United Overseas Bank Ltd
SGX:U11
Earnings Call Analysis
Q3-2023 Analysis
United Overseas Bank Ltd
During the third quarter of 2023, UOB faced a wavering global economy, marred by persistently high interest rates and geopolitical instability. Nonetheless, the ASEAN region showed resilience owing to its strong fundamentals, with expectations of maintaining growth at 4% this year and increasing to 4.9% for the next year. UOB stands as a testament to prudent financial governance, experiencing healthy income growth despite the uncertain climate.
UOB's core net profit rose by 5% year-on-year to SGD 1.5 billion for the quarter, marking an overall 33% increase for the first nine months. The growth was primarily fuelled by high net interest income, courtesy of substantial margins, and strong fee income movements, with credit card fees catapulting to SGD 100 million, implying a strong consumer expenditure landscape. The bank showcases a robust balance sheet, highlighted by a stable non-performing loan (NPL) ratio and fortified credit provisions.
UOB's retail segment flourishes, with record fees from credit cards and sustained asset management growth, reaching total assets under management (AUM) of SGD 170 billion. Meanwhile, the wholesale segment's performance remains commendable, considering the current economic headwinds. Notably, the integration of former Citi customers is proceeding smoothly, further strengthening UOB's regional customer base and enhancing its digital banking platform, TMRW. Strategic partnerships and lifestyle offerings like Ed Sheeran's Mathematics Tour concert are among the initiatives to engage with a broader client demographic.
UOB's emphasis on sustainability and corporate governance reflects in the establishment of a sustainability advisory panel and the forthcoming release of their first net zero progress report. The bank's commitment to environmental, social, and governance (ESG) principles is highlighted by its CSR efforts and initiatives for upskilling its workforce. Recognitions such as the Best Managed Board award further cement the bank's reputation for corporate excellence.
Looking ahead to 2024, UOB anticipates mid-single-digit loan growth, with a continued focus on high-quality customers. Margins are expected to stay at favorable levels, accompanied by a predicted double-digit fee growth. The bank projects a stable cost-to-income ratio as one-time costs from the Citi acquisition begin to wane. Credit costs are estimated to hover around 25 to 30 basis points, underpinning the bank's sound fiscal management and positive momentum going forward.
UOB's core profit displayed a slight 2% quarter-on-quarter escalation to SGD 1.5 billion, with a core return on equity (ROE) of 13.9%. A marked 33% increment to SGD 4.6 billion in core profit was noted for the nine-month timeline. Despite slight fluctuations in net interest income and fee income reaching historic bank highs, UOB maintained a tightened credit cost of 19 basis points this quarter and a consistent NPL ratio of 1.6%, underlining the bank's inherent operational strength.
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Good morning, and welcome to UOB's Third Quarter 2023 Results Briefing. I'm Wendy Wan from the Group Strategic Communications team and I will be your MC for today. This morning, we have Mr. Wee Ee Cheong, UOB Deputy Chairman and CEO and Mr. Lee Wai Fai, our CFO, to present the results.
A few house rules before we start. Please keep your questions until after the presentations are done. [Operator Instructions] Without further ado, I will now pass our time to Mr. Wee, please.
Thank you. Good morning. Thank you for joining us today. As all of you know, the global economy has become more uncertain. The impact of higher for longer interest rate has filtered through the economy. Recent geopolitical tensions have added to the volatility. This will slow ASEAN growth, but the region's fundamentals are still strong with low unemployment rates and robust consumption. We expect the ASEAN region to remain relatively more resilient with 4% growth for this year and 4.9% for next year. ASEAN is also attracting more investment flows, especially in new economy sectors such as sustainability. The global supply chains continue to shift into ASEAN. We are optimistic about the region's growth potential.
Closer to home, Singapore continued to draw inflows in a flight to quality. As a key player for -- in Singapore financial system, we will continue to stay vigilant to uphold Singapore's reputation as a safe heaven and participate in industry efforts to strengthen the country position as a wealth management hub. For UOB, we have built a resilient portfolio that allow us to write through market cycles. Prudent management is our hallmark, and we prefer to take a long-term view in all that we do.
Against this backdrop, we delivered a set of robust financial results this quarter. Our core net profit for the third quarter grew 5% year-on-year to SGD 1.5 billion, driven by strong income growth across our diversified businesses. For the first 9 months, our core net profit was up 33%. Despite muted loan growth, net interest income increased, boosted by higher margins as we focus on quality credit opportunities. Higher interest rates continue to support our balance sheet profile.
Fee income recovered strongly, across all key drivers, loan and trade-related fees, wealth management and credit card fees. In particular, card fee income crossed the SGD 100 million for the first time to a record quarterly high, growing 89% year-on-year. This shows the consumer are still willing to spend.
Customer-related treasury income continue to do well, accounting for more than half of trading and investment income. More customers are engaging in hedging activities, given market volatility. The one-off costs for our Citi acquisition will largely taper off by end of this year.
Asset quality is resilient with a stable NPL ratio. Even as specific provisions stay high due to portfolio revaluations, our strong provisioning buffers kept total credit costs within our guidance. Our balance sheets remain strong with robust CET1 and liquidity ratio. With deposit outpacing loan growth, our liquidity ratio remains at record levels.
Now let me share some highlights on our core business segments. Group Retail business. We have a strong retail franchise, well supported by diversified revenue drivers. Net interest income remains our main income driver. We are seeing healthy net interest margin. CASA deposits continue to grow.
Our capabilities in UOB tomorrow have also helped us build strong deposit balances. Quarterly credit card fees reached an all-time high of SGD 104 million. Wealth management fees improved this quarter, although investor sentiments remain subdued. Net new money continue to grow, bringing our total AUM to SGD 170 billion. This shows the strength of our customer franchise. The Citi integration is also progressing well. We have successfully migrated about 700,000 ex-Citi customers in Malaysia on to our platforms. Integration for the other 3 banks -- 3 markets, sorry, Indonesia, Thailand and Vietnam, is on track.
Our retail customer base continues to expand and we are ready to serve our regional customers. We expanded our service capabilities in Indonesia as we recently upgraded our TMRW app. This will ensure a seamless transition of ex-Citi customers in Indonesia onto the UOB platform.
We're engaging strategic partners such as regional airlines to extend lifestyle offerings that meet the needs and aspiration of our customers. Last week, we announced another mega lifestyle offering across our key ASEAN markets of Singapore, Malaysia, Thailand and Indonesia, Ed Sheeran's Mathematics Tour concert.
Our Wholesale business delivered a commendable set of results despite a challenging operating environment. Loans were flat quarter-on-quarter, reflecting soft market conditions. Customer cash balances were up 3% year-to-date, despite rising interest rate, as a result of our improved capabilities over the years. Our fee income did well. Loan and trade-related fees grew strongly this quarter, the highest in 5 quarters. Our focus on trade financing has created synergies for other business units, boosting customer flow income in the global market business. We have invested SGD 800 million over the past 8 years to build our regional payments, trade and cash platforms.
Regardless of market cycles, I believe we will continue to invest in our franchise as we believe in a long-term structural growth prospects of the region. And we started to see results and we are continuing to deepen relationships with our clients who are accessing more of our solutions. Our investment will put us in a good position to capture the next upturn in the economic cycle.
Now on sustainability. We recently set up a sustainability advisory panel, where we have appointed 3 industry experts to advise on our sustainability strategy, targets and initiatives. Since our net zero commitment a year ago, we have made positive headway on our target sectors. We will be releasing our first net zero progress report next week. Look out for it. When talking about ESG, it is not just about the environment. We are equally focused on what we do on the social and governance front. We continue to keep the good going through our CSR efforts such as encouraging our people to volunteer and investing in our people through various upskilling and rescaling programs. Our Board was recently awarded the Best Managed Board at the Singapore Corporate Awards.
The macroeconomic environment ahead should remain bumpy, but our strong balance sheets and diversified revenue driver will help smoothen the ride. Across our businesses, we see encouraging trends. Strong credit card spending, signaling consumer confidence. Positive net new money inflows, and a growing deposit base. And by next year, the one-off costs related to our Citi Group acquisition are expected to roll off.
Importantly, our customer franchise is growing and the momentum is strong. Much of this is due to the continued investment in our products, platforms and people. We are here for the long term, and we have the trust of our customers that we will support them in these uncertain times. We continue to be optimistic on the ASEAN region, and we believe the situation in China will stabilize and continue to improve on the back of support measures recently announced. Overall, UOB is in a good position to capitalize on the pockets of opportunities as they come along. Our next year guidance, 2024, mid-single-digit loan growth with a focus on high-quality customers. Margins to remain supportive at current levels. Double-digit fee growth. Stable cost-to-income ratio with onetime Citi integration costs to substantially roll off. Credit costs at around 25 to 30 basis points.
I thank my colleagues for their hard work and dedications and teamwork. Now let me switch over to Wai Fai to elaborate on our financials. Thank you.
Thank you, Cheong. And once again, good morning, everybody. Thanks for joining us today. Now back to the detail of the results.
Our core profit is 2% quarter-on-quarter to SGD 1.5 billion with core ROE at 13.9%. For the 9 months period, core profit increased 33% to SGD 4.6 billion. Net interest income was relatively unchanged this quarter, as the longer [ they ] count and wider loans margin were offset by lower margins earned on the excess funds deployed. Fees income for the quarter was at the second highest history in the bank, powered by strong loans deals and credit card fees, which hit a record high.
Customer-related treasury income continued its momentum, growing 9% for the quarter to almost SGD 200 million. Cost-to-income ratio, excluding the one-off, improved to 41% as spending kept pace with income growth.
Credit cost was at -- lower at 19 basis points this quarter as the write-back of general allowance more than offset the higher specific allowances. Asset quality remained resilient with NPL ratio at 1.6%. Our capital and liquidity position remains strong with CET1 at 13% and NSFR at 121%, respectively.
For the business itself, year-on-year, retail operating profit increased on an enlarged franchise with Citi, alongside higher interest rates as well as picked up in credit card and wealth activities. Wholesale, they saw a double-digit growth from last year, driven mainly by margin expansion and sustained treasury customer flows. Global Market managed to capture the trading opportunities amidst the market volatility, but they were impacted by the higher funding costs. Like Ee Cheong said, our retail customer base continued to grow organically post Citi. Now we serve over 7.5 million retail customers in the region, of which 77% are digitally enabled. And this will increase by year-end when we integrate Indonesia.
We acquired new-to-bank customer at a faster pace. In the 9 months of this year, our new-to-bank customers were 28% higher compared to the same period last year. The growth can be attributed to our enhanced digital capabilities and lifestyle offerings that aligned with customers' need. The larger scale of our retail business following the Citi acquisition enable us to collaborate with more regional strategic partners and broaden lifestyle products. Currently, we have 45 strategic and co-brand partnerships across multiple markets to cater to expiring ASEAN customers. Customer confidence in this region remains upbeat, evident from our record credit card fees. We will continue to see positive net flow -- net new money inflow, bringing our total assets under management up 21% year-on-year to SGD 170 million.
For the Wholesale business, it showed resilient results despite the uncertain environment. Cross-border income was up 14%. Our investment in trade and cash systems over the years position us well to be the #1 cross-border trade bank in ASEAN.
The number of suppliers and distributors within our financial supply chain management continued to grow, increasing 35% year-on-year. Across the region, our cash management platform is seeing higher digital adoption with robust growth in transaction volume and cashless payment.
For the 9 months of this year, in the summary, we rose by 3% driven by strong net interest income and trading and investment income. The third quarter core profit was at SGD 1.5 billion, which is 5% higher than a year ago.
Okay. Let me now go through the details. Net interest income was unchanged from last quarter. Core franchise loans margin expanded 2 basis points to 2.64% for the quarter. Interbank & Securities margin declined to 0.93% as excess liquidity was deployed into high-quality yielding assets while cost of funds continued to stay high. As a result, NIM moderated to 2.09% this quarter. With funding costs likely to stay elevated, we continue to actively manage our balance sheet to keep NIM stable. Fees income hit a bright spot this quarter, recording a near historical high of SGD 591 million. Loans and trade-related fees surged from some strong corporate deals. Credit card fees crossed the SGD 100 million mark to a new record this quarter, reflecting the upbeat consumer confidence that boosted spending. Loan fees also recovered, though at a more moderate pace.
Customer-related treasury income, sustained momentum, growing 9% quarter-on-quarter to SGD 198 million, with continued demand for hedging activities from our customers. Trading and liquidity management activities did well, while the other T&I income line was impacted by some valuation volatility on our investments.
Core expenses decreased 2% quarter-on-quarter in tandem with the lower income, with cost-to-income ratio held steady at 41%. And like I said, including the one-off Citi integration, this will be 44.4%. We expect the one-off costs to taper off as we progressively complete the operational merger in the 4 ASEAN countries. By this year, we have completed Malaysia and later part of the year, Indonesia; first quarter -- early part of the second quarter, Thailand. And then what we are left with is our small operation in Vietnam. So most of the things will taper off by the first half of next year, so that we can actually then look at productivity improvements.
The overall asset quality of our loans portfolio remain resilient, with NPL ratio unchanged at 1.6%. New NPA formation reduced to SGD 267 million. Specific allowances increased this quarter as we revised the collateral value of our NPLs to reflect the near-term uncertainty. This was cushioned by the unwinding of the general allowances, which we have year marked for these accounts. However, additional general allowances was provided for the overall credit portfolio. Hence, if you look at the next page, the total general allowances remain relatively stable.
Let me go to the next page. So this actually shows the breakdown between your GP and your SP. So as of September 2023, my total allowances stayed at SGD 5.1 billion, of which SGD 3 billion was for non-impact assets, which we generally call GP. So the level is actually quite stable, and I can take questions on that. Total NPA coverage strengthened to 102% or 205% after taking collateral into account. We believe our provisional reserves are adequate to absorb anticipated losses from our credit portfolio.
Core operating profit for the 9 months increased 34% with growth across various market. Year-on-year, the ASEAN franchise was boosted by the inclusion of Citi portfolio in Malaysia, Thailand, Vietnam. Against last quarter, the ASEAN 4 was largely impacted by margin compression from higher cost of funds.
North Asia, on the other hand, registered higher trading and investment income, mainly from commodity trading, which they are very strong and [indiscernible]. Those momentum continue to be soft due to the uncertain macro environment. On a constant currency basis, loans were relatively unchanged against last quarter and a year ago. In view of the asset [ lies ] ahead, we maintain our focus on short-term and good quality credits.
Customer deposits rose steadily by 1% quarter-on-quarter and 2% year-on-year. CASA to total deposit mix ratio improved to 48.2%. Our One Account value proposition refresh is bearing results as absolute CASA actually continued to grow over the last 3 quarters this year.
Our liquidity position remains strong with the quarter LCR at 153% and NSFR at 121%, both well above the minimum regulatory requirements. So you'll notice in this number that our balance sheet is very defensive. We have a lot of excess liquidity, mainly because we continue to focus on our long-term loans. And if you realize the -- worry about the rising interest rate on NSFR, et cetera, we have actually increased that over the years. And we have a lot of short-term surpluses that we were not sure of how the market will react. But our balance sheet is very strong. However, we sacrifice 2, 3 basis points to the margin, okay, to strengthen balance sheet.
Our total capital remains healthy with CET1 at 13%. I think you'll notice that this quarter we had the interim dividend payment. So that brought down the CET1 a little bit, and we expect it to recover for the remaining part of the year.
So I think with that, I will pass the presentation back to Wendy.
Thank you, Mr. Lee. We will now move on to the Q&A. [Operator Instructions] We will now start off with those in the room with us. First question, please. Can we have the first question from Chanya, Bloomberg?
I'm Chanyaporn Chanjaroen from Bloomberg. I have 2 questions. The first one, could you give me a bit more colors on how lifestyle offerings like Taylor Swift and upcoming Ed Sheeran is boosting your credit card fees to be on SGD 100 million mark?
And my second question, your outlook presentation for 2024, the credit cost expectation, 25 to 30 basis points, I think is quite higher than this year's range which I believe is 20 to 25 basis points. Could you explain why that is? And maybe a bit more on the outlook for next year?
Well, I think credit card is a lifestyle [ cut ], right? And that's partly the reason why we bought over Citibank portfolio, because we believe you'll be -- Singapore is a small population base, we continue to expand into the region. And as a result that you can see there are many international marketing agents approaching us and as we see how they want to capture our customer base. And we are talking about 8 million customer base that we have today, and we continue to grow.
And lifestyle is many things, right? But musical shows, restaurants, traveling, these are all lifestyles. This is why we are working with the various organizations, regional airlines, regional restaurants, concert organizers. And that hopefully can get our consumer a better value proposition.
A bit about Taylor Swift's impact on your credit card.
I -- off hand, I cannot give you exactly, but definitely -- if you have the UOB credit card, you have some advantage, right? Because the volume is overwhelmed, okay? But a small advantage. And there will be more to come, okay? You look at Ed Sheeran, it's the same thing, right? The first 1 day or 2 days, we are only -- allow UOB credit cards to apply. So this is something that I believe we have the competitive advantage and we should take advantage of that.
Now for the outlook, of course, is something that is a little bit difficult to predict, is continue to be uncertain. As you can hear from my speech, it's bumpy. But I think management taking a view that ASEAN continue to grow, and I can see the momentum. And our system, our technology, our platform is ready. We are able to capture, not so much growing the market share, is we can capture other people, other bank business to come to us, because we have the relationship and we have the platform. So this is something management, we put it to the challenge. This is why is outlook -- is budget. And I hope the result, we will let you know.
Maybe let me elaborate, Chanya. Your specific question on credit cost. If you look at the 10-year operating credit cost around 25 to 30 years between us and the competitors, I can't comment on competitors, but I can comment on UOB. Two things that we did, especially this quarter, if you noticed. Number one is we actually increased the provision, and you always ask me how much do I have in MO and on. I know that's the next question. Okay. How much is MO, which is the monthly overlay we generate. So what we have done is that, if you really look at the forward-looking where we think that we are not going through a crisis but we expect weakness into the environment, most of our credit portfolio, technically, we call it [ ME-Visa ] okay, to look at a more difficult environment. As a result, your normal business general provision actually increased, okay? And that is a defensive nature so that the business people understand and start pricing some of this in, rather than hiding it at GP, because we say that the credit cost is going to be in a tougher environment.
So by doing that, you'll find that, technically, we just relocate MEV from MOs technically into the base system. So that's the first defensive nature.
The second defensive nature that we did was, again, on the same outlook, we were worried about valuation on our security, also of our collaterals, okay, because there are a lot of comments that it will take time to unwind this. So what we did was that we actually lowered those value. As a result, SP actually went up, okay? So the specific provision actually went up not because of new NPL formation, but mainly because of this defensive nature that I actually reduce the valuation of the collateral. And the third that we did was, from a capital standpoint purpose, we relooked at all our credits and looked at how much of those are actually vulnerable, okay? Not NPLs yet, but vulnerable. So we actually started to, in a way, downgrade them by 1, 2 notch. The results of those doesn't cross NPL. The result of those consumes capital. My RWA actually went up, okay? And that's the reason why my RWA went up, my loans didn't go up. So this is a very defensive nature that I took to protect the balance sheet.
The second part that we did was to protect liquidity. Hence, there is this excess funds that we have. Still profitable but making less, especially if you look at the trends of where the U.S. dollar is going. But we believe with the uncertainty in the market, we have to defend the U.S. dollar funding. So as a result, my liquidity, my funding, we are comfortable. So if I can protect credit quality and liquidity and credit costs, we are actually strengthening the balance sheet into the near-term uncertainties.
So one of the questions is for next year, why are we guiding we get higher and we hope to come in lower. Because of the uncertain environment, we still stick to the long term of 25 basis points. We hope to bring it there. Should I be caught by SPs that I have not prepared for, it might go up. But in our environment, my normal balance sheet, like I said, we are comfortable operating at 25 basis points.
Yes. I think let me just echo what Wai Fai said. We want to take this opportunity to strengthen our balance sheet, okay? I think that's important. You look at the liquidity, all this is cost to the bank, because the loan growth is still coming, right? But you look at NSFR, right? These are all cost to the bank. And given our risk appetite, we don't want to use the liquidity to go into something which is higher yield and to show to the world that our profit is up. We'd rather take a more prudent, improve our immunity, because next year, as I said is bumpy, okay? But given the set of results, I think you can see the fee income is coming in. I'm still very hopeful, but let's see the result next year.
Next question is from John from [indiscernible].
Just curious whether the bank is implementing more stringent measures in terms of bringing in -- or onboarding new customers, given the ongoing money laundering investigation in Singapore. And with this more stringent measures, I wonder whether you can sustain continued growth in your AUM. Congratulations on that, it's 21% higher year-on-year...
I think all along our philosophy, obviously, we want good quality customers, right? It's unfortunate. I think this is isolated cases. I think Singapore as a financial center, we have to take the good, the bad and -- together. I don't think we should overreact, right? Given the total flow of money coming in versus this, in proportion, I think we -- I think Singapore has done well. Yes, we will continue to strengthen, given the scam recently. We will continue to do that. It's to protect the consumer. If you look at -- today, just came out with a shared responsibilities, right? And this is something, I think, among the banks, we talk about it. I think it is a shared responsibility. And we need to strike the balance among fairness, accountability and compassion, okay?
But the first line of defense is consumer, every one of us, including myself, right? You cannot have a cake and eat it. You cannot have a convenient and yet at the same time, you expect a free [ ride ]. So the first line of defense is consumer. And the bank is working very hard to see how we can help the consumer to segregate some of these accounts. And also, public education is very important. And I would like to take this opportunity to urge my customers. If they don't understand, please approach our RM. Go to the branches. We want them to feel safe banking with us. right? Our tag line is Right By You. We want you to feel safe, right? While you are still doing the transaction.
Next question from Goola, The Edge.
Anecdotal evidence that mortgages are being priced at 3%. I think there were some analyst reports that said that. I wonder whether that's happened at UOB. And how does the book -- I mean, is your -- how will your book -- is there -- is it substantial? And is your book going to be priced lower? Because there's excess liquidity in the system. I'm just wondering how it affects NIM, and I know you say NII is the most important -- is the biggest part of your income contribution.
You want to finish your question; I'm going to take that one?
Isn't that at the whole thing, the interest rates have risen but there's liquidity in Singapore. Is it different?
So I think it's a fair question where the industry or competitors are struggling to deploy the excess liquidity. Singapore mortgage is a comfortable asset class because, over the long term, the asset quality is actually very, very strong, unlike all the rest. Like everybody else now, a lot of them are trying to move longer. They're trying to fix it longer because they think that the interest rate is up. And that is where the debate that is going in. A lot of them are lowering their 2 years fixed and the 3 years fixed, okay? So the question really be -- we will compete to stay relevant. If you really look at our statistics last year, of course, the new developments are slowing down, but the refinancing is where there's a lot of [ war ] starting, and we have to be relevant. What we have done is that to fight that -- [ despite ] the CASA that we are building out, of course I need long-term stability CASA to actually manage the long-term book. So together with what we are saying, the One Account, CASA and all, which is actually doing well in Singapore, is the objective we set to our consumer, people, that if you have to compete in this, make sure that you bring in CASA because by funding it on the long-term basis, you will be -- you continue to get lower margin, okay? A lot of them has already come below 1%.
So that's where we are. There is a trend that some of the competitors are coming in because, I mean, everybody knows that loans growth is [indiscernible]. So we grew [ 1% ]. We continue to grow [ 1% ] this year. Slow, but at least there's growth that we are doing in there. But we remain disciplined to make sure that I have the long-term stability of the funding to match CASA, because I might be okay for the next 1, 2 months when interest rate goes up, and my funding is not ready, I will get caught. So this is even more real than it was 2 years ago because now we know that the interest rate cycle is coming to an end. You could debate whether 6 months, 9 months, is coming to an end. And cost of funding, if it's starting to creep up, how do we manage that? So that's where we are. We will compete to stay relevant, but we remain disciplined because the asset class is important to us.
So is there -- are there any signs of the yield on your assets starting to fall? I mean, on the loan book, for the -- is anything being repriced lower than it was a year ago or 6 months ago?
Okay. Technically, the repricing effect has gone in for the first half, because that's where there's a very clear direct correlation between the Fed rate hikes and our yields, because the base rate all went up. We could talk about country specific, but generally, that's where we are. So as the EU start to taper off, because now if you don't expect any more increase by the Fed, technically, that increase, yield will slow down, okay? As a result, that's why we have -- we are so worried about funding costs, and that's why we wanted to be defensive in funding costs. Because if not, the repricing of funding costs will catch up. And there's a lot of diversification to make sure the stability of your funding costs that -- et cetera.
So that's probably where we are. So yield path, you are right, that it's already a bit toppish. And what we are worried about is the discipline of some of our competitors, okay, whether to get that volume growth, it's the same argument we have for mortgage, that we actually underprice and cut and grow volume. We tend to be a bit more disciplined mainly because like Ee Cheong said, the outlook is very uncertain, okay? We are not sure -- okay. I mean the base case is that we're going to a mild recession and quick recovery, and the base case is that U.S. will get out of it, China will get out of it. But should something drastic happen, we might be dragged because we are ASEAN. And that's where we are positioning balance sheet, stability, provisions and deposits that we're talking about. So there is some pressure, okay, of the repricing. But like I said, we will continue to try and remain disciplined.
I think given the high interest rate environment, you expect good customer to pay you off, right. Who wants to -- right? You expect good customer to pay you off. This is why I'm not overly concerned about the loan growth, right. If the loan growth continues to be robust, it means you have good customer, they continue to stay with you, right? A good customer, they say, well, expensive, I have my liquidity, I'll pay you. So I think it's a healthy sign looking at the market, in an uncertain market outlook. So every bank is also chasing after good quality customers. So margin is market driven, right? It may drop a little bit. But I think in uncertain market, liquidity is very important.
Our core business, we continue -- continue to focus on supply chain, continue to focus on foreign direct investment. They will take advantage of the ASEAN. So this is the fundamental shift, right, medium to long term.
But loan growth is a function of market outlook. And housing loan, we are competitive. In today's environment I think it will be flat. Because as a consumer, why should you buy property? It's a big-ticket item, right? So we are all market-driven to a certain extent, right? And our pricing is also market-driven.
So I think you brought it up earlier, but Ee Cheong is right, that margin is not the only factor. It's the total operating model that we look at. I think the good thing is some of the consumer confidence is there. My retail is doing well. The fees are doing well. And that's what we look at. And we have invested enough into our cross-border into our wholesale systems and all. So hopefully, cross-border connectivity will improve. And that's what we were built for. If you believe that ASEAN is one of the few bright spots, okay? I think if it stabilizes, and I think we will benefit significantly because we built it through the connectivity. And we saw that, okay, you look at the relocation of the supply chain and all, it's slowly, not in an aggressive way, but slowly happening, okay? And I think that is where we are a bit hopeful.
I mean banking is a long-term business, like Ee Cheong said, we are prepared to make sure we ride through the next cycle. It's not the current cycle. Current cycle, you already know. You want to ride through the next cycle should it happen. And we have been long enough to know that, when it comes, it can be quite uglier, okay? That's where we are, a very defensive balance sheet. But the medium term and the longer term, structural growth in ASEAN and all. And we continue to invest in systems capability in the retail side to make sure that we can -- as I invest in system, it's not for loans, it's our fees, okay? Because loans is [ all ] pricing, okay? It's the fees that we are. So as we invest, you saw our trade fees, wholesale fees, you saw our retail fees, even credit card, wealth, all these are what we are investing in.
And this is where I think all of you I think has been spending a lot of time understanding UOB. Five years ago, right, UOB depend a lot on loan growth. But today, given the investment I articulated in my speech, we spent SGD 800 million over the last 5 years, okay? And it's to build our capability. Today, fee become very important, wealth management fee, credit card fees and all these related fee that we are focusing on. You don't just focus on one single loan, right? The capability is there.
So when you talked about the connectivity, that's the next question. You know there's this ASEAN connectivity that the experiments at the MAS and some of the central banks are doing with this project next [indiscernible]...
They're talking about data -- payment system.
Okay, the data -- yes, there's a payment system. So are you -- I mean, how -- because you said that you're also building linkages. So are you sort of linked -- are you linked into that? Because it's a...
We are involved with the MAS, all these projects that's going on, especially with Thailand, and some of the bilateral China, Indonesia, et cetera. So we are definitely involved. And our stand is that you need macro payment system rather than a bilateral standalone system. That's why we believe in linking and working together with MAS to make sure that whatever we are building link into the macro outlook. There's no point we're doing something on our own and says that -- and you will never be successful because nobody else will trust your standards. It's only when the regulators lead that. And that's the other problem that we're having. Because of this payment system, you'll find some of the countries changing some of the system. It actually affects us quite a lot in cost because we actually have to invest in that to actually protect ourselves. So that's where a fair bit of investment is, because you look at the payment system and perhaps changed in Malaysia and Indonesia over the last 2 years is tremendous because they are all now trying to improve the connectivity within the country and within ASEAN itself. So we are in there. Our -- [ Su Lee Hwee ], who is doing our deposits and trade [indiscernible] is actually in leading some of those projects that is actually driven by MAS.
In fact, Goola, I think we are tracking some of this. If you look at the wholesale, the cross-border activities, I think year-to-date we are up 14%, okay? And now make up about maybe 1/4 of wholesale banking income. And we continue to also focus on foreign direct investment. And that is actually -- the traction is quite good. And even the consumer, right, among our 8 million customer consumer, we have ATM in different parts of ASEAN. You can actually assess Singapore cuts and then can assess to our Malaysian credit, I mean, ATM, getting money, all this. These are all, to be an ASEAN bank, we have to make it seamless. And we are doing all this to connect the [ dot ].
We have one question online from Reuters. Can you turn on your camera?
This is [indiscernible] from Reuters. I have 2 questions. One, the first question is, what is your overview on the impact from the recent Middle East conflict in general? And the second question is from the outlook section, you see that you guys expect like a mid-single-digit loan growth and double-digit fee growth for next year outlook, which is much higher than this year. Can you tell us a bit why, especially on loan growth?
I think [indiscernible] this year, we expect some economic recovery. If we really look at all the macroeconomic activities, and I think I [ rested ] -- IMF just did the outlook in Singapore just last week, okay? And you look at the statement that they put in there is that, yes, there's global uncertainty, but the only bright spot will be in ASEAN. And ASEAN will still contribute 2/3 of the growth expected next year, of the world growth. So that is where we have to -- hopefully, some of it will come true. And that's why we are actually a little bit more hopeful. But of course, we will look at the environment. And that's the basis that we talk about. If the ASEAN actually grow, then our connectivity story and [ all will ] right with it. And that trade activities will start going up. So based on that, we are a little bit hopeful, okay. I can forecast 0 or negative, but I don't think we run the bank like that, okay?
The Board will never accept me to go into -- so we're actually looking for growth opportunities. And in order to meet that, we're actually forcing business to look at new business lines, look at opportunities, et cetera, besides the traditional part that you do basically using pricing. So our sector solutioning is another good example that we put in where we apply solution.
The other one that's actually leading us is ESG. We believe that we are a market leader in ESG. And a lot of the trades, especially in some countries like Malaysia and all, ESG focused. And we have the solutioning, okay? We have the solutioning for some of these customers. And those are -- and you know that the ESG momentum is now being accelerated, okay? Gone are the days where we talk about just green bonds. Now people worry about greenwashing, okay? What we go into is the transitional financing to make sure that we have a solution to help customers transition, okay, especially from the brown to the green. Because you can't cut it off. So that's probably where we are, and we are hopeful in some of these new segments that we are looking at. So hence, okay, the mid-single, you think is aggressive, but I thought it's something that we built our vision on to look for those pocket opportunities, because we believe that ASEAN is still showing [ 4% ] growth, okay, it's not a 0 growth that we are talking about. As for Middle East.
Well, I don't think I'm the best person to answer. At the end of the day, I think I stick to my own philosophy and principle. I think we should find peace, very important, okay? Whatever differences, I think there must be an area that we can find peace. Because ultimately, it's the people that suffer. So if you have that big objective in mind, everyone will sit on the table and compromise. And I hope that will help.
Thank you, Mr. Wee. We may have time for one last question. Any last questions?
I just would like to ask about -- I mean, because you also mentioned digital offerings at UOB. How many disruptions have you gone through recently? Do you have much disruptions in your digital offering?
So far, no.
And how do you improve your -- make sure that you are resilient, it's funding...
Well, I think to be fair, we have many unsung hero in the bank, okay? These are people not like today, you interview me. These are people doing work 24 hours. They want to make sure they constantly monitor and continue to invest to enhance the system.
System stability is important. And technology, you can break down, and we have to be prepared for it. The question is hopefully not too severe. And when you break down, we can recover as fast as possible. This is why our model is different. We centralized a lot of our technology platform, okay? We don't outsource. So we are in a better controlled situation. You look at our center of excellence, it's in Singapore, okay? So this is something I'm not saying right or wrong, but so far, this is -- if it's internal control, we would make sure that our people is on top of things. When you outsource, sometimes difficult to control the third party.
So Ee Cheong is right, because I think 2 areas, we focus on for technology next year is really resiliency and security. We saw a little bit of security, all the scams. But resiliency, because we actually do it in-house, we stress-test and look at recoveries [indiscernible. Because system will come down, right? The challenge is that when it comes down, how fast you bring it up, et cetera. And [ Chanyaporn ] we are less affected because it comes down less often, but we are able to bring -- and that's what resilience is about, okay? So I think we continue to look at that, to make sure that we continue to invest. And sometimes when you look at external APIs that you deal with, it's not easy, because people are all changing their system. So sometimes you hear complaints that we are slower to react. We are not in the open architecture. Ee Cheong said it's our model. But we think that it's a better model-- again, we are -- over long term, we are a commercial bank looking at long-term stability and all. So that's probably -- we're not going to comment whether our model is better or not, but that's how we look at it.
Thank you for joining us this morning, and we wish you a very good day ahead. Thank you.