Good morning, everyone. Thank you for joining us on our earnings call for our first quarter 2021 results briefing. Today we have Helen, our Group 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&A. I will pass the time now to Darren, please.
Right. Thank you, Ching Ching. 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. I'll move on to slide three. For the first quarter 2021, we reported a net profit of SGD 1.5 billion. This is an increase of 33% from the previous quarter. If you look at the details of our performance, you'll notice that 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. In terms of total income, we grew 17% on a quarter-on-quarter basis. The low interest rate environment continues to weigh on our interest income.
However, our non-interest income comprising fee, trading, and insurance, delivers a strong performance amid an improving operating and 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 six, 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. Now moving on to slide seven. Total income rose 17% quarter-on-quarter and year-on-year, largely from the rise in net 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 first quarter, net interest income was only slightly above the previous quarter at SGD 1.44 billion. Following sharp contraction in tandem with global interest rate, our net interest margin has stabilized, albeit at a lower 1.56% 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 SGD 1.21 billion, driven by a combination of the rise in customer activities and market performance.
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 upward trend for the last three quarters rose to SGD 585 million, with Wealth Management fee reaching a new high of SGD 321 million. On slide 14, we also continue to see strong customer activities, and that lifted our trading income to SGD 316 million for the quarter. Slide 15, operating expenses were 2% higher quarter-on-quarter at SGD 1.15 billion. The staff costs increased in tandem with improvement in performance. Meanwhile, we maintained discipline in terms of our discretionary spending. On slide 16, on our allowances, given the improvement in economic outlook, a lower credit cost of 22 basis points was booked for this quarter.
Allowances of SGD 161 million, 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. On slide 17, you'll notice that with the added allowances, our coverage for NPL rose to 118%. In terms of asset quality on slide 18, you will notice that our loan book remains sound with NPL unchanged at 1.5%. If you look at the details on slide 19, new non-performing assets of SGD 375 million were roughly offset by an equivalent increase in recoveries and upgrades. This increase in upgrades and recoveries were mainly in the oil and gas offshore support vessels and also transportation sector. Moving on to slide 20.
Our loans grew 1% to SGD 271 billion, mainly outside of Singapore and to our network customers in China and in the United Kingdom. In terms of the details of our customer loans, slide 21, loan portfolio remain well diversified. Building and construction still represented the largest segment at 27% of our total loans. Oil and gas constituted 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 SGD 15.3 billion.
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 quantum has reduced from SGD 5.7 billion to SGD 5.1 billion. 92% of these relief loans were secure, most of our customers indicated that they did not require further assistance beyond this program. On the final slides on deposit, you will notice that our liquidity remained ample. CASA continued to grow 3%, in this case to SGD 195 billion. Correspondingly, our CASA ratio rose to 61.8% this quarter. We continue to de-emphasize fixed deposit, also our customers prefer the flexibility arising from current accounts and savings account. Now with this, I'll end my presentation and pass to Helen.
Thanks, Darren. Good morning, everyone. Thank you for dialing in for our first quarter results. I have met some of you. Hopefully with the pandemic situation continue to improve for the mid-year, we'll be able to see you in person. I'd like to just cover a few points. 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 first quarter. I see the first quarter performance as exceptional. I think this is due to market conditions that is conducive. We have had a very strong earnings across key markets and businesses. Indeed, we also see diversified earnings and that rests on the strength and resilience of our three pillars of our business, which is wealth, insurance, and of course, banking operations.
See a stable loan book from an end of some growth in Greater China and our network customers in the U.K., as Darren has mentioned. I'm happy with the CASA ratio, which is now at 61.8%, and it grew from something like 51% a year ago in the first quarter of 2020. See a stable NIM at 1.56%. Lastly, a lower allowance of SGD 161 million, which is in general commerce, transport and manufacturing. With that, I also want to touch on the market conditions at the moment and would lead to some of the outlook that I would talk about. We're 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 variants of COVID-19 and also slow roll-out of vaccination in certain countries. A true return to normal, I guess, will take time and perhaps longer than we think in this year. We'd like to focus on deepening our network to support our customers and also to capitalize on signs of sectorial recovery. 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.
On the outlook, I would look at our loan growth as having momentum to lead to faster growth in the rest of the year. I'm thinking about a mid to high single-digit growth in our loan book. 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 the economy recovers. We are also already seeing a momentum of demand for loans in infrastructure, logistics, transportation, real estate and also a lot of demand from private banks that is managing the wealth in the region. On the provision side, the allowances aside, I do not expect huge amount in the next three quarters. The relief program has seen healthy repayment trends since they start leaving the relief period.
We stay with our guidance of 100 basis points- 130 basis points for two years for our allowances, but we believe that it will be on the low side. I would end here and will open the floor for questions.
Okay. Thank you, Helen. First person continue in the queue is Chanya. Chanya, if you could unmute yourself and ask your question, please.
Hi, Helen and Darren. Congratulations on the big beat that you reported today. My first question, could I get guidance for NIM for 2021? Second question, could I get Helen's comments on your appetite, whether you are interested in Citi consumer banking assets that are on sale at the moment? Could you share that if you are interested, which markets would be most beneficial to OCBC? Those are my two questions.
Okay. Thank you, Chanya. If you could mute. Okay, thanks, Chanya. Okay.
I just want to recap the two questions. The first one is guidance for NIM, which is the NIM, the second one is about Citi retail business. Right? I think for NIM, because we are in a low interest environment and I think there is no particular event in the market that would lead to a sudden change, I think we will be able to protect the NIM on a rather stable manner. 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. We'll stay open on this particular opportunity that arise.
Thank you, Helen. Just to follow up, you already have quite 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. We constantly open to ideas and opportunities. I don't necessarily think you need to think about particular markets in that sense.
Okay. Thank you, Chanya . Gulab, you're next. If you could unmute yourself.
Can you hear me?
Yes, we can.
I think I'm here. Okay, great. Okay. Yeah. Hi, Helen and Darren, and congratulations on your very good results. 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? If you are focused on growth, would it be 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.
Yeah. Gulab, thanks for your question. Maybe before I answer your question specifically, I want 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. 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, s orry, and the movement during this period essentially arose mostly because of the optimization of risk-weighted assets, as I mentioned to you. 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. 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. The prospect of that return of capital would, to some extent, depend on the regulator leaving that cap. From there, we will 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 a few things that you can classify as organic growth. Obviously, we want to capitalize on the flow of capital trade investment 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. As to inorganic, I just mentioned we remain open to opportunities that come up. Yeah, nothing further to comment on that.
Okay, thanks, Helen. Anshuman, you're next. Please unmute yourself. Thanks.
Hi, Helen. 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? Almost all the banks have provided for lower credit allowances and pointed to loan growth. 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.
Yeah. 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 different industry. On some of the sectors that have given us some NPLs in the past. I think we have made enough provisions and cleaned up quite a bit, and as the economy recovers, we actually do have some write back on realizing some of the collateral. There are important sectors that we are focusing in. I think on healthcare, on transport, on manufacturing that lead to imports and exports. Yeah, there are sectors that are still under pressure, hospitality, aviation, this is still under pressure. I think for certain sectors, we are already past the trough, I think.
We'll continue to look at which are the sectors that offer more growth and healthy growth as well.
Okay, thanks. Kelly from The Business Times. Oh, sorry, it's Takashi. Takashi, you were actually next in queue after Anshuman. Sorry, Kelly, if you could just hold for a while. Takashi, you're next. Could you unmute yourself, please?
Hi. Net profit for this quarter is SGD 1.5 billion. Is this a historical high?
Yes, this is a historical high for the quarter.
Yes, Takashi, it is a historical high.
Yes. 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. I just want to highlight that it is a very big market. If you look at the population is more than 60 million. If you look at the wealth accumulated in that area, it is huge. We were talking about flow that we are really seeing Chinese customer very interested to invest outside of China, that was expected a lot of outbound investment. Actually, as China open up its capital markets, we do actually see inbound interest as well, bringing investments into China.
Yeah, although we are yet to see more details of how the Wealth Connect open up, I think we are well positioned in the Greater Bay Area, with our presence of around 80 branches in that part of the world. In terms of working with other partners, we have a very strong partnership with a couple of financial institution in China. I think that also help us in sourcing of customer and also taking customer on both inbound and outbound. We're pretty happy about it. Very strong competition, I expect. 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 Straits Times. Prisca?
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?
Prisca, thank you. I think on branch networks continue to be a very important part of our infrastructure to serve our customers. If you look at demand of footfall into branches, obviously, there are two things that actually impact the way we think about how we optimize our real estate, our branch. The first thing is obviously, in particular, driven by COVID-19. More and more customers are using digital means, and that means that their requirement of visiting a branch has fallen. Also, as our customers begin to consider a lot more about how to manage their wealth, we do need our branch to actually talk to customer and meet with them and actually do financial planning with them. 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 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 larger number of branches, and actually, the reduction is mainly there. Going forward, we will continue to look at requirements and then optimize our branch network planning as appropriate.
Prisca, is that all right?
Yeah, that's fine. Thank you.
Thanks. Chanya, it's up to you again. Okay, go ahead, Chanya.
Oh, yes. I just managed to unmute. Sorry. Yeah. Helen, actually, my question was the same about office space. Could you clarify how many branches, in terms of percentage, that you reduced in Indonesia? In Singapore, how is your space for each employee like? Is it more than 1 m per person? More than 1.7 m? How much room do you have to reduce? Thank you.
Chanya is asking about percentage of change in Indonesia branch network as well as the reduction in office space. Right, Chanya?
Yes.
Chanya, I think we have reduced our branches over the years. Potentially, I think as a ballpark number, maybe over the last three to five years, we may have reduced 10% of the branch numbers across the group. 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. Obviously following guidelines from the government as well on that. Indeed, I think our hybrid model has become quite mature. In office, of course, we need to continue to allow people to have safe social distancing.
All in all, I think we are not reducing our real estate as yet 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. It's a lot of optimizing, but the important thing is to make sure that our colleagues can work effectively, either remotely from home or in office.
I see. Thank you. One follow-up question on loan growth. I think your loan growth in the first quarter was about 1% from a year ago. 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, Chanya. I think, first thing is we already see a lot of momentum built up. For our customers, quite a lot are talking to us about new facilities in their activities. That's why I think we will have a more accelerated growth rate in the next three quarters.
Thank you.
We don't have anyone else in the queue. Anyone else would like to ask questions? Everyone is happy? I don't see a raised hand. We are going to end today's session. Thank you very much and have a good day. Sorry. We have Gulab. Yes, Gulab, you are last before our phase II tomorrow. Go ahead, Gulab.
Sorry, I was trying to unmute.
Yeah. All good. Yeah.
Can I just ask Darren a question on the allowances? Could you just remind us what are your total allowances, and how much is this in management overlay?
Yeah. Gulab. The slide 17, you actually will be able to see our total allowances. If you were to look at the breakdown in terms of allowances, we have about SGD 4.7 billion+ over there.
Mm-hmm. Yes.
It's a combination of essentially, ECL 1 and 2 allowances for non-impaired assets. ECL 3, the allowances for impaired asset, which is the darker blue inside the bar. Obviously what we call regulatory loss and allowances in the yellow part of that bar, which is RLAR SGD 74 million. The overlay that we set aside is roughly about SGD 400 million or so, and that's predominantly in the ECL 1 and 2 portion of this allowance.
Can I just check? The RLAR part, it cannot be written back, can it?
No, that part can be written back.
Oh, I see. Okay.
If I may just elaborate, essentially, when you make provision, whether it's ECL 1, 2, or 3, that is predominantly from the current quarter earnings, right? Whereas for RLAR, internally, we call it RLAR because it's quite a long form- letter to add a readout, right? That is from past retained earnings.
Oh.
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. One thing I want to point out, for this quarter, if you notice, we have not write back any allowances across the three category.
Yes, the management overlay, can you write that back as well? I think one of your peers said that they wouldn't use that to write back.
Yeah. Maybe just, it's a bit technical in terms of the management overlay. The reason is because going into the ECL model approach, there is certain assumptions that is very much based on mean variance, right? You have very much 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. As we experienced in this pandemic, depending on who you read and who you talk to, it's a multi-standard deviation event. 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.
The question going forward is whether you think that multi-standard deviation event could potentially arise at some point in time, and that is where you might want to make that assessment of whether to write back on management overlay or not.
Okay. You won't use that to write back at the moment. Is that the?
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 peer did undertake some of that.
Yeah.
For us, there's no intention whatsoever at this point in time. Yeah.
Okay. Is there any condition which would allow you to write back? That's what I meant to ask.
Sorry, Gulab, 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's made more than they require.
Yeah. 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 that volatility would, over time, accumulate in that model. In that sense, as long as that mean variance component has sort of stabilized, meaning in terms of outlook being clearer, the trajectory in terms of what we are experiencing now becoming clearer, potentially we may explore that.
Okay, thanks.
Okay, thanks, Gulab. I don't see anyone having other questions to ask. We will end today's session. Thank you, everyone, and take care.
Thank you, everyone.
Thank you.