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Edited Transcript of D05.SI earnings conference call or presentation 11-Nov-19 10:59am GMT

Q3 2019 DBS Group Holdings Ltd Earnings Media Briefing

Shenton Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of DBS Group Holdings Ltd earnings conference call or presentation Monday, November 11, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Karen Ngui

DBS Group Holdings Ltd - Head of Strategic Marketing & Communications

* Piyush Gupta

DBS Group Holdings Ltd - CEO & Executive Director

* Sok Hui Lim

DBS Group Holdings Ltd - CFO

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Conference Call Participants

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* Goola Warden;The Edge

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Presentation

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Karen Ngui, DBS Group Holdings Ltd - Head of Strategic Marketing & Communications [1]

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Okay. Good morning, everybody, and a warm welcome to DBS' Third Quarter 2019 Financial Results Briefing. This morning, we announced third quarter net profit up 15% at $1.63 billion, and total income and profit before allowances were at new highs. The record operating performance underscores the strength of our franchise. So to tell us more today, we have our CEO, Piyush Gupta; and our CFO, Sok Hui Lim. Without further ado, Sok Hui Lim.

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Sok Hui Lim, DBS Group Holdings Ltd - CFO [2]

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Good morning, everyone. Thank you for joining us so early in the morning. We achieved a strong operating performance in the third quarter. Net profit rose 15% from a year ago to $1.63 billion. Total income rose 13% to $3.82 billion to a new high from loan growth, record fee income and higher trading gains. With expenses rising 9%, the cost-to-income ratio improved 2 percentage points to 42%. Profit before allowances increased 17% to $2.21 billion, which was also a new high. The results included a onetime tax charge of $38 million as a recent cut in India's tax rate resulted in a revaluation of deferred tax assets. Excluding the charge, net profit rose 18%. The reduction in tax rates from 35% to 25% will be beneficial for future earnings. For the 9 months, net profit rose 13% to $4.88 billion. Total income increased 12% to $11.1 billion from broad-based business growth. The cost-to-income ratio improved 1 percentage point to 42%. Return on equity increased from 12.4% a year ago to 13.6%. The balance sheet remained healthy. The NPL rate was stable from the previous quarter at 1.5%. Specific allowances for the third quarter were at 21 basis points of loans, in line with recent quarters.

The core capital adequacy ratio, net stable funding ratio and liquidity coverage ratios were all comfortably above regulatory requirements. Third quarter total income rose 13% to $3.82 billion. The growth was broad-based. Net interest income increased 8% or $187 million to $2.46 billion. Net interest margin was 4 basis points higher at 1.90% while loans grew 4% or $13 billion in constant currency terms to $353 billion. Net interest income increased 17% or $119 million to $814 million. The growth was broad-based and led by wealth management, investment banking and cards. Other noninterest income rose 35% or $142 million to $549 million. Trading income benefited from strong gains in interest rate activities. In addition, gains on investment securities doubled. Expenses rose 9% or $133 million to $1.61 billion, resulting in a 2 percentage points improvement in the cost-to-income ratio to 42%. Total allowances were 8% or $18 million higher at $254 million. General allowances of $61 million were taken in this quarter as a prudent measure given the uncertain political and economic environment compared to $9 million a year ago. The higher general provisions was partially offset by a reduction in specific allowances. Excluding the onetime tax charge for India, net profit rose 18%.

Compared to the previous quarter, net profit was 2% higher as total income rose 3%. Net interest income rose 1% or $31 million. Net interest margin was little changed. Net fee income was 6% or $47 million higher from broad-based growth, led by wealth management and loan-related fees. Other noninterest income rose 7% or $36 million from higher trading income. Expenses rose 4% or $68 million. Profit before allowances rose 2% or $46 million. General allowances and specific allowances were both little changed. Excluding the onetime tax charge for India, net profit rose 4%. For the 9 months, net profit was 13% higher, underpinned by broad-based growth in total income. Net interest income increased 9% or $574 million to $7.2 billion. Net interest margin was 5 basis points higher at 1.9%. Loans grew 4% or $13 billion in constant currency terms. Net fee income increased 8% or $166 million to $2.31 billion. Growth was broad-based with wealth management, cards and investment banking leading the increase. Other noninterest income grew $405 million to $1.57 billion as trading income and gains from investment securities were higher. Expenses rose less quickly than income by 8% or $361 million to $4.66 billion. The positive jaw resulted in a 1 percentage point improvement in the cost/income ratio to 42%. Profit before allowances increased 14% to $6.43 billion. Total allowances were 15% or $76 million higher at $581 million. Specific allowances were 19 basis points of loan, little change from 18 basis points a year ago.

Net interest income rose 1% from the previous quarter to $2.46 billion. Net interest margin was little changed at 1.90%. A decline in the underlying NIM, in line with lower interest rates was offset by an improvement in the treasury markets NIM. The 9-month NIM was also at 1.90%. We are now expecting full year NIM to be around 3 basis points higher than the 1.85% for full year 2018. This is below our earlier guidance of a mid-single-digit basis point increase, which was based on 2 U.S. rate cuts this year rather than the 3 that have occurred. Loans were unchanged in constant currency terms during the quarter. Non-trade corporate loans grew $2 billion from broad-based growth, led by commercial property in Singapore and Hong Kong. Non-housing consumer loans grew $1 billion from loans to wealth management customers. These increases were offset by declines in housing loans and trade loans. Housing loans fell $0.5 billion. While drawdowns in the third quarter were higher than in the first 2 quarters of the year, the impact was more than offset by repayments. The decline in housing loans was in line with the market. Trade loans fell $2 billion, due mainly to declines in Hong Kong. For the year-to-date, overall loans grew 2% or $7 billion in constant currency terms. Non-trade corporate loans and non-housing consumer loans grew 5% or $12 billion, but this was partially offset by a 3% or a $4 billion decline in trade loans and housing loans. For the fourth quarter, we expect sustained non-trade corporate loan growth. We expect trade loans to grow again and housing loans to post a slight increase. This is likely to bring full year loan growth to 4%, in line with our mid-single-digit growth loan guidance. Deposits rose 1% or $5 billion in constant currency terms during the quarter to $400 billion. Other funding rose $4 billion from growth in commercial papers. Our liquidity coverage ratio at 131% and a net stable funding ratio at 110% were above regulatory requirements.

Fee income. Third quarter gross fee income rose 16% from a year ago and 6% from the previous quarter to $951 million. The growth was broad-based. Wealth management fees increased 22% from a year ago and 8% from the previous quarter to $357 million from higher investment product sales. Bancassurance income was also higher than the previous quarter. Cut fees grew 9% from a year ago and 2% from the previous quarter to $202 million from higher activities across the region. Transaction service fees grew 7% from a year ago and 4% from the previous quarter to $119 million as cash management and trade finance fees were also higher. Loan-related fees were also higher than a year ago in the previous quarter at $117 million as there was more -- there were more major transactions during the quarter. Investment banking fees more than doubled from a year ago to $55 million from higher debt and equity capital market activities. For the first 9 months, gross fee income increased 8% to $2.70 billion from growth in all segments, except brokerage, which had a high year ago base. Expenses rose less quickly than total income for the third quarter and the 9 months. The positive jaw resulted in a cost-to-income ratio of 42% for both periods, which was 1 to 2 percentage points better than the respective year-ago periods. For the third quarter, expenses rose 9% from a year ago to $1.61 billion. The expenses included $22 million in impairment for some computerization investments, in part due to changes in regulation. We regularly review the usefulness of past investments in an environment of rapidly changing technology to ensure that fair value is reflected in our financial statements. We'll continue to invest prudently to grow our franchise and strengthen our lead in digital capabilities.

Segment performance. Consumer, banking and wealth management's 9-month total income rose 14% to $4.79 billion. The increase was across all products. Loan and deposit income grew 18% to $2.82 billion from a higher net interest margin. Investment product income rose 9% to $1.32 billion from higher insurance and investment product sales. Card income grew 5% to $597 million from higher transactions across the region. Income for the wealth management customer segment rose 16% to $2.36 billion as assets under management expanded 9% to $241 billion. Income from the retail customer segment increased 12% to $2.43 billion. We had a market share of 53% for Singapore dollar savings deposits and 31% for Singapore housing loans, both unchanged from the previous quarter. Expenses rose 10% to $2.44 billion. The positive jaw resulted in a 2 percentage point improvement in the cost/income ratio to 51%. Institutional Banking's 9-month total income rose 7% to $4.58 billion. The growth was led by cash management, which grew 24% to $1.50 billion. Cash management deposits were little changed at $140 billion as some high-cost deposits had been managed out early in the year and replaced with other sources of funding.

During the third quarter, cash management deposits increased $8 billion. Assets rose 5% to $274 billion as non-trade loan growth was moderated by a decline in trade assets. Treasury market 9 months interest and non-interest trading income rose 35% from a year ago to $785 million. The performance in the first and third quarters was stronger than last year's average quarter run rate of $200 million. The results for all 3 quarters of this year were better than the corresponding quarter last year. For the third quarter, the strong performance was primarily due to interest rate activities. Treasury customer income for the 9 months increased 5% to $987 million, both IBG and CBG contributed to the income growth. Hong Kong had recorded a property gain of $86 million in 2018. This chart excludes the property gain to show the underlying performance. Hong Kong's 9-month net profit rose 13% in constant currency terms to a record $1.09 billion. Total income rose 11% to $2.22 billion. Net interest income rose 12% or $190 million to $1.52 billion. Loans grew 5% as a 9% increase in non-trade corporate and consumer loans was partially offset by a decline in trade loans. Net interest margin increased 12 basis points to 2.09% as loans were repriced with higher interest rates. Fee income grew 4% or $29 million to $498 million growth in cash management, bancassurance and loan-related fees were offset by declines in wealth management investment sales due to a high year ago base and in trade finance. Other noninterest income increased 24%, or $39 million to $198 million from stronger trading income and treasury customer flows. Expenses rose 4% or $44 million to $827 million and a positive jaw resulted in a 16% increase in profit before allowances to $1.39 billion. Total allowances doubled to $82 million as both specific allowances and general allowances were higher. Hong Kong's performance remained healthy in the third quarter as business momentum was sustained. In particular, compared to the previous quarter and a year ago, non-trade loans grew 4% and 9%, respectively, in constant currency terms, while fee income rose 4% and 17%. Compared to a year ago, total income rose 11% to $756 million.

Net interest income increased 6% to $525 million. Overall loans grew 5% as the 9% increase in non-trade loans was moderated by a decline in trade loans in line with lower trade activity. Net interest margin was 3 basis points higher at 2.09%. Fee income rose 17% to $175 million from broad-based growth, led by wealth management, cash management and loan-related fees. Other noninterest income increased 55% to $56 million as treasury customer income and trading gains were both higher. Expenses were stable at $299 million, which results in a 20% increase in profits before allowances to $457 million. Compared to the previous quarter, total income was little changed. While loans and fee income continued to grow, the increase in business activity was offset by lower interest margin due to softer interest rates and by a decline in trading income. As a result, profit before allowances was 5% lower. Total allowances of $59 million for the quarter was more than double the previous quarter and a year ago. The increase was due fully to general allowances, which amounted to $49 million, as we set aside more general provision reserves due to ongoing economic uncertainty. Specific allowances of $10 million were lower than the previous quarter and a year ago. With a higher general provision, net profit rose 14% from a year ago to $334 million or 15% below the previous quarter.

The NPL rate was unchanged from the previous quarter at 1.5%. Nonperforming assets rose 2% to $5.9 billion with currency effects accounting for the majority of the increase. New NPA formation was higher than recent quarters due to an exposure in the transport sector, the increase was offset by write-offs and recoveries. Specific allowances amounted to $197 million and 21 basis points of loans, in line with recent quarters. We took a general allowance charge of $61 million during the quarter as a prudent measure, given the ongoing political and economic uncertainty. After taking into account translation effects, total general allowances rose by $69 million during the quarter to $2.59 billion. The common equity Tier 1 ratio rose 0.2 percentage points from the previous quarter to 13.8% from net profit accretion. The leverage ratio of 7% was more than twice the regulatory minimum of 3%. The Board declared a third quarter dividend of $0.30, unchanged from the previous quarter. Based on Friday's closing share price, the dividend yield is 4.5%.

In summary, we delivered record earnings in the 9 months. For the third quarter, total income and profit before allowances were at new highs. The performance demonstrates the resilience of our transformed franchise, nimble execution and the strength of our balance sheet. The healthy business growth, together with the improved profitability of our franchise resulted in increase in 9-month ROE from 12.4% a year ago to 13.6%. We remain well placed to deliver healthy shareholder returns despite the ongoing political and macroeconomic headwinds. Thank you for your attention. I will now hand you over to Piyush to address this.

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Piyush Gupta, DBS Group Holdings Ltd - CEO & Executive Director [3]

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All right. Thanks, Sok Hui. As usual, I'll make a couple of comments before we throw open for Q&A. So the first, we saw our third quarter loan growth was flat, and that actually reflects a couple of different things. One, quite clearly, the global slowdown had some impact. That impact is mostly felt on the trade loans. So to be fair, even the non-trade loans, the second and third quarter, just grew by a couple of billion dollars. To my mind, some of it is deferment. So fourth quarter actually has been much stronger. So the macro global thing, China, U.S. trade, et cetera, created uncertainty. But my own sense is, given the pipeline that we have, some of it is just shifting quarters, it will probably come back. The move and distance effect, I think the uncertainty in Hong Kong, one of the outcomes of that is some slowdown in the trade and maybe wealth management. Not usually I'll talk about that, but marginally. So it's a very country-specific thing. In Singapore, we were actually surprised to the downside. Because our original estimate was that the mortgage market would start increasing in the third quarter. And point of fact, the mortgage market continued to decline. So it's -- the whole market data has declined by about $1 billion a quarter for now the third quarter in a row. What happened in the third quarter is that buildings under construction increased quite nicely. But resale activity has continued to be moribund. That did not come back. And so as a consequence, even though our original anticipation was that we probably get loan growth in the third quarter, we didn't. We continue to see the same decline as we had in the first 2 quarters into the quarter. So it's a very Singapore-specific situation. But net-net, we had flat loan growth in constant currency terms for the quarter. The 3 rate cuts, obviously were more than we anticipated. We've been anticipating 2 rate cuts, 1 in the third quarter and 1 in the fourth quarter. And that's what we used to try and come up with our guidance. Our sense was that we should still be able to get mid-single-digit NIM growth based on that assumption. The reality is the three rate cuts came one more than we expected. And second, they came much quicker than we expected, so we had July, August, October. So as a consequence, that's beginning to show up and flow through our commercial book NIM, you can see that. And therefore, and so getting the plus/minus 5 basis points of NIM expansion we're expecting, we will probably wind up with about 3 basis points of NIM expansion for the year. So a tad below the full year guidance that we had given earlier. The third observation was in Hong Kong, since there's been a lot of concern and disquiet about Hong Kong, I thought this was worth calling out the site. So we put an additional slide in our deck. Hong Kong's third quarter performance is actually remarkably resilient, given everything that's happening in the environment over there. As I mentioned, there is some slowdown in trade, how much of that is because of the Hong Kong situation, and how much of that is because the China-U.S. uncertainties also manifest in Hong Kong. It's hard to call. It's tough to say what comes away. But Hong Kong trade has been somewhat slow. And I said before, a little bit of challenge in retail sales and wealth management. But overall, as you can see for the quarter, our income held up pretty well. The net profit is down, but that's only because we took a general allowance in Hong Kong, and we did that just to be prudent. But given the environment, you don't know what's coming down the pike, and we said this, put some money aside, just in case. But other than that, the Hong Kong performance has actually been relatively resilient. We just launched last week, our new Digibank offering in Hong Kong. It's targeted at the affluent market. It's a complete virtual bank, and even the early responses are good. So we're still relatively upbeat about the possibilities for Hong Kong as we go forward.

A couple of other positives to point out. One is that the U.S. economy has been remarkably resilient and continues to be. So there was originally a narrative, it said that you might see a recession coming in next year. At this point in time, that just does not seem to be on the cards. The U.S. consumer, in particular, has been very strong. And I was in the U.S., in Washington particularly last week. I spoke to a number of the global banks. This consumer demand is strong. Delinquencies are low. Payment rates are very good. I think the low unemployment is really helping. So I think there's going to be 1 tailwind, continue to come from the U.S. for a period of time. The other positive obviously is the noises around the China-U.S. trade deal are helpful. Because it's not just the trade itself, but just the overall sentiment that it creates. And so if they do announce a deal in any shape, size or form, I think that will be generally beneficial for animal spirits around the region. So I think that could be helpful. Perhaps a third observation I didn't write, but I should make, is our treasury markets, our trading has actually been coming in very nicely. If you look at the third quarter, our trading performance was up there, along with the best. I think JP and Morgan Stanley had strong performance so that we were right in line with them. But interestingly, if we look at full year, we outperformed almost any global bank in FICC performance this year. So months earlier, at the beginning of the year guided, based on last year's experience, that maybe $200 million a quarter is a good trading number. Based on what we've seen so far and the fact that we are beginning to get some pickup in the yield curve. So there is some yield impact. I think we might actually wind up closer to $225 million a quarter than $200 million a quarter. So that's some positive upside on our business as well. So how do we look at next year? I think also then, we will wind up with about 4% loan growth for the year. The first 3 months has been about 2 percentage points. But like I said, our pipelines for the fourth quarter are strong. And frankly, as we go into November, we've already had strong bookings in the first month of the quarter. So we will wind up with about 4% loan growth for the year and our own sense is that we should be able to get similar loan growth next year. There's still a reasonable amount of activity. We continue to do business in the property real estate space. We continue to do business in the M&A and corporate finance activity. So I think about this year's level. I don't know how this year, if the mortgage book will be down. If we get somewhat flat to upward mortgage book next year, that should help to make sure our loan growth is in line with the sales. So I think it's doable. The NIM, we expect to decline by about 7 basis points. And that's basically assuming 1 more rate cut in the middle of the year. So it seems, being done 1 more rate cut in the middle of the year. That's what happens to the commercial book. Finally, some of it will also depend on what happens to the shape of the yield curve. If that long part of the yield curve brakes too and goes further north, then treasury might get some more opportunities in terms of a yield play. But our best case is that, that's what we should get from this year's average levels. So if you add that, I mean, obviously, 7 basis points of NIM reduction is a headwind, so if you factor in that headwind, then we think our total income growth will probably be low single digits. Our noninterest income has been doing fine. Our fee income, if you notice, has been very, very strong, and the momentum is good. So between the first quarter, the second quarter and the third quarter, we've grown some $50 million each quarter on overall fee income. And that's broad-based, that's wealth management, there's card, there's loans, there's cash management, so the momentum in the fee income side is strong, we think we'll get double digit. But if you factor in the NIM headwinds, coupled with the fee income, we'll still probably get total income in the low single digits next year. So quite clearly, we will focus on managing expenses more efficiently, given the overall environment on fee. We do have some latitude. If you look at the last decade, our expense growth has ranged anywhere from 2, 3 percentage points to 10, 11 percentage points. So we have some flex in how we manage the expenses both pacing out investments and tightening the belt. But fundamentally, as I said before, we -- where we manage for efficiency, we're not willing to compromise the investment agenda. It's our view that we still need to continue to make investments to be able to play the long game. So we won't wind up compromising that. And finally, credit costs, approved credit costs this year are around 20, 21 basis points change. So again, I guided previously that I think we've landed at a credit cost range, which is substantially lower than our previous 25, 27 basis points average. From what we can see, our credit costs are going to stay around there. There might be some upside, unlikely to be any downside. The portfolio is looking in good shape. We're not seeing any pickup in delinquencies anywhere. So somewhat confident that we should be able to manage credit costs at this level.

So all in all, given the global environment and the interest rate headwinds, we are still quietly optimistic that we should be able to continue to deliver a decent performance into next year. So why don't I stop there and we can take questions.

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Questions and Answers

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Karen Ngui, DBS Group Holdings Ltd - Head of Strategic Marketing & Communications [1]

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Okay. We will start the Q&A. We are having a webcast right now. So if you could speak into the mic in front of you when you ask the question that would allow the people watching over the webcast to hear you. First question, please. Okay. We can pass you a mic, too.

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Unidentified Analyst, [2]

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I have 3 questions. The first is with regard to the Singapore mortgage loan market. You mentioned that at 3 quarters, it's priced to the downside. So what are your expectations for the fourth quarter, given that we have seen reports that apparently, the subsidies given by the government reportedly raised resale transactions. That's question one. Question 2 is about allowances. You said that it's -- you've put in more for prudent measures, specifically which you did -- or which areas of concern is that because of? And finally, can you confirm or deny that you're making a bid for Indonesia's Bank Permata?

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Piyush Gupta, DBS Group Holdings Ltd - CEO & Executive Director [3]

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So on the mortgage, actually third quarter in testing, the building under construction activity picked up. It's still not back to the pre-control levels, but it's getting there. And our total volume of business in this segment, the new buildings under development was strong, buildings under construction. The problem with that is that the drawdowns of that happens slowly. They take 3, 4, 5 years for the dollars to happen and they don't show up in your book right away. The resale activity is picking up. So second quarter was marginally higher than first quarter, third quarter was marginally higher than second quarter. But it's still substantially away. We're still 14% away from the resale activity we used to see before the tightening measures. If you track the trajectory, I would suspect the resale activity will continue to go up. But given we got the third quarter, we thought third quarter will bounce back. We basically based it on our, the sum of previous tightening measures, and how long it took for the resale market to come back to pretty close to previous levels. This time it's taking longer. So it didn't come back. It is coming back, but not as fast. And therefore, at this stage, it's hard for me to call, what will the pickup be in the resale activity in the fourth quarter, if you will. There is some help, the foreign money coming in. So there is some activity, the top end of the market, but it's not material. It doesn't drive up the total numbers very materially. Your second question, general answers. So as you know, we've in the past, we have viewed the formula. We've actually indicated in the past that we've put some management over this on account of the global uncertainty, synchronized global slowdown. This time, the top up we made was principally because of Hong Kong. And so as Sok Hui pointed out, that in the Hong Kong quarterly results, the general allowances we've taken up were $40 million, $50 million. Just to cater for slow down and idiosyncratic risk in Hong Kong because of what's going on. So that's where you see that number. And on Bank Permata, as we said before, we don't confirm nor deny specific transactions.

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Karen Ngui, DBS Group Holdings Ltd - Head of Strategic Marketing & Communications [4]

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Is there another question? (inaudible)

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Unidentified Analyst, [5]

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I have 3. Sorry. I have 3 questions. One is, you mentioned income in 2020 will expand by single digit. So is that net profit? Or is it revenue? And what's going to drive your 2020 earnings? Secondly, DBS has fared well in Hong Kong so far, but provisions in the 9 months have more than doubled. So what's your forecast for loan growth and net profit in Hong Kong next year for the city? And your recent interview of course, mentioned a budget of 5% of your market cap for acquisitions. So if you could tell us more about what types of acquisitions and in which region?

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Piyush Gupta, DBS Group Holdings Ltd - CEO & Executive Director [6]

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So your first question was...

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Sok Hui Lim, DBS Group Holdings Ltd - CFO [7]

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Mid-single-digit growth, right?

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Unidentified Analyst, [8]

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Yes, and income –

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Sok Hui Lim, DBS Group Holdings Ltd - CFO [9]

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Revenue levels.

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Piyush Gupta, DBS Group Holdings Ltd - CEO & Executive Director [10]

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Actually at both levels. So, yes. But if you look at our thing, our total income growth over the last decade has been about 8% or 9%. And so there's been an average. We've had some periods that we've been able to drive double income -- double-digit growth, some periods of lower growth. Next year is going to be lower growth just because the interest rate impact on our book is going to filter through. So in fact, the key thing is not single digit. It is low single digit. That's the thing to keep in mind. But that effectively is what you'll see both in the top line and the bottom line, what you should expect to see. What are the drivers of the growth that I've mentioned before? Our loan book should continue to grow. So roughly this year's level, 4%, 5% loan growth, so that helps. Balance sheet expansion will help. And our fee and commission income will continue to grow double digit. The momentum in all of the lines of fee and commission is quite strong. It's then wealth,it's there in cards, it's there in our lending activities, it's there in our cash management and transaction, even investment banking, the deal pipeline is good, solid. So by and large, we should expect to see fee and commission hold up. So that's a driver of the income growth, if you will. As against that, the negative is the NIM reduction. So we'll see headwinds from NIM. The second question was --

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Karen Ngui, DBS Group Holdings Ltd - Head of Strategic Marketing & Communications [11]

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It was on Hong Kong.

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Unidentified Analyst, [12]

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Your net profit forecast for Hong Kong and loan growth forecast for Hong Kong next year.

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Piyush Gupta, DBS Group Holdings Ltd - CEO & Executive Director [13]

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So our Hong Kong business, like the rest of the bank, it should track the rest of the bank, by and large, right? So you should also expect to see similar levels, low single-digit growth rates in Hong Kong. Hong Kong will continue to benefit from some of the China activity, and frankly, some of the capital markets activity, even through this turmoil, they did another IPO, Alibaba's still coming out with the IPO later this month. So the capital market side in Hong Kong is continuing to be quite active. One of the uncertainties in Hong Kong is the continued mobility of Chinese travelers into Hong Kong. So as long as -- if that trickles to a halt, that will be a headwind, because that impacts a lot of things, including credit card spend and wealth activity and so on. But at the same time, we do think there are opportunities in Hong Kong. As the Hong Kong strategy integrates and leverages move into the Greater Bay Area, they're being able to get and drive growth from there as well. So I think Hong Kong will be pretty much in line with the rest of the group next year.

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Sok Hui Lim, DBS Group Holdings Ltd - CFO [14]

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Okay. Just to add. So Hong Kong, we actually put a slight, very prudent levels of general provisions, just given all the uncertainty, and we have seen the results of other Hong Kong banks as well. So we do note that general provision levels are conservative. And as the situation improves in Hong Kong, we will have the ability also to release some of these provisions.

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Piyush Gupta, DBS Group Holdings Ltd - CEO & Executive Director [15]

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And your final question was on the M&A activity. Our M&A stance hasn't changed. So we've consistently said that 2 or 3 conditions have to apply for us to look at an M&A. One, it's got to make strategic sense for us. And what that means is that it must be in one of the markets that we have interest to grow in, it must be lines of business that are useful and interesting to us. And secondly, as I said, it must make economic sense. So we must know how we can make it accretive in a reasonable period of time. And the third is we must have the management bandwidth to do a deal and create value from it without distracting us from our key agenda. Some of our key agenda is digital transformation and using digital for organic growth. So any deal which is going to distract us from that, we'd probably not be very keen on. So then you go back to sort of what kinds of deals fit this and our own sense, if you think about it both on a small enough deal you could do without distracting you, then if a deal is within 5% of your market cap, it is a small deal. It's not a huge deal. There's not a budget, by the way. It's just a sense of dimensioning, what kind of deal might fit those parameters. And -- but actually, you have to take a look at every deal, how complicated is it? What does it bring to you? Does it bring you value? And how much you can actually integrate and squeeze value out. I've used the example a few times now, but we were very encouraged by the outcome of our acquisition of the ANZ book. We did 5 markets, and we did 5 markets in a year. And that turned out to be fantastically accretive very fast. One of our learnings from that is that if you get a good book of customer business, and you overlay that with digital and with some of the digital tools we have, you can drive value very quickly. So there is some upside to being able to take a business, drive digital on top of an existing book of business, principally because you don't pay for the cost of customer acquisition. The customers are there, you just need to transform the customer experience and customer join. So there's some upside to following a strategy like that, but all the other conditions have got to work for you to do something like that.

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Karen Ngui, DBS Group Holdings Ltd - Head of Strategic Marketing & Communications [16]

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And (inaudible), you had a question?

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Unidentified Analyst, [17]

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I was wondering what's your outlook for the wealth management business in the fourth quarter and going to 2020? And also, in particular, both Singapore and Hong Kong market?

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Piyush Gupta, DBS Group Holdings Ltd - CEO & Executive Director [18]

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So the wealth management business has continued to do solidly well. And as I said before, we are all benefited because Asia continues to create a lot of wealth. Since Asia creates a lot of wealth, and even through, slow Asia grows at 5.5% to 6%. And within that, the number of millionaires being created and billionaires being created keeps expanding. So as a consequence, if you can maintain market share, you can get close to double-digit growth rate. And if you can grow market share, then you can get even better than that. And if you look at our growth rate, our income over the last year is up by about -- our AUM is up by about 11% over the last year. Income is up even higher. Year-on-year, 9 months, I think it's up 17%, 18%. So I don't see that changing. That momentum is quite strong. And that's across the board. So it continues to be money from North Asia, including Hong Kong and South, Southeast Asia and including money from other jurisdictions where we market, Middle East, Europe and so on. It's fairly consistent.

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Karen Ngui, DBS Group Holdings Ltd - Head of Strategic Marketing & Communications [19]

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I think we have time for maybe 1 -- okay, Goola?

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Goola Warden;The Edge, [20]

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Could you give us an update on Digibank and how's it doing in India, Indonesia? And whether it's tracking your -- a number of customers and your path to profitability? And then to Sok Hui, may I say, one of your peers, OCBC had a provision for Indonesia because it moves to IFRS 9, because it's had actually [JIG] audit positioning. So what's happening with DBS because Indonesia moves to it next year? If you could update on that. And I think you said it moved -- it has moved its own Indonesian accounts in 2018 so, Digibank.

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Piyush Gupta, DBS Group Holdings Ltd - CEO & Executive Director [21]

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So Digibank's actually, in both countries, is doing well. So we've got very good traction and momentum this year. As you know, indicated before, the Indonesia Digibank was doing better from day 1 because we've gone with a slightly different strategy, with a more targeted customer strategy. And in fact, this year, including the Digibank investments, the Indonesian consumer business will be marginally profitable. But that's not Digibank. It's their entire consumer piece of the business. And India also has improved a lot, but we had to pivot. So in India, we originally were trying to acquire all kinds of customers. We were adding 100,000 customers a month. But in the last couple of years, we changed the strategy to mimic Indonesia and scale down the customer acquisition to about half. So we now only acquire 43,000 customers a month. But the new customers we're acquiring are much better quality and profile. So now as we need to look and track more like Indonesia. Also, we use the WS license to increase some points of presence. So it's become a little bit more phygital. Again, mimicking what we have in Indonesia. We launched the lending product in both markets, the lending product is doing quite well. So India is also now beginning to track much closer to our model. It's almost there, it's not entirely there, but it's 80%, 90% of where we need it to be. So I'm quite encouraged. As we already indicated that the digital things, we expect them to be slow burn. So they will take a period of time before they break even the digital business by itself.

On the IFRS 9, Sok Hui?

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Sok Hui Lim, DBS Group Holdings Ltd - CFO [22]

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So we implemented IFRS 9, 1st January, 2018, yes. So the -- when we implemented, it is group-wide standard. We run the numbers for all our locations centrally in Singapore, and it doesn't matter which country goes on to IFRS 9 subsequently. So India is only going into IFRS 9 next year. By the group level, we have already applied the same methodology. So what happens 1/1/2020, is our Indonesia subsidiary will step up from the current regulatory method of provisioning to the new IFRS 9, but that has already been catered for at the group. So the local subsidiary, you'll see the impact, a onetime impact to the retained earnings when they implement, but there's no impact at the group level because we have already sort of taken the full impact, 1/1/2018, for the entire group, including subsidiaries.

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Karen Ngui, DBS Group Holdings Ltd - Head of Strategic Marketing & Communications [23]

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Okay. I think -- thank you, everyone, for your questions. I'm afraid that's all the time we have because some of us need to adjourn to the FinTech Festival. For our media friends who are also going to the FinTech Festival, we have actually charted a bus outside to take you there. So thank you, everyone, for coming once again, and see you next quarter.

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Piyush Gupta, DBS Group Holdings Ltd - CEO & Executive Director [24]

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All right. Thanks, everyone.

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Karen Ngui, DBS Group Holdings Ltd - Head of Strategic Marketing & Communications [25]

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Thank you.