to normalize to previous period levels in the second half.
SGD 2 billion of first half loan growth was associated with Singapore's credit relief programs, where the government provided a 90% risk share. In constant currency terms, deposits grew 9% or SGD 36 billion in the first half to SGD 447 billion. During this period, current accounts and savings accounts or CASA, for short, increased SGD 54 billion. Consumer Banking and Wealth Management contributed three-fifths of the CASA increase. This improved the proportion of CASA balances by 7 percentage points over the half year to 66% of the overall deposit base. The loan to deposit ratio fell 5 percentage points to 84% as deposit growth outstripped loan growth. The Liquidity Coverage Ratio of 134% and the Net Stable Funding Ratio of 121% were both comfortably above their respective regulatory requirements of 100%.
Fee income. First-half gross fee income was stable at SGD 1.75 billion. The steady performance relied on a strong first quarter that grew 13% from a year ago, only to be offset by a considerably weaker second quarter that saw a 12% contraction as regional lockdowns curtailed activity. First-half wealth management fees grew 9% to SGD 707 million as record investment product sales in the first quarter were moderated by lower bancassurance sales. Loan-related fees increased 10% to SGD 226 million due to a higher number of transactions in the first quarter. Brokerage fees increased 25% to SGD 74 million from higher equity market volumes during the first half. Card fees fell 21% to SGD 304 million as transactions slowed with lower consumer spending in the second quarter. Investment banking fees declined 19% to SGD 63 million due to weaker market conditions. Transaction service fees were stable at SGD 374 million. Fee income streams have seen strong rebound from April lows, which Piyush will cover in his CEO update.
Expenses. First-half expenses were stable from a year ago at SGD 3.04 billion. Compared to a year ago, staff costs rose 2% to SGD 1.75 billion as higher base salary costs from an increased headcount were moderated by lower bonus accruals and to a small extent, government grants. Non-staff costs were 3% lower as general expenses, such as for travel and advertising, declined. Deposit draw of 7 percentage points reduced the Cost Income Ratio by 3 percentage points to 39%.
Consumer Banking and Wealth Management. First-half Consumer Banking and Wealth Management income declined 3% from a year ago to SGD 3.08 billion. Income from investment products increased 13% to SGD 968 million. This was more than offset by sharply lower net interest margin that reduced loans and deposits income by 8% to SGD 1.73 billion. At the same time, income from cards declined 13% to SGD 349 million as transactions slowed with lockdowns introduced across the region. Retail customer segment income declined 5% to SGD 1.53 billion, mainly from lower rates, while wealth management customer segment income was stable at SGD 1.55 billion. Assets under management increased 7% to SGD 251 billion from SGD 234 billion a year ago. We maintain our domestic market share for savings deposits and housing loans at 52% and 31% respectively.
Institutional Banking. First-half Institutional Banking income declined 1% from a year ago to SGD 3.01 billion. Cash management income fell 27% to SGD 733 million. The impact of lower interest rates more than offset a 20% increase in GTS deposits to SGD 158 billion. Loan related income rose 12% to SGD 1.49 billion from strong non-trade corporate loan growth. Treasury customer income rose 24% to SGD 382 million from higher customer hedging activity.
Treasury and Markets. The combined Treasury, markets and customer income increased strongly by SGD 384 million or 34% from a year ago to SGD 1.52 billion. Treasury & Markets first-half income increased 44% from a year ago to SGD 714 million due to a strong trading performance across interest rates, FX and equity asset classes, which was partially offset by wider credit spreads. Second-quarter Treasury & Markets income of SGD 503 million was a record high, more than double the quarterly average of SGD 233 million in 2019. Treasury customer income increased 26% to SGD 809 million. The most actively traded products were related to interest rates for corporate clients and FX and equities for Wealth Management clients.
Hong Kong. In constant currency terms, Hong Kong's first-half net profit fell 24% from a year ago to SGD 602 million. Total income declined 9% to SGD 1.38 billion, primarily from lower interest rates. Profit before allowances was 11% lower at SGD 689 million. Total allowances increased six-fold due to higher general provisions. Net interest income declined 13% to SGD 897 million. Loans grew 8%, mainly from large corporates. This was offset by a 36 basis point fall in net interest margin to 1.74% for the first quarter at 1.96% and the second quarter at 1.52%. The sharp decline in the second quarter was due to the full period impact of lower interest rates. Fee income declined 4% as higher Wealth Management investment sales were offset by declines in trade finance, cash management, and bancassurance. Other non-interest income increased 8% from gains in investment securities.
Expenses declined 7% to SGD 513 million, and the Cost Income Ratio was 1 percentage point higher at 37%. Profit before allowances declined 11% to SGD 869 million. Total allowances rose to SGD 157 million, including SGD 124 million of general allowances conservatively taken for risks arising from the pandemic. Specific allowances were 27% lower at SGD 33 million. Non-performing assets rose 10% to SGD 6.35 billion in the first half as new NPA formation was moderated by write-offs and recoveries. Most of the new NPA occurred in the first quarter, which included a significant oil trader exposure. New NPA formation in the second quarter was SGD 115 million, below the run rate in 2019. The NPL rate at the end of first half was 1.5%, below the 1.6% in March and unchanged from the previous half.
First half specific allowances nearly doubled to SGD 672 million or 30 basis points of loans. The increase was due to the significant exposure in the first quarter. General allowance reserve rose 50% from a year ago to SGD 3.80 billion as the balance sheet was conservatively fortified against risks arising from the pandemic. The general provision reserves are SGD 1 billion higher than the amount eligible as Tier 2 capital. This surplus is thus available to absorb credit losses without impacting Tier 1 or Tier 2 levels should the business environment deteriorate. The general provision reserves also exceed the regulator's minimum requirements by 24%. Allowance coverage was at 106%. When collateral valued at SGD 2.97 billion was considered, allowance coverage was 2x the unsecured NPA.
Capital continued to be healthy. The common equity Tier 1 ratio declined from 14.1% in December 2019 to 13.7% as risk-weighted assets increased from loan growth, credit exposures on derivatives, and market risk. The CET1 ratio was above the group's target operating range as well as regulatory requirements. The leverage ratio of 6.8% was more than twice the regulatory requirement of 3%. The board declared a dividend of SGD 0.18 per share for the second quarter. This is in line with MAS's guidance issued on 29th of July for local banks to moderate dividends for the 2020 financial year. The Scrip Dividend Scheme will be applicable to the second quarter dividend. Scrip dividends will be issued at the average of the closing prices of 14th and 17th of August 2020. Based on yesterday's closing share price, the annualized dividend yield is 3.6%.
In summary, the performance we reported amidst severe macroeconomic headwinds in the first half attests to the resilience of our franchise. Our strong operating earnings allowed us to conservatively take general allowances of SGD 1.26 billion to fortify the balance sheet. This raised general allowance reserves to SGD 3.80 billion, 24% above the MAS minimum requirement. Our capital and liquidity also remain strong. We are well positioned to continue supporting customers and the community through the difficult months ahead of us. Thank you for your attention, and I'll now pass you over to Piyush.
All right, thank you, Sok Hui. As usual, I'm going to make a few comments a little bit on the environment and the business outlook and maybe a couple of comments on credit. Let me start by saying first this was a tough quarter, and a tough quarter principally because the full impact of the interest rate cuts flowed through our entire book. So at this point in time, I think the interest rate cuts are costing us about SGD 80 million a month. I think they'll probably go up to SGD 100 million by next year. And that's obviously quite substantial. It's a big drag on income.
This is compounded by the fact that, April and May, there's a basic lockdown in most of the countries in which we operate, and therefore economic activity, certainly consumer activity, slowed down. You know, the interest rate, we had some upsides, but that cost us a chunk of money. The non-interest income from economic activity cost us a chunk of money. Altogether, the second quarter, the top line came in about SGD 300 million below the first quarter, and that's not an easy environment to operate in. Now we're fortunate because we did have some compensating items that were helpful. One, the balance sheet grew nicely. We were fortunate we raised deposits very significantly.
In fact, our total CASA deposits in the second quarter went up some SGD 37 billion , SGD 38 billion, which allowed us to actually let a large part of the fixed deposits we raised in the first quarter run those off. Net- net, the total deposit growth for the quarter was about SGD 5 billion or SGD 6 billion, but because we were able to let some SGD 30 billion of FDs run off our books. The loan growth was also good. We had about SGD 10 billion of non-trade loan growth, fairly diversified, in Singapore and Hong Kong. Some of it is the government schemes, but a lot of it was deal activity. Some of it interestingly was in things like TMT, where the digitization of the world is obviously helping our businesses.
The balance sheet growth was helpful. The second big thing that helped us in the quarter was trading. We had a knockout trading quarter, as Sok Hui pointed out. A normal quarter we expect to be about SGD 225 million of trading income. This quarter was north of SGD 500 million. Overall trading was very strong. That was helpful. Third, all of the repositioning we've done for our balance sheet over the years, that's kicking in quite nicely. Yo u know, we have indicated that even in our first quarter trading results. We've been able to actually realize a lot of investment security gains as rates have been coming down, and we're appropriately positioned from an investment standpoint.
On the back of all these, the good news is that, you know, our second quarter was flat to last year. We didn't see a big deterioration. Overall, however, as you can see between the first and second quarter, we got a 7% increase in income. Now as you look out, I've said—Sorry, can you go back to the previous slide, please? The operating trend, I said, in line with first quarter guidance. I think we saw 7% increase in the first half in top line. We will give that up pretty much in the second half, and that's mostly interest rates. The impact of interest rates, like I said, SGD 80 million a month means we will give that up.
Net- net, I think our top line should come in close to flattish to last year, which is consistent with the guidance we gave earlier. So that is some cause for some comfort. Our non-interest income et cetera should be okay. I'm gonna talk about that a little bit more. Sorry, can you please keep going back to the previous slide? On the NIM I wanted to point out because we got so much excess deposits in this quarter, we are sitting currently with some SGD 20 billion of excess CASA cheap deposits, which we are putting to work with laying off with the central bank. Again, Sok Hui alluded to this. We make about 50 basis points on this. So this obviously depresses NIM.
In fact, the impact on NIM for us is about 6 basis points because of this trade. The reality is it's a good trade because it's accretive to income, and because the placements in the central bank are pretty much zero risk-weighted assets, it's also accretive to ROE. Our overall NIM is actually being challenged over 5-6 basis points on the back of that. We expect NIM to continue to deteriorate principally because if you look at the second quarter, April rates were higher than June rates, so you know on an average, third quarter rates will be lower. As a consequence, we do expect that deterioration of NIM into the second half of the year. We think fully our NIM is likely to come in around 1.6%. Like I pointed out, we have to recognize the fact that this includes a deliberate choice to continue to do this low NIM but ROE accretive business that we're doing right now.
Slide. All right. Like I said, the other challenge apart from the rates was the fee income side. April was really rough. Cards were down because there was no activity happening anywhere. Wealth Management fees really fell off because I think a lot of people exited the market. Banking fees across the board. Now, the good news is, across all categories, we're beginning to see some degree of rebound. Cards and bancassurance by June have come back. In April and May, they were at about 30%-35% below pre-COVID levels. By June, they're now down to about 15%-20% below pre-COVID levels. They're still below pre-COVID levels as we speak. On the other hand, the wealth management fee rebounded even more strongly. By June, frankly, in July, we're right up to pre-COVID levels. That's somewhat encouraging that activity on that front has been coming back.
The other part which I pointed out is Treasury and Markets. The market conditions continue to be conducive for Treasury and Markets activities. We've been doing a lot of business, both on the trading side, but also on the customer flow and customer activity side. This momentum looks like it's continuing into the third quarter at this point in time. Finally, I talked about balance sheet management activities we've done. We do still have unrealized mark-to-market gains in our investment security portfolio that do provide us some cushion for loan names. Now there's, of course, the choice how much we like to drip in into the future and how much we choose to realize, and that's almost sometimes a tactical call. That's on the business side.
Net-net, when you put all of that together, like I said, we expect that we should be able to come in plus minus flattish on last year from a top-line perspective. On the expense side, we've been quite prudent in managing expenses. Again, Sok Hui pointed out to the fact that we have been thoughtful about our non-staff expenses. Obviously, travel, nobody could travel, but every other category of line item we've been very careful of. We've also been thoughtful about compensation. It's quite clear with the environment as well as with all the other cuts we are doing, we will be cutting back on compensation, variable comp, so we've reflected that in our numbers for lower bonus accrual. At the margin, we may benefit a little bit by the government grant as well, though net of leave accruals and so on, that wasn't a very big amount.
We continue to review our cost structure. As we go into the rest of the year, though, the cost-income ratio will be challenged, not because of cost, I think we hold cost stable, it's just because income will be much lower in the second half of the year. Net-net, we do think we'll be able to hold Cost Income Ratio for the flat to last year at about 43%. We'll obviously continue to review our cost structure as we go forward for a challenging environment. It is also important to point out that we are cognizant of our responsibility as a responsible corporate citizen in this difficult environment. Therefore, we really don't have any intent to cut jobs through the course of this year. It is something that we will look at as we restructure our business out into the future.
Switching quickly to credit. you know, we at this stage are not seeing anything that would cause us to change our guidance that we gave at the end of the first quarter. I'd said then that we expect total credit costs to be somewhere between SGD 3 billion-SGD 5 billion. At this point in time, we're holding to that estimate. Second quarter, we didn't see a deterioration by and large. The NPL rate is still at 1.5%. We didn't see any major NPLs. Our specific provisions in the second quarter didn't increase materially either. Overall, the portfolio in the large corporate is not showing significant deterioration. In fact, we're not seeing it in SME either. Though SME I think is only a function of moratorium that will come through. We did see increase in delinquencies in the consumer book across our four countries.
As I pointed out before, our unsecured consumer book is not very large, but we saw increase in delinquencies in Singapore, Hong Kong, Taiwan, Indonesia. In Singapore and Hong Kong, interestingly, by June, it leveled off. Our delinquencies are still some 25%-30% worse than they were pre-COVID, but we're not seeing them continue deteriorating. Taiwan, in June, they were still deteriorating a bit. Indonesia, the outlook has been more challenged, partly because of the social distancing measures in Indonesia. We've just not been able to ramp up our normal collection activities adequately. That might improve as we go into the next few months. Overall, when you put that together, not seeing anything in the outlook which causes us to rethink the assessments we made three months ago.
Now, the good thing, again, as Sok Hui pointed out, we are still trying to be cautious and prudent, and so we bumped up general allowances again this quarter. We've been able to take our overall GP reserves up to SGD 3.8 billion. Overall, we've been able to take allowances of just a tad under SGD 2 billion in the first half of the year. Which, if you reflect on it, if you figure that we, you know, our losses could be somewhere between SGD 3 billion and SGD 5 billion, a substantial portion of that allowance we've already taken in the first half of the year. We'll continue to see how we can build up that allowance in the quarters to come to just be prudential. Finally, a quick comment on all the relief measures, that's worth reflecting.
We today have about SGD 12.5 billion of our SME loan portfolio on moratorium. It's mostly in Singapore and Hong Kong, about equally split. Now these tend to be all secured loans. The security is good, it's property security. The LTVs on that property security are low. This portfolio is also only the moratorium only extends to principal, so all of them are servicing interest. If they don't service interest, they would have gone into the delinquency and so on. So far it looks to be okay. On the consumer side, what is on moratorium is about SGD 5.5 billion. Most of that, SGD 5.4, SGD 5.5 is Singapore mortgage portfolio. Again, as we said before, 86% of all our mortgage loans are owner occupied.
The LTVs on these loans are well below regulatory minimums. The average LTV is about 55%. Again, the reason I'm pointing all that out is while these are on moratorium, and we're watching them very cautiously and carefully because they're well characterized, LTVs are low, we don't expect that this will all suddenly go into NPL at the end of the year. Now, nevertheless, what is happening is the industry, along with the central bank, is actually working together on a pathway to make sure we minimize cliff effect as and when the moratoriums run out. That is something that we'd watch, and make sure we exit this and have a plan to exit this in a careful kind of manner. I guess that's about my comments on both the business outlook and the credit outlook. At this stage, we're happy to take questions.
Okay, Aaron, we can take questions from the media. Yeah, could you let us know whether there are any questions, please?
Thank you. We will now begin.
To the media, we will request that before you ask your question to please state, of course, your name and which publication you represent. Thanks, Aaron. Please go ahead.
Thank you. We will now begin the question and answer session for the media. Participants with a question to pose, please press zero one on the participant keypad and you'll be placed in the queue. To cancel the queue, please press zero two.
Okay, Aaron.
Chanyaporn Chanjaroen from Bloomberg.
Hi everyone at DBS, so good to see you again. I have a few questions. The first one, what would your second quarter NPL have been in absence of the moratorium? Second, you mentioned high CASA deposits. Could you share any color about foreign currency deposits during the first half, which you have seen increases in the whole banking system? Has that been increasing at DBS? Could you share what the sectors are? The third question is about your workforce. What's the percentage of your employees working at DBS office? What is your thought about workspace going forward post COVID-19 please?
All right. Thanks for the questions, Chanya. The first question, frankly, I don't know is the short answer. It would have to be a guess, which is saying if there wasn't a moratorium, who would really still be able to service their loans and what would go into NPLs and default. Actually, the NPL rate would not change very much because it takes you know 90 days of delinquency to go into NPL, and so it already has gone through the quarter. The reality is nobody really knows how much is the moratorium masking at this point in time, and which is why I say we're watching it very closely because you'd only get a good sense of that when the moratoriums wind up.
One of the reasons why we're building up substantial general provision cushions is exactly because nobody really knows what is going to be the extent of the damage once the programs run out. I have to say though that in our conversation and talking to our clients, most of them are fairly resilient. We've seen very few companies shut down for good or you know close down business. It might be coming in the second half of the year. We've not seen a lot of business closures just yet. On the other hand, like I said, it's difficult to say who would have been able to perform or not perform. Your second question was on foreign currency deposits. Maybe, Sok Hui, do you have the data on what is the growth in foreign currency versus Singapore dollar?
The constant currency growth year to date, about SGD 36 billion, a large part of that is actually Singapore dollars. We also saw increases in the U.S. dollar offset by some declines in Hong Kong dollar currency.
By the general rule, we are seeing increases in foreign currency deposits as well. The short answer, and as there's a huge amount of excess liquidity floating around the world, there's a ton of money which has been printed, and every large investor and large player is deposit surplus. In the first quarter, when we were preparing for the March crisis when there was sudden squeeze in liquidity, we were able to raise some SGD 15 billion-SGD 20 billion of Fixed Deposits very speedily and rapidly. In the second quarter, because we've been benefited from this large CASA inflow and huge amounts of dollar deposits coming in from our regular cash management and treasury clients, we've been able to let a large part of the Fixed Deposits run off. Overall, the general easy liquidity conditions are actually quite conducive to deposit growth around the world, including in Singapore.
Your third question was in terms of the workforce. At this point in time, about 30% of our workforce works in office across our entire system. If you look at outlook on office premises and space, we're still actually working through what is a logical construct for a life after COVID. I'm personally not in the camp that says we're going to shut down all our offices and all the large buildings. My view is while there will be a greater degree of flexibility, I do think there's a lot of merit in having people still come into physical spaces and work.
Frankly, at the end of three, four months, we're seeing that from our employees as well. A lot of people are beginning to suffer fatigue and are actually quite desirous and anxious about being able to return back to the office space. I think from a premises and occupancy standpoint, there might be some marginal efficiency benefits over time, but I'm not sure they're going to be dramatic or hugely significant.
Piyush, thank you for that. When will you see full force and 100% of employees returning to the bank's offices?
No, exactly. That's now the guidance from the authorities is that anybody who can work from home should work from home, and we are continuing to be guided by that. As you can see in banking, other than a handful of functions, almost everybody can theoretically keep working from home for an extended period of time. I think the answer to that is really what happens on the health side, on the pandemic side. As and when the authorities and regulators are more comfortable with letting people now come and work from office, we will obviously reconsider that. I think there's value to people coming back in. But to a large extent, we are being guided by the national policy agenda.
Thank you. Aaron, we can take the next question.
Thank you. Our next question, Chris from Euromoney. Please go ahead.
Hi, good morning, everybody. Thank you very much for your presentation. My question is around digital utility and how that's been affected by COVID. We've heard a number of emerging markets, notably the Philippines, express how the lockdown has forced a great many people into the use of digital channels, something they see as entirely positive, simply because people have had no other choice but to turn digital to get things done. I'm wondering, particularly in your digibank markets of India and Indonesia, but also more broadly, what have you seen about uptake of digital channels from new customers? Do you expect that to stick when we return to a more normal business environment?
Chris, in general, we're consistent with what you observed in the Philippines. Digital activity has gone up dramatically across all of our markets, and that includes the capacity to set up new accounts as well as do payments, do bills, et cetera, et cetera. Depending on the product line and the country, digital activity is up 30%-40% across the board. The interesting thing is that this is now also being embraced by people who are recalcitrants in the first place, especially elderly people. A lot of people above the age of 60 to 80 group, for example, we've seen a 3x or 4x increase in digital activity, so people are obviously being able to take to it quite well.
Now, one of the things that we have also done, in this period is we've stitched up what we call a last mile digitization. You know, we've obviously been doing a lot of digital work over the years, but when you get the situation where you have to cater for 100% from home, you realize that you're 90% done, and then there's these open gaps that you never thought about because either transaction volume was low or you didn't put it on the front burner. We used this opportunity to try and plug all those gaps as well. Even transactions which could not be done digitally before can now all be done digitally, and that includes trade finance, that includes, you know, sovereign mandates and so on. That's obviously helping in the process as well.
Now the question of how much of it sticks. I think some of it will stick, but how much is unclear. If you go back to the experience in India when demonetization happened in 2016, for the period of time when no currency was available, everybody didn't have a choice but to use digital. Once that ended, some of that went back to cash. All of it didn't, some of it did. My own expectation is that, once things are easier, some of the conversion to digital will come back to more regular channels. My own expectation again is that that would be at the margin. A large part of it, if the convenience is there, if the capacity to do it easily is there, a lot of people will then wind up continuing to do that.
Thank you. Am I able to ask one more?
Yes, Chris, please go ahead.
Right. Thank you. Okay. One other point I find quite interesting listening to the results today is that both banks are banks with considerable and growing regional presences. When we talk about a base case of normalization from the pandemic coming whenever it comes, it's easy to visualize that domestically because we see activity growing in domestic economies. What seems enormously distant is any time resuming when we get on planes, whether for business or for travel. I'm interested in your view as a regionally active bank, how much does it matter in terms of your numbers that people are not physically getting on planes and traveling at the moment?
I think, Chris, it matters in two ways. First, it does matter in things like credit cards. You know, if you look at typically in our credit spend, the travel component of the card business, that's just 15%, it does disappear. We've got to make up that from domestic spend and e-commerce, as opposed to travel. That obviously has an impact. The link to that is also, I should mention maybe three, is it impacts the psychology. I think if people feel they can't travel, it impacts people's psychology, et cetera. The second issue really is that, I think travel impacts certain sectors of the economy disproportionately. Airlines is obvious, but also hotels, tourism, even F&B, et cetera.
From a credit standpoint and a portfolio management standpoint, I think still the fact the borders are not open, that causes those sectors to be incrementally fragile. It's less consequential from a top line standpoint, frankly, because it's some pockets of business. It's potentially more consequential from a credit loss standpoint.
Thank you. Great, thank you very much.
Thanks, Chris. Aaron, are there any other questions?
Follow-up question, Chanya from Bloomberg, please go ahead.
Hi again. You'll be saying that if the CET1 ratio could come down but would be capped at 10% by 2020 in 2021, what is your expectation on your capital fund and your CET1? I would like to get some color about your Wealth Management AUM. I saw that it increased, but could you give some color about the second quarter? Was the increase seen from transaction-related, or how much have you seen in terms of net new money? Thank you.
All right. Maybe Sok Hui will take the CET1 question, Chanya .
I think the drivers of CET1 are likely to be the credit costs as well as risk-weighted asset migration. Those are not easy to sort of estimate ahead. I think if the sort of situation pans out in 2021, and it's not too long and you don't see a sort of resurgence of the pandemic, we could actually then peak in 2021. It's very much dependent on whether the situation stabilizes.
Our projection, and as I said, as we take our general provisions, we're keeping an eye on our CET1 levels, as well, so that we can make sure that we are at least within our operating range. If you remember, our operating range is about 12.5%-13.5%. At this point in time, with our outlook on credit, we think we should be able to hold that operating range. On your other question of AUMs. AUMs went up, and they went up for both reasons. Obviously from first quarter to second quarter, there's increase in market values. But we also benefited from net new money in both quarters. Altogether, our total net new money in the first half of the year has been about SGD 4.5 billion or SGD 5 billion in that range.
Oh, wow.
By the way, that was equal between the two quarters. Both quarters we got about the same, about SGD 2.5 billion-SGD 5 billion each quarter.
Thank you, Piyush. I mean, the fact that travel restrictions are in place in most countries, that hasn't affected your ability to onboard new customers?
We actually continue to onboard new customers as well, partly because, you know, our digital capabilities allow us to do onboarding. Many governments are giving you the capacity to do remote KYC, et cetera. We continue to do that. Some of the net new money doesn't necessarily come from new customers. It just comes from new money brought in to us by existing customers as well.
That's great. Thank you.
Thank you. Once again, participants with questions to pose, please press zero one on the telephone keypad and you will be placed in the queue. Our next question, Goola Warden from The Edge. Please go ahead.
Hi. Hello, Piyush and Sok Hui. Thanks for the call. Can we just ask a sort of a micro question? With the SGD 3.5 billion in total allowances over the two years, what does this work out to be in terms of credit costs over two years? And will this be largely from the moratorium and released loans or from other areas? There's another question for Piyush. Could you look forward and identify any new mega trends post COVID? Those are the two.
Goola, on a basis points level over two years, again, we've given guidance that this works out to somewhere around 120 basis points over a two-year period. It's obviously much higher than what we've had in the last couple of years, but it is well aligned to the kind of costs we saw in the previous crisis, if you will. I spoke a little bit about that in the first quarter earnings update and why I thought that is a reasonable likelihood or number. On your second question on mega trends, of course, there are several trends. Quite clearly the trends from a macroeconomic standpoint, and most principal for us is interest rate.
It seems to me with the amount of money being printed and fiscal stimulus, we are going to see a low for much, much longer interest rate environment, with consequential impacts on a lot of things, including obviously, banking. I think you will also see the spillover impact of that on things like taxes and taxation policies, et cetera, into the future. There are going to be a lot of mega trends around geopolitics. I think that China-U.S. issues have got exacerbated by COVID. I do think that's something that you have to continue to watch out for. There will be some consequential moves in supply chain, et cetera, though far more glacial, I think, than a lot of people think. There are mega trends around social politics.
I think the questions of income inequity and social issues are going to be at the forefront of every country and every political debate. What does that mean for role of companies? What kind of contribution and part they play in community and society? I think that'll be a mega trend. There's the big mega trend, I think, Chris's earlier question. I think consumption and production are systems which are digitized even more rapidly than they have. You know, depending on who you read, three, five, eight or 10 years' worth of digitization has happened in three months. A lot of that will stick.
The way people will consume will stick, and therefore the online/offline percentage ratios will change, the way people produce and where you need to work from, et cetera, all that will change. Structurally, there will be some fairly significant changes in the way business is done as we go forward. All of these are substantial mega trends that you see are causing change. I haven't talked a bit about the industry and sector-specific changes. I think the healthcare industry, the education industry, you know, the whole agenda around sustainability and building back better, I think that's another big mega trend that's going to come on the back of the crisis. I think a lot of changes are going to happen over the next few years.
Would DBS benefit from any of these changes? Maybe when asked for consumption production rather than social issues.
I think we will. Frankly, I think we will benefit from many of the things because we, I think we're well-positioned. Certainly on what I talked about, you know, the digitization of everything, I do think we're well-positioned to benefit from that. We're already seeing that. We didn't talk about it, but by and large, over the three- to four-month period, not only are our volumes up in absolute terms, our market shares are up for everything. That just speaks to the fact that we've been ahead of the game in terms of the digital conveniences that we have. I think that's a positive. I do think it creates an opportunity for many new income-generating business schemes.
We're actively working on several other things we could do with the digital space as the, you know, economies and sectors morph into a new way of working. I think our big drive on sustainability is helpful. We've been working on it now for the last two, three years. I think there's going to be a big business opportunity around sustainability as well, whether it's in things like carbon trading on the one hand, or just digitally tracking provenance of supply chains on the other. All of these, I think, are bound to create a lot of business opportunity. We will need, frankly, a lot of these business opportunities to make up for the interest rate headwinds that we're going to have to battle with on the other side.
Okay. Thank you.
Thank you. Our last question, Suman from Reuters. Please go ahead.
Hi, Piyush. Thanks for the time. Want to check with you mentioned that Q2 performance was largely in line with what you all expected, what you talked about in Q1. There are a lot of unknowns out there in terms of second wave of infections, economic performance. How is DBS able to cope with that? Can you give some color about the industries which are worse hit, like airlines and SMEs and other sectors, how do you see the performance panning out and DBS's exposure to these sectors? Thanks.
Well, actually, we didn't get into that this time because we covered it extensively in our first quarter update. If you remember, I gave a detailed thing of our exposure to the more vulnerable sectors, which included airlines, auto, et cetera. I think we do have our hands around the vulnerable sectors quite well. In the airline sector, for example, our exposures are finite, and in most cases, the governments and the government bailout plans have kicked in, which has been somewhat helpful to us. Similarly in other industries, we've gone industry by industry. Part of it is, you know, watch lists and therefore the, you know, general reserves are building up, will cater to some of that, as well.
On the general outlook, you know, our sense is that all of this stop-start will mean that demand will be constrained for the balance of the year relative to normal times. You know, it would seem to me that global GDPs reflect that, and global GDPs are not going to go back to previous levels. At the same time, it's also clear that you go through a trough and economic activity starts coming back. If you look at economic activity in China, frankly, large parts of North Asia, China is back to 80%-90% of where it was before. If you exclude the export sector, it's almost at 100% of where it was before.
Similarly, Taiwan and Hong Kong have seen a little bit of a setback in July, but overall the economic activity is coming back quite nicely. It seems to me that partly from fatigue, partly from imperative, countries and governments need to start reopening economies and the lives of their livelihood issue. You are beginning to see that the economic engine does kick in after three, four, six months, and that's what we're seeing. It'd be slower than before, but I do think it'll kick in. The main issue is going to be what Chris said. I think cross-border will continue to be challenged. I don't think travel is going to open up any time this year, and therefore the industries related to that will be challenged. Like I said, those are each specific industries that we've thought through and got our arms around.
Okay. Thank you, Piyush. I am afraid that's all the time that we have this morning. Thank you everyone for tuning in. The next briefing is the analyst briefing, and that will start in 10 minutes time, so 11:40 A.M. Thank you.
Thank you.
Thank you.