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Edited Transcript of U11.SI earnings conference call or presentation 2-Aug-19 10:59am GMT

Half Year 2019 United Overseas Bank Ltd Earnings Presentation

Singapore Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of United Overseas Bank Ltd earnings conference call or presentation Friday, August 2, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ee Cheong Wee

United Overseas Bank Limited - Deputy Chairman & CEO

* Wai Fai Lee

United Overseas Bank Limited - MD & Group CFO

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Conference Call Participants

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* Krishna Guha

Jefferies LLC, Research Division - Analyst

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Presentation

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [1]

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Now before we take questions, let me just give an overview.

I believe some of you attended our corporate days in May. I spoke about the long-term opportunities in Southeast Asia, driven by its growing middle class and steady flow of foreign direct investments into the region. This structural trend remains intact. Though we expect volatility over the short term, the current uncertainties present opportunities for longer-term player like UOB to deepen our presence in the region.

Our strong balance sheets provide us the resources to stay engaged in this market and to support customer through economic cycles. We continue to build on our integrated regional network to deliver a seamless experience for our customers across the region. By leveraging our franchise and connectivities, we continue to grow our earnings steadily in the first half of 2019.

Our second quarter profit reached a new high of $1.2 billion. This brought our first half to $2.2 billion, up 8% year-on-year. This was driven by healthy contributions from our core businesses.

Net interest income grew 8% year-on-year, driven by broad-based loan growth. With a more cautious business environment in the second half of the year, we continue to expect loans to grow by high single digits in 2011.

Net interest margin fell by 3 basis points to 1.8% in the first half due to higher cost of funds. However, in the second quarter, we started seeing improvement in NIM as a result of mortgage repricing and lower cost of funds. We expect to maintain NIM around similar level for 2019.

Fee income was largely flat as higher fee from loan-related and credit cuts were moderated by lower fund management fees. Other noninterest income rose 36% with strong gains in trading income and investment, with the rebound in financial markets since the start of the year largely sustained. For the full year, we expect fee income to grow by mid-single digit, driven by recurring flows and broad-based growth from cuts, loans and wealth.

The cost-to-income ratio rose marginally to 44.1% in the first half of this year, reflecting the group's firm commitment towards investing in talent and technology to improve product capabilities, customer experience and productivity. We expect the ratio to remain stable at around 44% in the near term.

Our balance sheet remains strong. Balance sheet efficiency continue to be our focus. Return on risk-weighted assets remained healthy at 1.95%. Asset quality was stable. NPL ratio will stay at 1.5% as at end June 2019, though it may inch up in the second half. Total credit costs on loans was up marginally at 13 basis points in the first half year and may rise slightly in a slower growth environment.

Nonperforming asset reserve coverage remain adequate at 84% or 191% after taking collateral into account. On funding, the loan-to-deposit ratio was healthy at 88.5% as at end June 2019. And net stable funding ratio of 108% is well above regulatory requirement. We continue to manage actively and to optimize our asset liability mix.

Capital wise, our Common Equity Tier 1 ratio remained robust at 13.9%. Given our strong earnings and capital positions, the board has recommended an interim dividend of $0.55 per share. We maintain our commitment to deliver a dividend payout ratio of 50% subject to minimum CET1 ratio of 13.5% and sustainable financial performance. This approach balances our capital needs and growth initiatives as we stay focused on creating value for our shareholders through business cycles.

Let me now touch on performance of specific business lines. In the first half of 2019, Group Wholesale Banking delivered a 9% increase in income over last year. This was achieved on the back of continued diversifications across geographic sectors and products. Moving forward, we will continue to strengthen connectivity across our regional franchise to serve better the domestic and cross-border needs of our corporate clients across the region.

We are expanding our regional footprint. Later this month, we will be officially open our Hanoi branch, our second branch in Vietnam. This will enable us to extend our services and solutions to more customers in the country, adding to the strength of our regional network. We continue to build on our regional footprint, local knowledge and industry expertise to help our customers deepen their presence in Southeast Asia.

Let me share some of the progress we have made. Our cross-border revenue grew by 19% and now account for 27% of Group Wholesale Banking's income. Nonloan income grew 14%. And income from non-real estate sector grew 9%. The diversification of our income across different products and sector underscore the resilience of our portfolio.

Through our integrated systems, we will develop new and better products and platform to meet our clients' needs across the region, particularly in the area of cash, trade and treasury. For example, we onboarded 17% more corporate clients onto our digital platforms, enabling us to deliver greater efficiency for our clients. We are also leveraging the national e-payment service and rolling out more API solutions for our clients to drive the growth in our transaction banking income.

In Retail Banking, income grew 7% in the first half of 2019. We saw steady growth from the Wealth Management business, which expanded 9% in income. Wealth Management AUM was up 9%, hitting SGD 118 billion. Through our network of 53 Wealth Management centers across the region, we continue to tap the rising affluent across Southeast Asia. About 60% of AUM come from our overseas customer served through our regional networks.

Housing loan remained a key part of our retail business. In the first half of 2019, Singapore housing loan sales were 30% down, lower, in line with the impact of the property cooling measures. Despite the lower sales volume, we maintained market share in outstanding loans.

Growth is expected to be muted for the full year. Though recent pricing signal suggests that the private property market is stabilizing, the quality of our portfolio, largely owner-occupied properties, remain resilient. Prudent underwriting practices with low average LTV of around 60% will also help mitigate against potential defaults. In the region, our housing loans business continue to perform well. We see good growth momentum in housing loans across Thailand, Indonesia and Malaysia. Overall housing loans for the group is expected to be stable for the year.

I will now give an update on our recent digitalizations and partnership initiatives to grow and to deepen our customer franchise. 2/3 of ASEANs' population are under age 35 years old and more than half own a mobile phone. They form the third largest space of digitally savvy customers after China and India. We launched a digital bank, TMRW, in Thailand earlier with this millennium generation in mind. And we are encouraged by the results so far. The customer onboarded onto TMRW are mainly young professionals and many have started using the platform regularly for transactions. We expect to see greater uptake and more activity as we offer more services onto the platform. We will apply our experience and learnings in Thailand to our next market where we will launch TMRW.

In all that we do, we always put the customer at the center and that is why ours is an omnichannel approach. We serve our customers in a manner they prefer to make digital banking simpler, smarter and safer for them. We have enhanced the UOB Mighty application. The new version is now available and I invite all of you to try it.

We are also using technologies, such as data analytics and machine learning at our new Orchard wealth center. Our relationship managers are now more effective at serving customers and are more productive. While technology enable us to do so much more, the human touch and high service quality remain essential in engaging our customers. Our branch colleagues are instrumental in UOB, achieving the best score in branch services among banks in Singapore on the Customer Satisfaction Index of Singapore 2018. We will continue to enhance the customer experience and to improve productivity across various service delivery touch points.

We believe that engaging in open ecosystem collaborations with like-minded partners is the best way to meet the evolving needs of our customers. This approach enable us to provide best-in-class solutions with speed to market and in a sustainable way.

At the start of this year, I spoke about how our ecosystem partnerships in the automobile space have shown early result in customer acquisitions and deepening of our customer wallet share. In second quarter this year, total new car loan application grew by 28% quarter-on-quarter and 90% of these car loan applications were completed digitally through our online car financing service.

The online utility marketplace we launched in Singapore in May was another initiative to integrate banking into our customer lifestyles. With 10 utility providers on board, we are deepening our wallet share among households. With our ecosystem partners, we are also helping more small businesses meet their operational needs through digital transformation. One example is UOB BizSmart, where we work with different partners to offer varied solutions from payroll management to e-commerce. Today, almost 20,000 SME across the region are using our UOB BizSmart solutions. As we help these businesses improve their productivity with BizSmart, they also maintain, on average, 30% higher balances with us and contribute 40% higher income than before.

Looking ahead, global uncertainties have dampened growth expectations. However, we still see a healthy business pipeline for the second half of 2019, underpinned by the continued growth of ASEAN as a region. The near-term outlook may be uncertain but Asia is in a relatively bright spot. Fundamentals are receding. The region is also expected to benefit from supply chain shift taking place amid the global trade war. There are always opportunities, especially for long-term players with strong balance sheets. Importantly, we focus on staying healthy, strong and nimble.

So we have the flexibility to seize opportunities and to support our customer through market cycles. We will continue to harness our regional connectivity to support business flows. We are well placed to do so because of our investment over the years to build up our integrated regional platform, deep local knowledge and capabilities to serve our regional customers. We are committed to maintaining a robust balance sheet, investing in our people and capabilities to drive greater customer engagement at faster speed to market. In short, we are confident of generating sustainable growth for our stakeholder in a dynamic landscape. Thank you very much.

Now I will ask my CFO just to give you a highlight of the financial.

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [2]

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Thanks for joining us.

So just to elaborate on what Ee Cheong has just said. Okay. The group achieved a record net profit of $2.2 billion for the first half of 2019. This is up 8% as compared to a year ago.

Second quarter profit of $1.2 billion is 11% higher than the previous quarter and 8% higher than the same quarter last year. The record profits were boosted by improvements in both interest and noninterest income. Sound funding and a strong capital base enable us -- the group to grow despite the market volatility. And at the same time, I think we remain committed towards talent and technology development. As a result, return on equity improved while maintaining liquidity and capital ratios well above the minimum requirements.

For the first half of this year, total income rose 9% to a new high of $5 billion. Net interest income grew 8% to $3.2 billion, led by strong loans growth. Fees were largely flat as higher loans-related and credit card fees were partly offset by lower fund management fees. Other noninterest income rose 36% to $743 million, with stronger trading and investment gains as market sentiment rebounded since the start of the year.

Expenses grew 10% as we continue to develop talent and technology to better serve customers with personalized experience and improved solutioning. Total allowances decreased 15% to $144 million, alongside stabilizing credit environment. Contributions from associate companies decreased with the reduction of interest in associate companies.

For the second quarter of 2019, net profit rose 8% year-on-year to $1.2 billion. Net interest income rose 7% to $1.65 billion as gross loans grew 9% year-on-year. Fees income rose 6% as wealth management saw strong flows, coupled with higher volume in credit cards and loans-related fees. Other noninterest income rose 33% to $403 million with gains from trading and investment securities. Expenses increased 11%, in line with the growth in income.

Total allowance declined $40 million due to a write-back in allowance of nonimpaired assets. Quarter-on-quarter net profit rebounded, recorded strong momentum growth of 11%. Net interest income increased 4% boosted by an improvement in net interest margin of 2 basis points to 1.81% on the back of loans repricing. Fees income rose 10% to $527 million, led by double-digit growth in wealth management, credit cards and fund management fees, coupled with higher loans-related fees. I think other noninterest income grew 18%, mainly from higher investment gains.

On the back of the 7% income growth, we controlled expense growth to only 5%, resulting in a positive jaw. Total allowance declined 45% from a write-back in allowance from nonimpaired assets, coupled with some recoveries.

The group's franchise continued to develop healthy growth. Overseas contribution to operating profit declined by 2.4% -- 2.4 percent points from 41.5% to around 39.1%. This was mainly because Singapore grew strongly, okay, by 13%. All business segments showed good performance. I think, as you are aware, even with our massive investment going to a digital bank, our group retail still managed to grow 4%. And our wholesale showed very strong overall growth of 6%.

NII continued to grow steadily alongside broad-based loans growth. I think against last quarter, net interest margin, like I mentioned, was up 2 basis points, mainly from loans repricing. Wealth management, credit card, loans-related fees, I think, they all showed very good momentum. Other noninterest income also increased with stronger gains from trading and investment as financial market outlook stabilized, and also, I think our customer sales continue to improve.

We are watchful on spend to make sure that we control our cost-to-income and to have cost discipline, while we still have to commit to talent and infrastructure build. I think this resulted in a stable cost-to-income ratio of 44.1% for the year.

The credit environment was fairly benign for this year. Credit cost on loans declined to 8 basis points this quarter, mainly due to some write-back in allowance for nonimpaired assets and recoveries. I think NPL ratios stayed at 1.5% and with adequate coverage at 84%.

Gross loans actually registered very healthy broad-based loans growth of 9% across territories and industry. I think this growth was made possible through adequate liquidity support from the group's diversified funding sources and strong capital position.

I think some of you might be aware that our recent capital issue was actually met with very, very strong support and very mixed interest, including outside of the region. As a result, we're able to price it, okay, really at a record low of 3.58%. I mean this shows the trust that investors do have in us. Regulatory ratios remained well above minimum requirements.

We ended the quarter with CET1 remaining strong at 13.9%. I think on the back of record profit, as Ee Cheong said, the board recommended an interim dividend of $0.55 per ordinary share. I think this is in appreciation for the support from our shareholders.

I think with that broad outline, I will pass it back to Ee Cheong.

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Unidentified Company Representative, [3]

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Okay. Thank you, Mr. Lee. So once again, please speak into the mic and state your name and publication before asking your question.

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Questions and Answers

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Unidentified Company Representative, [1]

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We can we get the first question. Kevin from Nikkei?

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Unidentified Analyst, [2]

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Yes, I'm Kevin from Nikkei. Question. Based on your presentation, would it be correct to conclude that in terms of, say, M&A opportunities or just organic expansion opportunities, you can sort of favor Southeast Asia over Greater China? Question number one.

Question number two, I noticed in your breakdown that earnings from Malaysia, Indonesia and Thailand fell. Could you probably shed more light on this?

And third question for TMRW, the digital bank. Can you share information like number of customers who have come on board as, say, regular users?

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [3]

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Okay. Well, actually, yes, to answer your first question. We will continue to focus on Southeast Asia, right? That is because all our major subsidiary is in Southeast Asia, okay?

What we are taking advantage is from China, from Greater China, is the inflow of the Chinese or Hong Kong customer, if they're interested in Southeast Asia. It's the networking that we are looking at because we have relatively small outfit in China, in Greater China, okay? For us to compete in that market is not as effective. But whereas in the whole Southeast Asia, I have the Southeast Asia footprints. So the idea is to encourage our North China customer, if they are interested in Southeast Asia. This is where our competitive advantage.

Now if you look at Indonesia -- Malaysia, I think, is quite stable. Malaysia at this point in time, I think, we are holding on quite well. The loan quality seems to be quite good, okay? There is no major concern. In Thailand, actually, it's doing well, partly because if you look at Thailand -- partly because of the heavy investment in digital. This is where you can see the result is...

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [4]

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Slightly negative.

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [5]

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Slightly negative. But if you actually strip off the digital bank initiative, actually Thailand, on a stand-alone, is doing very well. I think that is important. That is an investment we have to put a bet for the future.

Okay. Indonesia, I think, is -- the first half is because of the elections. But I just got back from Indonesia 2, 3 days ago. I think the second half, I think the situation look a little better and then Central Bank also cutting interest rate. I will see Indonesia portfolio should continue to improve.

Now on the TMRW, what do you actually -- what insight you...

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Unidentified Analyst, [6]

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Because you said the numbers are good, but I'm just wondering if you could share actual numbers?

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [7]

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So if you understand our approach for TMRW, we have openly state that we are not against -- we are not gaining for big numbers in the initial but to make sure that we get the engagement right, okay, because we saw all previous operating model, where you take in big volume. And if you pay for them and they don't transact, we don't really make money from that. So I think that's the starting point.

Why we said that we are happy with the progress, because 2 things. The customers that we are onboarding is in the right profile that we want, okay? These are the young professionals and which has a higher base than average because they were actually -- most of them actually were funding it.

The second thing that why we say is that we are encouraged was really, we are now trying to increase the engagement score. It's still very early. It's still very early. We still have this factor in there that actually once you go into social media, either they like or they don't like. Okay, and then there are some in between. So we are still working on the dislike, but we knew that we are quite happy that we had strong supporters in the engagement. So it is still far from where we want to be, but we saw the engagement cost slowly increasing. And the third was, we state that the amount of money people deposit in. Normally, in digital bank, they're actually very, very small, okay? And probably, it's $100, $200 maximum. Yes, probably 3, 4x that amount. So we felt that the initial place was in the right direction. But there's still a lot of work to do, okay? And we need to continue to improve engagement to try and reduce the cost of engagement because in such thing is when you pay to bring volume in, if you can reduce that cost to turn to us a profitable model. So I think that is probably what we are working on to increase that. So I think that's what Ee Cheong said that the initial phase, the statistics are actually quite encouraging because the customer profiles were right. The deal we're transacting, the balances were a little bit more. What we can do better was to slowly improve engagement, and that's slowly improving.

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [8]

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Yes, think to answer you -- I think it's still a little bit too early to tell. We are still continuing to invest in infrastructure like the biometrics, the facial recognitions. And these are all we need to fine tune. And we are not in a hurry to actually taking customer because the infrastructure is not really 100% in place. The more customer you take, if the experience is not good, it's no point.

So I think we have to make sure we get the right model, it's an engagement model. But the good thing is we have a good team of people in place. And for traditional bank like UOB, I always say how to attract the young people to work for us, okay? That is all this new initiative. So hopefully, I'm able to attract the young workers, the young people who are willing to work for us, then we'll transform the younger workforce. And then we'll create a new activity for the bank. And we are banking on the future. This is why, if you look at Thailand, why the profit is down, it's deliberate. If I don't invest, the profit go up, so which one is better? I invest for the future as a long term player.

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Unidentified Company Representative, [9]

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Okay. Thank you. Sorry, we will take another question first before moving back. Yes. Sorry, [Tanya], you had a question?

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Unidentified Analyst, [10]

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Yes, sorry. With regards to MAS plans to have digital bank applications coming, are you interested to apply or partner with any non-bank companies to apply?

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [11]

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UOB always -- we welcome the competition. But at this point in time, you know how much money we spent on the ecosystem partnership. Our digital capabilities, we are transforming our branches and -- to equip our people. And at this point in time, I think we are confident that we are able to serve our customers without the digital initiative, okay? But we welcome any partnership arrangement, okay?

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Unidentified Analyst, [12]

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As in like to apply for a banking license with partners?

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [13]

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No, no. Partner simply means I can partner with a company that will specialize in banking. We already have a system, okay? They can offer certain products that we can work together.

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Unidentified Analyst, [14]

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Just like CAR and other markets that you have?

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [15]

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Whatever it is, we -- this is a discussion that we continue to have. But we also have a digital bank outside of Singapore. Any time we can always bring that in, right?

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Unidentified Company Representative, [16]

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Okay. Thank you. Next question, Johanne?

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Unidentified Analyst, [17]

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Mr. Wee, so just a question on the TMRW bank. So is there a time line for the next market? And where is this going to be? And then the other thing is on the dividends. So what's the guidance for this year's dividend? Is it going to be higher since you raised the interim dividend?

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [18]

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Well, if you read my speech, okay, I'm projecting, I think, for this year, it should be -- continue to be okay. So I assume the earnings will be good. Then if you base on 50%, then you know the answer.

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Unidentified Company Representative, [19]

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Okay. Sorry, Jeffrey, you had a question?

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Unidentified Analyst, [20]

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Yes. Jeffrey from The Edge. I also have questions for the TMRW bank. So with regards to the new market, could you share like which market this is? And also for the expenses, noticed that your total expenses have increased year-on-year, quarter-on-quarter. Just want to understand how much of this is attributed to TMRW.

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [21]

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Okay. So in terms of expenses for TMRW, specifically to build the system, it's actually not...

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [22]

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It's not much.

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [23]

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Not much because it was built at the back of a middle layer of the entire debt we have invested previously, which is now being used for all these talks about data, digitization, et cetera, beyond TMRW. So the technology piece is actually not the most costly piece, it's the engagement piece that you are paying [faster and faster]. And that gives us time because we can experiment, we can control it. Before, we want to grow rather than you grow and then continue to pay a very high engagement fee, get dissatisfied customer, and that's probably what Ee Cheong was driving at. So that's where we are. The technology cost relating to it is actually not a lot, okay? The mixed market, Ee Cheong...

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Unidentified Analyst, [24]

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Sorry, just a follow-up. So the higher expenses, is it fair to say that a significant portion comes from TMRW or from other...

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [25]

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So there are 2 things, right? Higher expenses has been there. When we break the 3 portions of it, a lot of it is business-related. So now as fees goes up, we always say is that you got to pay. Today, and I think, [kind of true]. So I have to pay, and you'll see a lot of that going up.

The other part is the technology cost because we are changing whole infrastructure besides just TMRW. So these 2 are the biggest components that we are growing. And the cost, that one is staff, okay? Staff, like we said, we have always been building ahead to bring in talent. We still continue to look for good IT professionals because without those people, you can't do anything. And staff cost is the one that we are now trying to try and extract productivity off of it. So that's probably our biggest challenge. But technology cost will continue to increase.

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Unidentified Company Representative, [26]

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Okay. Can we get the next question? Michelle?

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [27]

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Yes, answer you. I need to read about it, yes.

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Unidentified Analyst, [28]

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Okay.

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [29]

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We have not officially announced yet. But obviously, you can see the first market is Thailand, huge population base. So we will continue to go for a market that is -- with a big population base, and I'm sure you know the answer.

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Unidentified Company Representative, [30]

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Okay. Michelle?

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Unidentified Analyst, [31]

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Michelle from CNA. So the first question is on Singapore's growth prospects with second half looking slightly weaker and loans growth for housing expected to be muted, where are the growth sectors? The second question is on the impact of Fed rate hike. When is that likely to impact UOB?

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [32]

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Fed rate hike, rate hike on NIM, this was the question. Take that.

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [33]

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Well, interest rate likely to come down, as you can see. Actually, if interest rate come down may benefit UOB.

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Unidentified Analyst, [34]

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Okay. But earlier on, you mentioned that your NIM guidance for the rest of the year is about the same as 2Q, which is 1.81.

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [35]

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Yes, will be flat. Yes, yes.

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Unidentified Analyst, [36]

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So when is it likely to impact UOB? And with the cut, when is it likely...

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [37]

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Okay. Like we always talk about, there is actually a lag time between Fed to SIBOR, okay? And that's because they are seeing other factors because it's not actually interest rate-related but balancing across countries and all. So the in-house guidance is, we think that the SIBOR will continue to stay around the 2% level for the year, okay? Which means that we are like -- less likely going to be affected this year than probably next year. So that's our core.

But this year, we'll continue to see competition from mortgage, like we said. And I think that is something that we need to react, we have to control cost of funding. Cost of funding has been going up tremendously. Hopefully, with the outlook that cost -- Fed is coming down. We can now have a lower cost of funding. So those are various things that we are looking at. The problem is despite all this is can you reprice? That's always back to the question, and we are trying to do that. So if you see what's happening in Singapore and Hong Kong, some of those are being repriced up. The regional market still have other considerations. So that's why, I think, Ee Cheong guided that, overall, if we can stay where we are -- of course, we hope to do better. But if we can stay where we are, it's already a lot of effort that we are trying to reshape the balance sheet.

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Unidentified Analyst, [38]

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Wai Fai, [Jenya Pon] from Bloomberg. Sorry, just want to make sure that I understand things correctly before I send headlines. So based on Wai Fai's comment, the Fed rate cut will be fed in maybe fed into SIBOR Singapore rates in the second -- in next year. But whether you will reprice, that's another...

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [39]

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Either end of this year or next year. But the impact for this year is (inaudible).

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Unidentified Analyst, [40]

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But whether you will reprice, that's another story.

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [41]

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It depends on competition. We'll love to reprice today, but this is a matter of competition.

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [42]

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Yes, Guha?

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Unidentified Company Representative, [43]

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Okay. Final question, Guha.

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Krishna Guha, Jefferies LLC, Research Division - Analyst [44]

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So the cost of funds, why were they so high? And have you run off some of those expensive deposits? Then Mr. Wee talks about 9% growth -- I mean, sorry, not 9%, a high single-digit growth in loans. Where do you expect that to come from? And how do you see -- I mean is it the region? And is the pricing better than what you get in Singapore? And the last one is on credit costs. You had a write-back, what was it -- which -- what was that? And are there any, I mean, -- if it's a slower growth, how is the book? How is the portfolio?

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Wai Fai Lee, United Overseas Bank Limited - MD & Group CFO [45]

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I'd take it in the reverse order. I'd take credit cost first. Credit cost, first, there's the write-back because you know that as we go into a new IFRS model, provisioning, or we call it the ECL, is based on factors. And I think there are some stabilization of our models by now. So there were some improvement, hence, some write-back for this quarter. Going forward, the impact is, if there are weakness in the region or in the macro, technically, your general provision that we used to call it previously and we call it ECL now, is expected to increase because that's what the formula is. One other data I can put GP ahead of time, and we guided the market. So we think that you'll go up slightly but, like Ee Cheong guided, that even for NPLs, we are not going into any crisis mode. We are well -- we can well manage that within the models that we're having.

So credit cost might go up slightly in the next 2 quarters. But we are very far from long-term credit costs that we need to put in.

Your next question a bit on funding. I'll take that very quickly. We had actually run down some of those. As a result, if you look at our deposit year -- quarter-on-quarter was a negative, okay? We actually, especially in the U.S. dollar space. So that's conscious effort to try and clean it up to move to as CASA. And as a result, even in the industry level, you find that the FDs, which are supporting the industry growth over the last first half of the year or in the second quarter has slowed down, okay? I think that is probably the trend. Hopefully, like I said, we can reprice some of that now.

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Unidentified Company Representative, [46]

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Okay. Unfortunately, that's all the time we have for today. We have to actually wrap up.

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Ee Cheong Wee, United Overseas Bank Limited - Deputy Chairman & CEO [47]

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The loan growth? Yes, the loan growth generally will be, I think, more in Southeast Asia. I think we're focusing on better quality loans. Obviously, the market is still a bit uncertain. But if you look at the -- even the consumer, the housing loans, you look at Malaysia, you look at Thailand, if you look at Indonesia, the growth is actually still double-digit even though the number is more compared to Singapore. But I think these pockets of opportunity will continue to grow.

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Unidentified Company Representative, [48]

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Okay. I'm sure you want to hear more, but unfortunately that's all the time we have for today. So thank you very much, Mr. Wee and Mr. Lee. And they will now take their leave. Thank you.