Good morning, and welcome to UOB's first half 2024 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, kindly put your mobile phones to silent. For those on Microsoft Teams, please put yourself on mute for now. Without further ado, I'll now pass the time to our CEO, Mr. Wee, please.
Thank you. Good morning. [Foreign language] . Okay, thank you for joining us today. I'm sure all of you noticed global growth continues to be weighed down by geopolitical tensions and higher interest rates. While we expect higher for longer interest rates to stay, they have likely peaked. Recent U.S. inflation data has strengthened the case for the U.S. Fed to cut rates this year. A gradual easing of interest rates will be good for growth in Asia. In the second quarter, we have seen a pickup in commercial activities. Lower interest rates should propel these trends further. Closer to home, ASEAN continues to be resilient, supported by robust economic fundamentals and supply chain diversifications, which has resulted in a steady inflow of foreign direct investments into the region. Amid an improving macro outlook, we achieved a good set of financial performance this quarter.
Our core net profit was relatively stable year-on-year, at SGD 3.1 billion for the first half of the year and SGD 1.5 billion for the second quarter. Overall, we are seeing positive trends across our core businesses quarter-on-quarter. Net interest income grew from last quarter. Margin improved as we lowered cost of funds, and we saw loan growth second quarter, 2% quarter-on-quarter, and 3% year-on-year across the board. Fee income was near historical high, surpassing SGD 600 million, with growth across loan and trade-related fees, wealth management, and credit card fees. In the first half of this year, fee income grew double-digit year-on-year. Customer-related treasury income was stable. Our cost-to-income ratio improved from second quarter, 41.8%, first quarter, 41.8%, and absolute operating expenses is down 2% quarter-on-quarter.
From the next quarter, the one-time integration cost from our Citi acquisition will be half as we move towards integration right now. Going forward, we will focus on extracting both revenue and cost synergies from this portfolio, along with the other tech and system capabilities that we have built over the last few years. Asset quality remains resilient, with NPL ratio at 1.5% and credit costs at 34 basis points. Our balance sheet continues to be strong with healthy levels of capital and funding. With that, we are pleased to announce that the board has recommended an interim dividend of SGD 0.88 per share, representing a payout ratio of 51%. Now, let me give you some update on our core business segments. Our retail banking business grew steadily across various revenue drivers.
Wealth management continues its positive momentum, delivering the strongest quarter over the past three years. With more conversions from fixed deposits to wealth management products across different product mix, especially in bonds, structured products, and unit trusts, we are ensuring healthy stable. Wealth sales are also growing steadily through our digital channels. We refreshed the wealth offering in Singapore TMRW app in April. Since then, our digital wealth sales volume in Singapore increased almost 250% year-on-year. In Thailand, we also launched a comprehensive suite of onshore and offshore funds on TMRW, in April. Over the past two months, we have seen strong momentum with 40% of fund sales transacted digitally. With this, our fund sales volume in Thailand doubled. Net new money continued to grow, bringing our total AUM to SGD 182 billion or 10% higher year-on-year.
Credit card fees sustained its growth this quarter. Year-on-year, we are up 35%. Quarter-on-quarter, I think we are up 8% credit card fees, boosted by continued consumer confidence and spending. Our recent partnerships with the Singapore Tourism Board and Marina Bay Sands solidifies our leadership position in the lifestyle space. Just two weeks ago, we signed an MOU with South Korean company Woori Card. UOB cardholders across ASEAN will enjoy card privilege in South Korea. Vice versa for Woori Card customer in our key ASEAN markets by end of this year. In terms of concerts, I'm sure all of you are likely here, but we continue to expand our offering. We have top singer from America, just recently, a show in Singapore and Andy Lau from Hong Kong. We will continue to offer more lifestyle experiences for our customers. Deposit balances remain stable.
Our mortgage sales volume pick up over the last quarter. The sales volume up 42% quarter-over-quarter. But you may notice that the primary market is slow, but we are focusing on secondary market as well as we try to retain as much mortgages as possible when people want to do the refinancing. So the volume actually very encouraging, pick up 42% quarter-over-quarter. Post our Citi integration in Malaysia, Indonesia and Thailand, our customer base across the region continue to grow. We are on track to integrate our last portfolio in Vietnam in 2025. We will continue to sharpen our focus on achieving cross-sell synergies by uplifting customer spend, growing deposit balances and expanding the wealth management business. Now, on group wholesale business. Our wholesale business performed well with broad-based growth.
Loan growth momentum picked up over the last quarter in trade and term assets and across geographies. Loan drawdown hit its highest level in four quarters. Loan and trade-related fee grew 19% year-on-year in tandem with a pickup in loans and more deals booked during the quarter. We are delivering our connectivity strategy. Cross-border income now makes up 25% of wholesale banking revenue, while transaction banking income contributes 53% of wholesale banking revenues. Connecting businesses across a fast-growing ASEAN region is one of our key focuses. One recent example is in Malaysia. Given our extensive footprint on both sides of the Causeway, we are excited about the progress of Johor-Singapore Special Economic Zone. Last month, we hosted Johor Menteri Besar, the Chief Minister, at our UOB Penthouse, where discussions were held between the Johor delegation and regional business leaders.
The new economic zone will benefit multiple sectors in both countries. In fact, we have financed some of the early movers in the special economic zone, including data centers. Last week, we hosted another close, closed-door session with officials from Ministry of Finance (Malaysia) and investors. As an ASEAN-focused bank, UOB is well-positioned to support business growth in our key markets across the region. Moving on to sustainability. We continue to support SMEs on their green journeys. Recently, we partnered Enterprise Singapore to launch a Sustainability-Linked Advisory Grants and Enablers, or the SAGE program. Through this, we want to help SMEs set sustainability performance targets and simplify financing solutions for them. Overall, we are seeing strong demand in sustainable trade finance. As the green economy continue to grow and evolve, UOB will proactively support our customers to capture new opportunities.
In this year's Euromoney Awards for Excellence, UOB and I are very proud to have been recognized as the best bank for SME worldwide, in Asia and in Singapore. We remain steadfast in supporting our customers in their decarbonization efforts. As we move into the second half of 2024, we are cautiously optimistic and will stay vigilant and disciplined. There are uncertainties in the horizon, particularly with the upcoming elections in the U.S. and the economic challenges in China and Thailand. While this may present hurdles, we are confident in our ability to navigate them with a prudent approach. Our guidance for this year remain unchanged. Low single-digit loan growth, double-digit fee growth led by our retail franchise. Total income growth to be positive from 2023 levels.
Our cost-to-income ratio at around 41%-42% on continued cost discipline, and total credit costs at the lower end of 25-30 basis points. I look forward to seeing some of you at our Corporate Day in Kuala Lumpur in two weeks' time. Our team will elaborate more on our group's targets,
Lee will to take you through the financials now. Thank you.
Hey, Cheong . Once again, good morning, everyone. Welcome to our briefing today. Our second quarter core profit was stable at SGD 1.5 billion, a 5% decrease from the previous quarter due to lower investment income. Our franchise activities in loans and fees picked up against the same quarter last year. Core profit was 1% down. Net interest income rose 2% quarter-on-quarter. Our margin increased three basis points to 2.05% on improved funding costs, coupled with loans growth of 2%. Our fees, like Ee Cheong just said, was near record level. We registered, actually, we registered the strongest was the first quarter, 2023. So over a two-year period, we have come back, alongside with strong loans and trade-related fees.
Asset quality remained resilient, with NPL unchanged at 1.5% and total credit costs on loans at 24 basis points. Our capital and funding position remains strong, with CET1 at 13.4%, and you know that this is following the dividend payment that we normally do, in the second quarter. Our board has declared an interim dividend of SGD 0.88 per share. On some of the detailed numbers, like I said, core profit for the second quarter was 5% lower at SGD 1.5 billion, as trading and investment income eased from last quarter high. If we include the one-off cost relating to Citi integration, net profit would have been SGD 1.4 billion. First half core profits saw a decline of 1% to SGD 3.1 billion, due mainly to lower net interest income from lower margin.
Because from a year ago, the margins were still pretty high. Our one-off integration costs will taper off in the coming quarters as we have completed the operational integration of Citi in Malaysia, Indonesia, and most recently, in Thailand. I'll just touch briefly on the business segment performance. I think Wee Ee Cheong has elaborated on most of this. Group retail registered a total income of SGD 2.7 billion for the first half of 2024. In constant currency term, this was 1% higher than a year ago. We saw double-digit growth across output areas, including CASA, card billings, wealth and treasury products, which helped cushion the competitive effect on mortgage. Total income for group wholesale banking is 4% to SGD 3.4 billion, amid a keen competition for quality assets throughout the industry.
The competitive pricing impact was offset by strong investment banking fees, steady momentum growth in CASA and trade loans. On margins, our net interest income grew 2% this quarter at net interest margin improved three basis points to 2.05%, along with a 2% growth, loans growth for the quarter. Loans margin widened four basis points, supported by lower deposit costs, while interbank and securities margin sustained at 1.1% with proactive liquidity management. Our fees crossed the SGD 600 million mark to near historical high of SGD 680 million for the quarter. Loans registered fees were boosted by increased loans demand and a series of strong investment banking needs. Wealth momentum picked up, particularly in bonds and structured notes as investor confidence returns.
Year-on-year, first half net fees increased 11% with broad-based double-digit growth across loans related wealth and credit cards. Customer treasury income remained strong at SGD 216 million for the quarter, with steady retail demand for bonds and structured products across Singapore and the ASEAN Four. Other trading and investment income normalized from last quarter high bond sales gain, coupled with lower income from gold commodity trading. Core expenses for the first half were marginally higher than a year ago, as we maintain very tight cost discipline while investing for the franchise growth and digital capabilities. Cost-to-income ratio was stable at 41.8% year to date, and for the quarter as expenses kept pace with income. Including one-off costs relating to Citi integration, cost to income would have been 44.1%.
One-off costs are tapering off as we have completed the operational merger of Citi in the three bigger asset markets. On asset quality, the overall asset quality for our loans portfolio was broadly stable, with NPL ratios unchanged at 1.5%. Total credit cost was stable at 24 basis points. The increase in specific allowance was partially due to Citi, some of the operational day one issues in Thailand. I think we have addressed the customer-related frictions, and we expect credit costs to improve in the next few quarters. As at June 2024, the group total allowance edged down to SGD 4.9 billion, of which SGD 2.9 billion was in general allowance. This was largely due to write-off of a few chunky vulnerable accounts in the region.
But the more technical part, you know, when we write off NPLs, we actually reverse some of the GP that we set today. Okay? But that doesn't mean that our GP and some of you, the MO, has reduced. Okay. I think we continue to set aside general allowance for the overall credit portfolio. Hence, performing loans coverage stayed relatively stable at 0.9%, along with NPA coverage at 98% or 214% after taking collateral into consideration. Loans. I think loans finally saw some light. We grew SGD 5 billion or 2%, from the last quarter, and this was driven by wholesale trade, alongside with the retail mortgage that Ee Cheong highlighted earlier. Customer deposits was steady as retail CASA expansion more than offset the drop in the higher cost of FDs.
Overall, CASA ratio increased to 51.5%, amid healthy CASA momentum in Singapore. Our liquidity position remains sound, with LCR at 149% and NSFR at 118%, both well above the minimum regulatory requirements. Our CET1 position remained healthy at 13.4%. In appreciation of the support for our shareholders, the board has declared an interim dividend of SGD 0.88 per share. This is higher than the first half of SGD 0.85 last year. We are committed to a consistent and sustainable return to our shareholders as our profit grows. With that, I'll hand my presentation back, and 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. Okay, so we will now start off with those in the room with us. First question, please. First question?
Hi, this is Chanyaporn Chanjaroen from Bloomberg. Can I ask Mr. Lee to help clarify the integration cost comment on Citi? You said it would be half from this third quarter, is that right? So half from this third quarter.
Second quarter.
From the second quarter.
So I think maybe I take that. We show the number, so that... So I think in the disclosure, we showed over SGD 60 million.
Mm-hmm.
Because in the second quarter, we still had Thailand, which was the big one.
Oh.
So going forward in the third, fourth quarter until maybe the early part of next year, we are only left with Vietnam. Vietnam is a smaller portfolio, and that will cost us SGD +30 million. So that's, that's probably the SGD 30 million-SGD 40 million is what you will see in the coming quarters.
When will this finish? So by the end of 2025?
We are hoping to do it a bit earlier-
Uh-huh.
Because in Vietnam itself
Mm-hmm.
We don't have that franchise. So in order to take over the Citi portfolio-
Mm.
There is a whole investment on the whole retail network.
Mm.
Including digital. So it takes a bit longer.
Mm.
But we hope to do it, probably the first half or if not, the third quarter.
I see. Just a follow-up on Citi and then I have one additional question. So, I mean, Citi recently reported a lot of defaults in its credit card portfolio. Since this is a very big business that you are expanding, taking over from Citi, how are you aligning the management of potential defaults in unsecured loans that you took?
Okay.
The third question is, can you share colors on your wealth management business, which have been doing very well? Are you looking to build the team more? Thank you.
So I'll take the Citi. So it's true, we had some NPL friction in Thailand. The portfolio was big. Okay? But we have since addressed it. Okay, I think if you are in Thailand, we did have some issues where the service standard issues that we have. Okay. As a result, we diverted a lot of resources, okay, to stabilize that. That affected some of our collection effort. Okay. As a result, there was some spike in credits. Technically, think about it, some of it are technical, because when you slip into a number of days, we call it slipping from bucket one to bucket two.
Mm.
Okay? They are not NPLs yet.
ECL one.
ECL 1 and 2. So that those are technical. So now we are trying to address that. Now we are putting back once we were collected, and we think that 80% of those, we can get it back. Okay. The other bucket of something was increased, was because we harmonize our credits. Okay? We took a more conservative stance, okay, between Citi and UOB. Okay, and because of that, there is a one-time pickup that we have in the, in the specific credit costs. So the third part is the industry problem, but it's actually a smaller part. Okay. I think you know that there are some changes in regulations where they are more stringent number of days, they brought forward earlier part of the year, and that, that affected us.
That only, but that is the smaller part of it that we talk about. So the big part of the increase really was because of the OD1 friction. Like I said, it's both a combination that we have to get our service standard right, and now we are moving our people back to the collection, and I think they are coming back. In fact, we are confident that 80% of it, that we, we set aside, we think will come back over the next few months.
On the wealth side, I think Singapore is a hub. ASEAN has grown, growing mass affluent at higher levels. For UOB, I think if you look at the AUM, we have 50%. So we have SGD 3 billion net new money inflow quarter-on-quarter. So we are one of the best. But if you, if you notice, most of the banks also doing very well, well. So it, it is a very competitive space. But I still believe our franchise is in ASEAN. So we continue to cross-sell, we continue to use our network of our customer, from SME segment, from, from, different customer base from ASEAN. Of course, the real wealth is actually from North Asia. You can understand that. Hong Kong, from China, from Taiwan, where we have relatively, lesser franchise, right?
So we have to depend on our end. So we are actively looking at some of this one. But I believe at the end of the day, the basic fundamental for people coming to us is trust. I don't quite believe, taking RM and then just product push. We are selling the whole organization, the customer base. I've been saying it for many years. We are using our good customer to refer that business to our private bank. Okay? So I hope you can understand, rather than... Yes, we will continue to recruit good RM, but it has to be in line with our culture and our brand, right? Because wealth preservation is one of the key objective that we want to engage our customer base, rather than just product push. Yes, you can product push, depending on what kind of product you are pushing, right?
You are buying bonds, it is an investment grade bond, is fine, right? Enhancing the yield. But you don't want, because of the high commission, you push for speculative products. So I believe this is our space, and we are continuing to harness more from our ASEAN franchise.
Thank you, Mr. Wee. Next question, please. Next question from The Edge.
So on the increase in mortgage loans, were the yields lower or were they, I mean, because you said there was a 42% rise, so how did you get... I mean, did you gain market share? How did you get that, if you could, that's-
Well, I mean, you know, the primary market is slow. Okay? So for this year, we are focusing more on the secondary market. People who completed an LTV, generally, I would say about 60%. So the risk profile is acceptable. They have completed the mortgage, right? And I would say the margin is more or less the same. It is a market competitiveness, right? For us to win. So the volume has picked up a lot. And also, not only that, our mortgage retention unit also doing a good job of retaining customers, because when your fixed rate is due, right, people look for opportunity to refinance. So, you know, given the relationship, we are able to retain more customers. So that combination, the secondary plus retention mortgage, help us to achieve the goal.
There was some sign. There is some pressure on the mortgage?
Margin.
You're talking about margin?
The margins, because-
So really, I think last, if you think about it, on a declining interest rate, right?
Mm-hmm.
We don't know when it happened, but most people know that it will, right? It might not be this quarter, next quarter-
Mm-hmm.
Maybe next year, something like that. So what we do is we try and lock in longer term assets.
Mm-hmm.
Mortgage is one of those, because we can extend two years, and we tested three years. It might not give you the clear premium that we talk about, plus, in the market, but still can't differentiate, and they don't understand the interest rate risk. So the market itself, that rate was declining.
Mm-hmm.
Mortgage, as I say, that the growth in all the fees and consumer-
Mm-hmm.
Offset some of the competition in mortgage. So it is a defensive, you could argue, that we, we have a lower margin to offset a possible higher decline if we had to do it. So, so this is what we're trying to do. In a declining interest rate environment, how do we lock in longer term assets? And many people will say that consumer is one. Wholesale, we are trying to do that. Okay, we are trying to extend term loans. Okay, hopefully, with the stability of outlook, whether it decline, we see some of those coming in. The other part is your banking book. I think that's what how many people do you extend it? But I think those, those are areas that consumer is one of those strategies that we try to expand our assets.
So the banking book and securities portfolio, have you extended that ahead of them? Because we all know that the trend is going, is turning.
We, like we always guided, Singapore is quite unique for even the U.S. today, that we are on the inverse yield curve.
Mm-hmm.
It's not surprising, which means that if I extend today, I actually-
Lower.
Get a lower margin.
It's, it's-
And then you offset it, okay? So, so we talked about it two years ago. You had done it two years ago. A lot of these loans are maturing.
Yeah.
If I saw turn, I'm actually worse off. Okay, so it's actually quite... But at this point, I think the outlook is that with the inflation in the U.S. now being under control, that gap itself, we think, will... The curve will started to straighten or move, go back to normalized, probably shorter. So we are extending. Actually, we have extended, and at the recent outcome, we continue to expand.
Mm-hmm.
Like I said, there is, there's also a market. At what price do I want to extend this?
Mm-hmm.
Because if I extend the market price, you hardly will make any money.
You know, Goola, it's a question of reason. There's no franchise value. It's your judgment call.
Yes.
Very cool. I like no franchise.
Yeah.
But we are building the bank's franchise value, investment that we put in, constructive, grow our customers. You can see the CASA size. Even you look at our NIM, it's has actually improved. Why? Because our deposit rate today is not as competitive as other banks. But why people are still put money with us? A combination of factors, good customer service, and people say, "yeah, I like your service." They will bank with us. The retention rate is high; otherwise there will be an outflow, right? You look at our deposit; is still stable, right? You can check around. If I go to the branches, I check with them; they say, "yeah, they like our service. They're good with us." And these are all small depositors. What is the difference? About 5%. So service level become very important. We have to invest in infrastructure.
We invest in TMRW, our digital, make it easy for them, okay? And we have a good RM, we have a good sales people in our various branches, and these people will feel comfortable. When the interest rate up and down, they always communicate with us. This is where the franchise is.
So for TMRW, of course, it's been, I mean, it's been a few years since you had those digital bank, the new digital bank licenses, and you've had time. I mean, you had your TMRW up earlier this week. So has there been any, do you see any competition like with Trust Bank?
Oh, yeah, they are, they are competition. But I, I think, I think generally, if you look at NPS score for TMRW, is quite high. And you, you can see even the Citibank portfolio. I have a chart. You look at Citibank portfolio in Thailand, right? I have the number here. Give you the number, but-
Sure, adoption rate is actually over 80%.
80%+.
Oh, but from the-
Also, the average... You see, Citibank, they are very focused on just Singapore credit cards. You look at Thailand, right? Our product, every product holding, increased from 13% to 30%. In other words, we are able to cross-sell our Citibank customer to other products, CASA, because then we can introduce mortgage products. This is where I think the cross-selling opportunity is there. That is our customer base. We have 8 million customer. We continue to grow, right? Thailand in particular, you are Thai. You know, Thailand today, economy is facing some challenges, right?
And-
I believe, you know, as a country, they should be able to get out of it, right? Politics is one part of it, but I think they should be able to get out of it. The consumer debt is high, but as long as there is employment situation, every country is focusing on FDI, right? And Thailand is still very much a tourist hub. And you continue to do that, I'm sure situation would improve. The next few quarter, I believe it comes. We have been in Thailand for 20 over years. We're going through the up and down.
What is the retention? How many of these key customers have switched to TMRW?
Oh, yeah. Digitally, yes, I think it's 80%, 80%, 90%.
Because the city people are quite business savvy. I mean, looking at the generation and the quality of the customers, but I think the adoption is actually very high.
Now, I have a statistic. You look at Malaysia, right? After the OB one, I was operationally with you. Our customer base up by 3%. Okay? And you know, when, when they merge with us, we have to recut the UOB card, right? Right. So the average, product holdings at Citibank's customer grew from 1.25% to 1.32%. CASA penetration from 20% to 28%. Indonesia also up 3% for, for the customer base. Spending is also improved, okay? We are tracking all these things because that is the kind of customer base that we want to expand. In Thailand, it's flat because it's a bit of teething problem, but I believe the average product holding is actually increased from 13% to 13% to 13%. So I think the problem of Thailand is a teething problem.
We are focusing on it, and this issue has been sorted out. Franchise remains intact. We have some win back initiative, right? Because we underestimate the volume, right? So the call center is not able to handle some of these customers. So we have actually stabilized this, right? And in fact, we are redeploying our salespeople to help the support. So as a result, the sales volume has gone down, but this is temporary. I think we-
We have shifted them back already.
Yeah.
So, we have stabilized the call center. We actually check the customer feedback and promoter score very regularly through various segment, including social media feedback. I mean, we are quite happy that we have stabilized, and it will take time, but we think that within, give us one or two quarters, we are back to where Malaysia is, and then we look at growth, which Thailand is a big market for us. So we are, like Chee Ong said, we are optimistic. Yeah.
So the attrition rate that you said was 10%, you know, when you first-
That was our conservative estimate. Actually, it's growing.
So there was not-
No, no, no, no attrition. When we want to buy, we assume that 10% customer will exit.
Uh, uh.
Actually, on the contrary, the customer actually is improved.
Oh, okay. So, so you have 100%?
Yeah, now we have 100%.
I think what is saying that the normal assumption of in-market merger is that there's customer overlap. As a result, some will drop off. So we are quite happy that, yes, there is customer overlap.
Mm-hmm.
Maybe there are people who hold both Citi and UOB, but the good thing is the spending pattern is different.
Mm-hmm.
People hold Citi for different purpose, and they hold UOB for a different purpose, and that is why in the product, when we come out, we make sure that we satisfy the employee value proposition. So if you keep both, it can issue you a different card. The customers stays, okay? But the number of customers will come down, because from two customers become one. Okay, but the spending didn't come down.
So it has not come down at all?
The spending has not. It has increased. And now, when we go back into focusing, if you take the Malaysia example, now we are going back into looking at how we can get other kinds of benefit, cross-sell, CASA and all. In fact, the CASA opening, their, their base is actually a bit stronger, the balances are bigger, and the wealth and cross-sell is better. So, so like Cheo ng said, those are the statistics that we are tracking. So, so don't look at numbers. The numbers will come down, because I have two customers, right?
Mm-hmm.
But more important is, did the spending come down?
The spending.
That's what we are focusing on.
Thank you, Goola. So maybe we see whether... Yeah, next question from Straits Times.
Prisca from ST. Just a follow-up question on Citi. In Vietnam specifically, are you seeing any new synergies from the integration in that market? Given that, banks, you know, UOB's digital network there is still quite new, what are the challenges, you know, are seeing in servicing, you know, customers in that market?
So like I said, our operation in Citi in Vietnam is pretty small, and I don't think we want to expand until our digital solution is in. And that's why we have to get our TMRW in by next year, before we include this big expansion strategy. Meanwhile, the Citi portfolio, and mainly Citi, we don't have UOB previously. The good news is stabilized. Okay? We didn't see fall out in there, and they continue to have new customers because our branding now is no longer just Vietnam. Our branding was really original. So, I mean, we spoke about this many times, and Taylor Swift come out for the first time. I have queues in my Vietnam branch. Okay, it never happened. So it's not only the Vietnam proposition, but it's the regional proposition now that's attracting that.
So we have to take some time. Today, it's still small, but at least we are getting our franchise, we're getting our branding in, and hopefully by next year, once the digital, TMRW is in, then you'll see a more holistic, aggressive marketing expansion than we did in Thailand and Malaysia.
I think this is something I want all of you to imagine, like, why I tied up with the Korean bank is growing cards. We have a big customer base in credit cards. So the Korean customer have to ask them, "take advantage of the market this time. Why Citi person?" So, and fundamentally, you have to ask yourself, when we are, the acquisition is outside of Singapore. We have so many domestic banks, Thailand, Malaysia. Why we want to hold it? There must be something that you want to do. It's a lifestyle card. We are exposed to the region, right? We have concert days. When you go to Korea, we can link up all this connectivity, I think... otherwise, you know, what's the difference?
That is important, and this is where we are spending our infrastructure, technology, our regional marketing effort, is to create that we are the regional card. Don't just view us as a Thai card, Malaysian card, Indonesian card. And this thing will. You can see the momentum, but it will continue to be better and better because people see your customer base has improved. There are many people who want to talk to us, right? The marketing agent for the concert site, they also want to take advantage of our customer base. This is where we are coming from. You ask today, how many bank can do that? How many banks? Oh, they don't have the footprints, and they don't have the standardization and infrastructure. I, I talk already for the last month. Now everything is complete. You look at our wholesale, right? Our offshore income is coming in.
Our connectivity, our cash management is all coming in. Without the proper infrastructure system, you can't do that. This is not overnight. Took us years to build all this infrastructure.
Thank you, Prisca. Do you have a follow-up question?
Just a follow-up question on NIM and in the outlook for interest income as well, given that now rates are more likely to... There's a high probability of rates coming down in the coming quarter.
I think, I think coming down is good for the, good for the economy, and generally it's not pro-growth. If you can see that in our loan volume has picked up a little bit. So I would say it's positive. I would say, right? How much, how strong is cut? I, frankly, I don't know. You can see all the debates in the Federal Reserve, but how soon is maybe 1 or 2 cut this year. That will definitely benefit us.
Maybe just to add on to what Ee Cheong said. How fast interest rates will come down will be a function of how much we are affected, but I think most of the time, talk about a gradual cut. So you are talking about 50 basis point for this year, well, 1% for next year. I think those are things that, things that we can handle, because that's the normalized part. That's actually good for the economy. So we are more optimistic on volume with that, and I think the volume improvement will more than offset any margin decline, which I think will be gradual. So we are managing that. Same way we managed it when interest rate was going up, now we will watch interest rate coming down. And like I said, it's something that we will have to manage.
Thank you.
Credit, credit cycle, credit costs. Is there anything?
Okay, so-
Let me...
Well, I think commercial process. So, so the first question on that is always U.S. and China or Hong Kong.
Mm-hmm.
I think the U.S. part we are watching, but our portfolio is not big, our commercial real estate. We have taken most of the quite a fair bit of hit in the last actually one and a half years. So we will have some coming up, but two things with it. Hong Kong is where the concern is.
Mm-hmm.
Okay, but if you look at what's happening in the industry today, there are activities, but the valuations are coming down.
Mm-hmm.
So, this is a process where now we are actually working with customers. We are actually comfortable with our LTVs. If you look at my Hong Kong portfolio, on the average, the commercial real estate LTVs are 49%. Hong Kong itself is 31%. So I can take a lot of hit. So you might see us now engaging customers to go and do restructuring. And you know, the technical part of restructuring, I don't have any loss. But once you go into restructuring, I've got to classify them as NPL. Okay, that's the problem.
The credit loss may not happen because LTV, there is about 39%.
Oh.
So in fact-
Uh.
I mean, you will argue whether it's positive or negative. So you can do an action now.
Yeah.
You will take losses, but your NPL goes up, and if you don't do, my NPL stays down, and I do it later, I might level the loss.
Yeah.
That's the dilemma. So I think we are on top of the Hong Kong customers, so we are quite comfortable. And I always say that on top of that, I have added general provision to my commercial real estate portfolio-
Oh, okay.
To make sure that if I get hit, the credit cost will not be impacted. That's why we are very comfortable guiding the credit costs at the low end of the 35-30 basis points.
Thank you. I think we have a question from-
Follow up.
Yeah.
Can we just follow up on the ST question on NIM outlook, given the current rate outlook. So what NIM are you seeing for 2024?
I would say stabilized at this stage.
Like 2.05?
What is the number with?
2.05%.
Yeah. 2.05% was our exit NIM in the second quarter. Yes, we try to hold that because, you see, the problem we had was that we are very proactive of managing FD costs ahead of the cycle. Technically, we have reached a stage where Wee Ee Cheong said, people still keep money with us despite the lower, but there's a limit how much that go.
Holding 2.05%?
So we think that that's something that we do, and if rates actually come down. We have to watch our whole deposit philosophy all over again. But we think that we can hold it at that level. Plus, if you're talking about rate hikes in the third quarter, and most people talk about September as the second quarter, I'm actually quite comfortable. I mean, third quarter, then it's the fourth quarter thing that we are watching. But we are hopeful that should there be slight drop, I don't think it'll be drastic. The volume or more that will offset that, because that's what we see happening.
Thank you. We probably have time for one last question from BT.
Yeah. I feel like you get this question every quarter, but I've heard some chatter that you might be retiring soon. So I don't know if you have any comments on that point?
I'm happy to answer you.
Yeah, but yeah, any comments on the fact that I've heard some chatter that you might be retiring quite soon, so is there any comment?
Retiring quite soon?
Yeah.
Well, it would be a matter of time. I, I will have to. But the important thing is, no one is indispensable, so the succession planning is in place. We fought the battle, all of us, including my CFO, and we fought the battle. We have to prepare for the new ground. We need to energize the organization, but important is the value, the culture of the organization. You see so many banks with much longer history than us, but they keep changing. It doesn't benefit the shareholders. It doesn't benefit the customer. Change of direction. What we want is stability. Progressive with stability, that to me is important. As a major single shareholder, this is what I, I think is important, and I want to. It's not so much I'm going, but at some point, we all have to go.
But with the new management, I mean, and whenever it happens, will it stay with the regional, this whole regional network that you have this-
Oh, yeah
Connectivity and, just, you know, the digital TMRW.
Yeah, yeah. They're already-
Some new top and change.
Join us. Join us in KL.
You'll hear from them.
Yeah.
We are introducing some of our new colleagues, right? These are the potential future leaders of the bank, right? We don't want surprises. We want them to grow together with us. We have a combination of old guard and the new guards coming. That's the only practical way to do it.
The appointment of Ms. Susan Hwee last week-
Ah, Susan.
Does it mean that she's elevated as a contender for your role?
Women power now, right? Women president movement.
We don't know that. We don't want to speculate, right? But certainly we need some movement.
Thank you, Mr. Wee. I think that was a very fruitful conversation. That also concludes our results announcement today. Thank you, everybody, for joining us this morning, and we wish you a good day ahead. Thank you.