All right. Good morning, everyone. Welcome to OCBC's second quarter first half 2026 results briefing. On our panel this morning, we have our Group CEO, Mr. Tan Teck Long, and our Group CFO, Ms. Goh Chin Yee. To their left and right, I shall start from Jason. Jason Moo, our CEO of Bank of Singapore, Mr. Sunny Quek, the Head of Global Consumer Financial Services, and then right to the other end, we have Mr. Greg Hingston joining us from Great Eastern, the CEO of Great Eastern. Last but not least, we have Mr. Kenneth Lai, our Head of Global Markets. Chin Yee will start with the presentation, and thereafter, we will have Teck Long sharing with us some of his thoughts before we take Q&A. Chin Yee, please.
Good morning to all. Welcome, and thank you for joining OCBC's first half 2026 results briefing. OCBC delivered a record group net profit of SGD 2.2 billion for the second quarter of 2026, up 22% year-on-year. This is the first time that our quarterly profit crossed SGD 2 billion. ROE was 14.4% on an annualized basis. Total income grew 18% year-on-year to a new high of SGD 4.17 billion. Net interest income was 1% lower year-on-year amid lower interest rates environment, but this was largely cushioned by our strong growth in average assets. Robust growth in non-interest income more than compensated for the lower NII. Non-interest income grew 51% year-on-year, driven by broad-based growth across fees, trading and investment income, and insurance income. Up 28% for fees, trading and investment income up 85%, and insurance income up 68%.
In particular, strong momentum in wealth management drove the increase in fees, while customer flow treasury income was contributed by both wealth and corporate segments. Non-customer flow income was also higher for the quarter, largely from SGD 191 million of investment income from Great Eastern, led by strong equity markets. We continued to maintain cost discipline. With cost income ratio lower at 37.8%. Loans and deposits grew strongly up 11% and 13% year-on-year respectively. Asset quality remains sound. NPL ratio was stable at 0.9%. Credit cost at annualized 14 basis points. We maintain healthy liquidity funding and capital positions. Common equity tier 1 ratio at 14% on fully phase-in basis or 15.7% on transitional basis. For the first half, group net profit rose 13% year-on-year to a record SGD 4.19 billion.
Total income grew 11% to SGD 8 billion, underpinned by record non-interest income, which more than compensated for the decline in net interest income. Annualized ROE increased 1.1 percentage points to 13.7%. Moving on to our performance by key business pillars in slide five. We delivered broad-based growth across our banking, wealth management, and insurance franchise in the first half of 2026, as can be seen from the positive variances in all three charts on this slide. Higher fees, trading, and investment income drove stronger banking net profit, which grew 8% year-on-year. Wealth management income reached a new high of SGD 3.29 billion, up 27% year-on-year, and now comprising 41% of the group's total income. All wealth segments and channels delivered growth. Net new money inflows were SGD 6 billion for the second quarter, bringing the first half inflows to SGD 11 billion.
Banking AUM grew 13% year-over-year and 2% Q-on-Q to SGD 350 billion. Profit contribution from GE rose 44% to SGD 794 million, underpinned by strong insurance and investment performance. Total weighted new sales and new business embedded value grew 15% and 28% year-over-year respectively, led by strong sales from Singapore across agency as well as banca channels. NBEV margin improved to 49.8% from 44.7% a year ago as GE continued to progress well in shifting to higher margin products. Moving on to our group performance trends. I will start with net interest income on slide eight. Second quarter 2026 NII was SGD 2.26 billion, down 1% year-over-year and up 2% Q-on-Q, despite a lower SORA environment.
As shown in the chart on the bottom left, the Q-on-Q increase in net interest income was driven by asset growth across both commercial and non-commercial books, which more than compensated for lower loan use and higher wholesale funding costs. Average assets grew 5% Q-on-Q, driven by loan growth and a 5% or SGD 10 billion increase in average balances of high-quality treasury assets. Moving to the chart on the bottom right, 2Q NIM declined 6 basis point Q-on-Q to 1.70%, reflecting compression in loan use and higher wholesale funding costs. During the quarter, we increased wholesale funding to support our strong 5% Q-on-Q loan growth and our continued investments in high-quality treasury assets, which are NII accretive. These assets remain an important lever in helping us to sustain net interest income in a declining interest rate environment.
Excluding the growth of non-commercial book, the overall decline in NIM would have been 3 basis point Q-on-Q instead of 6 basis point Q-on-Q. Looking ahead, we expect NCA or treasury markets asset growth in second half to be significantly lower compared to first half as we continue to balance our NCA growth against commercial lending opportunities and capital deployment. We expect NIM to stabilize in second half on expectations of a gradual strengthening of SORA towards year-end. NII sensitivity based on 1 basis point increase in rates across the whole book was around SGD 6 million on an annualized basis. Moving on to non-interest income. Our non-interest income reached new highs for both the second quarter and the first half.
For the first half, non-interest income rose 36% year-over-year to SGD 3.51 billion, lifted by strong double-digit growth across fees, trading and investment, and insurance income. Non-interest income now accounts for 44% of our total income. For the second quarter, non-interest income rose 51% year-over-year and 19% Q-on-Q, driven by higher wealth management fees, trading, and investment income. I will cover more details of our fees, trading, and investment income in the next two slides. Our second quarter fees crossed SGD 700 million for the first time, lifting our first-half fee income to a record SGD 1.41 billion. Growth was broad-based, led by wealth management alongside loans and trade-related, as well as investment banking fees. In the first half, wealth management fees grew 39% year-on-year, supported by a larger AUM base and increased customer activity.
Wealth management fees accounted for more than 60% of our total fee income. Invested AUM improved Q -on -Q to 62%. Growth was broad based across all wealth product channels, including bancassurance, private banking, treasury products, unit trust, structured deposits, as well as brokerage. Our first half trading and investment income rose 46% year -on -year to SGD 1.13 billion, driven by record customer flow income. First half customer flow income increased 47% year -on -year, supported by both wealth-related activity and corporate hedging, including continued demand for precious metals, foreign exchange, and structured products. Second quarter customer flow income was up 60% year-on-year across all wealth and corporate segments. Non-customer flow income also increased significantly, mainly from Great Eastern's investment income following the recovery in equity markets post our first quarter 2026 results. Moving on to operating expenses.
We continue to maintain cost discipline while investing strategically to support business growth and our Next Frontier Strategy. First half operating expenses were SGD 3.08 billion, up 10% year-on-year, mainly due to higher performance-related remuneration and incentives and continued investment in technology to support business growth. First half cost-to-income ratio improved year-on-year to 38.5%. Second quarter cost-income ratio also improved year-on-year and Q -on -Q to 37.8%. Customer loans grew 5% Q -on -Q or SGD 17 billion to SGD 364 billion. Our year-on-year loans were up 11% or SGD 29 billion on constant currency basis. Loan growth was broad based across corporate and consumer loans. Year-on-year, our corporate loan growth was led by the TMT and digital infrastructure, energy, power, and utilities, and transport sectors.
By geography, growth was driven by Singapore and Malaysia, as well as our international markets, including the U.K., U.S., and Australia. We continued to see strong momentum in the areas of our strategic focus, including Singapore residential mortgages, wealth financing, TMT and digital infrastructure, as well as sustainable financing. Our sustainable financing loans rose 12% year-on-year to SGD 60 billion, accounting for 16% of total group loans.
Moving on to portfolio quality. Overall, our loan portfolio quality remains sound. NPL ratio was 0.9%, unchanged since June 2024. Second quarter NPAs were SGD 3.13 billion, relatively unchanged Q -on -Q. During the quarter, new corporate NPA formation mainly arose from the downgrade of two Greater China corporate real estate accounts that were previously under special mention and were proactively managed. New NPAs formation was partly compensated by net recoveries, which were mostly from Greater China CRE upgrades as well as write-offs.
Total allowances for the first half increased 14% to SGD 372 million. Total credit costs were unchanged year-on-year at 18 basis points on an annualized basis. For the second quarter, total allowances were SGD 156 million, down 28% Q -on -Q and up 36% year-on-year. Total credit costs were at 14 basis points on an annualized basis. Now, our second quarter allowances for impaired assets were largely from the two accounts I mentioned earlier. Non-impaired allowances included ECL from changes in credit risk grades, as well as management overlays for macroeconomic uncertainties in Indonesia. These are partly offset by transfers to allowances for impaired assets relating to the two accounts I mentioned earlier. Our total NPA coverage ratio was unchanged Q -on -Q at 163% and was 7 percentage points higher compared to a year ago.
Performing loans coverage ratio was lower Q-on-Q at 0.8%, mainly due to our enlarged loan base. Our coverage levels position us well to navigate uncertainties. Moving on to deposits. Customer deposits grew 13% year-on-year to SGD 459 billion, driven by 12% growth in CASA deposits from both wholesale and consumer segments. Against last quarter, deposits were up 3% and group loans to deposit ratio was higher at 78.4%. Our diversified deposit base supports balance sheet resilience and flexibility in supporting loan growth. Our funding base remains diversified with close to 80% from customer deposits. All liquidity and funding ratios remain well above regulatory requirements. Moving on to capital. Transitional CET1 was 15.7% and fully phased in CET1 was 14.0%.
The Q-on-Q decline in CET1 ratio reflected the payment of our full year 2025 final and special dividends, as well as growth in RWA, which offset profit accretion. Our target operating level of 14% for Group CET1 Capital Adequacy Ratio on a fully phased in basis remains unchanged. Our board declared an interim dividend of SGD 0.47, up SGD 0.06 or 15% year-on-year. This is in line with our target 50% ordinary dividend payout ratio. We remain committed to complete the remaining SGD 2.5 billion capital return plan by FY 2026. With this, I end my presentation. Thank you very much for your attention. I will now hand the floor over to Teck Long. Teck Long, please.
Thank you, Chin Yee. A very good morning to all of you, and thank you for joining us this morning. As I listened to Chin Yee's presentation, I realized that our profit and growth is quite easy to remember. We make SGD 2.22 billion of profit this quarter, Q2, and at a 22% growth rate. Overall, we have delivered a very strong set of financials, with income and profit at a record high. We saw broad-based growth across all business lines as our Next Frontier Strategy continued to gain momentum and deliver results. Some key highlights. Year-to-date loan growth was strong at 7%. Under our whole wealth strategy, our wealth business continues to gain momentum, achieving 39% year-on-year increase in wealth management fee for first half 2026. For trading income, we differentiate customer flow trading income and non-customer flow trading income.
For customer flow, we did very well, with income increased 47% year-on-year, underpinned by both wealth and corporate segments. Trading income not related to customer flow also increased by more than SGD 200 million during the quarter. This is largely attributed to recovery in investment held by Great Eastern, in line with the rebound of the equity markets last quarter. Asset quality remained resilient with stable NPL ratio. ROE improved to 13.7% despite mean compression. We are declaring interim dividends of SGD 0.47, up SGD 0.06, in line with our 50% payout dividend policy. Next. Looking ahead, a lot will depend on how the energy crisis triggered by the U.S.-Iran war pan out. We continue to see K-shaped economic growth across major economies, U.S., China, Indonesia, and to some extent, Singapore.
Our pipeline for loan remains robust, anchored on growth industries, but probably will not grow at the same rate as second quarter 2026, simply because second quarter 2026 was really outstanding in terms of loan growth. Equity markets continue to be volatile. We saw a slight moderation of customer investment activity in July, given the cautious market sentiment. Notwithstanding this, we are pleased that our customer acquisition remains healthy, and we still see good flows. Long-term demand for wealth solutions continues to be strong. Management guidance. Given the strong first-half loan growth, we are raising our full-year loan growth guidance to the high single digit, low double digit range. Full-year income is expected to grow year-on-year with a slight decline in net interest income. Cost-to-income ratio is guided at low 40% range. Credit costs remain benign at 18 basis points for first-half 2026.
Full year is likely to be at the lower end of our earlier guidance of 20- 25 basis points. Our capital position remains strong, and we will complete the remaining of our SGD 2.5 billion capital return plan by FY 2026. All in all, we had a very busy second quarter. I thought I'd take a moment to do a very quick recap. Highlights in the second quarter, we announced acquisition of HSBC Indonesia's wealth business. We launched OCBC WoW Avatar Banking, which is the first AI native app in Southeast Asia. We minted GOLDX coin on the back of LionGlobal Singapore Physical Gold Fund. We launched Gen AI-powered skills training for our wealth advisors. Of course, we recently announced HELIOS, but that's in July. My personal favorite is this. Okay. I shall hand it back to [Chin Chin].
With that, let's move into our Q&A. All right. [Uber], you want to start if you want?
Let's go to Nick.
Hi. Thank you very much. Let me be the first to congratulate you on a very strong set of results. It's a good performance. In terms of loan growth, I just wonder if you could talk going forward. It's obviously a very good loan growth number, 5% Q -on -Q. You've raised low double digit is quite an eye attention-grabbing sort of number for full year. I wonder if you could talk about how you're thinking over the next two to three years, and in particular, where a big sort of industrial change is taking place and lots of demand for financing. I wonder if you could talk about that, where you expect the loan growth to come from, and then if you could put that in the context of a 14% CET1 ratio fully phased in, which is obviously sort of at your target range.
If you could maybe help us think about how you're balancing RWA growth, how you're thinking about CET1 target, what are the levers you can pull?
Okay. I'm going to do further crystal ball gazing since the question is about the next few years as opposed to the next six months. I want to bring us back to February. In February, when we launched our Next Frontier Strategy, we were actually very aware of a very complex operating environment. I personally refer to it subsequently, in subsequent speeches I make, as a VUCAK environment, volatile, uncertain, complex, ambiguous, and K-shaped economic growth. This is the environment which we are operating in. When we came up with the Next Frontier Strategy, we are hugely aware of this. We decided on a couple of things. First, let's identify the growth industries and be really very focused. If you look carefully at our Next Frontier Strategy, we talk about four strategic shifts.
The first three, first, a right Asia shift, which is about rising Asia, inbound investments into Asia, rejigging supply chain. Two, tech shift, which is about financing the tech supply chain, including data centers, equipment for the data, equipment manufacturer, et cetera. Third, sustainable finance. Our North Star is trying to make a difference to the environment, financing industries like renewable energy, which makes a difference to the environment, supporting SMEs in their green transition. All this has come up very well for us. In terms of outlook, I think this trend will continue and this will anchor our loan growth. This is what we have been seeing in the past few years as well. That is your first question. The second is relating to our loan growth. Loan growth in the second quarter is exceptional, partly because of some M&A transactions which we are backing.
We do not really expect that exceptional growth rate to continue in the third and fourth quarter. It does not mean that in fourth quarter it is weak, it is just relative to the second quarter, we will be at a slower pace than the second quarter. Now, we have been focusing on ROE. Our ROE is higher, our profit accretion will be higher. We will continue to focus on ROE. Our target operating CET1 CAR will be around 14%, give or take. I hope that answers your question.
We have Chanyaporn Chanjaroen.
Hi, Chanyaporn Chanjaroen from Bloomberg. Congrats on the numbers and share price exceeding SGD 30. I have two questions. With the stocks and many record numbers that you have, what is your thought on gravity rules? Do you [audio distortion] gravity rules. What goes up may come down one day. Yeah, do you see that as a headwind going forward? Second question, any thought on area of growth that you want to see? You already did HSBC in Indonesia. Do you see more coming in the years to come?
Well, you are asking very difficult questions. Firstly, I think the stock price is what it is. We appreciate the confidence investors have with the OCBC team and our delivery in accordance with our strategy. We focus really on building our franchise and executing our strategy, we just let the share price be dictated by how investors view us. Whether it will come down or not, I think there are many experts here we can ask. On the second question on acquisition, I am always looking at acquisition. We are very disciplined with acquisition. I have mentioned before that we exercise a lot of discipline. Acquisition targets not suitable for our strategy or something which does not really make a difference to our growth, we will not consider that. We will look at inorganic growth, if that is the question, carefully, but I am not averse to it.
I am happy to actually do an acquisition if the right target come along.
Okay. Let us go to Yong Hong.
Thanks for the opportunity. This is Yong Hong from Citi. Just three questions for me. On your customer related flows, how much was driven by wealth flows versus your corporate flows? On these flows, that is growing faster than your fees. Just wondering some color behind this and the sustainability of this. Secondly, on the Great Eastern driven non-customers related income or the trading income, should we now be expecting this line item to be more volatile depending on the equity markets condition? Finally, on the wealth management income, is there a bigger shift towards Hong Kong customers or is Hong Kong related AUM growing faster than other regions that is driving better monetization of your AUM through fees income? These are all my three questions. Thank you.
For the first question, I will trouble Ken to take the question.
Yeah. Hi. Thank you for the question. From the customer income, we're actually seeing a very good diversification in terms of all across customer segments. Obviously, the growth in our wealth income is the highest, we're also seeing very strong growth in terms of our corporate customer base as well as our institutional customer base. Yeah.
Maybe any commentaries on how sustainable this can grow because it's the line item in your fees income, non-interest income that's growing the fastest.
Yeah. We're actually quite confident in terms of this income being sustainable going forward. Reason being, we have a very good product diversification and also in terms of regional and geographical diversification.
Maybe I can supplement. Generally, the nature of the business in the wealth income, it follows the momentum of the wealth business and may be dependent on market sentiment. For the corporate side of the customer flows for trading income, is also an annual decline income, but we may see some ups and down in certain quarters depending on the size of the deal. We do a lot of interest rate swaps, FX for transactions. The second question relates to the Great Eastern contribution, the non-customer flow trading income. Greg, do you want to take this or?
Yeah. I think you were talking about volatility and whether we can predict volatility. Obviously, you saw the swing between the first quarter and obviously the first half. This has been a particularly volatile year. The first quarter was impacted obviously by the events in the Middle East predominantly, impacting markets. The market is going to continue, I think, to be volatile through the second half. You can already see that between what was June and July, and we'll have to see how the rest of the year plays out. Obviously, our investment strategy is one of diversification, though, so we continue to diversify our investments to try and smooth that volatility.
I think you also need to look at the insurance results as well, and if you look at the underlying insurance results, they're solid, and we've got confidence that those are going to be sustained going forward.
Yeah, I want to add that the nature of the insurance company is very different from the bank. When we say refer to non-customer trading income, in the bank it's market-facing trading income. For Great Eastern, because they maintain a portfolio, so it depends on the investment performance of portfolio, which you can actually have a sense based on the market, how the market perform in general. Okay, the third question, wealth management. Any volunteers? Or I take it.
Maybe if I could just add. I think our Hong Kong business is doing very well. We continue to invest in our Hong Kong. We are also adding more RMs, and we also see productivity in RM going up. If you could see, I think we already unveiled a new branch with official opening to be in September. I'll invite you all to go there if you're around. I think it is in our collaboration with Ocean Chung is proving to be a hit. We see acquisitions of new customers going up in that branch in particular. I think we are looking to add more wealth branches in Hong Kong as well. I think overall, we are very optimistic about our prospects in Hong Kong.
I think Hong Kong has a lot of legs to run. It's part of our twin hub strategy under the Next Frontier Strategy.
Let's go to Jayden.
Thank you very much. Just on Hong Kong and some of the regulatory changes that we're seeing out of China. Obviously, it's been a great story for you, and one of the drivers of growth, but did these regulatory changes have any impact on the way you operate or your clients' demand? Will it have any effect on the trajectory of fees, which have been very, very positive? Just wanted to ask on this. Thank you.
Since almost all of us have spoken except Jason, I volunteer Jason then.
Sure. Thank you very much for the question. It's still early days since the news has come out. We have a lot of controls and processes in place to comply with these rules. We're currently in the process of contacting our clients. We haven't seen any significant asset flows since the news has come out, although we are right now in the process of contacting our clients. What's quite interesting is that while some clients have, of course, expressed concerns and want more clarification on what these rules mean, we have quite a number of clients who have expressed, I won't say gratitude, but they're actually quite happy, and they welcome the clarity that the Chinese authorities have shown going down this direction. We've got a good balance of clients who've expressed that.
Again, still early days, but we'll continue watching this space and see how this continues to affect our business.
[Altra] from Reuters.
Thank you. Yes, just want to ask OCBC if there's any overnight there's this big Bloomberg story about iron ore trader Radiant World. Just want to ask about if OCBC has any exposure relationship with this company. Thank you.
I first come across this name in the Bloomberg. No, we don't have exposure to the company.
Let's go to Melissa.
Thank you for taking my questions. Just the first question, you have done really well in every line that we've seen. ROEs as well has hit a nice high. Maybe can you talk a little bit about your aspirational ROEs from here and how we can see that move higher? Maybe secondly, in terms of your Great Eastern, that has actually pulled itself up very well as well, and you've mentioned the change in terms of product and also in margins. Maybe we can get a bit of color of what else are we expecting from here, from Great Eastern. How well are you working together with the team here in Bank of Singapore?
Maybe also if you can comment a little bit, I'm not sure about the tax rules that has come out on China on insurance and how do you think that may impact sentiment? Thank you.
I'm not ready to reveal the ROE. In the Next Frontier Strategy, which was launched six months ago, we said we'll focus on that. If you can see, our ROE is going up quite quickly, so we hope to maintain that. As to what is the aspirational ROE, I'm not quite ready to share because there are so many factors involved in that. On your next two question, I'll pass it to the subject matter expert, Greg.
I think the first part was do we work well together? I think the answer is a resounding yes. We have a whole of wealth strategy. Great Eastern plays an implicit part in that. When we think about wealth, it is really whole of wealth, including insurance. I think if you look at the bank insurance performance, particularly in Singapore, that has improved fairly dramatically over the last 12 months. That is basically down to the collaboration between the Great Eastern team and the OCBC team, and changes that we've made to the operating model. Obviously, we will continue to optimize that operating model. There's a lot more value upside that we believe within bank insurance. Beyond bank insurance, within Great Eastern, what I'm hoping you're seeing is that we are delivering new products to market. We're launching new propositions.
We launched high net worth in March, so this was Great Eastern Private. We've seen very good traction from following that launch, and we've got more propositions coming. We are now investing in the technology that we're using within the business as well, and that's technology that we will deploy here in Singapore, but also deploy across our other businesses as well, particularly Malaysia. There's a lot happening within GE, we're confident that the momentum in the business can be maintained. We can update you more as new things come to market.
Greg, there's a third question on the tax relating to insurance company on the China front.
Which one was that? Tax, did you say?
Yes, tax.
Was this the CRS point? I don't think there's anything new there. I think this is adoption of CRS by China. I don't think there's any new news in that regard, and it doesn't affect us.
Under the whole wealth strategy, we are moving things very quickly. The Hewton Fair Suite, which is the high net worth value proposition by Great Eastern, is in close collaboration with Bank of Singapore, who understand high net worth very well. On the OCBC Bank partnership with Great Eastern, the two teams has collaborated very closely to redesign the end-to-end process to bring more value to the customers and to speed up the way we onboard customers. We are redesigning that end to end at the moment.
Just one thing. I should have probably added actually that we just recently announced within Great Eastern Financial Advisers that we are now offering not just insurance solutions, but also more sophisticated wealth solutions, equity structured products, and those are effectively executed through Bank of Singapore in a embedded asset manager arrangement that we have with them. We're looking at making sure that, again, Great Eastern can obviously bring insurance solutions, but also wealth solutions beyond that, leveraging the other parts of the group.
Just to follow up on Great Eastern and also Hong Kong side. Since OCBC Wealth is also expanding in Hong Kong personally, Greg, are you going to introduce any insurance products in Hong Kong? What's your thought?
Yeah. It's an interesting market, we're taking a good look at the opportunity in that market, yeah.
You will, you are not doing that.
Sorry?
Are you considering that now?
We might be considering it, yeah.
You might.
All right. Yes. Go back to Nick first.
Can I just have one follow-up on the China rules? How big is your trust business? Is it a big part of Bank of Singapore, or are you able to quantify it by how much assets under management you have under trust?
Thanks. Actually, we don't reveal the assets under management for our trust business. It is a part of our total AUM, but it's not a significant portion of revenue for us. It's part of our value proposition to our clients, but we don't reveal those numbers. We are, as mentioned before, we're watching this, we're contacting clients as we speak, and we'll see how this continues to pan out.
Just to add, obviously, this is a very vague metric, but your peers have quantified it as very small or small. Would that be a fair description for you as well?
As we are going down the path of vagueness, I would continue to reiterate that it's in the small category.
[Wai Fei]?
Hello. Hi. [Wai Fei] from HSBC. Thanks for the opportunity. I have three questions. Firstly, going back to CET1 ratio. Just wondering, your target 14%, how sustainable is that, given your strong loan growth ambition and also you are still looking at potential M&A. Both of that consume capital. Wondering your thoughts on that and whether you'll be looking at monetizing your legacy real estate book, since you have quite a bit of untapped equity there, or is equity raising something that you'll be looking at, if a potential M&A comes up. My second question is on Great Eastern Private. How has it done since the launch in March? Are you able to share any numbers? Has it gone according to your expectation, above, below? Some color there would be great.
Thirdly, do you have any targets for VNB growth as Great Eastern kind of realizes synergies with the broader group and taps the wider WM customer pool? Thank you.
Let me address in reverse order. No, we are not anticipating any equity raising. We are actually very comfortable operating at CET1 CAR at around 14%. There are other techniques we can use in terms of balance sheet optimization if we choose to. We haven't even reached there yet. I'm pretty comfortable with that. On Great Eastern. Maybe Greg can give an update on the Great Eastern high net worth-
Yeah.
Strategy. Yeah.
Yeah, you're right. It launched in March. I can't give specific numbers. All I can tell you is that we've seen exponential growth in terms of TWNS and NBEV coming from that proposition. That proposition is fed through both our agency, so we have agency force, and our financial reps, introducing clients into that business. We also have OCBC, obviously, and now we have a direct referral model as well with Bank of Singapore. This is a part of our business that's continuing to grow significantly, and it's growing actually probably just ahead of our expectations actually in these early phases. Positive on it. I think the feedback we've had from clients who have actually experienced the proposition itself has been very, very positive.
If you get the opportunity and you've got SGD 1 million to invest, you can go to the Hewton Fair Suite, in the morning. If you need to be underwritten, we can underwrite you by the afternoon because we can get the medical done there and then, and the results are out the same day. It's a very efficient service, which is what high net worth clients are looking for, and it's a very pleasant place to experience. We've got a good sort of range of products now, and we've got some new products coming soon that we will supplement that offering with. I didn't catch the last point, though, on the targets. You mentioned something about targets.
A VNB growth target. Do you have any VNB growth target?
No, I can't tell you.
Value of new business. Okay. That's fine. Okay. Sorry, just one follow-up. Sorry to harp on this CET1 ratio. Given that we are already at 14%, do you expect quarters where we could see that going below 14%? If that happens, what are the implications? I'm aware of the credit rating implication, but I'm just wondering whether there are any other.
Yeah. We target operating at around 14%. There could be times slightly below, slightly higher. It all depends on the type of loans we do in that quarter. Having said that, to rebalance it's not a issue because we have balance sheet management technique. I think that's as much as I can share today. The balance sheet technique can range from, of course, techniques like, I just happened to mention about some sorts of prioritization. I don't think at this juncture we need to even go there because we have enough optimization, which we can do within the current balance sheet. It is a position which I like to be in, where I can actually decide on many things on the balance sheet optimization, and the more we optimize, the higher the ROE.
Great. This is [Aakash] from UBS. Thanks for taking my questions. The first question I have is just, again, back on the cross-border rules, and two specific questions related to that. First is, I think you have said in the past that as a percentage of flows to the wealth management business, net new money flows, less than a third comes from Chinese investors. I was wondering, is it fair to assume that majority of that cohort is offshore Chinese investors and not mainland Chinese? If you could comment on that. The second question is just overall, I know there's a lot of uncertainty and we need a lot more clarity on that, but it's fair to say that the whole Hong Kong-China corridor is becoming a lot more complex and a lot more uncertain now.
In that sort of environment, do you see Bank of Singapore as a net beneficiary of this uncertainty, or you wouldn't say that? Not just Bank of Singapore, I mean, in general, the Singapore wealth management industry. This is the first set of questions. The second one is simply a very quick question. I just want to understand the rationale for raising the wholesale funding that you said led to a decline in net interest margin this quarter when the loan to deposit issue is still very comfortable. Is this something we should expect going forward as well?
Maybe I ask Jason to start before I chime in.
Sure. Two things. One is we deal with offshore. We don't market onshore in China. For obvious reasons, we're an offshore bank, so we can only deal with clients on an offshore basis. I can't comment on your mainland. We do have an OCBC onshore private banking , but that only deals with onshore wealth. We have Bank of Singapore operates offshore, so we do not mix those two, if that makes any sense. The second is, for sure we're going to be entering a period of complexity. I don't think I would say that we're going to be a net beneficiary or Singapore is going to be a net beneficiary of it, but we will have to see how this continues to pan out, because I think the whole market and the whole street is still watching this space as it unfolds.
It will affect all banks at that point in time. I wouldn't say that we will definitely benefit or not benefit from that.
I would supplement that. We are very strict with our compliance of cross-border marketing. Our bankers don't go to China and market, which is one issue which the Chinese is enforcing. We don't belong to that category. The second thing I want to supplement is this. In Hong Kong, we have just started, we are refreshing our value proposition for Premier PPC, and of course, Bank of Singapore has been there for a while. What we have seen is that the momentum continue to be strong. There's still a lot of offshore money there for us to actually grow.
There was a second question on the wholesale funding rationale.
All right. The growth in wholesale funding started off in first quarter. Really there was sort of preemptive raising of liquidity ahead of the Middle East crisis, post 28th of Feb. In second quarter, we continued with that because of the very exceptional loan growth that we discussed earlier, is 5% Q -on -Q. This is really balancing out the need in terms of commercial lending with our continued strategy then in first half of investing in treasury markets, non-commercial assets. For treasury markets, non-commercial assets, that is really one of the tool to enable us to keep our NII resilient in light of the continued drop in rates. As we can see, even in second quarter, rates still continue to fall. That strategy has in fact enabled us to be able to sustain our NII to grow Q -on -Q by 2%.
Going forward, as I mentioned earlier, we will be looking at balancing out the investment in treasury markets assets with the opportunities for commercial lending, as well as capital deployment. That could probably slow down in the second half, in tandem of which the wholesale funding needs will also decline in that sense.
[Sukriti]?
Hi. Thank you, management. This is [Sukriti] from Bank of America. A couple of questions. First, on wealth growth, congratulations on back-to-back strong growth on wealth. Just wanted to understand some of the key drivers that you're seeing. Net new money growth continues to look strong at SGD 5 billion-SGD 6 billion, quarter-on-quarter. Do you expect this momentum to sustain? What would be some of the other drivers. Also if you could share what are some of the key markets that are looking most attractive for you right now? Where are the flows coming in from? Do you have any target AUM over the next few years that you're looking at reaching?
Secondly, just wanted to understand a quick update on the FY 2026 capital return that you mentioned, the outlook given where the stock prices are still that if the SGD 700 million, SGD 800 million that's left in share buyback, that would be returned as special dividend at the end of FY 2025.
For the AUM, we target double-digit growth over the next few years. As to the momentum, I'll pass it to Jason.
Suddenly I went from not answering any questions to answering a lot of them. Net new money for us, as you had mentioned, has remained strong across the group. A lot of that has come from the ASEAN space. We continue to see good, strong momentum. More importantly, I think the pipeline looks just as interesting and just as exciting. We feel quite confident about how the rest of the year is going to pan out in terms of net new money. Hopefully that answers that question.
Can I quickly follow up? Any outlook you can give on exit NIM, or what was that maybe July exit, what was the figure for us?
Yeah. Our June exit NIM is 1.67%.
On the capital return, the FY 2026 dividend.
Yeah, we still have the region of about SGD 800 million. Part of our capital return plan, which we already mentioned that, if there's no share buyback for cancellation, we will return in the form of special dividend, in conjunction with our final FY 2026 dividend payout. Working out, SGD 800 million, that will translate to SGD 0.18.
Back to Melissa.
Maybe just one follow-up question lastly. In terms of asset quality, I think you have done pretty okay, but I think in this quarter you put a provision for Indonesia, that your Indonesian peers don't seem to have that kind of need for additional provisions. I just wondered, what's the difference that you are seeing in Indo on your book?
Yeah. Our provisions is relating to non-impaired loans. For non-impaired loans, sometimes we look at customers, there's some movement, but it's not a lot. There is also not a lot for this quarter. Our credit quality remains very sound for our Indonesian portfolio. The other point I want to make is that our model take into account our views on the overall risk of a particular marketplace, and we will do some overlays and what have you. In general, it's just a very normal movement of overlays.
Let's go to [Rae-Yin].
Great. A very nice increase in contribution from associates there. Can we share if this is mainly Ningbo and whether there's opportunity to increase further stake in Ningbo at this moment? How can we extract more value out of the investment?
I think Bank of Ningbo has been delivering more. The contribution by associates, a very large part is Bank of Ningbo. We like what we see. Bank of Ningbo is still delivering very good returns to us, so we intend to continue to stay invested in Bank of Ningbo. Now, whether we should increase the stake in Bank of Ningbo is something which we have not decided. It's always been in the picture as part of overall planning, but no particular plan at the moment.
Any other questions from analysts or media?
Okay. Vivien Shiao from The Business Times.
Hi. OCBC has spoken quite a bit on AI. Has AI become a meaningful growth driver for the bank, and if yes, is this showing up in your income?
AI is meaningful for us, definitely. We have launched some AI initiatives with some income implication. We have been using AI along with our data analytics to actually identify the customers and market. In that sense, yes. The way we think of AI is not in isolation. In fact, if you look carefully, we don't really have an AI strategy per se in isolation. What we have is an AI-DD strategy. Now, AI-DD strategy means that we want to focus on redesigning process, digitize them, and then intensify the use of data analytics. For AI, where it makes sense to us, where it's fit for purpose, meaning the cost is low enough, then we'll adopt it. We think of it holistically. Because our approach, we also don't spend unnecessary resource to quantify which part is due to AI and which part is not due to AI.
It's too difficult. We would rather take our energy and go and develop something like avatar banking in double quick time. Introduce gen AI skills training module for wealth RM to reduce costs as well as increase user experience because the bankers can access the AI training 24/7 at their own leisure. I think this is how we think about it. It's quite difficult to identify exactly how much is due to AI. By the way, when it comes to AI, actually, we are very cost conscious. The AI requires us to burn a lot of tokens compared to, say, alternative of not using AI. There are alternatives, simple changing processes, simpler AI and not gen AI. We are not hesitate to go there because we get the bang for buck. In that sense, the way we think about it is a little bit different. Yes.
Yeah. Maybe I could just add on. In April, we have launched this gen AI power sales training program. What we have seen is that our wealth advisor who went through this, we see their productivity is up by almost 50%. The way they fix appointment, the appointment rate is also up by 50%. We don't really take this increase as generic there. I think what it do is it really helps our wealth advisor to be more confident. The benefit you also have is branch manager will probably used to do a role play with the people, right? What it means now effectively is they can all do in the comfort of their home, in an environment where they are comfortable with to practice, right?
I think that is something which is really useful, increase the productivity, and I think that is something that really helps us. We don't really want to attribute all that to just AI. I think that's a combination, but we do see it as a very effective and useful tool to help to improve our productivity.
Okay. [Gula] from The Edge.
Thanks. Thanks for taking my question. [audio distortion] Congratulations on the results of course on the extra SGD 0.18 payout next year. I just want one question that is slightly off, not really associated with the results, but how do you square the increased use of AI with your sustainability targets? Because apparently AI takes up a lot more energy than during the time before AI, there is increased also focus on sustainability in your Next Frontier circle.
AI indeed consumes electricity. That's why our philosophy when it comes to AI is not gen AI. I touched on it just now that if there are simpler AI, we'll use a simpler one, which actually consumes less resources than gen AI everything. I'm not a big fan of gen AI everything. I use AI quite judiciously, you can see the results. By being judicious, interestingly, we are able to launch many more things simply because we are very focused on the value creation more than whether it's AI. You think about ADD, the trade secret is this, it's actually DDA. Digital, digitization, because that helps us redesign process and make it more efficient. We create value there. Intensify the use of data ethics, which historically I find is bang for buck.
AI may be used in the data ethics, but that is a light use of the power generally as in like electricity. AI, we said that fit for purpose, so only we value-add. In a way, if you think about that, if it's fit for purpose means that it has to be better than other alternatives, in which case it's a worthwhile use of the power and therefore sustainability is not an issue from our perspective.
Felicia from The Edge.
Hi, Felicia from The Edge. Thanks for taking my question. Earlier on, Mr. Tan, you've mentioned that you're happy to do an acquisition if the right target comes along. What to you is the right target?
In general, my personal preference is portfolio relating to wealth, like the HSBC wealth acquisition. My preference, or rather I don't have a preference for corporate loan portfolio because we believe that we can grow that portfolio on our own. We are very competitive in terms of gaining market share and growing loans, I don't really need that. The in between we have to assess, generally it tilts towards the retail side of the business, especially wealth. I want to add one more thing. [audio distortion] Although we have shown very good results, actually at the back of mind, we are actually quite risk averse. We balance risk and reward, I would say, so far very well. There's quite a fair bit of risk in the environment.
When it's a loan portfolio, we have to be doubly careful because we don't want to end up with spending our time trying to sort out credit losses. That gives you some context. That you give some a flavor of the current environment as well.
Okay. I think it looks like everyone has all their questions answered. With that, thank you very much and have a good day.
Thank you very much.