Morning, and welcome to UOB's full year 2023 results briefing. I'm Wendy Wan from the Group Strategic Communications team, and I will be your MC for today. This morning, we have Mr. Wee Ee Cheong, UOB's Deputy Chairman and CEO, and Mr. Lee Wai Fai, our CFO, to present the results. A few house rules before we start. Please keep your questions till after the presentations are done. For those in the room with us, please put your mobile phones to silent. For those on Microsoft Teams, please put yourself on mute for now. Without further ado, I will now pass the time to our CEO. Mr. Wee, please.
Okay. Thank you. Good morning. Thank you for joining us today. As you may know, our Chairman Emeritus, Dr. Wee Cho Yaw, passed away recently. Dr. Wee, who is also my father, has spent more than six decades at the bank and was instrumental in driving its growth to be a leading regional bank. His legacy will live on the principles that he has imparted: to do right by our customers and to value relationships for the long term. At UOB, we are humbled and touched by the outpouring of tributes and support, including all of you from the media. Thank you very much for your kind words and gestures. They mean a lot to the UOB team and to my family. Thank you. Now, let's get back to business as usual. Now, let me start off on our financial results, 2023 was a challenging year.
We saw slowing demand globally, more geopolitical tensions, sticky inflation, and higher interest rates. We expect some of this to persist this year, but the impact should be manageable. In Asia, China is undergoing structural changes in its economy. Still, it delivered respectable growth in 2023, and we think there are still opportunities in targeted sectors. Nearer to home, Southeast Asia remains a bright spot, growing faster than the global economy. In this region, domestic demand remains robust. Tourism is recovering well, and the region is still a magnet for manufacturing investments as MNCs diversify their supply chains. At UOB, our balance sheet remains strong. Our multi-year investments in our capabilities will position us well in this environment. In 2023, our enlarged scale and strength in the region have enabled us to deliver a robust set of results.
Our core net profit grew 26% to a new high of SGD 6.1 billion. In 2022, it was SGD 4.8 billion. This was fueled by strong income growth, which shows the power of our diversified business franchise. Net interest income grew 16%, lifted by strong margin expansion of 23 basis points, while loans grew 2% in constant currency terms. Net fee income was up 4%, led by credit cards and wealth management. Trading and investment income more than doubled, supported by strong customer demand for hedging activities and positive market sentiment. Expenses remain well controlled. Our cost-to-income ratio improved. Asset quality is healthy, with NPL ratio lowered at 1.5%. Our overall loan portfolio remains sound, with healthy provision buffers. Total credit costs at the low end of our guidance at 25 basis points.
Our balance sheets remain strong, with robust CET1 and liquidity ratios. As a prudent long-term player, we focus on sustainable overall returns. We know that liquidity comes at a cost, but we prioritize the strategic flexibility that comes with it and the positive impact to our total income. With this set of resilient results, the board has recommended a final dividend of SGD 0.85 per ordinary share, bringing our full year dividend to SGD 1.70 per share, and this represents a payout ratio of around 50%. Now, let me share some business highlights. Group retail businesses. Our retail franchise performed well across the board... positioning us well to be the bank of choice for aspiring individuals in the region. Card fee income continued to grow strongly in the fourth quarter, up 21% from the third quarter to a record SGD 125 million.
For the full year, card fee increased 66%, a reflection of our expanded regional franchise. It is also a good indication that consumers are spending, a trend that should continue this year. Amid cautious investor sentiments, wealth management income rose 13%, supported by our growing bancassurance market shares and a pickup in demand for fixed income products. Net new money continued to grow, bringing the total AUM to SGD 176 billion. This year, our focus is to encourage customers to shift their funds towards wealth management products as their fixed deposits mature. Our Citi integration is on track. We have successfully integrated our portfolios in Malaysia and Indonesia. By the second quarter, we would have integrated the Thailand portfolio. Our strategy now is to focus on cross-sell synergies, and we aim to uplift customer spend and strengthen deposit balances and investments.
We continue to leverage data, tech, and our human expertise to create a personalized banking experience for our customers. Our digital bank, UOB TMRW, has allowed us to deepen engagement with customers across the region. We will continue to develop new capabilities to enhance their experiences, and customers can expect more digital offerings this year. Our wholesale banking business delivered a strong set of results. We continue to build our customer franchise and diversify growth engines while playing to our strength in connectivity. Cross-border income grew 9% year-on-year, accounting for 25% of total wholesale income. Transaction banking income is now more than half of total wholesale banking income. Customer-related trading and investment income is up 9%. The credit growth outlook remains soft for the first half of this year, but we will continue to focus on quality clients.
Our multi-year investments have boosted our capacity to grow and to seize opportunities from the supply chain shift. Our ambition is to be the number one cross-border trade bank in ASEAN. We differentiate ourselves by our strong connectivity and deep sector expertise in seven key areas that drive about 70% of Greater China and ASEAN FDI and trade flows. We see encouraging signs of activity in the region. For example, we welcome the recent announcement on the Johor Special Economic Zone. This will benefit companies across all sectors in Singapore and Malaysia, creating opportunities for the entire supply chain. With our strong regional network and enhanced platform capabilities, I believe UOB is well-positioned to support our clients to capture these opportunities. Now, sustainability. As at the end of last year, we have extended SGD 44.5 billion in sustainable financing.
We see more sustainable finance adoption, from green buildings to sector-wide economic activities. Sustainable trade finance has also started to gain traction. We continue to support clients in their decarbonization efforts. We are making steady progress on our net zero commitment. The emission pathways for all our priority sectors are trading well. On the CSR front, we continue to step up community efforts through our Heartbeat programs. We also recently extended our partnership with National Gallery Singapore to promote Southeast Asian art. UOB is well-positioned to benefit from ASEAN's strategic role in global supply chains and its rising middle income. Everyone can talk about connectivity, but without an effective operating infrastructure, it will be difficult. We have gone through that journey in the last 8 years. We have spent SGD 800 million to build capabilities, regional payments, trade, and cash platform, which are now powering our connectivity business.
Since 2011, long before the China Plus One strategy, we have put in place one-stop foreign direct investment advisory services to support businesses navigating the diverse ASEAN landscape. We are seeing early indication of this connectivity and other opportunities in our recent results. With our enlarged customer franchise, retail customer franchise, and ASEAN benefiting from increased activities in transition, finance, trade, and FDI flow, we see an improving outlook for 2024. Now, for this year, our guidance is low single-digit loan growth with a focus on high-quality customers. Double-digit fee growth led by retail franchise in cards and wealth. Total income to be positive from 2023 levels. Core cost to income ratio at around 41%-42% on cost discipline, with one-time Citi integration cost to roll off substantially by second half. Total credit costs at lower end of 25-30 basis points.
Investing across our franchise remains a key priority, so that we deliver stable and balanced growth through market cycles, and this include investing in our people. This year, we will provide our junior employees, some 6,000 of them, groupwide an extra one-month bonus on a one-off basis. These colleagues are the most vulnerable group impacted by higher costs of living. We always ensure that our pay and benefits to all employees are fair and market competitive. As part of our philosophy of doing right by our people, I thank my colleagues for their teamwork and dedication, and now I move over to Wai Fai to elaborate on our financials. Thank you.
Thank you, Ee Cheong. Once again, good morning to everyone. Okay, let me give you some colors of our financials. Our full year core profit increased 28% to a record SGD 6.1 billion, with core ROE at 14.2%. Quarter-on-quarter, core net profit sustained at SGD 1.5 billion, including the one-off expenses from the Citi integration. Net profit would be SGD 5.7 billion for the year and SGD 1.4 billion for the quarter. Net interest margin moderated to 2.02% this quarter, as the increase in cost of deposits outpaced the yield on loans, as we remain cautious to support only quality customers. Fee income eased as loans-related fees normalized from the previous quarter high. However, credit card fees, as well as the strong performance from the treasury customer flows, trading, and liquidity management activities.
For the full year, cost-to-income ratio, excluding the one-off expenses, improved to 41.5%, as the broad-based spending was outpaced by the strong income growth. Asset quality remained resilient, with NPL ratios improving to 1.5%. Our credit cost at 25 basis points was within our expectation. Our capital and liquidity position remains strong, with CET1 at 13.4% and NSFR at 120% respectively. Like, my CEO said, our board has proposed a final dividend of SGD 0.85 per share in view of the strong earnings. Let me give you some more colors. Our core franchise performed well. Year-on-year, retail operating profit increased on an enlarged franchise, with record credit card fees and higher interest rates.
Wholesale also saw growth from last year, driven by margin expansion and record investment banking fees, which cushioned the softer credit demand. Global market was impacted by the steeper funding costs, which more than offset the higher returns that we got from commodity tradings and liquidity management. For the consumer side, the entire Citi acquisition has been successfully completed in all four ASEAN countries. I'm talking about the legal integration. For Malaysia and Indonesia, we have operationally integrated them, and like Wee Ee Cheong said, we will do that by the second quarter for Thailand this year. So by this year, the whole consumer platform will operate on an integrated basis. At the end of last year, our retail customer count has surpassed 8 million, including the integration of the Citi portfolio, which brought in an additional 400,000 customers.
Organically, we acquired close to 1 million New-to-Bank customers during the year, which was 14% higher than the previous year. Our credit card fees surged 2.1% to another record high, driven by contribution from the enlarged portfolio and robust consumer spending throughout the region. Our increased presence has also enabled us to forge strategic partnerships with established brands across the region. This firmly positions us to achieve our ambition of becoming the preferred bank for aspiring ASEAN customers. Overall, our brand performance has also significantly gone up across our key markets, especially in Thailand, Indonesia, and Vietnam. UOB was also ranked among Singapore's strongest brands, within the world's top 500 most valuable brands in the world. The growth in our assets under management continued to be robust.
We saw another SGD 5 billion net new money inflows in the fourth quarter, bringing our assets under management up 14% to SGD 176 billion. Our wholesale business did well, with operating profit up 15% year-on-year. Cross-border income was up 9%. Our strong product suites, resulting from our infrastructure investments over the year, accelerated our reach into the region, putting us in a strong position to capture a larger share of cross-border trade transactions within the ASEAN region. The number of suppliers and distributors within our financial supply chain management grew 43% in 2023. This base is expected to expand following the rollout of our FSCM platform across ASEAN market, only, last year, in 2023. Our cash management platform is also seeing higher digital adoption, with robust growth, transaction volumes, and cashless payment.
As mentioned in my earlier slides, our core engine is strong, as full-year core profit rose 26%, driven by strong net interest income, robust customer fees income, and trading and investment income. Fourth quarter core profit at SGD 1.5 billion is stable from last quarter and 7% higher than a year ago. Let me go through the next few slides in details. Okay, net interest income was relatively unchanged from last quarter. There was pressure on loans margin due to competition for good quality credits, as well as pick up in deposit cost of funding. As you are aware, we have been investing our excess U.S. dollars liquidity into SGS T-bills, which impacted our NIM. In addition, we have been funding our overseas branches with our strong Sing dollars and U.S. dollars deposit base.
The resultant funding cost for us is often cheaper than the domestic interbank wholesale funding. However, the FX swap is reflected in the trading and investment line. If this were included, it would have added another 10 basis point to NIM for the year. We will continue to actively manage our balance sheet so as to ease the cost of funding and selectively lock in opportunities in the long-term assets before the rates come down. Fees income is, as loans and trade-related fees normalize from the last quarter high. However, credit card fees continue its strong momentum to register another new record, boosted by the year-end holiday spending on an enlarged regional base. Wealth fees also recovered as the market outlook becomes clearer. Customer-related treasury income sustained its momentum with a slight decrease in the seasonal demand for in the customer hedging activities.
Trading and investment management activities continued to do well. Full-year core expenses rose 15% to SGD 5.8 billion. The broad-based growth was outpaced by the income growth, and cost-to-income ratio improved to 41.5%. Staff costs rose 17%, mainly due to the integration of Citi. I think even if you look at the UOB standalone, we will also have increased 12%. For this year, we expect the growth to be moderated to keep pace with income growth. We continue to exercise strong discipline in spending. Along with the cost synergies from the Citi integration, we expect the cost income ratio to stabilize at the 41%-42% range. The overall asset quality of our loans portfolio remain resilient, and NPL ratios declined to 1.5% for the quarter.
New NPA formation is within expectation, but with the higher recoveries and write-off, total NPA reduced to SGD 4.9 billion this quarter. Credit costs remain manageable. Our prudent approach in recognizing more of the specific allowance in the earlier quarters, cushion us from the continued worry about certain sector in the economy. The full year credit cost of 105 basis point was within our expectation as per our earlier guidance. As at December 2023, group total allowance stood at SGD 5 billion, of which SGD 3 billion was in general provision. Total NPA coverage is sound at 102%, and 209% after taking collateral into account. We are confident we have sufficient reserve buffers to absorb potential losses from our credit portfolio.
Core operating profit for the full year increased 24%, with growth seen across most markets. The ASEAN Four franchise was boosted by the inclusion of Citi, recording an overall 25% growth for the year. North Asia and the rest of the world registered higher trading and investment income. Loans momentum continued to be muted due to the uncertain macro environment. However, on a constant currency basis, loans grew 1% for the quarter, and 2% for the year. In view of the uncertainties ahead, we maintain our focus on short-term and good quality credits. Customer deposits rose steadily by 1% quarter-on-quarter, and 5% year-on-year. CASA to total deposit improved to 48.9%. The increase in customer deposits will allow the bank to do more cross-selling opportunities to further boost our fees income, as we now understand their needs a lot better.
Our liquidity position remains strong, with the quarter LCR at 157% and NSFR at 120%, both above the minimum regulatory requirement. Post the legal completion of the Citi acquisition in four countries, we remain well capitalized, with a healthy CET1 at 13.4%. So in appreciation of the support from our shareholders, the board is recommending a final dividend of SGD 0.85 per ordinary share. Including the interim dividend of SGD 0.85, total dividend per share for the full year now amounts to SGD 1.70, representing a dividend payout ratio of 50%. With that, I'll pass my presentation back to Wendy.
Thank you, Mr. Lee. We will now move on to the Q&A. For those present here, if you would like to ask a question, please raise your hand and wait for my cue. For those on Microsoft Teams, please use the Raise Hand function to indicate that you would like to ask a question. Kindly wait for my cue and turn on your camera before asking your question. Please introduce yourself before asking your question. We will now start off with those in the room with us. First question. First question from Bloomberg, please.
Good morning. I have questions for Mr. Wee, please. It's Sheryl from Bloomberg. So, with the passing of your father, questions around succession and shareholding are becoming more pertinent. So the first question is on succession. Is anyone from the next generation, that is the late Dr. Wee's grandchildren, involved in the bank or has aspirations of doing so? How long will UOB remain a family-run bank, and what's your view on an outsider succeeding you? The second question is on shareholding. What will happen to Dr. Wee's stake in UOB? And the last question is, unrelated to these issues, and what's your view on China and Hong Kong's economic trends, and UOB's plans for its exposure? Thank you.
Well, I think all the question you have is all in my mind, okay? My father has not involved in the operation for, I think, a good 8-10 years, okay? So the management continue to do what we are doing. What you see the result here is a reflection. Yes, he planted the seed. He created the right value, right principle for the organization. This is what we are always guided to. But as far as earning is concerned, the young management is really taking over, okay? Well, his stake is, well, most of his stake is already in the family companies, okay? His personal stake ultimately will have to, I hope, will distribute out to the children, the grandchildren, so hopefully, they can remember there is a legacy asset given by the grandfather or great-grandfather. We talk about succession planning.
We are growing our own timber. Yes, if the family members are interested, they are more than welcome, but I think they need patience, they need love, they need the desire to be part of the team. But in the meantime, I'm growing my timber professionally. There is a team of younger colleagues who are more than happy to look forward, but important is the culture of the organizations, which is something that we are working very hard on. It's always a people business. Now, I hope I answered all the questions, but when it come to Hong Kong and China, I think, don't underestimate China. I think if you listen to the Western media, they all think China is very bad. You are from Bloomberg, right? And I think, yes, there is some short-term pain in China, right?
The property market could be an overbuilt situation. The confidence level may run a bit low. But generally, I would say, you look at the Chinese people I talk to, they are enterprising, they're hungry. It's no different than when you talk to a company. It's the people behind them. And I'm still very hopeful the policy can change. These are all man-made policies, but it's the people behind. In China, they are very enterprising. You can see they are all over the place. They are not only in China, in Southeast Asia, in ASEAN. You look at our FDI. We started FDI 11 years ago. I would say 50% are Chinese companies coming to our part of the world. And even in ASEAN, you have 60 million Chinese descendants. People like myself, they're all from China, okay?
And I think we will make things happen. A bit more patient. China is a big country. I'm still very hopeful. And, and China is important to ASEAN market. Without China, I think ASEAN will not be today. So the growth is still there, 5%, right? Even if they go down a little bit, but I think it's still growth. It's, it's a big country. So I'm still very optimistic. Thank you.
Thank you, Sheryl. Can we take the next question from the Straits Times?
Just to follow up on China, Mr. Wee, you mentioned just now that you see opportunities in targeted sectors. So what are some of these sectors that the bank is, you know, eyeing? And also, maybe could you give a bit of color about the bank's current exposure to China real estate and whether it's worried about this? Also a question on the one-off bonus payment to staff. How much is this expected to cost the bank? And a third question on global partnerships. I think you've announced that you'll do two global partnerships every year for concerts. So any idea of the scale of the artists coming this year, and the groups of customers you hope to cater to, and how it will further boost credit card fees as well?
Okay, I answer the simple one first. When it come to the exposure, I just want to be factually right. I leave it to my CFO. Yes, I think given the size of our retail business, after acquisition of Citibank, we have in aggregate, you're talking about 8 million. And we will continue to grow. Hopefully, the next 1-2 years, we will hit 10 million, because I think the momentum is quite strong. We will continue to add activities, to continue to protect the franchise that we have. Yes, there are two reasons. One, last week, I was at Ed Sheeran's, 60,000, and I was sold more than 50% are UOB cardholders. So I think why 50? It could be 70, 80, right? So this is something we work on. And, in early March will be Taylor Swift.
Again, the response was very good. And I'm quite excited about the response, so I will continue to... Our people are also excited, not me, okay? So we will continue to engage some of the big marketing firm to see how we can help. Because end of the day, it's a customer base they are looking for, right? And we cut across the region. Whoever want to come, not just Singapore. Come to Malaysia, Thailand, Indonesia. You look at Ed Sheeran in Malaysia, in Thailand. So given our Southeast Asia footprints, I think we are in a good position to negotiate, right? Now, in China property, I believe is a very small percentage. Why you would know?
So when we look at mainland China real estate exposure, I think it's around SGD 12 billion, less than 4%. But you deep dive that in the more details. A small part is what we are really worried about, the China, China exposure. Okay? That, that is less than SGD 3 billion, okay? And that number has not increased. In fact, it came down slightly. The rest of it are really what we call network customers. Like, we have Singapore, Singapore companies operating in China, the CapitaLand or whatever. Then we have Hong Kong, even U.S., all the data centers, and U.K. So, so when you get really, really worried, is the Hong Kong, China, China exposure, that's less than SGD 3 billion. And we actually have deep dive into this. Two things: number one, this, the LTV is actually very low.
It is way below 50% , so the collateral support is actually very strong. Yes, you can talk about collateral value coming down and all, but I actually have a 50% buffer. The other part is they are actually all performing, okay? Because if not, we have downgraded them. So when we went into the details, all these are actually performing. One or two slight ones is on the margin, which will. But majority of it, we are okay. So we don't think that the China exposure will have a big impact because for those that, in fact, we have already heavily provided for it. For the rest, like I said, are really network customer. And so long as the. Of course, now there is China closing up, that is slightly affecting that.
But over longer term, like Ee Cheong said, there are actually activities coming back. They, I mean, you look at the, the domestic, travels and all, which is the one now, overtaking some of the foreign travels. So, so a lot of the domestic, hotels and all, they are actually doing okay. So, so, yes, there's some worry, but I think we have prudently already provided for that, or I actually have enough reserve that will offer that. So, so I'm not very worried about it.
Yeah. I, I think this is a question often asked, right? You look at not only just China, U.S., too, right? We have actually indeed anticipated that. Few years ago, you look at our SPs actually coming.... So it, it's not major concern. Of course, the concern is, I hope the economy will, will pick up sooner. But other than that, as far as the bank is concerned, I think we have adequate provisions to, to overcome this.
I also had a question about the one-off bonus to staff. How much is that expected to cost the bank? And also noticed that 600 of the 6,000 employees are in Singapore. So could you explain why the number is relatively small compared to the.?
You know, when we want to do something, you offhand is something that we it will be a few million SGD, or it could be more, but it doesn't matter. As long as, as far as I'm concerned, these are the junior people. Inflation is high, and the bank is making good profit. I think we are here to help them, okay? The number, we can make it back. Don't worry, okay? I can make that. I can earn it back, but I want to help them.
Which, like we said, is less than SGD 10 million to support, not only Singapore, but also the group.
Across the group.
Yes.
So you're talking about 6,000. Singapore, I think, will be 600 people in Singapore, the junior staff and across the group.
Mm-hmm. Okay, thank you, Straits Times . The next question from Zaobao.
Yeah. Thank you. So firstly, congratulations on yet another set of stellar results. My name is Jia Ding. I'm from the Zaobao. And my first question is, the retail banking is obviously one of our mainstay business that we pride ourselves on for years, if not decades. So I'm just wondering, in the wake of an increasing number of new entrants in this sector, specifically from a digital space, how big is the market share impact to us in the retail banking sector? That, that's the first question.
Well, I think, I think the digital bank, yes, it was, it was... Initially, it was a threat. But I think given time, well, I still see them as a threat, but I think it's increasingly less so, right? Because, most of the domestic bank in Singapore, we also, build out our capabilities. You look at, our digital initiative TMRW, we actually gain a lot of traction. So I'm worried in a sense, because they are more flexible, something that we should learn from them, right? But I think given banking is not just digital initiative, it's a trust business, right? I think today, with the scam, with all these things, I think bank generally are a lot more, secure. So the attrition rate is actually not that high. Yes, I'm concerned, but I, I like to learn from them, their flexibility.
Generally, I would say, you know, we are able to hold ourself quite well.
Yeah. Thank you. I think that sounds really encouraging. The other question that is somewhat related is, I would like to have some color on some examples of digitalization efforts that we are putting in, and how big do you expect related CapEx to be on a yearly basis?
Okay. I think two things that we invest in, right? One is the platform, second is product capability. And I think we have been investing just in TMRW itself. We talk about the SGD 500 million-SGD 700 million over the last few years, setting that platform, and I think that's where the most investment would be. And now we are actually now putting in products. And the good thing about it is that 71% of our retail customers are digitally savvy. Okay, we did that analysis with the Citibank coming in, Citibank is a little bit higher, okay, around 81%. So there's a lot of opportunities for us to actually use that. And, by using that, there is a few advantage, right? One, is increased customer service, okay?
Because, although people complain about coming to the bank, you'd be surprised they still want to come to the bank to complain about the scams. So now we're actually balancing the taking out the operation and refocusing our channels to support either advisory or some of those issues that are a little more precipitated. The second part that we are investing, really, is the ability to get data, okay, to enhance it. Like Ee Cheong said, the cross-sell opportunities is actually very great. One of the questions often asked to us is that, "Why you keep on taking people FDs?" Okay, because to us, is-- number one is, I don't lose money, because whatever I take in, I still can place it out. More important is that the analysis, because we understand the profile.
So we know that probably it stands now, a huge percentage will cross-sell—we can succeed in cross-selling. There are certain percentage that are diehard FDs, okay? There are many of those in that range. And there are certain percentage, a smaller percentage, that are FD shoppers. They will move because of 1%-2%, and they are similar products. So at least we know that we can actually look at analysis and target the right customer segment and the right opportunities. Then how do I incentivize those that we think we can cross-sell into? And, and what else do we need to do to lead to that? So that's just probably where we are. I think the heavy investments into our platform has been done. Okay, I mean, this was a real issue, worry for us, 5-10 years, 5-10 years ago.
Now, a lot less because our capabilities. And like Ee Cheong said, we actually saw a swing in customer sentiment. Previously, people only look at flexibility, look at ease. Now, people also look at safety, security... and that actually swings a lot of the trust element back to bank. At least we have been around now, 80 years coming to 90 years. Okay? They know that. And with the MAS strictness on us, they feel a lot more secure. So some of those have swing market sentiment, but we have to continue, like Ee Cheong said, look at what they do to make sure that we don't lose the customer engagement piece to them, and that's what we are doing.
So we look at customer survey, we look at the survey from customers, where they are unhappy with us, and we take that very seriously. And there's a whole customer service experience.
Since this is the first time and you are new, I think, let me just repeat, we have a centralized infrastructure for technology, right? This is why you look at the TMRW initiative. We started—actually, we started in Thailand, okay? Because it's a big market, and we are using technology to penetrate the market. And it was quite successful, then we roll it out to Indonesia. It took us about 14 months, right? From Thailand, we moved to Indonesia. And Singapore, it took us nine months. Why we are able to do that fast, to set up a digital bank in different country? Because we centralize. Once you centralize, it's easy for you to replicate. And now we entered Malaysia, and the next thing will be Vietnam. So we want to see the whole region using our technology platform to improve our productivity, right?
Because people is the key challenge. It's not easy to get good quality people. We are using AI, we are using all the technology platform to see how we can standardize a lot of processes. And customer service, once you have a big customer base, I always believe strategically is the most important is to get good customer service, okay? And this is something I think there are still room for us to improve, and we want to be to be the number one in customer service e ven our Southeast Asia platform. It will come, but it's a matter of time.
Okay.
Yeah.
Thank you, gentlemen.
Goola?
Sorry, we have one question online first. We have one from Reuters. Can you please turn on your camera?
Hi, good morning.
Good morning.
This is Yantoultra from Reuters. We would like to hear your views on UOB's views on the latest Singapore budget announcement about the new corporate taxes to be implemented in 2025. What kind of impact do you see from a financial sector perspective on this new tax? What is, for example, UOB planning to do in response to this? Thank you.
Well, I think I, I will just make a very general statement. I, I welcome the prudent, inclusive, and business-friendly budget to support growth for Singapore. I think end of the day, Singapore, I believe the tailwind is strong for Singapore, okay? There are so many family offices coming to Singapore. There are so many people asking me to help, asking the government to apply for PR, to apply for citizenship. The tailwind is strong. The question now is, how to translate into business opportunity for Singapore? How to create hope for younger generations? How, how do we work in ASEAN, right? To make Singapore a, a viable small and yet viable city. Now, in terms of specific, I think, Wai Fai, you, you have any specific in terms of budget, in terms of number, that will benefit the bank?
So I think you look at this budget itself, it didn't go into a lot of tax incentive to incentivize ourself as a capital market. So previous years, I don't know, maybe your question, you're asking for is the tax equalization of 15% by 2025, and what's the implication to us? You look at my overall corporate rates, tax rate is already 17%-18%, okay? Because those that are outside of Singapore are technically higher tax rates, so they are actually not really that much affected. And outside of Singapore, there is less incentive, like Singapore, to develop ourself as a capital market and a financial center. So the main difference will be back into Singapore itself.
Most of the previous incentives that will bring it a lot substantially lower than the 15%, will be in the areas of capital market and fund management development. We have some of those, and we are watching that, but we are technically not that big. So my overall effective tax rate in Singapore, will not be that much affected. There will be some implications on, not Singapore, but where we park investments into what you call tax haven countries, okay? I think those will change. Okay, those will change. So for us, operationally, we are looking how to improve it. We're having a team to look at the differentiation, but I think the impact to us is not as big as somebody who's very big in the treasury and the capital market space, which we are less aggressive on.
Thank you, Mr. Lee. Next question from The Edge.
Yeah, thanks. Yes, thanks, thanks, thanks for taking my question. Okay, I've got two broad, quite broad questions. The first one, since we're talking about the budget, I mean, there was some—there's some support that was announced for SMEs, and I'm just wondering whether UOB benefits from that in the next many years. For instance, reduced risk weights or something like that, that would help your that one?
If you look at the new Basel IV, right, that will benefit SME segment. But that will take, I think, maybe the next 1-2 years to see the benefit out there. So I believe globally, every government want to promote SME, because SME is a backbone of any country economy, right? In Singapore, you look at SME, take up maybe 60%-70% of the workforce
I think, I think that is strategically very important to, not so much help, to give confidence and courage, okay? To see how we can do better, and, and.
And then the second question was—okay, the second question, it relates to ASEAN, because you said that you wanted to be the number one trade finance bank in ASEAN. So is there—I mean, would you, at some point, sort of, lay out a strategy for that? I mean, is—do you need new infrastructure or anything like that?
Well, as I said, we already invested very heavily, SGD 800 million over many years, to make sure that we get our connectivity right. It is complex, but I think the system is already ready. We are rolling out, and the traction is quite good. But it take times to roll out the business, right? And to be number one, that is the aspiration, but the trade number is huge, right? We want to capture as much as possible, right? And that also, in a way, reduce our RWA, okay? Because it's trade, okay.
So this is something... I think this is one of the initiative for wholesale bank, right? You can see the cash management will take up, I think, half of the wholesale business really big, okay? So we will continue to drive the initiative, and we have a big team of people focusing on that.
And then, staying with ASEAN, I mean, you, one of your peers has expressed the desire also to be a, to bank, to be the ASEAN bank of choice. What are you doing about, well, competition?
Competition is all over. Okay, I mean, I don't know which peer you're looking at. We have so many peers.
Well, but.
In Singapore, you have 100 over banks in Singapore. I think, end of the day, you have to be a long-term player. You have to be very forward-looking. The good thing about the bank is, my senior management has been with the bank for many, many years, okay? So our vision remain. Having a vision is one thing, but you have to make sure you execute it, right? You have to have the stamina. If you're a marathon runner, you know that. You just have to make sure you do the right thing, and the benefit will come, not immediate. It may look ugly from the operating income standpoint. Why you over-invest, okay? But I think now we are getting the benefit. It's no different than a few months ago, I know you asked me about the NIM and all this, the liquidity.
Today, people focusing on NIM again. A few quarters ago, I look at my reports, everyone was so concerned about liquidity with the Silicon Valley Bank collapse. Today, we have too much liquidity, and frankly, liquidity, NIM is a function of how much liquidity you want. Okay? So for us, I think it's important. We want to make sure our balance sheet is there. As my CFO say, we are focusing on total income.
NIM, yes, short term, you will sacrifice the NIM, but in the long term, you will translate into more customer base, more fee you're able to generate. So you have to look at things in the medium to long term, right? Rather than every quarter, you say, "Hey, what happened to your NIM?
Uh, okay.
Yeah.
But what has happened to your NIM?
Yeah.
Or, or-
The NIM is because we have.
Deposits, too many deposits.
Yeah, maybe we are AA A country. A lot of people want to put money with us. Maybe we can deploy it in a, and the loan is not growing, okay? And we are taking a slightly different view because we think interest rate is coming down, r ight? So why should I go and lock into the long term, right? So this is something that we took a view. Maybe it is some sacrifice, but if you focus on total income, it's still okay.
Okay. So you didn't give a guidance for NIM this?
Yeah, I think we will still continue to hold around 2%. This is our guidance, okay?
So, got it. I think I just wanted to put some context into that. Like I was explaining, we look at funding on a more holistic basis. There were concerns over liquidity a few months ago. There's less concern now. Okay, so and it's very clear on the declining interest rate environment the ability to manage cost of deposits will be more important than the ability to manage yield, because there's no market demand.
Okay, so now the challenge we have is to sustain the NIM. We have to manage aggressively our deposit base. So some of you have noticed 2 years, 2 days ago, we just cut our FD rates. Okay? Because we are the first to test the market on the way up, now we are the first to test the market on the way down. And the ability and whoever that can manage that a bit better, will come out a winner.
But we are quite happy with the structure of our deposit base. One is that you look at the CASA ratio. There were a lot of concerns that the stability of that, and our CASA ratio has been increasing. In fact, the whole of last year, absolute CASA has already turned. Okay? My wholesale part, which is the investment that Ee Cheong talked about, the wholesale CASA is actually more than 50%, higher than the retail CASA. That gives us a lot of comfort, because at least your big players are actually putting in it.
The sensitive FD rates itself is something now that we are looking at. So, so there are a few things that we really look at. Second is whether you want to extend the duration. Which is another play that you can, which is in the securities books and all.
Securities books.
Do you want to extend? And our views were that it's still a bit uncertain today, but we started extending that the second half of last year. Even now, you know, you look at the U.S. rates, it can drop, and then now it went back again yesterday, depending on where the inflation will be. So we are very sensitive to make sure that we have certain benchmark rate. If it doesn't, then we will sacrifice, because don't forget that in Singapore, we actually have a inverse yield curve. Which is that the short term that I placed today, is actually give me as much return, if not better, than the long term. But we have to position our structural book for the turning interest rate. So extending that is actually something that we look at, looking at opportunities, looking at where we see the U.S. risks would be, and what does it mean to the Sing? Because the correlation between the Sing and the U.S. rates today is not as clear, straightforward as previously.
So, so those are things that we look at. We will do above all the rest, but you will see a lot of activities managing cost of funding, o kay? Because I mean, I don't want to go away that, you know, it's not a concern. It is, because on the rising interest rate, on the declining interest rate your yield will drop faster. Okay, so I have to manage cost of funding. And that's the way we are. We are comfortable managing the structural book, sometimes sacrificing some NIM in the short term but protecting that in our outlook, that NIM will correct sometime in the second half.
This part, you might see some sacrifice for the next 1-2 quarters l ooking at the turnaround. But for the year, I think we are okay. We look at our liquidity book. Of course, today we have a lot more comfort with the liquidity position. We dare to be aggressively take some risk on that, at the expense of some deposits outflow, which we don't need.
Okay, so, so I think that's where we are. Previously, we were worried about the deposit outflow because of liquidity. Today, we have more confidence, and the stability of our book has increased because the CASA base has actually increased, et cetera. But that gives us a lot more confidence to take more aggressive action, and you'll see some of that coming out this year.
So, the CASA base has increased because of the wholesale side?
Both.
Both sides.
Both.
On the transactional banking side, have you been getting more...
Oh, definitely.
Of those transaction?
Because of.
Accounts?
Technology, our infrastructure.
Oh.
Because to put a CASA means you have to make sure that the whole process is automated. That takes time to build. We are always worried about the wholesale base, actually, less than the retail base. I go back in time, I look at the last crisis, the wholesale CASA ratio was 31%. Today, I'm 51%. That, that shows the power of the investments that we get for people to put it in. Because long as they use it for their transaction, working capital and the ability, and people will sleep.
Yeah.
Okay? And we have to realize, and we have to understand that, because nobody will keep big free flow in CASA. But the ability to manage and help customers how to optimize that is what the cash management system is helping customer. So people will tend to keep a bit more because you have more transaction with you. Your base will be bigger. That's what's happening today.
Thank you, Goola. Thank you for the comprehensive discussion this morning, especially for, you know, some of our new friends here. Unfortunately, that's the time we have for today. Yeah, thank you for joining us this morning, and we wish you a good day ahead. Thank you.