DBS Group Holdings Ltd
SGX:D05
Earnings Call Analysis
Q4-2023 Analysis
DBS Group Holdings Ltd
Despite the turbulent global economic conditions, the company showcased an ability to maintain growth, noting a solid 9% increase in income. Highlighting the strength across different revenue streams, fee income surged by 31%, driven by robust performance in wealth management and cards. Moreover, the treasury sales grew by 22%, indicating a strong quarter particularly in noninterest income. Importantly, the company's momentum is not just a temporary boost as evident by the consistent performance seen in the first month of 2024, suggesting an optimism for continued progress.
The loan growth remained relatively flat, but the company observed an uptick in trade finance, which suggests a positive turnaround particularly in energy-related trades. On the downside, the net interest margin (NIM) declined to 2.13%. The company positioned this as part of a strategic move to lock in rates and protect against a potential decrease in interest rates. Looking forward, management anticipates a slight decline from the current NIM, preparing for a scenario of interest rate cuts. Nonetheless, they maintain that stable NIMs are expected, as client account repricing and outflows have eased.
Key to the company's success has been its digital transformation efforts which have allowed it to capitalize on a high interest rate environment, achieving new highs in terms of total income, net profit, and return on equity (ROE). The full-year expenses grew by 14% to $8.06 billion due to an increased staff count and strategic investments in technology. Even when removing one-time costs, the underlying expense growth sits at approximately 10% with a cost-to-income ratio of 39%. This indicates the company's focus on balancing growth initiatives while maintaining cost efficiency.
A reassuring sign for investors is the resilience of asset quality. Nonperforming assets decreased, and the allowance coverage rose, showcasing prudence in risk management. The common equity Tier 1 ratio improved, reflecting a robust capital position that well exceeds regulatory requirements. The leverage ratio at 6.6% instills further confidence in the company's financial stability.
Particularly noteworthy is the record performance in Hong Kong, with the region achieving historical highs in income and net profit. Despite challenges such as a decline in loans due to higher interest rates and a leveling in fee income, the net interest income saw a significant uptick. Furthermore, wealth management assets under management soared, signifying strong client trust and inflow. These regional insights are critical as they reflect the company's ability to navigate diverse economic climates and reinforce its growth narrative.
Looking ahead, the company is expecting to sustain an underlying profit in the $10 billion range, with double-digit fee income growth forecasted. They project a high single-digit growth in expenses, partially owing to the impact from Citi Taiwan. Specified provisions (SPs) are cautiously forecasted at 17 to 20 basis points, consistent with long-term averages, while their ROE target remains at 15% to 17%. Additionally, to reward shareholders, the company has planned a bonus issue along with minimum dividend targets, hinting at potential special dividends or other forms of returns in the future.
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Okay. Good morning, everybody, and a warm welcome to DBS' Fourth Quarter and Full Year 2023 Financial Results Briefing. This morning, we announced a very strong set of numbers for 4Q, capping a record year.
And to tell us more, we have our CEO, Piyush Gupta; and our CFO, Chng Sok Hui. So without further ado, Sok Hui, please.
Good morning, everybody, and happy Chinese New Year in advance.
Okay, Slide 2. We achieved a record performance for full year 2023. Net profit rose 26% to cross $10 billion for the first time. ROE climbed 3 percentage points to 18%, significantly above previous years. Total income rose 22% to $20.2 billion. The commercial book drove the better performance.
Net interest income grew 33% boosted by a 65 basis point expansion in net interest margin. Net fee income rebounded, up 9% on record card fees and improved Wealth Management product sales. Other noninterest income rose 18% as treasury customer sales reached a new high. The strong commercial book performance more than offset a 38% decline in Treasury Markets income due to higher funding cost.
Expenses rose less quickly than income, resulting in an improved cost-to-income ratio. Excluding Citi Taiwan and nonrecurring technology and other costs, the underlying cost-to-income ratio was 39%.
For the fourth quarter, net profit grew 2% from a year ago to $2.39 billion. Similar to the previous 3 quarters, higher commercial book income was moderated by lower Treasury Markets income. Asset quality remained resilient. Nonperforming assets declined 5% from the previous quarter, and the NPL ratio improved 0.1 percentage point to 1.1%.
Specific allowances remained low, at 11 basis points for both the fourth quarter and the full year. Allowance coverage was high at 128% and 226% after considering collateral. Capital was healthy, with CET1 rising to 14.6%.
The Board proposed a dividend of $0.54 per share for the fourth quarter, an increase of $0.06 from the third quarter payout. The Board also proposed a 1-for-10 bonus issue, which is intended to quicken the pace of capital returns to shareholders. In addition, we set aside $100 million from this year's profits for our recently announced corporate social responsibility commitment to allocate up to $1 billion over 10 years to help vulnerable communities.
The fourth quarter dividend of $0.54 per share brings full year 2023 dividends to $1.92 per share. This represents a $0.42 or 28% increase compared to 2022's ordinary dividend payout. Assuming dividends are held at $0.54 per quarter, annualized dividends will be $2.16 per share. The 1-for-10 bonus issue will further boost the payout. The bonus shares will qualify for dividends starting with the first quarter 2024 interim dividends, and $0.54 per quarter will apply to the enlarged share base, effectively raising the quarterly dividend of $0.54 by another 10%. On an annualized basis, the post-bonus dividend would be 24% higher than 2023's payout of $1.92 per share. The dividend yield based on yesterday's closing price was 7.5%.
Slide 4. Full year net profit rose 26% to a record $10.3 billion as total income grew 22% to $20.2 billion.
Commercial book income rose 27% led by a 33% or $3.6 billion increase in net interest income to $14.3 billion, with net interest margin expanding 60 basis points to 2.76%.
Net fee income rebounded from a drop in the previous year, rising 9% or $293 million to $3.38 billion. The growth was led by cards and Wealth Management. Card fees grew 22% as card spending reached a new high. Wealth Management fees rose 13% as demand for bancassurance and investment products improved. The inclusion of Citi Taiwan from August further bolstered the growth in card and Wealth Management fees.
Other noninterest income grew 18% or $267 million to $1.79 billion as treasury customer sales reached a record led by higher sales to Wealth Management customers. These gains were partially offset by lower Treasury Markets income, which fell 36% as trading was impacted by higher funding costs.
Expenses rose 14% or $966 million to $8.06 billion. Excluding Citi Taiwan and nonrecurring technology and other cost, expenses rose 10%, and the underlying cost-to-income ratio was 39%.
Profit before allowances and amortization increased 29% to a record $12.1 billion. Specific allowances rose $177 million from a low base to $512 million or 11 basis points of loans. General allowances of $78 million were taken compared to a $98 million write-back a year ago.
Two onetime items were recorded for the year: a corporate social responsibility contribution of $100 million and an integration cost for Citi Taiwan of $124 million. Including these onetime items, net profit rose 23% to $10.1 billion.
Slide 5. For the fourth quarter, net profit rose 2% from a year ago to $2.39 billion.
Commercial book total income grew 12% and to $4.89 billion. Net interest income rose 7% or $232 million to $3.64 billion as net interest margin expanded 14 basis points to 2.75%.
Noninterest income growth was broad-based. Fee income rose 31% or $206 million to $867 million from increases across most fee income streams and the consolidation of Citi Taiwan. Other noninterest income rose 22% or $17 million to $390 million on higher treasury customer sales to Wealth Management customers.
Treasury Markets income declined 45% or $91 million to $113 million due to higher funding costs.
Expenses increased 12% or $242 million to $2.21 billion. Excluding Citi Taiwan and nonrecurring technology and other costs, expenses rose 3%.
Total allowances rose from a low base. Specific allowances increased $65 million to $139 million or 11 basis points of loans. General allowances also rose as $3 million were taken compared to $106 million write-back a year ago.
Compared to the previous quarter, fourth quarter net profit was 9% lower as total income fell 4% to $5.01 billion.
Commercial book total income declined 3% due to a lower net interest margin and seasonally lower noninterest income.
Net interest income was 1% or $47 million lower from a 7 basis point decline in net interest margin, which I will elaborate in the next slide.
Fee income rose 3% or $24 million as a higher contribution from Citi Taiwan more than offset the impact of seasonally lower Wealth Management activity.
Other noninterest income was 22% or $109 million lower due partly to seasonally lower treasury customer sales.
Expenses rose 8% or $167 million mainly driven by the full quarter impact of Citi Taiwan and nonrecurring technology and other costs. Excluding these items, expenses rose 2%.
Specific allowances were $58 million lower than the previous quarter, which had included provisions for exposures linked to a money laundering case in Singapore. General allowances were also lower by $15 million.
Slide 7. Fourth quarter commercial book net interest income rose 7% from a year ago to $3.64 billion on the back of a 14 basis point expansion in net interest margin to 2.75% driven by higher interest rates. Compared to the previous quarter, commercial book net interest income was 1% lower than the previous quarter.
Net interest margin fell 7 basis points in the fourth quarter to 2.75%, which was stable to the exit net interest margin in the third quarter. The decline was due to a full period impact of higher deposit costs from the third quarter and the accumulation of fixed rate asset positions. CASA outflows slowed in the fourth quarter, which will reduce deposit pricing pressure in first quarter 2024.
For the full year, commercial book net interest income rose 33% to $14.3 billion. Net interest margin increased 65 basis points to 2.76%. Combining the commercial book and treasury markets, the group's overall net interest income grew 25% for the full year to a record $13.6 billion, and the net interest margin climbed 40 basis points to 2.15%. For 2024, we expect to maintain the group's net interest income around 2023 levels with a full year contribution from Citi Taiwan.
Slide 8. Gross loans remained stable from the previous quarter in constant currency terms at $422 billion. While trade loans and housing loans grew by slightly over $1 billion combined, the growth was offset by a decline in non-trade corporate loans from increased repayments due to the high interest rate environment. Gross loans rose 1% or $6 billion from a year ago driven by the consolidation of Citi Taiwan, which added $10 billion. Excluding Citi Taiwan, underlying loans fell $4 billion. The decline was mainly due to trade loans as a result of lower activity and unattractive pricing. Non-trade corporate loans were stable as a healthy level of pipeline drawdowns was offset by higher repayments. Consumer loans fell slightly as Wealth Management customers repaid loans in a high interest rate environment.
Slide 9. Deposits grew 2% or $11 billion from the previous quarter in constant currency terms to $535 billion as CASA and fixed deposits were both higher. Some of the growth was used to replace more expensive wholesale funding. Deposits grew 3% or $13 billion from a year ago. Citi Taiwan contributed $12 billion, while underlying deposits were stable. CASA outflows decelerated compared to the previous year and were replaced by fixed deposits. LCR of 144% and NSFR of 118% remained well above regulatory requirements.
Slide 10. Fee income growth continued to accelerate in the fourth quarter. Compared to a year ago, gross fee income rose 28% to $1.07 billion in the fourth quarter, faster than the increase of 14% in the third quarter, 9% in the second quarter and little changed in the first quarter. While Citi Taiwan contributed to fee income in the third and fourth quarters, the underlying momentum, excluding Citi, also accelerated with growth of 17% in the fourth quarter and 11% in the third quarter, if Citi were excluded.
Wealth Management fees grew 41% from the previous year to $370 million due to higher bancassurance and investment product sales, with Citi Taiwan contributing 2/3 of the increase. Card fees rose 27% from higher customer spending as well as Citi Taiwan, which accounted for 2/3 of increase.
Loan-related fees rose 80% from a low base to $142 million while investment banking fees grew 26% from higher debt capital market activities. Transaction services fees were slightly lower.
For the full year, gross fee income of $4.12 billion was led by growth in cards, Wealth Management and loan-related fees.
Slide 11. Fourth quarter commercial book noninterest income of $1.26 billion rose 28% from a year ago due to a rebound in fee income and higher treasury customer sales. It was 6% lower compared to the previous quarter partly due to seasonality. For the full year, commercial book noninterest income rose 12% from a rebound in fees and record treasury customer sales. The commercial book accounted for about 80% of total noninterest income in the fourth quarter and the full year.
Due to accounting asymmetry, the best way to view Treasury Markets' performance is through an aggregated view of Treasury Markets' net interest income and noninterest income.
Slide 12. Full year expenses rose 14% to $8.06 billion led by an increase in staff cost from salary increments and a higher head count. The expenses included Citi Taiwan as well as nonrecurring cost such as initiatives to improve technology resiliency. Excluding Citi Taiwan and nonrecurring costs, expenses rose 10%, and the underlying cost-to-income ratio was 39%. For the fourth quarter, expenses increased 8% from the previous quarter and 12% from a year ago to $2.21 billion. Excluding the full quarter impact of Citi Taiwan and nonrecurring costs, expenses rose 2% from the previous quarter and 3% from a year ago.
Slide 13. Full year Consumer Banking and Wealth Management profit before allowances rose 59% from a year ago to $4.55 billion as total income rose 35% to $8.96 billion. The growth was led by loans and deposits income, which grew 51% to $6.05 billion from higher net interest margin and volumes. Investment product income increased 18% to $2.14 billion.
Assets under management rose 23% to a new high of $365 billion underpinned by strong net new money inflows and the consolidation of Citi Taiwan. Singapore dollar savings deposits declined 7% or $10 billion to $128 billion, which was around half the pace compared to the previous year.
The regional Consumer Banking and Wealth Management customer base increased $6 million to $18 million from Citi Taiwan and expanded ecosystem partnerships across the region.
Slide 14. Full year Institutional Banking income rose 22% from a year ago to $9.36 billion. The growth was led by a 73% growth in cash management, which was partially offset by lower loans and trade finance income. GTS deposits declined 3% or $7 billion to $190 billion due to unattractive pricing.
Slide 15. Fourth quarter treasury customer income grew 18% from a year ago to $440 million on higher sales to treasury management customers as market sentiment improved. It was 8% lower than the previous quarter due to seasonally lower activity. For the full year, treasury customer income rose 13% to a record $1.85 billion led by Wealth Management product sales.
Treasury Markets trading income, which comprises both net interest income and noninterest income, was $113 million for the fourth quarter, 45% lower than a year ago and 32% lower than the previous quarter. For the full year, it declined 38% to $725 million. The weaker performance reflects the impact of higher funding costs.
Slide 16, Hong Kong. Hong Kong's full year income and net profit were record highs. Net profit rose 12% in constant currency terms to $1.58 billion as total income increased 13% to $3.21 billion. Net interest income grew 21% to $2.17 billion as net interest margin increased 44 basis points to 1.91%.
Loans declined 7% in constant currency terms due to a high interest rate environment and a continued rate differential with China. Total deposits were largely stable on a year-on-year basis.
Net fee income was little changed at $664 million as high income from investment product and bancassurance sales were offset by lower loan-related and trade finance fees. Other noninterest income fell 3% to $383 million due to lower trading income.
Expenses rose 8% to $1.2 billion led by higher staff cost. The cost-to-income ratio improved 2 percentage points from a year ago to 37%. Total allowances increased to $138 million from $56 million a year ago due to higher specific allowances and the impact of a general allowance write-back in the previous year.
Slide 17. Asset quality continued to be resilient in the fourth quarter. Nonperforming assets fell 5% from the previous quarter to $5.06 billion. New NPA formation remained low and was offset by repayments and write-offs during the quarter. The NPL ratio improved from 1.2% in the previous quarter to 1.1%.
Slide 18. Fourth quarter specific allowance remained low at $139 million or 11 basis points of loans. For the full year, specific allowances amounted to $513 million or 11 basis points of loans, slightly above the 8 basis points a year ago and remaining below the cycle average.
Slide 19. Total allowance reserves stood at $6.48 billion with $2.58 billion in specific allowance reserves and $3.90 billion in general allowance reserves. Model overlays were stable and stood at $2.2 billion. Allowance coverage rose to 128% and at 226% after considering collateral.
Slide 20. The common equity Tier 1 ratio rose 0.5 percentage points from the previous quarter to 14.6%. The increase was due to strong profit accretion, gains from fair value to OCI assets and a decline in risk-weighted assets. The leverage ratio of 6.6% was more than twice the regulatory minimum of 3%.
Slide 21. In summary, we achieved full year results with total income, net profit and ROE all at new highs. The franchise and digital transformations carried out over the past decade have reaped substantial benefits in a higher interest rate environment. The stronger profitability has enabled us to step up capital returns to shareholders through a bonus issue as well as make an inaugural contribution of $100 million as part of a 10-year CSR commitment of up to $1 billion. While interest rates are expected to soften and geopolitical tensions persist, our franchise strength will put us in a good stead to sustain our performance in the coming year.
Thank you for your attention. I'll pass you to Piyush.
Thanks, Sok Hui. Let me just dive in. I've got four points I want to cover. And so first is a few comments on the fourth quarter.
As Sok Hui just pointed out, the fourth quarter was solid. It was strong. We had income growth of 9%. But the good thing is it is broad-based. Interest income obviously continue to increase because NIM held up.
But the big thing was fees, which were up 31%; and the other income, which are mostly treasury sales, which was up 22%. And let me talk a little bit about fees because momentum, that obviously included the impact of Citi Taiwan. But even excluding Citi Taiwan, the underlying momentum on fees and treasury sales has been very strong. And by the way, that momentum is showing up in the first month of 2024 as well. So I'm actually quite optimistic about where that is.
Loans were flattish. Loans, we're still seeing two things on the non-trade loans, the corporate loans. It's been hard. We're growing in some segments, but there is still paydown at the high interest rates and people still shifting to onshore China. But the good news on the loan front is, after several quarters, the trade book started growing. So we've got $1 billion growth in trade. And that reflects the fact that pricing improved. Especially the energy-related trade coming out of Korea and India, they started turning around, so I'm a little bit optimistic on that front.
NIM came off to 2.13%. So if you look at this on the surface, it's a 6 basis points decline from 2.19% in the third quarter. Of that, about 4 basis points, we pretty figured we would get because the exit NIM in the third quarter was only 2.15%. And that reflected the fact that third quarter was the first time when rates stopped going up, but our CASA repricing and CASA outflow continued. So the exit NIM of 2.15%, we expect it will be around there. Our full year NIM of 2.15% is about what we guided, around 2.16%, so it is there.
However, on top of the third quarter repricing outflows, we took a conscious decision to put on some fixed rate assets. In the tail end of the third quarter and fourth quarter, we put on about $30 billion in that period of time just to lock in rates to protect us from a declining interest rate environment going forward. And so that cost us another couple of basis points over our original planning assumption.
So 2.13% was -- the good news, of course, is that the 2.13% has been flat. So through the fourth, we didn't see a further erosion. In fact, the exit NIM for the year was also there. The first NIM for the first month of the year also there. So you can see that the NIMs are holding pretty stable. And the reason for that is that the CASA repricing and outflow really eased in the fourth quarter. So our projection, our model in the past has said that in 2022, the CASA repricing was about $90 billion. In 2023, we'd said it will probably be about half, $45 billion to $50 billion. Actually, it came in only at $40 billion, so the repricing was lower. And in fact, in the fourth quarter, it was only $2 billion. So you're beginning to see that the impact of that is leveling off, and that's why we've been able to hold the NIM now for the last 3, 4 months.
Fee momentum, I said I'll come back to this, even excluding Taiwan, the fee income growth of 17% in the fourth quarter is very strong. And that's really powered by two things. Wealth Management, which is 41%, but excluding Citi Taiwan impact, it's 24% growth. And that's very good because 24% growth means people are beginning to put money back to work. And we can see the impact of that. The ratio of investments to deposits in our AUMs is continuing to improve. And so people are being to put money back to work. Again, in January, that momentum continued. It was very strong. Second was cards. Even excluding Citi Taiwan, cards growth was about 9%. But the momentums continue to build up. Travel spend is increasing. Overall spend is increasing and therefore, we think the momentum on that front as well.
And the last is treasury sales. Some of that obviously is to the wealth product. But overall treasury sales to the customer segment grew about 18%. So all of the noninterest income lines of business for the fourth quarter were actually very, very robust.
On the costs, our costs are a tad bit higher, and they're higher principally because of the impact of integrating Citi Taiwan. So we had to put in more money and some accounting changes in the fourth quarter on the Citi Taiwan thing. And then we had to take some onetime costs for the technology work that we are doing in particular. So we took some onetime costs around that. But the underlying expense growth, if you back that out, is about 3% for the quarter. It's about 10% -- it was 3% for the quarter, so not too shabby.
And then asset quality for the quarter continued to be very good. We're not seeing any stress anywhere in the system. There's a little bit of a pickup in delinquencies and unsecured lending. But as I've said before, unsecured book is not very large across the region. 1/3 of our book is in Singapore. So you're seeing a little bit of pickup in delinquency. But even now, for example, for the delinquency rates before, it was lower than what it was pre-COVID, so you're not seeing any real stress. It's just a pickup on a quarter-on-quarter basis.
So overall, a fairly good, solid quarter. The key takeaway is really to me this, that momentum is coming back in the underlying business and especially in the fee income lines. And that's the principal thing to take away from the quarter performance.
The second thing is the outlook for next year. So earlier, I'm a little bit more comfortable -- as you know, both IMF and OECD have upped their global growth forecast. I think the macroeconomic outlook there for around the world is actually a little bit better than it was when I spoke to you over the last quarter. There's still obviously geopolitical risk. China is still challenging. North Asia growth is still subdued. But on the whole, the overall economic environment is actually a little bit better than I had forecast 3 months ago.
So on the back of that, we've given guidance that we should be able to sustain our underlying profits in the $10 billion range. And I can confirm that. I think at this point in time, we think we should be able to sustain that, notwithstanding some headwinds on interest rates. What drives that? We're still forecasting that our net interest income for next year will be about this year's level. And around this level, our underlying assumption is about 5 rate cuts. We're assuming 5 rate cuts but starting only in the June-July time frame through to the end of the year.
But on the other hand, we get some benefit from the full year impact of Citi Taiwan. We get some pickup from that. So adding that in, we think the interest income would be quite flat to this year. If NIM drops more because rate cuts start earlier or are sharper, it's not my base case but if it happens, I think there will be swings and roundabouts. I think we'll make it up through a little bit more pickup on loan growth, if that's what happens. Right now, our loan growth assumption is also low single digit. But if rates come up more sharper, I think loan growth could make that up.
Our full year NIM -- our exit NIM for this year is 2.13%, I told you in Jan, it's still there. Our full year NIM, we expect to be a little bit short, under the 2.13% level. Maybe a couple of basis points for the full year is what we think the NIM impact will be.
On fee income, again, consistent with previous guidance, we expect fee income to grow double-digit next year. We already said Wealth Management is looking very strong. Cards are looking very strong. So overall, we think that should hold.
We continued to have very strong net new money inflows. We got $24-odd billion in '22. We got another $24 billion in '23. Early this year, the movement looks like it's continuing. And like I said, people are converting some of this money from deposits into investments, and therefore, that helps the wealth fee income.
Our cost-to-income ratio, we said low 40s. I think it will still be low 40s. Our actual expense growth, I guided earlier, will be high single digit, and I think that's where it will be. But it's partly due to Citi Taiwan. The full year impact of Citi Taiwan adds into that number as well.
SPs, I'm saying 17 to 20 because let's say, through cycle, long-term average is what you should expect. In actual fact, we are not seeing it. We are not -- we don't have any pickup in delinquencies or poor credits. Our NPLs are coming down. We don't have any challenges in any sector, in particular, or geography. And so I'm being a little cautious in saying 17 to 20 because of the high interest rate environment, you might see a pickup, but it's not that we're seeing any issue anywhere.
And like I said before, we have a little buffer. We have a lot of general provision. Sok Hui just said we have $2.2 billion overlays built in over our models. So if you do see something more than that, we have cushions to be able to bolster that as well.
You put all of that together, we still think that somewhere in the 15% to 17%, which is our long-term guidance of ROE, is quite achievable.
The third thing I want to talk about at this point is on distribution of earnings. Sok Hui went through this, elaborating on how much we've been able to give out on our dividends. The bonus issue of 1-for-10 effectively increases dividends by another 10%. So instead of $0.54, it's closer to $0.59 and change, $0.59, $0.60, effectively. We recognize that even after this, we still have a lot of capital. Our capital adequacy ratio is still strong.
We decided to go for a bonus issue just because it gives certainty into the future, right? It builds it into the base. And so it gives some confidence that this dividend will be there. But this doesn't mean that this is the end of our payment back to shareholders. We will still continue to target the $0.24 minimum that we've talked about. On top of that, I think we still have opportunity to do more specials or other forms of giveback, which we will do. I think some of this we will have greater confidence towards the middle of the year when we have better line of sight on what's happening to interest rates and so on. And also, hopefully, some of our technology issues are behind us. I'm also actually quite pleased that we were able to kick off our inaugural commitment. We've made a $1 billion commitment over 10 years as part of our giveback to society. So we put aside the first tranche of $100 million from this year's earnings.
And finally, because the National Wages Council in Singapore made a recommendation to make sure that we tried to help the junior people with high cost of living -- given the high cost of living, so I'm actually also happy that we were able to cover almost half our population with a onetime special bonus award. It's just part of what we can do.
Last observation, and this is really around tech. I thought people might want to get an update on where we are with the technology situation. As I said, we started this technology revamp program, uplift program, I call it, in May of '23. So we've been at it now for 7, 8 months of trying to uplift our technology across the board in particularly the four areas: our change management process, system resiliency and recovery process, the incident management process and then just overall tech governance and oversight across the board.
I'd start with the tech risk governance and oversight. As you know, we announced that we are taking accountability at the senior management, including starting with me, but also the rest of my senior management team. I think that's a good element of our governance. If you can establish accountability and figure that people take responsibility for making fixes, that's a good place to start. So we've been able to demonstrate that, and that's obviously despite this record profit here. I mean on the $10.2 billion, we never did decide to take a collective responsibility for this.
Also we have -- as I guided before, we've allocated up to $80 million to actually spend on resiliency and uplift. We've spent about $25 million so far doing that. But we [ partnered aside ], so we still have some more that we can put to work, which we will do. Once we get the program done, we hope we can achieve this. In fact, we should be seeing it now. One is greater service reliability, which means fewer incidents and fewer downtime. The second thing we're focused on is that we want to make sure that there are alternate channels, especially for payments and for account inquiries, if there's a problem. Today, we sometimes have shared channels. So we want to try and make sure that for every service that we do, that is not in the channel. If something goes down, we can still achieve what we want in a different way.
And then finally, the thing that if we do have a problem, we should be able to recover faster. So there should be a much faster recovery of our services. So that's the customer outcome that we hope to be able to demonstrate through the whole program set of actions that we're undertaking.
So what exactly are those actions? One, from a governance standpoint, we are in the final stages of appointing our CIO. We're down to a couple of people that we are looking at. We hope to be able to make an appointment very soon. Now it may still take a few months for the person to come onboard given notice periods and so on, but I'm quite pleased. We made good progress.
We've also hired another couple of senior people. We hired a new head of tech risk to put into legal and compliance and to our Line 2 function. And we've also hired another senior person to run our risk audit. So our Line 2 and Line 3, we have actually beefed up with additional resources and senior resources to be able to do that. So that's on the tech governance side.
One of the other things we are doing on that though is we have a lot of focus on our risk control mindset, behaviors and culture. We're training all our people, there are 5,000 people going through rigorous training. We're tightening up the focus on controls and to try and minimize [ inefficiency ], try and minimize human error by focusing a lot on that controls environment and control culture.
The second big category we focus on is around the change management. And in a nutshell, what happens in change management today, because we have a micro service architecture, we actually use a lot of micro services, which are then brought together to create an overall offering. And what that means is that every one of the micro services, we've got to be very thoughtful about any changes. And changes come in every service.
So you have patch upgrades, security upgrades, normal upgrade path, improvement functionality and so on. So you obviously had a good change management, but we're making it a lot more robust. We are putting in more automated tools, in fact, AI tools, across the change management pathway, so you'll have a lot more gates. Before any program is moved into production, it will have to go through a lot more gates and a lot more automated checking. The quality of the programming that is going into production is sound. So hopefully, that will minimize what I call butterfly effects. Right now, we have a change somewhere and it shows up with a problem somewhere else in the system. We're going to try and minimize that by changing and enhancing the development process and the CI/CD pipeline process.
The second thing we're doing is we're enhancing our vendor management because we use a lot of vendor systems, especially for some very critical systems. As you know, our access to authentication system, which gave us trouble last time, we have from a U.S.-based vendor. So we are enhancing our vendor management quite tightly, which means more regular interaction with the vendors, better line of sight to what are the vendors' own production pathways and more active dialogue to understand exactly what changes they're making in their software, so we know what the impact on us might be if it comes through the pipe.
And finally, we're creating a new production assurance testing environment, which is near-live. So really, what happens when we have a test environment, obviously, we test everything. But we test new programs we do around the periphery of the programs. What we are now doing is actually creating an end-to-end production assurance environment, which is almost as good as the live environment. And so we're going to do test and regression test stuff against the production live environment. This should be ready in the next couple of months. So with all of this, I'm hopeful that the entire change management process will get a lot more robust than we've had.
On system resiliency and recovery, we're doing a bunch of things, but let me call out two. One is that we, right now, have an active-active configuration. So for every system, we have two systems, which are concurrently processing transactions. So if one goes down, the other should still be able to work. One of our learnings is that, in some cases, replication causes both the active-active to be impacted. So we've now figured critical systems where we're also putting a passive hot standby on top of the active-active. And again, that's something that should be done over the next couple of months.
The other thing we're doing is eliminating single points of failure. So at some service, take, for example, our mobile banking service and our pillar service, somewhere at the back end, there is one machine which services both. And therefore, you have the risk of both of them going down at the same time. We are now decoupling all those. So the service for mobile banking for pillar will be completely separate, which means that even if one goes down, the other should still continue to function. So we're trying to eliminate the single points of failure. Again, for the critical services, we think we'll be able to get this done in the first quarter.
And the last thing, on incident management, we are dialing up the way we manage incidents if they happen. One change we already made is we had several controlled rooms, so command centers. So we have a command center for the corporate business, a command center for the consumer business, a command center for the market. And sometimes to coordinate between command centers is a little clunky, it is taking us time. So we now merge the command centers together. We've given them common instrumentation, common observability tools and established a better escalation protocol, so if something is picked up in the command center, how quickly does it get escalated so we can manage the incident a lot better.
And finally, we're also improving our real-time monitoring infrastructure because we monitor all the time what's going wrong. But we've increased the number of variables we monitor and we increased the number of analytics tools we use to make sure we can pick up incidents more speedily, in quick time.
So based on all this, at this point in time, we set up a whole set of actions. By the end of Jan, about half of those actions are completed. By the end of March, I expect about 90% of the actions to be completed. So at this point in time, I'm quite confident that these actions will give us demonstrable outcomes and customers will be able to see the benefits of these.
However, having said that, it's not good to end there. Our commitment is to continue to allocate and dedicate resources towards resilience efforts even after that into the future, though I do expect 90% of this to get done in the next 3 months or so. So why don't I stop now and maybe we take questions.
Okay. I'm happy to take questions. [Operator Instructions]
So I've got a couple of questions. One is around the credit cost, of course. So I just wondered if you have any loans to commercial real estate customers in Hong Kong, China, the U.S. and Europe or Singapore, companies that have expanded in those geographies. And have there been any valuation write-downs in this portfolio? And how do you treat them in your credit cost, in your NPLs? That's the first question.
Second one is a broad one. So just wondering, I mean -- I'm sure shareholders are very appreciative of the dividends and the 1-for-1 bonus (sic) [ 1-for-10 bonus ]. But how have the additional costs -- because I think your $100 million is recurring -- the CSR $100 million is likely to be recurring. So how will these additional costs and more dividends impact your growth plans into the future because investors would want the dividends regularly? And are you still looking to expand regionally?
And a couple of specific questions, I'm sure you won't answer them, but I'll just ask them anyway. Are there any IPO plans for India? Someone asked me to ask you this question. And at one point, you were talking about the possibility of listing one of your DBS -- under your DBS Digital, there was a DBS Remit. You said that was a $100 billion business or something like that.
$100 million.
$100 million. It's $1 billion business.
That could be $1 billion business.
Okay. Yes, those are the two.
So the first, of course, we have exposure to commercial estate. Our total commercial real estate exposure across the group, this account is loosely about $90 billion, but that includes a big chunk of what is called mixed. So mixed projects actually are a mix of retail and there'll be some residential and so on. I'm counting it all. Those actual office real estate part of that will be actually tiny. It won't be -- 60% of that is in Singapore. So our biggest exposure, about $50 billion, $55 billion in that, is the Singapore market. And the Singapore market is quite robust, I'm assuming.
Hong Kong is about $18 billion. Last quarter, I told you it's about $19 billion. It's come off by about $1 billion. So it's down to about $18 billion now. But out of the $18 billion, again, about $12 billion, $13 billion is mixed use. And retail and office is about $3 billion. Our Hong Kong commercial real estate is all to the top end Hong Kong names. So we have really no other thing. So it's all to the biggest names you can think of, Sun Hung Kai and Cheung Kong and Henderson and et cetera. We really don't go beyond that. So we have no concerns with the Hong Kong portfolio. Our actual loan to values for this portfolio, they're in the 50% range. So we also have a lot of headroom and a lot of cushion between the valuation and other things. But more important, however, that if you go and look at the financials and follow the big Hong Kong major -- they're very solid. There are just huge amounts of capital as well as liquidity. So I don't expect an issue at that end of the market.
For others, we do continue to value and we do valuations every year. And if we think the market is off, we could do it more frequently. So far, because we've got so much headroom and so much cushion, we've not had to take any valuation adjustments or any mark-to-market, et cetera, around that. So between Singapore, Hong Kong, that's already -- 80% of our commercial real estate portfolio is really in these two markets.
Commercial real estate book in the U.S. is $1 billion, and that's Singapore names, right, so it's not consequential. We have collectively another $6 billion, $7 billion between U.K., Australia, Europe. And again, there, too, are broadly Singapore/Asian names and who we actually bank on the back of the corporate balance sheet and the corporate strength as well. So we've, obviously, like everybody, been stressing our commercial real estate book. We've been looking at the underlying. But we're not seeing any challenge, and we don't expect any problems with that book.
The other thing is China.
We have in China. So China, we've told you before, our total exposure for all Chinese companies, Chinese names or properties, is about $14 billion. Earlier, we guided $16 billion, it's also come down to about $14 million. That includes about $5 billion or $6 billion to state-owned enterprises. So the real estate subsidiaries are the strongest SOEs in China. It's around $5 billion to foreign companies. So the capital land equivalents of the world, who are external, and they go into China and do those things. And then there is another $3 billion, $4 billion split equally between REITs and privately-owned enterprises. But this is not commercial, most of this is residential. So there is some commercial component of this. But again, it is the large SOEs and the foreign companies. Again, we're not concerned about that. The commercial component of that will be under $5 billion out of that total listing.
Your second question on dividends. It doesn't constrain our growth because there's the reverse problem. We've got a lot of capital and too much capital. Currently our capital adequacy is 14.6%. We believe that, especially with the new Basel IV regime, Sok Hui will elaborate, but we have ample excess capital. So even after returning excess capital through bonus and other dividends, we have enough to fuel our growth. And frankly, we have enough to even do more M&As, if we want, right? So we have the capacity to do that without constraining growth. At this point in time, we don't have to put in capital into any new country. Most countries are self-sufficient other than India. India is the only country we're still putting in new capital. Everywhere else is self-sufficient and generating capital, so not a big -- you want to add to that, Sok Hui?
I think we have guided previously that under the Basel IV regime, which will come into effect 1st July 2024 this year, we expect that our card ratio will also go up by another 2 percentage points.
That means by the end of this year.
We will give you two numbers. One is the transitional number. One is the final phase-in number, yes. But the 2 percentage point is the transitional number, and that's the effective number that is required for compliance.
And then your third comment in terms of expansion, as we continue to expand, whether we do an IPO in India, we have an IPO anywhere in the world right now. But I don't see it happening until we -- actually, India is good. India's progress has been very strong.
Sir, you said I don't see it happening until?
I don't see it happen until we've got enough scale and size. It's going to be worth it. So if you take any of our markets, you take India even today, right, we make somewhere between $150 million, $200 million in India. And if we start trying to put a multiple on top of that, it would be interesting, but not scale. But in 5 years from now, if we wind up making $1 billion in India, then it becomes a lot too interesting to say, okay, should I try and do something. So it's not imminent. Let's put it this way.
And then the other thing, on listing, obviously, the fact that the tech market from the tech winter took the shine off a lot of these other possible issuances is material. So it's not been worth our while to think about it right now. But we're continuing to push particularly on the business that you talked about. I think the money transfer business, and especially low-value, high-volume money transfer business, that continues to be a very attractive business. And it continues to go very nicely for us. I think we are now close to about $200 million in that business. We're going to continue to double-down on that business. So at the appropriate time, if again the business gets appropriate scale and size and it's worth taking out and unbundling from the bank, it is still something that we would consider. But again, the timing has to be right.
But this remit -- sorry, this business, is it mainly retail? Or is it corporate? I mean because there's a lot of corporate.
There's actually two parts of the business. So one is the retail, so consumer payments. That part of the business, the market itself is growing good, principally because a lot more people are doing online shopping. So earlier, the bulk of the consumer payments, so either you went and paid your brother and sister somewhere or you paid school fees or college fees. Today, what's happening is everybody is buying online. And they're buying on all kinds of websites, which means you have to make an underlying payment to get that. So that's the reason for the growth.
The second part of the business is SME. So a lot of micro SMEs, they're also buying online so that they can then wholesale this thing. So that's the second big piece of growth. So we cater to both. The third for us is what we call the indirect business. So because we still -- I thought Sok Hui made the point, we're now up to 18 million customers. In 1 year, we've gone from 12 million to 18 million. In 3 years, we've gone from 6 million to 18 million. So our customer base is increasing rapidly. But it's still only 18 million. And therefore, our third business is what we call indirect. We are white labeling our capabilities to other banks for them to be able to take to their consumer and their SME customers.
[ Sheryl ]?
My question is about Chinese capital flows to Singapore. So is Singapore still attractive to the Chinese post anti-money laundering case and also amid stricter onboarding and family office obligations?
Sorry, what is the last part?
Stricter onboarding and family office obligation?
So I think Singapore continues to be an attractive destination not just for Chinese but around the world, right? And all our usual things are still in place: rule of law, English language, a trusted regime, extremely good professional advisers [ who are trying to work ], nothing's really changed. And so like I said, we've got $24 billion inflows in '22. We've got $24 billion in '23. And that carried on into the last quarter. Our inflows in the last quarter was $6 billion, which is on track. So it hasn't changed since the scandal broke out in the summer. And our early look at this year is also intact.
Like everybody, we continue to tighten the AML, KYC and the onboarding controls, and we continue to look for opportunities to do that. But I've also made this point before that these are finding needles in haystacks. So given the total quantum of clients and money, you will always find people who will get through the system. And my analogy was if you really thought it was possible to make crime zero, then that should be not just for this, that should be zero -- you shouldn't need police forces, right, because there should be no crime in every country. But obviously, there's crime in every country because it's not possible to make it zero. So we're going to keep tightening up and we continue to tighten up across everything that we do. But overall, I think Singapore's regime for looking at anti-money laundering is actually quite robust.
[ Felicia ]?
[ Felicia from Edge Singapore ]. You mentioned that there will be a variable compensation cut for the tech issues. I just wanted to find out how did you arrive at 21% and 30%.
You're asking the wrong person about the 30% because I don't determine my own compensation. It is determined by the Board. So I think the Board is the best place to figure. But as a general rule, we have a very robust balanced scorecard process. And our balanced scorecard process covers -- it's very structured, and we are anal about it. We spend like 4 weeks and about 20 meetings within the year, the whole management team, and we're figuring what we need to get done. We set up very tight measurement rubrics.
So for our financial customers, employees, transformation, everything, what we need to do -- we agree with the Board upfront what we need to do to achieve and outperform. And then we marry all of this together to Sok Hui how did we do as a bank. And I run this whole process, both in the beginning and the end of the year, saying, how did we perform? And frankly, last year, other than the tech incidence, we had a blowout year. I mean it's not just the profit. It's every other part of what we're trying to do, our transformation agenda, our customers score, the customer feedback score, everything is just extraordinarily strong. Then on top of that, the tech issues, obviously, there are huge negatives around that. But we balance all that together and come up with what we think the overall evaluation for the management should be. And then based off that, I discuss it with the whole management team. And the management team said we think we should take accountability, and this range might be the right thing to do given the whole scorecard.
[ Adi ]?
Can I get more details regarding the $80 million commitment to implement the technology uplift? What would the bulk of this $80 million be used? Is it manpower or infrastructure?
And secondly, because the restructuring is caused by a third-party contractor error, so will there be plans to move more such capability in-house rather than using vendor? Will there be a change in this approach?
Yes. So first, it's a mix of everything. So first of all, it includes -- we are paying a lot of consultants to help us, right? And so that's money out of the pocket. We are reallocating resources. So as you know, because of the pause, in any case, we're not doing new extra development towards reallocating resources. But the body of the resources, which we count in because it's only dedicated incrementally to new things, we are doing for resiliency. And then there's some hardware as well. So for example, we just went and bought a completely new mainframe to supplement our capacity just in case, right? So that should come in next month or early March. So it's a bit of all: some infrastructure spending, some consulting savings, some incremental resources for the things that we are doing.
On the vendor, actually, the issues are not just vendor. There are some vendor issues, some are our own software issues as well. So I think this -- actually, we in-source a lot more than most people, right, in terms of what -- most people actually give doubts. In fact, we go to public cloud, it's all outsourced. We run 93% virtual private cloud in the company, we are doing 100% public cloud as well. So I think our balance and mix between what we do internally and what we use external for is actually quite good.
As you continue to build the new modern tech stack, it's highly unlikely and unreasonable to try and do everything yourself. You take generative AI. What AWS and Google can do with generative AI is very hard for companies to be able to replicate that. So you're much better leveraging their services for creating stuff like that as opposed to trying to do the same thing that they do. So I don't think we'll change our relative mix between what's out and in very materially.
I'm mindful, actually, that we are fast running out of time. So maybe just one last question to extend, and yes, we have to close.
I just want to ask a few quick things. First on the pay cut, obviously.
What's that?
The pay cut. What was the kind of thinking behind that and how calculations came to behind that? And two more quick ones, on shop houses. You said there was a bit of news about you guys trying to [ sell off ] some shop houses run by [ lenders ]. Can you give a little bit of color behind the process behind it? And how many shop houses you guys are planning to sell? And you guys -- and you mentioned about the kind of China risk just now. Like, what's your outlook in China? Looking at it, do you think things will get a bit worse there? And you mentioned just now the liquidity issue as well. In terms of like thinking how to deploy it, are you guys exploring things like you did in the past, like lending more money in [ MAS ], for example? You mentioned -- I mean what's your whole -- how did you come to a decision behind that?
Thank you for the questions. The pay, I already answered this thing, right, so there's nothing more to add at how we go about the pay process and what we came up with.
The second question was on shop houses. We disclosed last quarter that part of our thing is that the mortgage financing we've done for some of these -- the AML case, to buy property. Our loan to values are very low, but we've given money to our property. And in the normal course, if we have a challenge, we foreclose the property and try and sell the property, right? If we can sell the property, we recover our money. And so that's exactly what we are doing. So since we found this big whatever, we're basically foreclosing and trying to sell the property thus far. It's in the normal course. We put in a receiver, they take the property, they go and sell the property. Once they sell the property, we get our loan back, right? That's all that's happening in this thing.
Then the third question was around...
China.
China. I think China is still challenged. China is slow. I don't -- I think this year, growth rates will be between 4% and 5%, 4.5%; last year, at 5%-plus. I think this year, it will be slower. But I also think that they're trying to put a floor under this thing. So I don't expect a systemic financial risk. And I, therefore, don't expect a major issue with our portfolio. But at the same time, we've been careful. So we are not being very aggressive in our China growth right now because of the overall environment.
And the fourth question was...
On your liquidity.
So we're still very liquid. In fact, if you look at our performance, there you can make out. We continue to get FDs and paying down. First of all, in the foreign currency book, we've been paying down our commercial paper and [ MTA ] because we're getting fixed deposits cheaper than we raise commercial paper. So one is we're replacing our wholesale funding with deposit funding. And on the Singapore dollar side, we're still very liquid. So yes, we continue to place with them, yes.
So in terms of how you guys are going to use that, like is there any thinking like how you guys are deploying that? You mentioned M&A. Is that something you're actively considering? Or are there other kind of deployment in terms of the money?
I didn't follow.
Are you guys -- in terms of the excess liquidity, are you guys thinking, for example, on deploying it through M&A or other kinds of things?
Yes, M&A and so on is not a use of liquidity, right? That's a use of capital.
Sorry, capital.
And yes, I mean, we've said before that we're not actively looking at any M&A right now, but we are opportunistic. If we find a right bolt-on M&A that helps boost our business, we'll always look at it. But that's not a use of the liquidity per se. The use of liquidity is can we give loans, can we put on assets. And I already said what we did this year, between the end of the third quarter and the fourth quarter, is we actually put on a lot of fixed rate assets and built up a duration in the book with a view that rates are going to come off. And some of that is loans, but a lot of that is through bonds and through other market-based instruments.
Quickly on the exposure to the AML, are you guys expecting to make most of it back, the $100 million exposure that you mentioned last time?
Well, it depends on what we are able to do from -- we're just conservative, so we decided to provide for it. But in the normal course, the property values are low. So if we can sell it, then yes, we should recover it.
Okay. Thank you very much, everyone. That's all the time we have. So we'll see you next quarter. Thanks.