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Okay. Good morning. Welcome to OCBC's First Quarter Results. We do have Sam and Darren with us. So as usual, we're going to take questions, and we will call out your name, and then you can ask your questions, but we will first have Darren taking us through our slides first.
Hi, good morning. Thank you for joining the call. This quarter marks the start of our voluntary results update following SGX's removal of the mediatory quarterly reporting this year, and we will continue to do so in our first quarter and third quarter results. And through this voluntary update, OCBC is committed to provide the investment community and its credit reporters with timely relevant information over and beyond the full disclosures for half year and full year results. I'll move on to the results proper on Slide 2. For the first quarter of 2020, OCBC Group reported a net profit of SGD 698 million as compared to SGD 1.2 billion plus in the previous quarter and the previous year. 2 main factors negatively affected our earnings this quarter.
Firstly, we provided higher allowances for our non-impaired loans in anticipation of the potential deterioration to our loan book. We also provided specific allowance for Singapore-based corporates in the oil trading industry. Secondly, our insurance subsidiary Great Eastern's investment performance in both the life and shareholders' funds were negatively impacted by unrealized mark-to-market losses.
Nonetheless, the underlying businesses of both our banking and insurance operations remain sound. OCBC's banking operations achieved operating profit growth of 8% year-on-year while Great Eastern's sales of insurance policy continued to grow, resulting in higher new business embedded value. With our strong capital, funding and liquidity, we are confident that we would be able to withstand the economic Tsunami arising from the COVID-19 pandemic and continue to support our stakeholders. I'll move on to Slide 4. As I mentioned earlier, OCBC Group net profit for the first quarter fell 43% year-on-year to SGD 698 million. Banking operations net profit was down 28% while profit contribution by Great Eastern was down 94%. Now if we exclude Great Eastern, banking operations income was 7% higher year-on-year to SGD 2.37 billion.
Net interest margin was stable at 1.76% as we grew our CASA deposits and shifted to longer duration and more fixed rate loans. Costs were managed tightly, up 1% year-on-year and down 12% on a quarter-on-quarter basis. OCBC's capital and liquidity position remains strong with CET1 capital at 14.3% and all currency liquidity coverage ratio at 151%. I'll move on to Slide 5. Our diversified franchise continue to enable us to deliver balanced growth. Operating profit from our banking business grew 8% year-on-year, supported by a healthy 7% growth in income. On our balance sheet, customer loans grew 3% year-on-year in constant currency terms. Deposit rose 7%, led by CASA growth. As a result, our CASA ratio improved to 51% this quarter.
Our wealth management business, wealth management fees rose 32% to a new high of SGD 291 million this quarter. Net new money inflows for Bank of Singapore continued to be positive, but this was offset by the drop in asset valuation this quarter. Consequently, Bank of Singapore asset under management was down 4% as compared to a year ago.
Great Eastern total weighted new sales and new business embedded value continued to grow by 21% and 15% year-on-year, respectively. However, Great Eastern profit contribution was significantly lower year-on-year as a result of negative mark-to-market to its investment portfolio. I'll move on to Slide 6 on our group's fee and trading income. Net fees and commissions grew by 10% to SGD 546 million, led by mainly growth in wealth management. For trading income, treasury related customer flow income was higher from a quarter and a year ago. However, this was more than offset by unrealized mark-to-market losses in Great Eastern's shareholders' fund. Moving on to our balance sheet on Slide 7. Our loan remains well diversified across geographies and not concentrated in any particular industry sector. The Oil & Gas and Commodity sector represented 5% and 6% of our loan book, respectively. Within the Transportation sector, loans to shipping was 2% of total loans while Aviation sector accounted for less than 1% of our loan book. We continued to progress on our green and sustainable finance with our green and sustainable finance portfolio growing 28% quarter-on-quarter to SGD 11 billion. Moving on to Slide 8 on our allowance and asset quality. We had proactively made provisions for potential deterioration in our loan book. In the first quarter of 2020, we set aside an additional SGD 382 million as general allowance. Additionally, we took specific allowance of SGD 275 million, mainly for our downgraded Singapore corporate account in the Oil & Gas trading sector -- Oil trading sector.
NPL ratio remained relatively unchanged at 1.5%. The 13% increase in NPA this quarter was largely from the same corporate account. We have also kept the regulatory loss allowance reserve unchanged at SGD 874 million. As a result of our -- as a result of all these actions, our coverage of the NPA increased to 90% from 86% in the previous quarter.
I'll move on to Slide 9. Our balance sheet remain robust with strong levels of capital, funding and liquidity. As of 31st March, our net stable funding ratio was 108%, all-currency liquidity coverage ratio was 151% and our common equity Tier 1 capital adequacy ratio was 14.3%, well above the respective regulatory requirements. And maybe moving on to Slide 13 for some final comments on Great Eastern's performance. Great Eastern's investment portfolio, like most long-term portfolio insurance companies, pension funds and sovereign funds, was constructed with a portfolio of high-quality equity and credit securities. This classic asset allocation was generated -- was constructed to generate returns that would more than meet its policy holders' return requirements over the long term.
Additionally, most of this long-term obligation to insurance policyholders who have present value via long-term government rates. So the sharp drop in equity and credit securities during the quarter had negatively impacted Great Eastern investment portfolio when mark-to-market.
At the same time, the lower long-term government rates had also translated to higher valuation of Great Eastern's obligations towards its policyholders. This had resulted in a double whammy, so to speak, when the asset and liability are both mark-to-market, and this in turn negatively affected Great Eastern performance, although the adoption of RBC2 framework in Singapore, primarily from the application of that matching adjustment had an offsetting effect, as you can see in the slide.
Now given the high quality of Great Eastern portfolio of equity and credit securities, it will be reasonable to expect its investment performance to revert to mean and to generate the long-term performance that we have often seen and witnessed in the past. It is important to note that Great Eastern's operating profit continue to grow as a result of the continued growth in embedded value from the growth in its sale of insurance policies. This growth in embedded value in turn [ serve ] as a longer and better term indicator of the longer-term growth and hence, performance of Great Eastern. Now with this final point, I'll end my presentation, and I'll hand over to Sam.
I guess, maybe before Sam say -- after Sam speak, you can ask your questions. [Operator Instructions]
Sam, please?
Well, good morning to all of you. Welcome to our audio conference. This is the second time that we are doing this via the audio conferencing facilities. Last time when we did it, I had hoped that this presentation will be done face-to-face, which I always looked forward to. But then because of the continuation of the situation, we have to do it via audio conference. But now again, hopefully, I think when we do the first half briefing to the media friends, I hope we'll be able to do it via face-to-face. The situation that has developed here in Singapore as well as in the region was much more than what we had originally expected. And this time around, we believe that the economic impact, in particular, is going to be more penetrating than just the initial impacts that was assessed by us. So this is partly reflected in the first quarter results already.
As Darren has mentioned, there are 2 major items in the first quarter results. One is the allowances. In particular, the allowances that we have created for the unimpaired assets, meaning that those assets have not yet been impacted as seen in their repayment and in their cash flows. However, we do expect that there will be sectors that will be more severely impacted than is currently shown now. As a result of that, we have created allowances for unimpaired assets as of the end of the first quarter. The second point, as Darren mentioned, was our insurance operation. And because of the investments that is necessary for our insurance obligations, the investments are mark-to-market. And the total mark-to-market impact for the first quarter is approximately SGD 500 million, SGD 400 million in the nonoperating profit and SGD 100 million in the shareholders' fund.
And as Darren mentioned, we have a RBC2 transition that gave us a positive impact of SGD 200 million. So the net impact on these nonrecurring -- non-extraordinary type of things have resulted in the SGD 300 million hit on our first quarter. But the underlying performance both for the banking operations and insurance operations continue to perform well, and it was better than what we had originally planned as the results have shown.
On a forward-looking basis, I think the outlook is still quite uncertain. And even if there is a stabilization by the end of this year, a strong recovery is unlikely until 2021. During this time, it is also important for us to continue to help our customers to tide through this difficult period. And together with the MAS as well as all of our peer banks, we have been expanding substantial financial assistance to hopefully help our customers ride through this storm.
It is, however, realistic to assume that there will be some customers who may not be able to ride through this storm and in which case, we have to be prepared for that. And this is why we will continue to look at our portfolio quality and continue to provide allowances when it becomes necessary. With respect to the short-term outlook, I think the growth in loans will be quite muted. If you take away the foreign exchange impact on a quarter-to-quarter basis, our loan outstanding was basically flat. And we do expect that this flattish outlook for loans will continue throughout the remainder of this year.
On the credit cost going forward, I would like to share with you that it is actually difficult to assume what is the total credit cost. Our first quarter credit cost was 86 basis point, which is higher than the previous quarters because we have created additional provision for our unimpaired assets.
As the market continues, we will have to observe what is the forward-looking indicators with respect to GDP growth, unemployment rate, interest rate and property price index. These are the major factors that we take into consideration when we do the forward-looking basis. And this is not only for Singapore, but also includes all of our markets in which we have operation in.
On the best estimate basis, we believe that the credit cost for the banking operations would be higher than that of the global financial crisis and will likely match the SARS period about 17 years ago -- 17, 18 years ago during the SARS period. We do not believe that the credit cost will be as high as during the Asian financial crisis.
NPL ratio is also likely to correspondingly rise. Because of the lower interest rates, NIM is probably going to come down a bit as well. But having said that, we have to recognize that this is a short term phenomenon, a short-term phenomena that is caused by health crisis developing into an economic crisis.
All the governments around the world, including Singapore, are doing the best they can to arrest the virus and then to regenerate activities in our local economy. Many of the economies around the world are already talking about opening up, and Singapore is also going to be very prudently and gradually opening up. The effects of the relief program that the government has extended, the combined efforts of the banks to extend additional financial accommodation to our client base, both on the business side as well as the consumer side, the lower interest rates that has now been in effect since March of this year and the opening up of the economy is likely to slowly bring the economy back to its normal activity.
And if that was so, it is a short-term event. And this short-term event of perhaps 1 to 2 years will distinguish between the banks which has got a strong capital ratio, a strong liquidity ratio and a strong funding proportion. And if you look at OCBC, our CET1 ratio at 14.3% is way above the regulatory minimum and is able to provide us with a cushion that's necessary. In addition to that, our liquidity and our funding will continue to provide us with the strength for us to ride through the storm together with our customers.
In the area of investments, we will continue to invest into digitalization because through this crisis we have experienced, as was indicated in the slides at the end of this deck, that if you look at the transaction volume, the transaction count as well as the number of customers that we're able to sign up through the digital channel, it has significantly increased. This is a good outcome for the technology investments that we have made over the past years, and we are now putting them to good use.
We believe that the business model after the COVID-19 crisis is over is going to be modified such that digitalization, offsite access to the bank's services as well as the way that the bank engage our customers will change. And with the increased digitalization that we have made over the recent years, this will help us to position much better for the future as the situation continues to develop. So with that, I will open up to any questions that you may have.
Okay. The first person in the queue is [ Chung Yeh ].
Sam, Darren and Ching Ching, I have 3 questions. Do you want to reduce exposure to the Oil & Gas sector when it comes to loans, given the oil price outlook? Second question is on your dividend policy. Are you looking to keep on maintaining the current level? What's your guidance for 2020? Third question, given the economic conditions, are you going to slow down your expansion plans, particularly in the Greater Bay Area?
Thank you, [ Chung Yeh ]. Good morning to you. On the exposure to the Oil & Gas sector, our Oil & Gas sector currently is 5% of our total loan book. So it's not a significant portion of that. We believe that oil as a commodity will continue to be required going forward, but we need to be careful to make sure that during this period of time, we will be following the customers' development and their ability to withstand a low oil price for a period of time. We do not reduce our exposure per se simply because of the oil prices is coming down. We will look at each of the individual customers' operating model, their anticipated cash flow, their inventory position and their risk management capabilities to decide which are the customers we will continue to work with them throughout this crisis. But currently, at the 5% loan book level, it is not a significant concentration. With respect to dividend, I'll let Darren take this question, and I'll take the question on Greater Bay Area.
Hi, [ Chung Yeh ]. Our dividend policy remains unchanged, which also means that we haven't decided on the dividend on the half year and final year basis. Given the current outlook, obviously, there's a lot of questions about the dividend. So give -- as Sam articulated earlier, the outlook is still highly uncertain. We will probably make a decision in consultation with the Board closer to the time when we have to make that call, which is during the half year and for the rest of the year during the final year period.
With respect to the third question on our expansion in the Greater Bay Area, that is a long-term strategy that OCBC Group has decided, and that strategy will continue. I think there are a number of factors that came out strongly to support this strategy. One is China has recovered from this virus earlier than most of the other major economies, and they are already creating a lot of measures to increase the domestic economic activities and the domestic business activities.
Second point is that after this event is over, I think people is going to reposition their supply chain, and the supply chain will be closer to where the demand is. So China being a huge domestic market, they would need quite a bit of supply chain support as well. Some of those supplies currently are outside of the region, and I believe it is the intention of some of the overseas suppliers, global suppliers will probably move their plants, move their productions closer to where the demand is.
And if we just focus on China's future demand, which is going to be fairly significant, we believe that there will be increased activities that will be driven on installing supply chain and supply chain centers over in this part of the world, including Greater Bay Area, including Southeast Asia. In that respect, therefore, it is even more important to identify areas of growth. And the way that areas of growth will be identified is basically decided by where the demand is. And in the neighborhood of that demand, there will be additional investments being made. So Greater Bay Area and for that reason, Southeast Asia will be a beneficial recipient of those investments.
So it is still our direction to continue to follow the developments and continue to make appropriate investments into the Greater Bay Area so that we can capture that trade flow as well as, as a result of trade flow, there will be capital flows as well. It is our intention to capture that. And particularly for Singapore, where we play on the connectivity activities, we will continue to focus on that to create business for both Singapore as well as the Greater Bay Area.
Okay then...
[ Chung Yeh ], you want to clarify? The next question is actually from [indiscernible].
Yes, I've got a question. You've said that you're expecting 100 bps to 130 bps of credit cost over 2 years. Does this include the loans from the stimulus package? You said you've given SGD 4 billion in loans to -- for personal financing and all that and then there are some of the government forbearance measures and so on. Would this include the loans that are likely to be troublesome in the future?
Yes. This is the outlook that we have assessed, and this includes all of the loans, including the relief loans that we have extended to our customers. Because whereas we believe most of the relief loans that we extend to the customers will be able to generate enough cash flow in the future to repay those loans, it is also possible that there would be some casualties along the way. Our estimation of 100 to 130 basis point over the next 2 years, not 1 year, over the next 2 years, is all inclusive. Additionally, it also included the credit cost that we create for the unimpaired loans. So in the event that the situation is not as dire as what we had assessed right now, then those allowances that we have created for the unimpaired loans probably will not become necessary, at which point in time, it will be written back to the bank.
But at the present time, based on our assessment, it's about 100 to 130 basis point over 2 years is what we're expecting. And this ratio is close to the ratio that we have seen during the SARS period.
Okay. Next on line is Anshuman.
Sam, this is Anshuman here from Reuters. I want to check with you on the loan loss provisions that you talked about. Can you give us some clarity on how did the private banking -- how is the private banking business faring? And what sort of business impact are you seeing on your clients from the crisis?
Private banking in the first quarter did very well, but if you divide the first quarter into months, private banking did very well in terms of new business generation in January and February, but it has significantly come down in March. There is quite a bit of switching in the private banking sector as well, which, in the short term, created fee income for us. But in the long-term now, most of their assets are placed into the more prudent, more conservative portfolio. They will all have to wait until the market become more active again and the outlook becomes more certain for them to do reinvestments. So we believe that the second and the third quarter, private banking is going to be slow. The fourth quarter is difficult to forecast right now because if the market starts to stabilize, usually, the financial market will go first, then followed by the real economy. So private banking, primarily being an investment market into the financial markets, may see an active portfolio switching back to additional investment instruments by the end of this year. But during the second and the third quarter, because the uncertainty continues to prevail, we do not think that there will be a lot of activity in terms of new investments in private banking. But first quarter was very good for us.
Okay. Next, we have Vivien from Business Times.
Okay. For OCBC is expecting an NPL ratio of between 2.5% to 3.5%. Is it over 2 years? That's my first question?
Well, the NPL ratio is a point in time ratio, and therefore, it doesn't really say if it's 2 years or 1 year because it's a point in time ratio. So we expect that the NPL ratio could increase to as much as 3.5%, but it could also be 2.5%. All of this actually depends on the effectiveness of the relief program that has been given to the client base. If the relief program is effective, and if the economic impact on this COVID-19 is going to be shorter-term and the government measures that follows to create new business activities is successful, then we do not need to go up to the higher end of this range. But in the event that the relief measures are uneffective and activities cannot come up, then it may go up to the higher end of this. But this is a point in time, our NPL ratio.
Okay. So my next questions are income growth drivers. So is it going to be wealth management this year's NIMs are expected to be compressed?
The growth for this year will be driven by -- if it's wealth, it will probably towards the end of this year. Loan growth may increase by 1% to 2% or so, but it's generally pretty flat. Our generation of additional deposits is going to help us, but the interest rate has come down. So the growth that we expect to see will probably be around the North Asia area rather than in Southeast Asia because Singapore, Malaysia, Indonesia, we believe that the short-term outlook is therefore both for the second and the third quarter, economic activity is going to be pretty down. In North Asia, however, with China now coming up pretty well in terms of its recovery, we just expect that they will start to make some investments at this point in time, both from a strategic perspective to increase their investment overseas as well as to meet their local demand, there may be more activities that will be coming out. That being the case, maybe there's a bit more growth in our North Asia operation. But the growth will be fairly insignificant, Vivien.
Okay. Any more questions from the journalists? We still have a bit of time.
Yes. I would like to emphasize that, whereas, the outlook is pretty dim at the present time, the ability to continue to survive and continue to do well and to position for the future would really depend on how well we prepare on the provision side, how well we manage the risk along the way and the fundamental strength that we have is the capital strength, CET1 ratio of 14.3% as well as the liquidity and the funding.
Okay. Next is [ Takashi ].
You mentioned that credit cost will be higher than global financial crisis, but not as high as Asian currency crisis. So how much was the credit cost during global financial crisis and Asian currency crisis?
Okay. For OCBC, for the global financial crisis, which lasted from 2008, 2009, our credit cost then was 110 basis point. And during the SARS period, during the period of 2002 and 2003, again, a 2-year period, our credit cost was 143 basis point.
Okay. Jamie, I think you want ask your questions. You're next.
I've got a few questions. You could help me on the following. In terms of Oil & Gas breakdown, what's the breakdown in terms of the upstream and downstream companies and is more -- are more provisions expected on this front? Specifically to Oil & Gas, we're also seeing, for example, we're seeing the headlines of a company called Zenrock where there are allegations from HSBC suggesting that some of the collateral that was fully used, and there were poor disclosures in that area. Do you see these -- of course, in [indiscernible] there are also cases of poor disclosures and indications of fraud. Do you see these issues without mentioning these companies as isolated cases or given that these companies are quite [indiscernible], is there any sort of domino effect that we could see from such cases directly in the market?
Second, in terms of what about your exposures to other markets such as Malaysia and Indonesia, specifically in Malaysia we're seeing that there has been automatic -- moratoriums have been put out by the government. Could we just get a little bit more color on that as well? Also, some of your other peers have disclosed numbers in terms of the amount of government-assisted loans that have been given out. Could we get a little bit more color in terms of the sort of relief that has been provided? And on those fronts, I think -- sorry, you did mention that -- if I can just pull it out, I think they've told analysts that I think 12 -- around 12% that would be -- that they could assume that 12% of their loans from -- on the relief package could turn sour or could go into NPLs? Do you have sort of a breakdown on that front as well?
Okay. Thank you, Jamie. Quite a bit of questions, diversified as well. So I mean, on the Oil & Gas side, our total Oil & Gas exposure in our total loan book is 5%. Now within that 5%, we divide it into 3 major areas. One is the offshore support vessels, which is the sector that has caused the banking sector quite a bit of difficulty over the past 3 years. That represents 35% of our Oil & Gas loans outstanding, 35%. But if I may just add a little bit of color on that, within the offshore support vessels, this 35%, it divides into 2 categories. One category are the Singapore Inc. type of companies and national -- subsidiaries of national oil companies, that represents approximately 50% to 60% of our exposure. The remaining 40% are to regional and local names, and that is the sector that has been causing difficulties and distresses for the banks as well as for themselves. Now for this second sector, we have classified almost all of them into NPL, have taken appropriate [ provisions ] against them as well. So that's the offshore support vessel sector, about 35%. Then there is the traders sector, the traders sector, trading of Oil & Gas, and this will include the names that you mentioned, that's 25% of our total Oil & Gas. And we have upstream and integrated. Upstream and integrated is another 25%. Now in the upstream and integrated, those are primarily the national companies, which are involved in exploration, and many of them are the [ Chinese ] companies, the first tier state-owned companies having operations and having treasury centers in Singapore, that's 25%. And the remaining 10-plus percent are others. So this will include people who are doing retailing, some gas stations type. So those are the miscellaneous group. So this is the breakdown. 35% offshore support vessels, traders 25%, upstream and integrated 25%, and any others about 10% to 15%.
With respect to your second question on incidents that had happened in that, we understand that there are certain allegations of irregular activities in these companies. We do not believe that the irregular activities is a predominant practice in this sector. So in that sense, those are isolated cases which contains some irregularity. Most of the traders in that sector are operating on a normal trading basis, of which the inventories should not be very high. Plus, they are traders and they take transient risks in terms of shipping terms, in terms of timing, in terms of port of discharge. Other than that, they should not be that impacted by it. Now of course, when the oil price is low, their ability to generate cash flow will be weaker than before. But it is an area that we -- whereas we pay attention, we do not believe that what is seen in the isolated [Audio Gap] that you referred to is the prevalent practice for this sector. With respect to Malaysia and Indonesia, Malaysia has extended the relief program, and we are following the government directive to provide relief program on an opt-out basis, meaning that most of them we'll actually follow. It is not easy to continue to monitor them because if you are on the principal -- principal and interest moratorium, you don't observe the performance of that. We do believe that there will be some stresses that will appear after the moratorium period is over, and that's why we have created additional provisions for the non-impaired assets because the non-impaired assets provision is really on the forward-looking basis.
To go into a little bit of detail, we look at what is called the macroeconomic variables to look at the future. Macroeconomic variables is always forward-looking, and we build it into our ECL model. On top of that, the management further increases the macroeconomic variables with what we call a management overlay, which is the expectation which has not yet shown up in the forward-looking indicators. And those we primarily refer to some of the stresses that is hidden as a result of the relief program. And once the relief program becomes normalized and they need to repay, the stresses will show. So we're actually building that. So we have done that already.
As to the percentage of the government relief programs that may turn NPL, I don't think I can answer this question because we do not enter into a relief program in anticipation or target a certain NPL ratio. It is difficult for us to assess. Every relief program that we've entered into, we entered into against our assessment that the loan will be repaid and would not become nonperforming.
Okay. Next, [indiscernible] is here for your questions.
Okay. Maybe for Darren. Based on these macroeconomic variables and your IFRS 9, is there an impact on the risk-weighted assets? I mean, would that impact your CET1 in the future or not?
Sorry, [indiscernible], can you repeat that question?
Yes. With these macroeconomic variables where you've got higher -- where you had to have more, what they call more provisions on that, more general provisions, is there an impact on this IFRS 9 on the risk-weighted assets? Do these have to like sort of -- do some of the corporates have to have higher risk weights as the external environment sorts of worsens?
To answer your question, they are not linked directly. The computation of ECL and RWA are not linked directly, but they are driven by the same factors. For example, when you calculate ECL, you need to consider the probability of default and the loss given default and that would go into the calculation of the expected credit loss. Now when you look at RWA, obviously, it also is very closely linked to that probability of default. So they tend to move in the same direction. In other words, when we see macroeconomic activities or macroeconomic environment deteriorating, technically, you would think that probability of default would increase and correspondingly potentially loss given default would increase. So in the sense, when macroeconomic environment would deteriorate, it will drive potentially higher sort of ECL and correspondingly a higher RWA.
Will this affect your CET1 ratio? Or can you generate sufficient capital to grow out -- to grow sort of -- continue to grow?
Well, I mean, the CET1 ratio, if you look at it, the numerator is a function of the earnings. And obviously, an increase in ECL 1 and 2, as you noticed, for this quarter for us, would have an impact on the earnings, so the numerator will be affected. Now then the denominator is a function of what we mentioned earlier, RWA, so the RWA would have increased. So for this quarter, likewise, the risk-weighted assets for us has increased, you will notice of about 6% quarter-on-quarter. And a fair bit of that is also partly because the RWA, the loans that we have, a fair bit of them are denominated in U.S. dollar. And U.S. dollar has strengthened versus Sing dollar. So you're talking about 40% roughly increase of that 6% coming from the strengthening of U.S. dollar. And the balance, 60% or so roughly come -- most of that come from actually sort of the worsening macroeconomic environment and hence, credit determination on the back of a [indiscernible] essentially.
Just to supplement what Darren has said. In the RWA calculation, there are 2 principal drivers. One is the company itself, the borrower itself. If the borrower's cash flow is impacted or it's got higher leverage in the high interest rate environment, it will then resulted in a higher -- a weaker obligor rating and therefore, higher RWA. The second factor, principal factor that drives the RWA is the industry that it is in. In the situation where we are currently seeing, certain industries will have been downgraded already. And once we downgrade the industry, the RWA for the companies in that sector will automatically increase.
Okay. So with that, thank you very much for your time this morning. Everyone stays safe and see you -- hope to see you soon.
Thank you very much. Hope to see you face-to-face at our next briefing session. Have a good day, and be safe.