REPRESENTATIVE:] Good morning, everyone. Thank you for joining us on our earnings call for our Q1 2021 results briefing. So today, we have Helen, our Co CEO with us as well as our CFO, Darren. And we will be letting Darren take us through the slides. Thereafter, Helen will share with us her thoughts as well as take Q and A.
So I will pass the time now to Darren, please.
Thank you, Qingqing. Good morning, everyone. Thank you again for joining us. I'll take you through the slides and I'll refer to the pages so that it's easier for you to follow. So I'll move on to slide 3.
For the Q1 2021, we reported a net profit of S1.5 billion dollars This is an increase of 33% from the previous quarter. If you look at the details of our performance, you will notice that the across the core markets and businesses, we have performed well. And this reflects the strength of our franchise. And that will help us continue to essentially generate balanced and resilient growth. Now in terms of total income, we grew 17% on a quarter on quarter basis.
The low interest rate environment continues to weigh on our net interest income. However, our non interest income comprising fee, trading and insurance delivered a strong performance amid an improving operating market environment. Now with the strong quarterly performance, our annualized group ROE return on equity rebounded to 12.4%. Now I would point out on Slide 6 in terms of our balance sheet. You will notice that our balance sheet remains strong with ample liquidity and funding.
Specifically, if you look at our CET1 capital, it rose to an even stronger level of 15.5%, mainly from the strong earnings that we registered for the quarter. Moving on to slide 7, total income rose 17% quarter on quarter and year on year, largely from the price in non interest income. Allowances were also lower against the previous periods, mainly from an improving credit environment. Now I'll move on to slide 10. On our net interest income, for the Q1 net interest income was only slightly above the previous quarter at 1,440,000,000.
Following sharp contraction in tandem with global interest rate, our net interest margin has stabilized, albeit at a lower 1.56 percent over the last three quarters. Now on Slide 11, you will notice that non interest income rose strongly at 40% from a quarter ago and now contributed to about half of the group's total income. The non interest income growth was broad based across insurance, wealth management and are reflective of the strong diversified franchise that we have built over the years. On slide 12, you will notice that our wealth management income rose to RMB1.21 billion, driven by a combination of the rise in customer activities and market performance. And if you were to look at slide 13, net fee and commission income also highlight the same story.
Essentially net fee and commission on an upper trend for the last three quarters rose to $585,000,000 with wealth management fee reaching a new high of 321,000,000 dollars On slide 14, we also continue to see strong customer activities and that lifted our trading income to 316,000,000 for the quarter. Slide 15, operating expenses were 2% higher quarter on quarter at $1,150,000,000 The staff costs increased in tandem with improvement in performance. Meanwhile, we maintain discipline in terms of our discretionary spending. Now on Slide 16, on our allowances, given the improvement in economic outlook, a lower credit cost of 22 basis point was booked for this quarter. Allowances of 161,000,000 comprising mainly allowances for impaired assets were set aside.
Roughly half of the allowances for impaired assets was for the remaining oil and gas exposure that we have on book. Now on slide 17, you'll notice that with the added allowances, our coverage for NPA rose to 118%. Now in terms of asset quality on slide 18, you would notice that our loan book remains sound with NPL unchanged at 1.5%. And if you look at the details on Slide 19, new non performing assets of $375,000,000 were roughly offset by an equivalent increase in recoveries and upgrades. And this increase in upgrades and recoveries were mainly in the oil and gas offshore support vessels and also transportation sector.
Now moving on to Slide 20. Our loans grew 1% to 271,000,000,000 mainly outside of Singapore and to our network customers in China and in the United Kingdom. And in terms of the details of our customer loans, Slide 21, loan portfolio remained well diversified. Building and Construction still represented the largest segment at 27% of our total loans. Oil and Gas consisted 4% of our loan book, including 2% in the OSV, Oil Support Vessel Oil and Gas Support Vessel Sector.
Specifically, our OSV exposure net of specific provision now represents about only 0.1% of our loan book. We continue to grow our green and sustainable finance portfolio, increasing 9% quarter on quarter to $15,300,000,000 Slide 22, on our relief loan relief program. Total relief loans now represented 2% of our total loans. Although as you can see in the details, the quarter has reduced from 5,700,000,000 to 5,100,000,000. 92% of these relief loans were secured and most of our customers indicated that they did not require further assistance beyond this program.
On the final slides on deposits, you will notice that our liquidity remained ample. CASA continued to grow 3%, in this case, 295,000,000,000. Correspondingly, our CASA ratio rose to 61.8 percent this quarter. We continue to deemphasize fixed deposits and also our customers prefer the flexibility arising from current accounts and savings accounts. Now we'll leave our NII presentation and pass it over to her.
Thanks Darren and good morning everyone. Thank you for dialing in for our Q1 results. I have met some of you, but hopefully with the pandemic situation continue to improve for the mid year, we'll be able to see you in person. So I'd like to just cover a few points. And since Darren has talked about the numbers and the results in full, I just want to highlight a few points regarding our business performance for the Q1.
I see the Q1 performance as exceptional. I think this is due to a market due to market conditions that is inducible and we have had a very strong earnings across key markets and businesses. And indeed, we also see diversified earnings and that rests on the strength and resilience of our 3 pillars of our business, which is wealth, insurance and of course, banking operations. Also seeing a stable loan book from NN with some growth in British China and network customers in the U. K.
As Darren has mentioned. Happy with the customer ratio, which is now at 61.8%, and it grew from something like 51% a year ago in the Q1 of 2020. Also see stable NIM at 1.56%. And lastly, a lower allowance of 161,000,000 and which is in general commerce, transport and manufacturing. So with that, I also want to touch on the market conditions at the moment and what we'll need to some of the outlook that I will talk about.
So we are seeing strong recovery in global output and trade in 2021, led by revival of economic activities in the U. S. And we are well aware that U. S. Growth is driven by monetary stimulus and also fiscal spending.
Another important economy obviously China has seen accelerated pickup in exports and also a very strong domestic demand. Economic recovery also expected to be strong in our core markets of Singapore, Malaysia, Indonesia and Greater China. However, recovery is not broad based yet. We see actually this is very much due to emerging movements of COVID-nineteen and also snow rollout of vaccination in certain countries. So a true return to normal, I guess, will take time and perhaps longer than we think in this year.
So we like to focus on deepening our network to support our customers and also to capitalize on signs of sectorial recovery. So and with our strong balance sheet and capital position, I'm happy that we are focusing on a lot of the business momentum based on the recovery. So, on the outlook, we'll look at our loan growth as having momentum to lead to faster growth in the rest of the year. And I'm thinking about a mid to high digit single digit growth in our loan book. And we will be focusing on the large Singapore corporates, Chinese business diversifying banking relationship in ASEAN, the activities of the SMEs across our core markets as economy recovers.
And also we are also already seeing momentum of demand for loans in infrastructure, logistics, transportation, real estate and also a lot of demand from private funds that is managing the wealth in the region. So on the provision side, the allowances and size, I do not expect huge amount in the next three quarters. The relief program has seen heavy repayment trends since they start leaving the relief period. We stay with our guidance of 100 to 130 basis points for 2 years for our allowances, but we believe that it will be on the low side. So I would end here and we'll open the floor for questions.
Okay. Thank you, Helen. First person with a second question in the queue is Chanye. So Chanye, if you could unmute yourself and ask your question, please. Hi, Helen and Darren.
Congratulations on the big news that you reported today. My first question, could I get guidance for NIM for 2021? 2nd question, could I get your comment Helene's comments on your appetite, whether you are interested in Citi Consumer Banking assets that are on sale at the moment? And could you share that if you are interested, which markets would be most beneficial to OCBC? Those are my 2 questions.
Okay. Thank you, Chania. If you could
mute. Okay.
Thanks, Chania. Okay. I just want to recap your 2 questions. The first one is guidance for NIM, which is the NIM. And then the second one is about Citi retail business, right?
So I think for NIM, because we are in a low interest environment and I think there is no particular events in the market that would lead to a certain change, I think we will be able to protect the NIM on a rather stable manner. So I think that's the answer to your first question. On Citi, I just want to say we are always open on opportunities on the markets that we have an operations in. So we'll stay open and for this on this particular opportunity that arise.
Thank you, Helen. But just to follow-up, I mean, you already have quite a huge franchise in Greater China. Would something in Southeast Asia be more beneficial or more accretive to you?
We actually have our core markets in Singapore Malaysia, Indonesia and Greater China. So we're constantly open to ideas and opportunities. And I don't necessarily think you need to think about particular markets in that sense.
Okay. Thank you, Chania. Golar, you're next. If you could unmute yourself.
Can you hear me? Yes. Yes. Okay, great, great. Okay, yes.
So hi, Helen and Daryl, and congratulations on your very, very good results. So in terms of your very high CET1, would you be open to returning some of this capital to shareholders? Or would you prefer to focus on growing? And if you are focused on growth, would it be sort of organic growth in terms of your markets? Or would you look at bolt on acquisition?
I'll let Darren take the first part of the question and then I'll talk about growth.
Yes. Gula, thanks for your question. Maybe before I answer your question specifically, I wanted to highlight that essentially CET1, common equity Tier 1 capital adequacy ratio is a ratio, meaning is equity capital as a numerator and risk weighted asset as a denominator. Now the high CET1 came about essentially because we have been optimizing our risk weighted asset, which is also why you have seen that the volatility over the years, especially in 2020, whereby it first declined to 14.2% and then recently sort of going back to 15.5%. In terms of the numerator sorry, and the movement during this period essentially arose mostly because of the optimization of risk weighted assets as I mentioned
to you. Now, your question pertaining to how
we plan to essentially then because of the optimization having the option then to return some equity capital to our stakeholders. Now, if you look at our history in terms of how we manage our numerator, it's always been one of year dividend in a sustainable progressive manner. And obviously, this policy pertaining to sustainable sort of a progressive dividend policy will have to take guidance from the regulator as well. In this case, as we all know last year, the regulator has also set a cap in terms of the dividend that we could pay out. So the prospect of that return of capital would to some extent depend on the regulator leaving that cap.
And from there, we'll have to then assess the outlook going forward and see how we can fine tune that dividend accordingly.
Thanks, Darren. I think on growth, we are obviously positioning ourselves for the future. There are 2 things that you can classify as organic growth. Obviously, we want to capitalize on the flow of capital, trade, investments across ASEAN and Greater China. We do want to continue to expand our leading wealth management franchise.
We also want to continue to invest in elements into sustainability, want to continue to expand our sustainable finance book and also we want to accelerate digitalization, so we'll be making investments in those. So as to inorganic, I just mentioned, we remain open to opportunities that come up. But, yeah, nothing further to comment on that.
Okay. Thanks, Alan. Anshooman, your next, please unmute yourself. Thanks. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:]
Hi, Alvin. Thanks for the time for this for the numbers. I want to check with you on you highlighted some of the points about loan growth and net interest margin. What would you say would be among the biggest risks for the banks on the recovery path? I mean, almost all the banks have provided for lower credit allowances and pointed to loan growth.
But can you highlight any key risks that could sort of really prevent this from happening or something that you are mindful of in the next few quarters? Thanks.
Yes, Abba, I think thank you for that question. It's very good. This is something we look at all the time as to the risk of the portfolio. I think the first thing is we have a well diversified loan book in the different industry. On some of the sectors that have given us some NPLs in the past, I think we have made enough provisions and clean up quite a bit.
And that is as economy recovers, we actually do have some write back on realizing some of the collateral. So there are important sectors that we are focusing in. I think on healthcare, on transport, on manufacturing that lead to exports imports and exports. And yes, there are sectors, this is still under pressure, hospitality, aviation, this is still under pressure. But I think we are for certain sectors, we already passed the tour, I think.
So, but we'll continue to look at which are the sectors that offer more growth and healthy growth as well.
Okay, thanks. Kelly from Business Times? Sorry, it's Takashi. Takashi, you are actually next in queue of the Anshooman. Sorry, Kelly, if you could just hold for a while.
Takashi, you're next. Could you unmute yourself, please?
Net profit for this quarter is JPY 1,500,000,000. So is this a historical high?
Yes. This is historical high for the quarter.
Yes, Takashi, is this historical? Yes.
Thank you. Thank you.
Okay. Is that all? Okay. We will take questions from Kelly, please. Kelly, you're up next.
Hi. Thanks for the presentation and congratulations on the results.
I wanted to ask how
do you see competition shaping up for the Greater Bay Area, especially given that DBS recently bought a stake in the Shenzhen Rural Commercial Bank?
Thank you for the question, Kelly. I think the Greater Bay Area has been discussed for quite some time now among ourselves and our peer groups. But I just want to highlight that it is a very big market. If you look at the population is more than 60,000,000. If you look at the wealth accumulated in that area, it is huge.
And we're talking about flow that we're seeing Chinese customer very interested to invest outside of China. So that was expected a lot of outbound investments. Actually as China opened up its capital markets, we do actually see inbound interest as well. So bringing investments into China. Yes, although we are yet to see more details of how the wealth can opener, but I think we are well positioned in the Greater Bay area with our presence of around 80 branches in that part of the world.
So in terms of working with other partners, we have a very strong partnership with a couple of financial institution in China. So I think that also help us in sourcing of customer and also taking customer on both inbound and outbound. So we're pretty happy about it. Very strong competition I expect and but indeed the market is so big that I think the pie is big enough for everybody to do reasonable business.
Okay. Thank you, Kelly. Okay, thanks. Prisca from Street Science. Prisca?
Hi, Helen and Darren. I have a question about OCBC's sharing last week during its annual shareholder meeting that it might be reviewing its office space requirements and cutting down on its number of branches. Does the bank have an update on this in terms of exactly how much space it plans to cut and how many branches it plans to close?
Yes. Crystal, thank you. I think on branch, branch networks continue to be a very important part of our infrastructure to serve our customers. And if you look at demand or footfall into branches, obviously, there are 2 things that actually impact the way we think about how we optimize our real estate branch. The first thing is obviously in particular driven by COVID, more and more customers are using digital means and that means that the requirement of visiting a branch has fallen.
But also as customers begin to consider a lot more about how to manage the wealth, we do need our branch to actually talk to customer and live with them and actually do financial planning with them. So there are these two forces that is always there to allow us to consider how to optimize our branch network. Yes, there will be a reduction in space if we see that is there is no longer the requirement for the number of branches. We have reduced some branches last year, but mainly in Indonesia. Indonesia has a large number of branches and actually the reduction is mainly there.
So going forward, we will continue to look at requirements and then optimize our branch network planning as appropriate.
Krista, is that all right?
Yes, that's fine. Thank you.
Okay. Thanks. Chanyar, it's up to you again. Okay. Go ahead, Chania.
Yes. I just managed to unmute. Sorry. Yes, Helen, could you a bit actually, my question was the same about office space. But could you clarify how many branches in terms of percentage that you reduced in Indonesia?
And in Singapore, how is your space for each employee like? Is it like more than 1 meter per person, more than 1.7 meter? How much room do you have to reduce? Thank you. So Chunghya is asking about percentage of change in Indonesia branch network as well as the reduction in office space, right, Chunghya?
Yes.
Chania, I think we do actually we have reduced branches over the years. I think potentially I think as the ballpark number maybe over the last 3 to 5 years we may have reduced our 10% of the branch numbers across the group. So that would be a percentage in mind. If you talk about office space obviously in Singapore in particular where we have the most real estate and also the largest number of employees, we have been adopting a hybrid model of working from home and working in office. And obviously following guidance from the government as well on that.
But indeed, I think our hybrid model has become quite mature. And in office, of course, we need to continue allow people to have same social distancing. So all in all, I think we are not reducing our real estate asset because we own our buildings, but we continue to optimize the space that we use and we create, for example, more space for discussion and more space for people to, for example, do a call on a private basis without having to share space with people. So it's a lot of optimizing, but the important thing is to make sure that our colleagues can work effectively either remotely from this or in office.
I see. Thank you. And one follow-up question on loan growth. I think your loan growth in the Q1 was about 1% from a year ago, but your outlook that you mentioned at the beginning is about mid- to high single digit. When do you see such acceleration of growth?
Thank you, Helen.
Thanks, Chenya. I think first thing is we already see a lot of momentum built up. And for our customers, quite a lot are talking to us about new facilities in the activities. So that's why I think we will have a more accelerated growth rate in the next three quarters.
Thank you. Should we don't have anyone else in the queue. Anyone else would like to ask questions? Everyone is happy? I will see a raise hand.
Okay. We are going to end today's session. Thank you very much and have a good day. And sorry, we have Gula, yes, Gula, you are last before our Phase 2 tomorrow. Go ahead, Gula.
Guillaume. Sorry, I'm trying to I was trying to unmute the
Yes, yes. All good. Yes. Can I just
ask Darren a question on the allowances? What are the what are your could you just remind us what are your total allowances? And how much is your first rate in management overlay?
Yes. Good luck. The Slide 17, you actually would be able to see our total allowances. So if you were to look at the breakdown in terms of allowances, we have about RMB4.7 billion over there. And it's a combination of essentially sort of ECL-one and 2 allowances for non impaired assets and then ECL-three the sort of allowances for impaired asset, which is the darker blue inside the bar.
And then obviously what we call regulatory loss and allowances in the yellow bar which is RMB 174 1,000,000. So the overlay that we set aside is roughly about RMB400 1,000,000 or so and that's predominantly in the ECR 1 and RMB2 portion of this allowance.
So can I just check, so the ARLA part cannot be written back, can it?
No, that part can be written back.
Oh, I see. Okay.
So if I may just elaborate, essentially when you make provision, whether it's ECR 1, 2 or 3, that is predominantly from the current quarter earnings, right. Whereas for our LER, internally we call it RULA because it's quite a long form letter to kind of read out, right. That is from past earning, retained earnings. So in a sense, as long as we have sufficient and we do feel that we have more than sufficient coverage, At some point in time, we may actually also look to write that back into our performance. But one thing I want to point out for this quarter, if you notice, we have not sort of write back any allowances across the 3 category.
And the management overlay, can you write that back as well or is that because I think one of your peers said that they wouldn't use that to write back.
Yes, maybe just it's a bit technical in terms of the management overlay. The reason is because going into the what you call going into the ECL model approach, there is certain assumptions that is very much based on mean variance, right. You have very much sort of a standard model pertaining to mean variance based on history, what is the average expected loss and what is the variance or volatility around that expected loss. But as we experienced in this pandemic, depending on who you read and who you talk to is the multi standard deviation event. And in that sense, the model may not be able to capture that multi standard deviation event.
Hence, the need to set aside some model, in this case, a management overlay to adjust for that multi standard deviation event. Now then the question going forward is whether you think that multi standard deviation event could potentially arise at some point in time. And that's where you might want to make an assessment of whether to write back on management overlay or not.
Okay. So you won't use that to write back at the moment. Is that Sorry? I mean, if you are going to write back, it will be from your general allowances. Is that right?
I think one of our peers did undertake some of that. But for us, there's no intention whatsoever at this point in time.
Okay. So is there any condition which would allow you to write back? That's what I meant to ask.
Sorry, Bulav, do you mind repeating that question?
Under what condition would you write back some of the allowances, some of your provisions that you've made? Because everybody has made more than they require?
Yes. Again, if you refer back to the model in terms of ECL and I mentioned mean variance, right. I guess to a certain extent, the experience of the volatility will over time accumulate in that model. So in that sense, as long as that main variance component has sort of stabilized, meaning in terms of outlook being clearer, the trajectory in terms of what we expect by experiencing now becoming clearer, then potentially we may explore that.
Okay. Thanks, Gunnar. I don't see anyone having other questions to ask. With that, we will end today's session. Thank you, everyone, and take care.
Thank you, everyone. Thank you.