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Earnings Transcript for DBSDF - Q2 Fiscal Year 2021

Operator: Good morning, everyone. Thank you for, for joining us on our results briefing. I'd like to pass it over to Piyush, our CEO and Chng Hui, our CFO.
Piyush Gupta: Thank you. I am going to pass it on to the Q&A, because they're not that much I want to share what we said in the previous exchange. Operator, can we have the first question please.
Operator: [Operator instructions] There are no questions.
Piyush Gupta: Operator, do you have any questions?
Operator: First? We have data [indiscernible] from Macquarie. Your question please.
Unidentified Analyst: Thank you very much. Thanks. DBS team for the comments earlier. I guess I'm just trying to square the credit quality outlook, just a couple of questions. So let me, if I can Piyush, the full year you're saying that provisions won't be any more than $500 million but that suggests up to $400 million for the rest of the year given the first half it's been very benign. And your comments earlier sounded very upbeat on the outlook for credit quality. So is it possible that this guidance is just too high and that we actually need a follower credit charge for the next two quarters? That's the first part. And second of all, I'm in the last quarter a little bit of release had to do is at the time sort of model adjustments, which took, I guess, macro variables. Can I confirm if that was a big factor this quarter, or if there was any sort of discretion at that came into the general release? And how much should the write back had to do with payments versus upgrades to the credit outlook? I'm just sort of curious to some of the mechanics and what we should expect for the rest of the year? Thank you very much.
Piyush Gupta: All right. I'll take the first question and Chng Hui can take the next door. The $400 is I use the word, carefully that I'm hedging my position saying $400. I think it could be a lot less because based on actually everything they're seeing I'm not seeing a pick up, I'm not seeing it come through. It's just that the final impact of the delta on consumer portfolios and Indonesia, Taiwan, etcetera, is still a little uncertain. So you could see some pickup from that. Second is, as the loans are coming off moratorium so far, I'm not seeing a pickup, but it could be that it's very early that, as you go down next two, three months, you might see a pickup in NPLs and therefore provisions related to the loans coming off monitoring. But if I had to make a bet right now based on what we have, I think there might be some upside to that number. So Sok Hui you want to talk to the other two, the modern this thing, as well as repayments?
Chng Sok Hui: Yeah, so I understand your question to be around the general provisions. We said that there was a net repayment, a net right back of $275 million. And the last part of that came from payments and credit upgrades. So the way the model works, you should expect some reduction when cases move into MPL, because that's how it's supposed to operate. Your immediate general provision to go into specific provision. Within the category, you will get improvements also when in methodology, you move from say week to read or to that's an improvement in the credit quality of the borrower. And that corresponds to typically a counterparty risk rating upgrade as well. Or you put it right back from a maturity or simply repayment by the borrowers when they refinance us. So for a number of reasons, these were the ones that contributed to the $275 million of which both the institutional banking and retail banking both contributed the larger component from the non-retail base. The downgrades were largely sort of offset by -- the downgrades were largely offset and we had repayments totaling -- resulting ECL of about $75 million reduction upgrades about $37 million reduction and some due to just a reduction in maturity and within the stage two improvements in the ratings from week to read or read to inbox. So these were the main drivers for the sort of $75 million right back.
Piyush Gupta: Let me, actually to give you a different perspective on that. Our total general provisions are about $4 billion and change. Out of that about $1.5 billion are what we call model overlays. The model overlays reflect downside scenario that we take and we build provisions in case something happen. So about $2.5 billion of that reflect what GP we keep because it gets built up one model. The modern GP of course, is a function of ECL and the problem with your default, loss given default and the risk rating of our portfolio. So when the portfolio is getting improve, either because the customer has upgrades or the customer's actual outstanding fall, because they pay us back and so on, then that obviously results in an improvement on that model component right and so that's a part of what affects in the GP.
Unidentified Analyst: Yeah, thanks. And many years ago, I actually was a scoring corporates for the credit quality. So a little bit has to do with the outlook. If I take the comments carefully, it sounds that the actual right back was $75 million and the improvement in the outlook for these customers is %200 million. Am I reading that correctly?
Piyush Gupta: It's not outlook. It might be also the outstandings. So if a customer's got a $1 billion loan and he sort of pays it down. I don't count it in the payments not fully paid. It's just the outstanding for the customer in this current category reduces,
Chng Sok Hui: Or it could be that the maturity of the same loan, actually shortened. So our methodology takes into account the maturity profile against stage two.
Unidentified Analyst: Yeah, Sorry just to be really clear. Do you have to break down between the three, like how much of it was repayment? How much was it because of maturity shortening and how much was it because, the opinion was that the optimist prospects has gotten better. So that's what I really want to understand.
Chng Sok Hui: Of the current $75 million about $18 million will be due to the retail and retail has come off because a lot of the general provisions that were set aside last year was much higher given the outlook and given that unsecured loan, they have either actually sort of provision in been moving to a specific provision all of the loan base has declined because we are actually not doing some not going from this portfolio. So the retail ECL has declined by about $18 million. So the balance is really from the institutional side and on the institutional side, I mentioned repayment would contribute about $75 million upgrades about $37 million. And then the others are all due to maturity and other sort of improvements from the modeling point of view.
Unidentified Analyst: Okay. Thank you so much Sok Hui. Thank you very much. I'll pass that right now.
Operator: Thank you. Next we have Melissa from Goldman Sachs. Your question, please.
Melissa Kuang: Hi, thank you very much for taking my question. Maybe just a little bit back in terms of the provision, did I hear right that you have still $1 billion overlay, management overlay over the provision and does it mean that you're still keeping it and perhaps you might consider maybe releasing it next year of things are really better? Then secondly, just moving on onto the margin, can you just give a little bit more of a split in terms of default this compression what it actually made up off, and perhaps in the second half you mentioned that there'll be pressure. Can we just get some indication of how margin might trend in the second half of this year? Thank you.
Chng Sok Hui: So the overlay that we have is actually about Piyush mentioned about $1.5 billion, right? So that is the amount that we set aside partly last year and partly built up in previous periods to cater for kind of stress then. So we are likely to write back the entire amount of overlay because in our modeling they'll always be something that would cause us concern and prior to COVID we have also overlays to cater for example, the geopolitical pensions, et cetera. So a good gate is the I said we are $800 million above MES minimum requirements. So that's one sort of guideposts you can use on potentially if things really improve how much we can actually release. Melissa, does that answer your question.
Melissa Kuang: Yeah, so then can I just check back in terms of when the -- what is really a normalized credit cost? What can we expect normalize credit cost? So then I can kind of like $800 million offset that what possibly can be things are really, really better.
Chng Sok Hui: Well, we expect that this will be released in tandem with, I guess, the outlook for the economy in particular also whether travel restrictions are lifted. So we are going to take a conservative stance and it's not like we're going to release an entire month. So it will be gradual and will be in line with what we are seeing on the horizon.
Piyush Gupta: Melissa, what we've said in the past is that, about 22 to 25 basis points should be a normalized cost of credit in the past. I think a normalized credit is against all of this noise from building up a provision and release a provision. It is likely to be sub 20 points. I think that reflects the quality of our portfolio and our processes as we are today. The cost of credit SPs in the second quarter was 14 basis points as you can see. As Sok Hui pointed out, we do think that we've been very conservative in building up our buffer and so things really get much better, we do have the capacity to reduce some of those. Some, I think will automatically reverse because of what the earlier question from Macquarie was. The model that push us to improve as the customer's credit quality improve or will come down, some of it will unwind because of that. This balanced $1.5 billion, which we've kept as an overlay, Sok Hui pointed out we're not going to release all of that. We always like to keep some in our hip pocket because you never know what might come alone the road in excess of models. But we have the opportunity to do that as well. So the way I would work our model is to look at a standard cost of credit in that 18, 20 basis point range, and then adjusted up and down depending on what's happening to provisions under that.
Melissa Kuang: Right. Thank you very much. And on the NIM please.
Chng Sok Hui: Yeah on the NIM, I think you're referring to second quarter versus first quarter where we saw four basis points decline, and that's really a function of the surplus deposits that we have, which are then deployed to mainly central bank sort of business central bank. So I think you heard the response earlier, so these are 0% basis. They do not take up capital. They can be accretive to our income as well as bottom line. But it does mean that we have some volatility due to the interbank interest rates. So this quarter is down a bit. So you see some drag from the surplus funds that are placed with central banks.
Piyush Gupta: Melissa I think that's the bulk of things. Two other reasons, one light bar and high bar came off this quarter compared to the first quarter by two, three basis points. So that has a little bit of an impact. And then obviously the flow through, into the rest of our fixed income portfolio, there's still some loss, there's been an impact of that. But outlook for it in the beginning we guided for it NIM of between 145 and 150 for the I think our NIM for the year will be at the low end of that 145, which means that you will still see a little bit of a drag of a couple of two three basis points through the back end of the year.
Operator: Thank you. Next on the line we have Terence Chua from Phillip Securities. Your question please.
Terence Chua: Hello management. Thanks for, thanks for taking my question. I have one question. What is the percentage of loans coming off, loans moratorium? And my second question is which sectors are they coming from?
Piyush Gupta: Coming off loons in moratorium or the loans in moratorium?
Terence Chua: Loans in moratorium and loans coming off moratorium.
Piyush Gupta: Well this is very difficult. Okay, let me add that we had $5 billion in the mortgage moratorium in Singapore. We another $5 billion in the SME moratorium in Singapore, that's a $10 billion and at its peak, we had about $7 billion or $8 billion in moratorium in Hong Kong. So $17 billion or $18 billion out of our total loan book of about $400 billion. So that was about 4% of our loans were at its peak in moratorium if you will. Right now we left with a $0.5 billion in mortgages, $400 million in SME and about $1.2 billion, $1.3 billion in Hong Kong. So about $2.2 billion , $2.3 billion on $400 million. So we left with about 0.6% 0.7% of our loans currently in moratorium. On top of that we have the ESG loan, which has a 90% government protected, but that's another $5 billion, a lot of ESG loans. The risk on that is about $500 million for us. So we wanted to throw that into the pot. Then I'd say everything put together is about under 1%m 0.8% or so maybe.
Terence Chua: Right. So sorry. Just to make sure I get it right. So about 0.8% of loans are currently under moratorium. Is that correct?
Piyush Gupta: No. I the only 0.6% are in the moratorium, the point is if I add ESG this loan. So I think about 0.6% are under moratorium.
Terence Chua: Yeah. Thanks so much. Thanks for thing that's up on me. Thank you.
Operator: Take your Terrence. Next on the line we have Harsh Modi from JPMorgan. Your question, please.
Harsh Modi: Hi. thanks for the call. Three questions. First is if we start thinking about '22, do you think, is it fair to say that provisions should be in line with '21 or lower given the extent of GPU and whatever is a central base case right now for asset quality?
Piyush Gupta: So Harsh I tough for me to seven and I'm doing my budgeting for next year. I'm not planning to budget at this year's low level. I'm planning to budget that the through cycle level that we've had. And the reason for that is that at the margin, the net impact of the government's fiscal and monetary stimulus responses finishing in many of the country is still relatively unknown. So, and that's the only thing I can tell you what happened because right now in every country, the government is still providing some form of support in one way, shape or form. And that's one uncertainty, the uncertainty is the people. So if you figure that liquidity starts draining out and because of taper and it starts seeing some pick up in days that's another uncertainty. So I would rush to say it and be as good as this could be. You could be right, but it's just the unknown yet about next year.
Terence Chua: Okay. That's fair. Second one on Casa kind of similar questions Piyush 13%. They had multiple parts to it returning more capital reinvesting the capital as you have been doing, most likely to some combination thereof, but how should we think about timeline towards that 13% and the path towards 13%?
Piyush Gupta: It might happen tomorrow if we wind up being all the city deals? So that's a cute way of saying that part of the answer is a functional, do we do any M&A or not? And if we wind up not doing any M&A, the city, these are -- don't come through or we don't want to do them, which is equally likely. Then we go back and take a more aggressive view on what we want to do with capital and capital management.
Terence Chua: So going with that logic by, let's say next six to max 12 months, we should see some conclusion on the three markets you talked about Indo, India, Taiwan. So then is it fair to say that by the time you're thinking about final dividend are at max interim dividend next year, we should have a much better clarity on the dividend per share and sales numbers.
Piyush Gupta: June the dividend per share, always be that we will continue to increase it steadily over time, and that policies still remain. So if you are making more money, we will obviously pay out more. The eminent thing is the immediate possibility, but of course, over the next couple of quarters, I still wanted to keep my eyes and ears open if the other of these bolt on deals that come on -- become available because of the maximum environment. And those could be banking or non-banking deals. But yes, I think over the next 12 months or so it is reasonable to say that we should have a good sense of, of anything else that comes along our way in the back of this crisis. I remember the two deeds you've done, basically what an outcome of the crisis, or some of the things we've got an opportunity in. So I am keeping some powder dry that something else might come along. And if it doesn't, as things become normal, then we'll go back and take a fresh look,
Terence Chua: Right. And just on that what kind of internal hurdle rates are you solving for any of the deals, regular broad guidance on IRR or payback, anything on those thoughts?
Piyush Gupta: As we said before, I wanted make sure that the deals become accretive in about three years or less which means they've got to return cost of capital and of course that.
Terence Chua: Okay. And finally one Laxmi will ask how's your progress there and any milestones that you would want to suggest that could be REIT or that you're aiming for let's say by end of the year for that deal?
Piyush Gupta: Laxmi I'd say good news and bad news. The good news is that things are proceeding on plan in terms of integration and in terms of credit quality. So we've actually been getting the payments on some of the stuff we provided for earlier. Integration smooth, deposits are up, cost of funding is down 60 basis points. Gold loans are up for the year. So all of that is proceeding well. The bad news is that because of the India pandemic and COVID situation, we are about two, three months behind in terms of actually being able to sweat the franchise and that's deliberate. I don't feel -- the franchises are not consumer, SME etcetera. And I'm reluctant to push the pedal on that just yet. Still I'm more confident, secure about what the overall macroeconomic situation in India is. So that part is a little bit slow. In terms of therefore the thing to watch out for by year end, I think year end might be a little early because of that. It's still -- we've been in to dial up a bit, we're being very careful about dialing up. So I think the chances are we probably have better line of sight to what pickup we should expect next year, rather than in the next quarter or two.
Terence Chua: Okay. So, so just final question on that Piyush that let's say by end of next year, do you get to a point where you become comfortable enough to inject more capital where now it is genuine growth capital rather than precautionary capital so to say like by when do you send steady-state debt,
Piyush Gupta: No, no. I want to stay that if you look at our current view, we think that over the next five years we will actually put a lot more capital into India because the expanded franchise we have gives us very significant growth opportunities. And so we have a very ambitious growth agenda for India on the back of this acquisition, which will take capital for, at least the next two, three, four years before it starts leveling off.
Terence Chua: Right. No, exactly, exactly. So that's what I'm going to guess that in terms of timeline, when do you get enough confidence to go back to the board and say, all right, this is the amount we are we have enough of a track record now to, to commit this much of capital. And that's the speed I'm trying to figure it out. When do you reach that?
Piyush Gupta: We've only done the book, so a plan in place actually you know, haven't taken it to the board yet. We will do that in the next couple of months to get board blessing, but you know, informally, we run it through this thing. I mean, it is an ambitious plan and the board is fully supportive of it. I mean, the board basically took line of sight to that, then the approved during the DS.
Operator: Thank you. Next is Nicholas Teh from Credit Suisse. Your question please.
Nicholas Teh: All right. Thanks for taking my questions. Just have a couple of questions. Firstly, wanted to ask on Hong Kong, China specifically, I guess, with you know, rising cases in China and shutdowns there and also the delays in border reopening in Hong Kong. Have you started to see any impact on the accounts there? The second question I had is on the deposit side you know, the positive growth has been very strong and any sense or any thoughts on how to think about whether these deposits could be stickier than what we initially anticipated and hence, you know, starting to think about deploying some of those deposits into higher yielding assets rather than with MES. Those are my questions.
Piyush Gupta: Yeah. On the first one, the short answer is no. I mean the increase cases in China and the border is not hating any incremental downside. I had been dead. You got to remember that in Hong Kong we've been before the pandemic. I said, because the China us tension and the technology supply chain. So these should have been with us three years that we've been managing based it to that. So I think we've actually said quite well. I don't see any further downside in China. Back To military economy comment in the media discussions. But when you look at the translation of that into the macroeconomic indicator, this is a sector. And if you will like us, don't have a consumer book in China and do them in a semi book in China, it's unlikely to make any material impact to our portfolio and our kind of business that we do on the deposit. I think the answer is some, so I fully expect that some others massive deposit in Greensville runoff but even the taper happens with parts. Even in tests, they start picking up, it says there's too much money sloshing around now how long that takes is anybody's guess it's not clear to me that the central banks will be able to eliminate this liquidity anytime soon, if you think about the GFC, right? The fed in glazing the balance sheet to what, four and a half trillion dollars, they wanted to bring it down to subsidize two and a half. I remember they got a 3.7, 3.8 and then went back up. Now this time they put out $12 trillion. So how long it takes to squeeze the liquidity out of the system is anybody's guess, but I don't see it as a bidding soon. I never did at some stage, if you assume that liquidity, that liquidity starts going, as in how the second part, how much of that is sticky with us. I do think that there's a fair element of that because a lot of the liquidity that we've got is outside and its operating accounts liquidity, 70% knowledge that reflects operating balances that we're getting. And a lot of that has to do with the digitization and the API connectivity and the engine and supply chain integration and all the work we've done. So if I had to hazard a guess, I would say 30, 40% of the surplus liquidity was stick. But again, this is again, more than anything else, but how do you use that money? It costs you can put the money to work, but on the other hand, you also got to have a view on the risk who do you want to give the money to? And that's part of the earlier question from heart. I do think eventually we get put the money to work with the growing the SME and the consumer franchise, but you got to be thoughtful about the time and when you want to start doing that. So for the time being, you've already been continuing to grow a business in the last corporate space, I've been very careful about the risks we want to take and the more risky segments of the market. We'll get them in the economy, stabilized some more.
Nicholas Teh: Okay, got it. And can I, just slip one last one in and us know what your stake in the carbon exchanges. Stick in? The carbon exchange is a, I'm trying to remember.
Piyush Gupta: We were originally 25. I think we might be a tad bit below that now.
Chng Sok Hui: On the revenue opportunity, like the $200 million number that you talked about earlier, I'm just wondering, like, what is the expense code associated with this group of businesses? What would be the cost income ratio for this group of businesses? If you have any idea on that Actual expenses associated with everything other than Luxembourg allows, bang is not more dealer. the on the luxury will bang expensive materials. So right now the cost income ratio, the bang is close to a hundred percent. That's not a hundred percent actually. It's no as including the provisions and credited it's about predictive maintenance, But it's close to breakeven. Yeah. Okay. So really it's just mainly that we would meet thinking about from an expense perspective, not the other businesses because of the existing expense. Actually the expenses are going to be reducing because then when the expenses come to a large extent from a franchise, you're already rationalizing the franchise. We need a lot of it, but not all of it. Also headcount. When we got a BB, we started with 4,000 people. We already down to 3000. We already down to 300, we already down by 600 people as part of our integration and actualization. So we will see improvement in the cost income ratio for ABB as well, but the cost income ratio is too high.
Nicholas Teh: Okay. Got it. So if I can just you know, also ask you about the impact this has on your long-term. Are we targeted, like telling the boss that even talking to 13.5% is where you think the business should be when rates recovered to the pandemic level. So does this new you know, growth initiatives have an impact on that target? Or is it still broadly similar?
Piyush Gupta: Oh, I know I give him this indication some years ago that as we continue to try and find alternative avenues of growth in a structurally, the Roe of the company will keep improving. But you know, it takes time for that structural improvement to trickle through the system where we look back over the last five, 10 years without a doubt, the fact that wealth management today that, you know, half a billion in business for us, all cash management makes us do good in all of that improves the structure. Are we? And that's why I always gone up from eight and a half percent to 13%. A lot of that is the structural shift in the nature. So all of these activities will continue to help that. And, but, you know, in a given year, you're lucky to see 0.1 0.2% from these activities is collectively over a period of time. They can look back and still care about half a percent or something up from these activities that we've done.
Nicholas Teh: Okay. Understood. And then just on a related note, we've talked about this 40% TIR in a steady state. Again, you know, something that we discussed in 2017 what's the progress towards that and how you're thinking about that number now.
Piyush Gupta: They continue to work at this. Some of that of course is a function of income and the 40% is the biggest, the thing on that is interest rate. So they interested in back to the income line between last year and this year is almost $3 billion, $2.8 billion. And that becomes much harder to get a 40% issue when your company has got certainly impacted by that. As you know, from my income clawed back, most of the three from other things we've done, but net income Mr. Down from that level. So we need to see some benefit from the interstate to improve the cost income ratio as well. Yeah. So the best indicator to look at, it's always disclosed in our annual report when the cost income ratio for the digitals segment that we tracked you, consumer banking and SME in Singapore and Hong Kong, excluding the sort of benefit from rates. You actually see the cost income ratio is actually improving your near or at least stable in the period where I read something.
Nicholas Teh: Okay. Thank you. And then the last one I have is on the crypto business. Do you know, what's the progress in that and this latest crypto license that is branded that MES? How critical is that for your business? Is that a positive in general for the ecosystem? Do you think?
Piyush Gupta: The second question, frankly, I don't know the answer. I've just asked my people this morning to try and understand why the crypto license is any different from the crypto license we have, if it is different at all. Because the FDA reported that this is the first crypto license, and I know that, you know, the C4 extended before us and we certainly have a license to do everything. So I'm not entirely clear what the difference is I'm going to find out. So I don't know the answer short on the first one, I'm actually quite happy. So we've now gone and I've got to attack under 400 customers investors on the exchange. We did about 171 80 billion of trading volume. In the quarter, we have got 130, one 40 million of assets under custody in that business. And as you know, you know, we've been selective in our mass market because just the total noise around this is a challenge. My target is to get to about a thousand customers. By this, now these customers obviously are active and trade. Well one of the things that we need to do, which we're going to do by the next month or two is make it a 24 7 exchange. We started off as an exchange of operated in the ancient times or a large part of this activity actually happened. I would say the patient time zone. So once we do that, I expect the volume of activity to pick up a lot of combined. I'm quite good, quite well.
Operator: We have Robert Kong from Citi Research.
Robert Kong: Hi everyone. Thanks. Thanks for the opportunity. I've got some bits and pieces of questions, but I'll start with my main question. Just thinking about the, the math around capital.
Piyush Gupta: So let's just start with the 13% teach you one ratio. You know, you've got a return on risk weighted assets. I think it was something like 1.9% I think, and maybe a sustainable RWA growth might be a high single digit or mid to high single digit. So with those sorts of parameters, what would be the optimal or neutral payout ratio if you were starting at a 13% CT, one rather than the currency, do you want, I just trying to get a sense of the math. Robert. I haven't done that math, but it's part of our system goes back to what I told her. It depends on our outlook to M and a and so if we need to keep any capital buffers, we think opportunistically, we can do those bolt-ons and bulk up either in line of business with SME maybe some digital activity. We might want to keep some cushion for that in addition to the organic 68% growth rates that you're talking about. So we have to keep that a little bit for that as well as you do your math but if you look at where we've been in the past, we've been able to get up. We out the show into the high fifties. In fact, we probably got close to 60% as well. I hate working with a PR issue because you know, that I get committed to a number and I, if I need the flexibility on quarter to quarter, it's not that easy. So my guidance is we keep looking at the income we generate and make sure that we are very consistent in the dudent pay out relative to the income that we generate over time. So are you able to offer any thoughts? So I think the PR ratio currently is about close to 50% anyway. So the other sort of timeline to watch is 1, 1 20 23. When the new bottle for bottle four is puzzled three, we formed finally kicks in on capital flow, right? So I think with a slew of changes, it's going to be beneficial for us. So we are less likely to be impacted compared to I guess a lot of European banks. So there's models that are overly sort of calibrated and probably fit some constraints or they're very high carry shows will be brought down. So that'd be another timeline when we can sort of calibrate and see with the sort of improvement in the carry show. How do we assess the surplus of capital? The rubber part of the thing for the time being the reason we've not, we're not being more specific is, you know, the regulators are also still very, really about how much capital we return. So while they removed the restriction there were also very specific in the guidance about removing restrictions, but we need to be very careful about what kind of capital return you're doing. They call us several times to make sure you're not going to offer a new share, buy back, for example. So we've got to keep a little bit of eye on that as well.
Robert Kong: Okay, thanks. So I have some bits and pieces questions. The 30 billion excess deposits, who could I argue that your adjusted NIM is closer to 1.5.
Chng Sok Hui: it's roughly five basis points the impact. So it's about seven basis points. In fact, I just do the work visit day, but when I tapped it, I thought that back is about seven business points.
Robert Kong: The next one is are there any interesting wealth portfolios that you know, you know, possibly out there for sale, is there any more consolidation that you could see in the industry because that's obviously one of the ways that you grew, over the last, you know, several years,
Piyush Gupta: Well, I'm not seeing anything imminently though, you still continue to see people who want to exit the region and every one or two people thought died, but I'm not seeing anything imminent. No, by the way, just to set the record straight the two inorganic these brought some benefit to us in terms of EDM, but number three is the bulk of our growth. Invest management has been organic growth. Okay.
Robert Kong: And then is this is a slightly tongue in cheek question, but it was an issue. I had an initial discussion with an investor the other day. So you may know that in Indonesia all the traditional banks are getting very jealous because these small digital banks, which doesn't make any money are being traded almost at the same market cap.
Piyush Gupta: So the question is, is there a way we could split EDS and say, no, we know that roughly I think from the annual report, 38% of your businesses, retail, and I think 72% of that is now digital with an ROE of two times out of the traditional. I'm just trying to think of it in a way we could split your digital business out and we give it a slightly different valuation, some of the parts or something like that. I just want to try to think of, there's a way we can do that. So Robert, this is music to my ears. If you know, this has been my big bugbear for the longest time. The only way you can do that is you need to pass on the function from you to your technology colleagues, because my guidance has been that because all the research world looks at back to your EBITDA model and it's the Roberts of the world. Who've done this for the last 30 years. It's how you think. Whereas your technology colleagues are open to say, I'm going to give you 80 times valuation or revenue. All the traditional banking work has been like, you saw what bill winters said yesterday. He has the same thing that, you know, we've got some fantastic, not only digital and revenue generating businesses, but your models don't pick it up. Whereas there your tech colleagues models take it. And then they fly them to the sky. Now, when we did our 2017, when we unbundled the bank and said, we'll show you exactly line of sight between our digital activity, what is the defense of that activity? What it means to our share, what it means to our revenue, our Austin combination, and Roe does exactly what we did. So today for half the bang, we actually show that exactly what it means in terms of improvement and growth Roe and the thing. But unfortunately, nobody sort of taking that into this part of the bank. We should give a different valuation tool, so that hasn't really worked. One of the things that we are actively considering, I think what gloss would say is to see whether we really need to look at, start unbundling some of these activities from the mothership. And then once you do that and maybe get some private equity interest in some of those activities then they'll get started getting covered, not by you, but by our tech colleagues. Let me give you an example. One of my period examples, which I'm actually looking to see if we can do we have this product called remit. Our remit product is like TransferWise. We do instant transfer in some 60, 70 countries around the world. Our total volume of business is meaning meaningful. Let's say the last I saw it's about 15, 20% of the volume, the TransferWise that around the world, but our profitability is massive because that business makes us 60, 70 million bucks in the bottom line, which is a lot more than white mix, right? If I could unbundle that business, why is this last value, $11 billion. There's no reason in my mind why this business should not get a valuation of anything between five and $10 billion. It's hidden inside DBS. And the fact that our total market cap is 55. Lupis. The fact that I got a five to 10 billion business lingo there, and if we just compare it to the TransferWise business, it's actually a better business and does the same thing. If I could take the business and spin it out into a separate entity and then get you know, some talkback and an investor to come and put money on it at that value, maybe somebody starts seeing that this business is there, by the way, this is not the only one. We've got a whole slew of businesses where we think we have the capacity to take them and spin them out at the stage. It's something we're going to be looking at activity over the next year or two.
Robert Kong: Okay, good. So, thinking in the same direction now, I was just trying to think of how to do this. I mean, you've got, let's say your consumer bank wealth bank, first half profit before allowances over 1.1 billion.
Piyush Gupta: If I could separate out a certain portion of that and say, this is your digital customers, we could put a separate Roe on it and a separate valuation on it. These are, this is the way I'm trying to think about it, but it's just hard to do it with the existing public number. Well, we actually disclosed that. And when we moved the last time we disclosed that. So it's an annual report. They go back and look at our report. We started disclosing that in 2017 and we have a very rigorous framework, which we develop. So a customer has more than 75% of the activity digitally. We call it digital customer and we build a complete PNL for the digital customer, fully allocated, all costs, allocated all credit allocated. And for that segment of customers, we demonstrate the growth rate of the segment. We demonstrate the cost and completion of the segment, and we demonstrate the, are we are the segment and it's not one that's quite material. So if you just go back and take a look at it and the students is there.
Robert Kong: Okay, I will. I mean, I'm trying to, I'm trying to figure out how to do this. That's why I'm asking the question. It's also the similar question, your, your wealth business, what kind of ROE can we attach to the wealth business?
Piyush Gupta: Again, we have the, the revenue number in your consumer disclosure, but I'm just trying to think, is it like a 30% artery business? It's actually north of 30% Roe business, the web business because you know, effectively, it starts the recent times. Of course we have some credit portfolios in the business because of some leverage, but nothing that there's only operating risk and no other risks, but now there's some crisis, but even then it's not 30%. And by the way, the same thing, I think the other business I have in debt, which is doing so well is the retail wealth distribution. I talked about it before that we've launched is end to end budgeting, planning, financial planning. It's at a business like, you know, the child Schwab and Robin hood kind of a model we've got full or two and a half million people who I say, how many have downloaded the budgeting tool? No, two million people have downloaded the budgeting tool and a million people are using the budgeting actively. And the number of I've got a billion dollars now from that in regular savings and digital portfolios, which are all managed digitally. Now, if I unbundled that business, it's also got this open banking element to it because I give an aggregated balance sheet drawing balances from everywhere. If you actually take the business and compare it to any Texan business, who's in the space, I think we got better capability and we've got the revenues and we've got the customers. So there's other ones we tried to see. Actually, we've got a lot of interest from third-party players who want to try and see if they can participate in that activity, or we can spin it out to them. But that part of the business loss of very attractive, not just the high end web business, which is obviously a, not the 30% Roe business.
Robert Kong: Okay. I think we're thinking in the same direction. Thank you. Those are all of my questions. Thank you
UnidentifiedAnalyst: Thank you. I just wanted to kind of get some more color on the slide for your proposal, especially on the acceleration part highlighted this is a bit more color in terms of segment and what does incrementally leading to that acceleration a bit it's more benign or more the deposition even an expansion in the weapons having that, and especially also the application I'm saying
Piyush Gupta: Three things I had there. One was the security JV in China. That's a demand thing. I think the China capital markets opening up is a big thing, which is why everybody's trying to get in there with the sort of investment banking capabilities our JV, which we are up and running with. We have 51% of the balances held by various entities, the Shanghai government, but we have the option to buy the bank 49% over the next two, three years. So it can be a hundred percent owned. That business has actually got off to a flying start because we're have an active pipeline of mandates both in the Asia market, but also helping us originate the Hong Kong market across the board this year BCM. So I'm actually quite bullish on that, but that's that demand side consideration. I think the market is going to be big. The other two things I had there were retail. Well, I just spoke about the retail, essentially. You're on the same log, you know, prominent. If you look at the last 12 months around the world, the retail investor is getting more and more active and participating in the market. And because our timing has been good, we got this complete end to end process, right from budgeting, planning, softness advice, and it all goes digitally and driven by AI. And contextual, we are seeing a significant pickup in that activity. Now that's because of our digitization coupled with the fact that there is a market change, the retail, the retail investor is we need to be more active in the spaces, but the last thing I had there was a supply chain and the supply chain is also a macro element, as well as that digital piece. The macro element is last year in the supply chains you know, started giving people arms. The biggest thing people started looking forward to pricing efficiency. How do you digitize the supply chain and particularly how do you get good transparency in the supply chain? So level two, level three, level four parts of the supply chain. Now we had as part of our digital activity in the corporate side built out this whole slew of API focused on that to be able to plug ourselves easily and seamlessly into various supply chains. And so we just decided to go for a line graph over the last 12, 18 months. We went to every industry company. We could find everywhere and said, we've got the tools we can plug them in, and you can get digital visibility in the supply chain. So we're seeing a massive pickup in our volumes from logistics auto TMT, a whole range of this thing, where we plugging into supply chains, providing digital connectivity and visibility, and that's giving us data throughput and data business.
UnidentifiedAnalyst: Sure. Thanks for the complete chain API connectivity directly with your customer to ecosystem player, Syntech players in that
Piyush Gupta: It's actually a three level. So one is directly with ankles customers. So there'll be some cases where a large anchor leads the effort to digitize their supply chain. We plug into that second is to the platform. So we are plugged into some of the biggest platforms now in the region, especially for some of the Chinese platforms within their platform. So we plug into that and through them, we participate in the supplies and buy it. And the third is actually an industry level. A lot of that is in Singapore. Where have you been able to digitize and plug into the construction industry, supply chain, for example, building and construction. We also plugged into the logistics in the supply chain, the tractors hauliers warehouses in Singapore. So I, so at all, see that was an anchor level at platform at an industry level. We've been able to do that and all of that.
UnidentifiedAnalyst: Sure. So return on investment in this business would be much higher…
Piyush Gupta: Yeah, but there's two things we're seeing three revenues we're seeing right now. The first, obviously we get a lot of the operating accounts while the people in the supply chain, the supplier, the buy people tend to operate, we get cash. That's not worth that much today because it's a low, but eventually I think that'll be worth a lot. The second is a financing and financing is obviously the financing spread are much better than our traditional spread. It depends on you know whether we take an anchor risk or whether you're taking spoken, but it's, it's definitely better. And the third is some of the supply chains across borders. So we get an effects component, which goes into our effects thing as well. That's it last thing on your phone, there could be a film that a majority of that bucket.
UnidentifiedAnalyst: No, no. The third bucket supply chain retail, I didn't count in the CFT. So that is like our business as usual growth. We didn't count on the [indiscernible] the first two buckets and the security joint venture.
Piyush Gupta: Okay. That's interesting. Thank you.
Operator: Thank you. Next question, please.
UnidentifiedAnalyst: Hi, thanks for the opportunity. I think last quarter at PSU, talk about in normalized Roe off, 10%, 10.5% of 11% and if interest rate is coming back then maybe 11.5%. Now that you also now mentioned that you'll credit cost normalization will be more like a 20 basis point instead of 20 to 25. And to mix of going to higher, our AP says like a teacher, the bank and wealth management is, this is going up. Wonder if you have any updated view on the normalized, are you in the in the cycle? I don't know. Maybe you should pull out the basket and remember thing, a normalized Roe is 10 to 10 and a half percent in the current interest rate environment. Yeah. So that's always said because where we are in the sec, you can get. So the zero interest rate environment but it go back to what the interstate pick up with zoom. You can get the piece that a couple of percentage points pick up an Roe if interest is go back to a pre pandemic kind of normalized level.
Piyush Gupta: Right. So correct. And we should be able to get 13% Roe and normalize interstate environment. then this was back in Minnesota, someone. So all of the other stuff we talking about, which is improvement in the nature of our business businesses, better returns, businesses, more dismal businesses. I think eventually those are produced ingredients. So I think you mentioned you can see yourself getting up to 14, but it's not overnight. That takes a lot of time for these to trickle through. I see. Thank you.
UnidentifiedAnalyst: Hi, thank you very much for taking the question. Two questions from me, actually, the first is just on costs and I heard the answer before on longer term cost, but for this year, are you changing your cost guidance at all? It was three to 4% above 2019 levels. And obviously you got the 2% from Luxembourg numbers, but you've actually got sort of zero growth on the, on the underlying. So does that mean for this year? We're just going to see the luxury Villa impact that year on here and pretty much flat from that.
Piyush Gupta: I think that's correct, Nick, our actual costs are slightly higher than we anticipated because there'll be pressures and respond to that, but we've been able to save that on other lines. So we should assume that. So if I look at just do I get the years, right. 20, 20 casts and stick a couple of percent on electromobility that's roughly going to get me to where I should be up from last year, month from LBB.
UnidentifiedAnalyst: That's right. Yeah. That's wonderful. Yeah. But you're not running at that rate at the moment. Yeah. That's no, no, no,
Piyush Gupta: No. But yesterday yeah, yeah, yeah. [indiscernible] Right. He doesn't let's talk two percentage points also came from hospital from LBB.
UnidentifiedAnalyst: Yeah. So you're up about a percent underlying yeah, roughly. Yeah. Yeah.
Piyush Gupta: The benefits of some government grants last year, that's a smaller components on the line it's really quite flat in 2019.
UnidentifiedAnalyst: Okay. And my second question is on loan growth. Obviously, you know, from what I mean high single digit and, you know, from what you in the, the media Corp looks like it was going to be at the top end of that. Given everything you know today about pipeline sort of economic view, do we think about sort of growth rate we can repeat into '22 as well.
Piyush Gupta: I think the look at Brian's own book, there are C elements of the loan book. The one is the corporate lending space with reflects masses of macroeconomic activity that I think you'll see, repeat because the moment and very strong, and then the problem the client's already about [indiscernible] investment, like the them activity and so on. I think that should be repeatable. And the second part of the loan book is a trade finance book. And I mentioned, mentioned over the years, the book goes up and down. It gets impacted by commodity prices. It gets it back to practice. It also gets it back to my own actions when the pricing gets too unattractive. We just take the foot off that book so that like, you know, 6 billion of growth in the first half of the year. And so that is a little bit less than a part of that billion is the work, the stuff we talked about before the supply chain financing that is growing nicely. So that will grow. But the other part of this is building in the more opportunistic cross border trade stuff. So that is uncertain. And then the last part of the loan book is the consumer. And whether or not that is a mortgage book, which, this year we've got about 3 billion. I think we should be able to get somewhere in that range unless the markets change dramatically But the other part of that is the wealth leverage. And that's another people building the west, every is a function of the markets. You know, how much people want to lever up or not. But you know, given my outlook on grades, I don't think it is going up dramatically next year. I don't see any reason why that would change in a one-year timeframe. I think that's just the,
UnidentifiedAnalyst: Okay. So, so it sounds like the spring practice is really going to be the wealth, leverage him about yeah.
Piyush Gupta: That's what's going to change the outlook.
UnidentifiedAnalyst: Thank you. Lastly, we have Kevin's phone then Stan your question, please.
Piyush Gupta: I apologize. I didn't hear it clearly. When you said the intent is to pay them to make more money, did you indicate a higher payout ratio range? And if so, what is that on the basis of 15%? So you do one and again, we didn't give any [indiscernible], as you know, we don't give up your odds ratio always says that you will continue to play consistently high dividends over time in line with our earnings.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you. Thank you.