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 a Q&A after Helen say a few words. Darren.
Thank you, Ching Ching. Thank you everyone for joining us. I'll move on to slide three, if you have the slides in front of you. First half 2021 net profit rose 86% year-on-year to SGD 2.66 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 SGD 0.25. I'll move on to greater details in the following slides, starting with slide five. For the half year of 2021, our three business pillars continued to deliver good results. OCBC banking operation net profit for the first half of 2021 was 81% higher than the previous year at SGD 2.1 billion.
Our private banking franchise remains a strong growth driver. Wealth management income rose 25% to SGD 2.14 billion in the first half of 2021. Assets under management increased 11% to $125 billion. Great Eastern Insurance net profit contribution more than doubled to SGD 565 million from a year ago. Total weighted new sales and new business embedded value grew 57% and 43% respectively. Moving on to slide six on our balance sheet. Funding, liquidity, and capital positions remain strong. In particular, common equity Tier 1 capital adequacy ratio was higher at 16.1%. The increase was largely driven by retained earnings for the period, strong participation in our final year of dividend, in this case, in the form of scrip, and also partly from the partial release of the Regulatory Loss Allowance Reserve, I'll call it RLAR, from here. Moving on to the details of our group performance.
For the first half of 2021, the 86% year-on-year increase in net profit to SGD 2.66 billion was driven by higher fee, trading, insurance income, as well as lower allowances. For the second quarter, net profit was SGD 1.16 billion, as I mentioned earlier, although it's 59% higher on a year-on-year comparison, was 23% as compared to the relatively stronger first quarter. On slide 10, in terms of net interest income, for the first half of 2021, net interest income was lower year-on-year at SGD 2.9 billion, reflecting the impact of the lower interest rate. Net interest margin had contracted 11 basis points from a year ago. 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 2021 was SGD 2.58 billion, an increase of 29% from a year ago, driven by higher fee, trading, and insurance income. If you were to look at slide 13, in terms of the breakdown of the fee income, for the first half of 2021, our net fee income rose 17% to SGD 1.15 billion. Broad-based growth across all key fee segments. Against the strong first quarter, second 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 SGD 528 million.
However, second quarter was more subdued as compared to the first quarter of this year, reflecting the more moderate customers' activities, and also lower mark-to-market gain from Great Eastern. Moving on to slide 15 on our expenses. Operating expenses remain 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 cost. I move on to slide 16 on our allowances. For the first half of 2021, allowances for all ECL stages were substantially lower as compared to the previous year. Total allowances were SGD 393 million as compared to SGD 1.4 billion last year. Our allowances made in the first half of 2020 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 ECL 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 second quarter to buffer against potential credit deterioration in the region. ECL 3 allowances for impaired assets were also comparatively lower. The SGD 283 million 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, lastly, from a reduction in impaired allowances as well as the release of MYR 430 million to retain earnings within regulatory requirements. Consequently, our NPA coverage ratio declined to 104%. Now moving on to asset quality on slide 18.
NPL ratio has been stable at 1.5% over the last three quarters. NPA performing assets were SGD 4.08 billion. This was mainly attributable to a rise in new NPA loans originated in Malaysia and Indonesia. Moving on to slide 20. As you can see in the charts, our loans grew 3% to SGD 275 billion from SGD 268 billion 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. 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. On slide 22, you will notice in terms of loan total relief loans were SGD 4.5 billion 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 SGD 317 billion. Current accounts and savings 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%. Finally on slide 24. Given that MAS had placed the dividend paying Singapore-based banks, the board has approved an interim dividend of SGD 0.25 for 2021 interim dividend. This interim dividend of SGD 0.25 was at the same level as the interim dividend in 2019 and represented a payout ratio of 42% against our net profit for first half of 2021.
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 our customers. With this, I conclude this presentation, and I'll pass the floor to Helen. Thank you.
Thank you, Darren. Good morning to all. Very nice to talk to you all, albeit it is on virtual, because of the restriction together. I think that 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 2021. This is coming off from a very exceptionally strong first quarter. Our second quarter results were resilient against the backdrop of COVID-19 resurgence in Singapore, Malaysia and Indonesia. Our banking, wealth management and insurance businesses all delivered robust performance. 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 give you a few example of that.
For the first half of the year, 98% of our commercial banking accounts were opened digitally online. We see actually comparing year to year, first half, we have more than two times of digital investment sales compared to last year. Indeed, our consumer payment transfer is 3.4 x, compared to the same period last year. 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 Greater 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 amid economic recovery.
Short-term rates, we see that will remain low in the next few quarters. Inflation risks expected to be mostly transitory. 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, want to reaffirm that we expect NIM 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 remain stable, and this will continue to drive our loan growth. China's loans, wealth loans, et cetera. We are also seeing good momentum on our consumer side, in particular in Singapore where we actually see housing sales increasing.
We have a good momentum on our mortgage book. We want to emphasize on the deposit side, our CASA actually now stands at 62.5% of our total deposit, and that compared to 56.7% the same period last year. We have raised the interim dividend to SGD 0.25, as Darren has talked about. 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 Chief Operating Officer to drive our next phase of transformation. Our core strategy has served us very well of growing the three pillars: banking, wealth management, and insurance in our core markets of Singapore, Malaysia, Indonesia, and Greater China. 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.
I just want to mention that we continue to execute our strategy on opportunities arising from the trends, from the macro trends. The first one being what we call China Plus One. 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 two-way trade between ASEAN and China growing rapidly comparing to Greater China with the rest of the world. We also see continued growth in the affluence 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. Sustainability, again, a big trend that we are pursuing aggressively. If you look at our loan book, for the growth this year, actually more than half of it is in sustainability financing.
We are moving beyond digital. We hope to serve customers beyond banking into lifestyle platforms and ecosystems is another big trend. 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 ask. Chris? 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 adversity 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 two countries. Is it something that mainly hits SMEs, for example, or is it consumer, 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.
Secondly, I know you've been asked on this before, and I think expressed at least a passing interest in the assets that Citi has for sale in consumer businesses across Asia. Any updates on your thoughts about potentially putting your hat into 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. If you look at some of the allowances we provide for Malaysia in particular, it is very much due to the relief loan program that government has relaunched in July. So we are going to see some of these turning into NPLs for classification reason. We are actually putting provisions against this. That would be the major item. Of course, due to the situation and some of the stricter measures, we remain prudent in considering expansion in these two economies. On the Citi, obviously, we do not comment on other banks and transactions.
That would be my comment.
Okay. Thank you, Chris. Next we have Chanya from Bloomberg. Chanya, you're up.
Hi, Helen. I understand that you don't want to comment on Citi, at least could you say that whether you have seen the assets, have they opened the data room? Whether your interest lies in Indonesia or other regions? That's my first question.
Chanya, 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 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 outbreaks of resurgence of the COVID case really rapidly. You look at how they actually control through. The domestic economy is actually recovering very well. If you look at some of the you call it a setback, I would actually call it more a normalization. It's a very big economy, and it continues to manage to grow in the mid to high single digit. Obviously its GDP is actually very admirable.
I see. Thank you. My last question, 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. It is not entirely senior management. We were talking about how do we manage the whole group. We continue to hope to increase our bench strength. 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. It is more increasing our bench strength, comparing to making changes just for making changes.
Understood. In which areas that you see the bank can improve in terms of strength, both in terms of region and also business lines?
Obviously, because we grow our banking and also our wealth management and insurance, for all this, we continue to hire more people. We also is going to look at strengthening Greater China. You're aware we have a good presence in Hong Kong and China. We do want to actually strengthen that. That is very much because we do want to see the synergy between Greater China and ASEAN. We want to capture a lot of the flow. One example is we're strengthening what we call our China Business Office in the ASEAN countries. Putting in more strength into supporting the inbound business as China Plus One strategy among the China and also other MNCs is taking effect.
I see. 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, Chanya.
Hi, Wei Hong.
Hi. Well, I think we've got very good growth momentum in this line of business. The two parts of it, right, in terms of growth momentum. Number one, it is actually the people on the ground as the sales force, which we continue to build on and improve people hiring more teams. The second part of it is, of course, on digital, right? The digital platform is a huge part of our investments. I think it's important. Our customers' requirements are also evolving and the increasing requirements on digital capabilities, the ability to view, transact on digital platforms, as well as get contextualized advice specific to their own individual portfolio. These are two big things that is going on.
I think lastly, of course, Greater China is a huge growth potential for us, and we continue to invest heavily in building up the schemes 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. Next up is Goola. Goola from The Edge. Hey, Goola.
Hi, Ching Ching. Thanks. Yes, thanks, Helen and Darren for the presentation. My questions are in three parts. Can I start with, what's important to investors? OCBC 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? In the same theme, your payout ratio was, well, may I say only 42% because peers are paying out more. What do you plan to use your capital for? Because there's quite a bit of excess capital there. In terms of the credit cost 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?
Are there any change in metrics such as I think your RLAR has changed, your regulatory loss allowance. Is the management overlay the same as 1Q? I think that's about it 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? Also, Helen mentioned a COO for the next transformation. I'm just wondering, how will this change the fabric of OCBC's earnings profile? Thank you.
I'll let Darren cover the capital and different payout and the change in how we actually manage the capital structure.
Yeah.
The reserves. Yeah.
Sure. Goola, hi. It's 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, is predominantly because of the refinement to how we look at our risk-weighted assets. Especially in the portfolio in Wing Hang.
Now, the recent increase for this quarter in terms of common equity Tier 1 came from a few areas. 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. One is essentially the retained earnings.
The second part pertains to the application of the scrip to our financial year 2020 dividend. The outflow because our participation for the scrip was actually relatively high, thanks to the shareholders' confidence in us at about 52.9%. We were able to recapture some of this in the numerator itself. When we look at how we construct our capital going forward, there is still that same trajectory that is unclear pertaining to the pandemic. We talked about that during the previous quarter as well. 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. 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 SGD 0.25.
Your question pertaining to why isn't the dividend payout ratio correspondingly higher is essentially if you look at how we look at our dividend policy, is one of sustainable and progressive. The quantum itself will be the first determinant in terms of how we calibrate our dividend. The reference to the payout ratio, where we have guided in the past is 40%-50%, will be the secondary consideration. Therein, where we calibrated is one 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%-50%. 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 somewhat worrisome. We have, in a way, preemptively set aside more general provision. If you use the previous accounting methodology as an explanation. In this case, ECL 1 and 2. Therein, because of the increase in terms of this overlay pertaining to these two regions, we do have the ability to release the RLAR, and hence that RLAR had added to the common equity Tier 1 that we talked about earlier as well. Now for the strategy, I'll pass on to Helen.
Thank you. I think you also asked about our credit cost outlook, and we retain our outlook of 100-130 basis points, but towards the lower end. 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, and we're partnering with Chinese banks to look at the cross-border wealth flow that would be coming up. It remains as an important strategy where we constantly discuss and are setting targets for our different teams. With that, we are looking in, and we are already doing it, on increasing our wholesale banking coverage.
We talked about the China Business units in ASEAN, but domestically, we are also increasing the coverage of our strengths. That is also not just in the commercial banking, but in investment banking and in transaction banking. 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 their money coming in, we're managing their investment into business and needing 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.
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. That 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. Indeed, transformation is to group together with a unified leadership to ensure that we are optimizing resources and capabilities.
Okay. Thanks, Goola. I hope that has helped you. I will go now next to Prisca. Prisca from The Straits Times.
Hi. Yeah, thanks, Helen and Darren, for the presentation. I have a question about the impact of the virus resurgence, especially 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 did catch part of your question. You're saying that how is the resurgence affecting?
Yeah. 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 impact certain sectors. The most immediate we can see would be F&B and retail. With a lot of experience, I think, with the governments 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 footfall 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. I do not actually really see the resurgence really derailing our economic recovery. It may slow down in certain markets.
We mentioned Malaysia and Indonesia, that economic growth has been actually lower. 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. I think we actually feel that we're able to manage this. 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, Prisca. Anshuman, you're next. Anshuman from Reuters.
Hi, are you able to hear me?
Yes.
Yes. Hi, Helen. 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 and elsewhere for a long time. 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, six 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. Overall, the growth drivers for the bank would come Do you see anything differently now versus, let's say, three 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 quite a bit about it in the strategy discussion earlier. It's about the center of trade shifting to ASEAN and China, right? We continue to see that and the expansion of that growth. I think Wei Hong covers the opportunity on the wealth piece as well, in China and offshore from China. These trends we continue to see and we really see this as an opportunity. When you say when we plan for it, that is exactly where we are adding resources and putting investment into. Yeah, 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. In a way, I think digitalization does help.
If you think about it, yeah, it is so important that we can allow customers to continue to receive the services offline, online, sorry, online. I think one very important thing is the movement of vaccination. If you ask me, just looking at Malaysia, Indonesia, just looking at our own colleagues, the speeding up of the vaccination, and in places where we can actually help them to securing the vaccination, that we 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.
Right. Thanks. Just one other 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 Monde Nissin and other companies. Generally, there's been a resurgence in fundraising by companies, either through the IPO market or also M&A. What do you 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 interest, actually, from North Asia into Southeast Asia. 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 organic manner. I think this will continue to happen. 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 issuance. In particular, I think I want to mention sustainability again. We see a lot of investors are putting into investment criteria that they have to buy green. That is also one reason why our sustainable finance is actually growing so rapidly.
We're now reaching almost SGD 20 billion actually by the end of June. I do see a lot of opportunities in both the equity and the debt capital markets.
Great. Thank you.
Okay. Thanks, Anshuman. Any more questions from the media? Okay, 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.