And today we have with us our Group CEO, Helen Wong our CFO, Darren Tan our Deputy President and Global Wealth Management and Consumer Banking, Mr. Ching Wei Hong and we have our Global Treasury Head, Mr. Kenneth Lai. We will have Darren take us through our presentation slides and thereafter we will take Q and A with
after Helen say a few words. Darren? Thank
you, Jingjing. Thank you everyone for joining us. I will move on to Slide 3, if you have the slides in front of you. Now first half twenty twenty one net profit rose 86% year on year to SGD2.66 billion. Correspondingly, our annualized ROE was also higher at 10.8%.
Net interest income had remained stable, while non interest income had moved in tandem with market. For the quarter, non interest income was 17% lower quarter on quarter. Allowances, although higher for the quarter, were substantially lower compared to a year ago. Given the resilient performance, the Board has approved an interim dividend of $0.25 I'll move on to greater details in the following slides. Starting with Slide 5.
For the half year of 2021, our three business pillars continued to deliver good results. Postpaidc Banking operation net profit for the first half of twenty twenty one was 81 percent higher than the previous year at $2,100,000,000 Our Private Banking franchise remains a strong growth driver. Wealth management income rose 25 percent to $2,140,000,000 in the first half of twenty twenty one. Asset under management increased 11 percent to $125,000,000,000 Pre Eastern Insurance net profit contribution more than doubled to $565,000,000 from a year ago. Total return new sales and new business embedded value grew 57% and 23%, respectively.
Now moving on to Slide 6 on our balance sheet. Funding, liquidity and capital positions remained strong. In particular, Common Equity Tier 1 Capital Equity Ratio was higher at 16.1%. The increase was largely driven by retained earnings for the period, strong participation in our final year dividend, in this case in the form of scrip and also partly from the partial release of the regulatory loss allowances reserve of COIT FILA from here. Now moving on to the details of our group performance.
For the first half of twenty twenty one, the 86% year on year increase in net profit to $2,660,000,000 was driven by higher fee, trading, insurance income as well as lower allowances. For the Q2, net profit was RMB 1,160,000,000 as I mentioned earlier, although it's 59% higher on a year on year comparison, was 23% as compared to the relatively stronger Q1. Now on Slide 10, in terms of net interest income for the first half of twenty twenty one, net interest income was lower year on year at RMB2.9 billion, reflecting the impact of the lower interest rate. Net interest margin had contracted 11 basis points from a year ago. However, the net interest margin had been relatively stable in recent quarters and expanded 2 basis points quarter on quarter to 1.58% on our continued efforts to optimize our balance sheet.
Moving on to Slide 11. Non interest income for the first half of twenty twenty one was RMB 2,580,000,000 an increase of 29% from a year ago, driven by higher fee trading and insurance income. And if you were to look at Slide 13, in terms of the breakdown of the fee income, For the first half of twenty twenty one, our net fee income rose 17 percent to RMB 1,150,000,000. Prop based growth across all key fee segments. Now again, strong Q1, 2nd quarter 2021 fee income was lower.
Financial market related activities such as Wealth Management and Brokerage reverted to a more modest level. However, fee from loans and Investment Banking were higher, mainly from loan growth as well as increased underwriting activities. Moving on to Slide 14. In the first half, trading income grew 54% from a year ago to RMB528 1,000,000. However, Q2 was more subdued as compared to the Q1 of year, reflecting the more moderate customers' activities and also lower mark to market gain from Great Eastern.
Now moving on to Slide 15 on our expenses. Operating expenses remained well managed and rose 3%. The cost to income ratio improved to 41.7% from a year ago at 43.3%, as the income growth has outpaced the increase in terms of costs. Now I'll move on to Slide 16 On our allowances, for the first half of twenty twenty one allowances for all ECL stages were substantially lower as compared to the previous year. Total allowances were RMB393 1,000,000 as compared to RMB 1,400,000,000 last year.
Our allowances made in the first half of twenty twenty were largely for a number of corporate names in the oil and gas sector and also macroeconomic variable adjustments and management overlay to reflect the deteriorating operating environment then. Now this year, with the improvement in economic outlook, the ECR 1 and 2, expected credit loss 1 and 2 allowances for non impaired assets were substantially lower. There were positive macroeconomic variable adjustments made to reflect the better economic outlook. However, with the recent situation in our Southeast Asian markets, we have prudently set aside allowances in the 2nd quarter to battle against potential credit deterioration in the region. ECL3 allowances for impaired assets were also comparatively lower.
The 283,000,000 set aside were mainly for various corporate accounts in Malaysia and Indonesia in the second quarter. Moving on to Slide 17, cumulative allowances were lower than the previous quarter, largely from a reduction in impaired allowances as well as the release of RMB 430,000,000 to retain earnings within regulatory requirements. Consequently, our NPA coverage ratio declined 204%. Now moving on to asset quality on Slide 15. NPL ratio has been stable at 1.5% over the last 3 quarter.
NPA nonwaming assets were RMB4.08 billion. This was mainly attributable to a rise in new NPA loans originated in Asia and Indonesia. Now moving on to Slide 20. As you can see in the charts, our loan grew 3% to RMB275 1,000,000,000 from RMB268 1,000,000,000 a year ago, driven mainly by growth in Singapore, Greater China and United Kingdom. In terms of industry, the increase was led by higher loans to Building and Construction sector.
And on Slide 21, our loan portfolio remained well diversified. Building and Construction and Housing sector remained the largest segment at 27% and 22% of total loans respectively. Now on slide 22, you will notice in terms of loan portfolio, total relief loans were RMB4,500,000,000 and 90% of this was secured. We do expect to see an increase in relief loans in Malaysia and Indonesia in the coming quarter as we continue to support our customers there. On slide 23, customer deposits rose 3% year on year and 0.4% quarter on quarter to RMB370 1,000,000,000.
Current accounts and savings of the CASA deposits continue to grow as we proactively optimize our funding base and reduce our fixed deposit. As a result, our CASA ratio rose further to 62.5%. Now back to slide 24, given that MAS had placed the dividend tax in all based banks, the Board has approved an interim dividend of 0.25 dollars for 2021's interim dividend. This interim dividend of 0.25 dollars was at the same level as the interim in 2019 and represented a payout ratio of 42% against our net profit for first half of twenty twenty one. In determining our dividend, we have taken into consideration MAS recommendation that banks should continue to exercise prudence in their distribution of capital, so that we remain in a strong position to support ours.
Now with this, I conclude this presentation and I'll pass the floor to Helen. Thank you.
Thank you, Darren, and good morning to all. Very nice to talk to you all. Obviously, this is our module because of the restriction together. I think Darren has actually presented the financial situation of our group. I just want to make a few comments.
First thing is we do see a strong set of results for the first half of twenty twenty one. This is coming off from a very exceptionally strong first quarter, but our 2nd quarter results were resilient against the backdrop of COVID-nineteen resurgence in Singapore, Malaysia and Indonesia. Our banking, wealth management and insurance businesses all delivered robust performance, and we continue to see momentum from an improved operating environment despite the tightened safety measures. This actually reflects the investments we have made to grow our businesses, particularly in digitalization. I'll give you a few example of that.
For the first half of the year, 98% of our commercial banking accounts were opened digitally online. And we see actually comparing year to year, first half, we have more than 2 times of digital investment sales compared to last year. And indeed, our consumer payment transfer is 3.4 times compared to the same period last year. So this also reflects our investment in Greater China. We see strong franchise across our core markets and the synergy within the group to capture flow business between Vector China markets and ASEAN markets.
Looking forward, we talk about a lot about global economic growth. We do see that happening in 2021, and we expect economic growth to continue in 2022 with improved macro fundamentals. This should continue to drive growth trajectory for OCBC. Government support measures will continue, but potentially saw gradual move away from dovish monetary policy, accommodation and meet economic recovery. Short term rates, we see that will remain low in the next few quarters.
Inflation risk expected to be mostly transitory. Yes, there is indeed uneven recovery in OCBC's key markets. We do expect the government to act fast to protect economic growth, including achieving higher vaccination rates across our core markets. On the loan book, I think Darren has talked about it. I think just relating to that comment, once we affirm that we expect LIM to be within current levels and loan growth to be mid single digit towards the end of the year.
The loans growth, obviously, we see a long term trend remains stable and this will continue to drive our loan growth, China flows, wealth flows, etcetera. And we are also seeing good momentum on our consumer side, in particular in Singapore where we actually see housing sales increasing and then we have a good momentum on our mortgage book. Also want to emphasize on the deposit size, our CASA actually now stands at 62.5% of our total deposits and that compared to 56.7% of the same period last year. We have raised the interim dividend to $0.25 as Darren has talked about. And the last bit of my comments, I want to actually reaffirm our strategy.
We have made changes to the management team. We have appointed group as Chief Operating Officer to drive our next phase of transformation. Our core strategy has served us very well, growing the 3 pillars, banking, wealth management and insurance in our core markets of Singapore, Malaysia, Indonesia and British China, and we have built strong blocks in digital and tech, talents and robust risk management. Any refinement of strategy will be announced at an appropriate time, but I just want to mention that we continue to execute our strategy on opportunities arising from the trends, from the macro trends. So the first one being what we call China plus 1, the center of trade to shift to ASEAN and China.
Southeast Asia will continue to be one of the strongest gainers. We see this huge opportunity as we see the continued trade between ASEAN and China growing rapidly comparing to Greater China with the rest of the world. We also see continued growth in the aprons in Asia leading to further demand on wealth management that is reflected in the wealth management growth, the fees growth and also our AUM growth. And sustainability, again, a big trend that we are pursuing aggressively. And if you look at our loan book for the growth this year, actually more than half of it is in sustainability financing.
And then we are moving beyond digital. So we hope to serve customers beyond banking into lifestyle platforms and ecosystems is another big trend. So I'll stop there and we're open for questions. Thank you.
Thank you, Helen. Questions from the media? We have Chris be the first to answer. Chris, you're on. Chris from Euromoney.
Hi. Can you hear me okay? Yes.
Great. Good morning, everybody. Thank you very much for the presentation. Hope you're all in good health. Interesting to see you putting money aside for operations related to Malaysia and Indonesia naturally, of course, since those countries are dealing with really the worst of the pandemic that they have encountered so far.
I just wondered if you could go into any more detail about how the pandemic is manifesting itself in terms of credit cost behavior in those 2 countries. Is it something that may hit SMEs, for example? Or is it consumer? Or is it the big end of corporate? Any more detail around how that's playing out and how you think it will play out would be useful.
And then secondly, I know you've been asked on this before, but I think expressed at least a pressing interest in the assets that Citi has for sale in consumer businesses across Asia. Any updates on your thoughts about potentially putting your hand in those businesses? Thank you.
Chris, thank you for the question. I think if you look at Malaysia and Indonesia, obviously, it is due to the resurgence of the COVID variant that has actually caused a setback on the economic growth that has actually started in the first half of the year. And if you look at some of the allowances we provide for Malaysia in particular, it is very much due to the relief on loan program that government has relaunched in July. And so we are going to see some of this turning into NPL as for public classification reason and we are actually putting provisions against this. So that would be the major item.
But of course, due to the situation and some of the stricter measures, we remain prudent in considering expansion in these 2 economies. On the Citi, obviously, we do not comment on other banks and transaction. So that would be my comment.
Okay. Thank you, Chris. Next we have Chania from Bloomberg. Chania, you're up.
Hi,
Helen. Yes, I understand that you don't want to comment on Citi, but at least could you say that whether you have seen the assets, I mean, have they opened the data room and whether your interest lies in Indonesia or other regions? Yes, that's my first question.
Sandra, thank you. We don't comment we really don't comment on other banks' action. If you ask me whether we look at any opportunities in the core markets that we actually are in, of course, we always we are always open to opportunities in the core markets or markets where we have an operation.
I see. My second question is about Greater China. For Hong Kong and the Mainland China, do you see them being out of the woods? Or how concerned are you with the resurgence of the Delta variant in China at the moment?
I just see China always manage to control any outbreak of resurgence of the COVID case really rapidly. You look at how they actually control. But again, domestic economy is actually recovering very well. And if you look at some of the you call it a setback, I will actually call it more normalization. It's a very big economy and it continues to manage to grow in the mid to high single digit sales.
Its GDP is actually very admirable.
I see. Thank you. My last question, I mean, can we expect to see any more major management changes over the rest of the year and in 2022?
We continue to look at
our management structure and it's not
entirely senior We continue to
look at our management structure and it's not entirely
senior management. We were talking about how do we manage the whole group. We continue to hope to increase our bank strength. So if you look at our appointment of COO, it is really to give the COO more authority and the ability and people to help us to transform the bank. So it is more increasing our bank strength comparing to like making changes just for making changes.
Understood. But I mean, in which areas that you see the bank can improve in terms of strength, both in terms of region and also business lines?
Okay. Obviously, because we grow our banking and also our wealth management and insurance. So for all this, we continue to hire more people. We also is going to look at strengthening Greater China. We have you're aware, we have a good presence in Hong Kong and China.
We do want to actually strengthen that. And that is very much because we do want to see the synergy between Greater China and RSPM. We want to capture a lot of the flow. So one example is we're strengthening what we call our China business office in the ASEAN countries. So putting in more strength into supporting the inbound business as China Plus One strategy among China and also other MNCs is taking effect.
I see. I see. And last one, I promise, on wealth, which the bank has been doing very well. What else do you see that you can improve or build up on the wealth management strengths that OCBC already has?
I'm calling on Wei Hong to take this.
Hi, Chen Yang.
Hi, Wei Hong.
Hi. Well, I think we've got very good growth momentum in this line of business. There are 2 parts of it, right, in terms of growth momentum. Number 1, it is actually the people on the ground, the sales force, which we continue to build on and improve people hiring more teams. And the second part of it is, of course, on digital, right.
The digital platform is a huge part of an investment. I think it's important our customers' requirements are also evolving and increasing requirements on digital capabilities, the ability to view transact on digital platforms as well as guest contextualized advice specific to their own individual portfolio. So these are 2 big things that's going on. And then lastly, of course, Greater China is a huge growth potential for us and continue to invest heavily in building up the teams there, both in terms of people on the ground support as well as on the digital support on that front.
I see. Thank you both. I'm done.
Thanks, Tanya. Next up is Goulan Goulan from The Edge. Hey, Goulan.
Hi, Qingqing. Thanks. Yes, thanks Helen and Darren for the presentation. Okay, so my questions are in like 3 parts. So can I start with, well, what's important to investors?
OCBT has so much excess capital. Could you give us some color on what caused this? Was it due to a lot more retained earnings or also efficiency in RWA? And in the same theme, your payout ratio was, well, may I say only 42% because peers are paying up more. So what do you plan to use your capital for?
Because there's quite a bit of excess capital there. Then in terms of the credit costs and your outlook over there, has there been any change to your position on write backs from 1Q, given that global banks have boosted their net profit substantially with write backs? And are there any change in metrics such as I think you used your ARLA has changed your regulatory loss allowance, but your is the management overlay the same as 1Q? And I think that's about this in the credit cost. In terms of the broader picture, would Helen be able to give us sort of like a broad outlook of OCBC's plan for the GBA, the Greater Bay Area?
And also Helen mentioned a COO for the next transformation. I'm just wondering how will this change the fabric of OCBC's earnings profile?
I'll let Darren cover the capital and payout, dividend payout and the change in how we actually manage the capital structure and the reserves. Gotcha.
Gula, hi, this is Darren. The stance we adopt in terms of managing our capital has not changed. If you recall, during the previous quarter, we explained at length in terms of where the recent increase in terms of common equity Tier 1 came from. Both numerator and denominator, if you recall, it's predominantly because of the refinement to how we look at our risk weighted assets, especially in our portfolio in Wing Chun, right. Now the recent increase for this quarter in terms of common equity Tier 1 came from a few area, less so in this case the refinement in terms of RWA, in this case the denominator, more so in terms of the increase in terms of the numerator.
If I can explain a bit more here in terms of where the changes came from, which I touched on briefly earlier during the presentation. 1 is essentially the retained earnings. The second part pertains to the application of the script to our financial year 2020 dividend. The outflow because our participation for the script was actually relatively high, thanks to the shareholders' confidence in us at about 52.9%. So we were able to recapture some of this sort
of
in the numerator itself. Now then when we look at how we construct our capital going forward, there is still that same trajectory that is unclear pertaining to the pandemic, right. I mean, we talked about that during the previous quarter as well. So in that sense, when we calibrate our dividend payout, we do consider the guidance coming from the regulator where our dividends and capital level is. And essentially, we thought that is the optimal level to revert to will be the level that we had to undertake in terms of our dividend back in 2019 pertaining to the interim, which is $0.25 Now your question pertaining to why isn't the dividend payout ratio correspondingly be higher?
Essentially, if you look at how we look at our dividend policy, it's one of sustainable and progressive. And the quantum itself will be the 1st determinant in terms of how we calibrate our dividend. And the reference to the payout ratio where we have guided in the past is 40% to 50% will be the secondary consideration. So therein, where we calibrated is 1 whereby we go back to the level that we used to pay pre pandemic and also considering the trajectory of the economic situation under the environment that we are in now and also considering the payout ratio of 40% to 50%. Now maybe if I can just quickly cover in terms of the credit portfolio that you asked in terms of whether the management overlay has reduced.
It has not. In fact, you will probably notice there's an increase in terms of management overlay, partly also because as we mentioned earlier, the situation in both Malaysia and Indonesia where the COVID situation is sort of somewhat worrisome, we have in a way preemptively set aside more general provision, if you use the previous sort of accounting methodology as explanation, in this case, ECL12. And therein because of the increase in terms of this overlay pertaining to these two regions, we do have the ability to release the Rilla and hence that Rilla had added to the common equity Tier 1 that we talked about earlier as well. Now for the Sreedhar here, I'll pass on to Helen.
Thank you. I think you also asked about our direct cost outlook, and we retained our outlook of 100 to 130 basis points, but towards the lower end of it, that is our outlook. Question on strategy on the GBA and also a question on our COO, what exactly does he do? I think I'll cover GBA. GBA obviously is a very important market that we are looking at and putting more resources in.
I think we all are looking at the wealth connect program that we are working with our partner recovering with Chinese banks to look at the cross border wealth flow that will be coming up. It remains as an important strategy where we constantly discuss and setting targets for our different teams. But with that, we do are looking in and we are already doing it on increasing our wholesale banking coverage. And we talked about the China business units in ASEAN, but domestically, we are also increasing the coverage strength. And that is also not just in the commercial banking, but in investment banking and in transaction banking Because when you say you want to capture the capital and the trade flow, the first thing is we are following these clients coming into ASEAN.
They're opening account with us. We're managing the money coming in. We're managing the investment into business and leading to servicing them for the capital financing needs and also potentially any acquisition interest in this marketplace. On transformation, I think appointing the COO, there's quite a lot of things that the COO is in charge of other than the typical what we call run the bank operations and technology. Obviously, the COO is responsible for changing the bank.
And when we say changing the bank that applies to, for example, what we call technology architecture, whether we are actually achieving that architecture that allow us to manage our data better, manage our technology development better. So there is indeed what we call a data office, where we actually try to continue to use data to drive sales and marketing, product development and the use of AI. And indeed, transformation is to put together with a unified leadership to ensure that we are optimizing resources and capabilities.
Okay. Thanks, Gula. I hope that has helped you. I will go now next to Prisca from Straits Times.
Hi. Yes. Thanks, Helen and Darren for the presentation. I have a question about the impact of the virus resurgence, actually the Delta variant. You mentioned a bit about some of OCBC's markets like Malaysia, Indonesia and China.
But could you give us a sense of across its markets as a whole, including in Singapore where cases have surged? How is this expected to affect NPL formation in the next few months?
I didn't catch part of your question. You're saying that how is the resurgence affecting?
Yes, across the Bank's various markets as a whole, besides Malaysia and Indonesia, how is the virus resurgence? And the increase in cases here as well, how is this expected to affect NPL formation in the next few months?
Yes. I think, obviously, the resurgence of the cases and the tightened safety measures have impacted certain sectors and the most immediate we can see will be F and B and retail. But it is but with a lot of experience, I think, with the government's dealing with the pandemic over the last 18 months and with actually operators, if you look at us as a bank, the way we manage to actually allowing people to work away from the office, reduce our fall in the bank, in our premises and all that, and we're allowing them technically capable to actually do their jobs at home, for example. I think we have gained a lot of experience and government has gained a lot of experience too. So I do not actually really see the resurgence really like derailing, economic recovery.
It may slow down in certain markets. We mentioned Malaysia and Indonesia that economic growth has been actually lower. And but we remain as prudent as we manage our business in this market. We have set aside management overlay in view of the current situation, in particular, in Malaysia. So I think we actually feel that we're able to manage this, but again, we would continue to actually support the markets, in particular where there are loan reliefs, we will continue to support.
Okay. Thank you. Okay. Thanks, Bhrigal. Anshooman, you're next.
Anshooman from Reuters.
Hi. Are you able to hear me? Yes. Yes. Hi, Alain.
Many thanks for the overall presentation and the points. I want to check with you on, again, the COVID virus and the impact has been, as you said, in this region elsewhere for a long time. But what has materially changed in the outlook, I think, not in terms of financial numbers, but generally overall business outlook for the bank, let's say, 6 months ago and right now, I mean, you're doing a lot of, as you said, the governments are doing safe management measures and all. But overall, the growth drivers for the bank would come do you see anything differently now versus, let's say, 3 months ago?
I think the growth drivers remain the
same as we looked at it in beginning of
the year compared to now. I talked a bit quite a bit about it in the strategy discussion earlier. Is about the center of trade shifting to ASEAN and China, right? And we continue to see that and the expansion of that growth. And I think Wei Hong covers the opportunity on the wealth piece as well in China and offshore from China.
So these trends we continue to see and we really see this as an opportunity. And when you say when we plan for it, that is exactly where we are adding resources and putting investment into. Yes, the pandemic has been with us for quite some time now. As you said, we now know how to actually deal with it much better. And in a way, I think digitalization does help.
If you think about it, yes, it is so important that we can allow customers to continue to receive the services offline online, sorry, online. And I think one very important thing is the movement of our vaccination. We if you ask me, I'm just looking at Malaysia, Indonesia, just looking at our own colleagues, the speeding up of the vaccination and to in places where we can actually help them to securing the vaccination that we'll continue to do. I think that would actually bring a very remarkable change to how we actually manage the pandemic and the impact of it.
Thanks. Just one more, Bharat, another question. In terms of we are seeing record fundraising happening in markets like Indonesia, where we have a massive IPO being listed Indonesia in Malaysia, in Philippines, we saw Mond and Nissan and other companies. Generally, there has been a resurgence in fundraising by companies either through the M and A through the IPO market or also M and A. What think is behind the renewed confidence of companies to tap the markets or go for deals in these pandemic hit markets?
We actually see a lot of activities and interests actually from North Asia into Southeast Asia. I think that is and regionally as well, right, as we continue to see interest intra ASEAN. I think this should continue. Wherever there is a crisis in the market, there's always opportunity for people to look at expansion in an organic manner. I think this will continue to happen.
But not just entirely focusing on IPO, if you look at the debt capital markets, there are many successful deals being done as well. And where continues we have investors looking at buying quality insurance. And in particular, I think I want to mention sustainability again. We see a lot of investors who are putting into investment criteria that they have to buy green. So that is also one reason why our sustainable finance is actually growing so rapidly.
We are now reaching almost SGD20 billion actually by the end of June. So I do see a lot of opportunities in both the equity and the debt capital markets.
Great. Thank you.
Thanks, Anshooman. Any more questions from the media? Okay. It looks like we are good for the morning. Thank you very much for joining us online today.
Thank you and hope to see you in person soon.
Thank you, everyone.
Thank you.