The results announced today were significantly boosted by a 95% drop in bad-loan provisions compared to 1999.
The sharp decline in provisions reflects DBS' overall improvement in asset quality, and a significant reduction in Non-Performing Loans (NPLs) at DBS Thai Danu Bank in Thailand and in the Bank's loans to borrowers in countries outside of Singapore. As a result of improved asset quality in Singapore, DBS wrote back S$50 million for loans to Singapore borrowers, compared to Singapore provisions of S$131 million in 1999.
DBS' total NPLs at year-end stood at 7.6% of total non-bank loans, a sharp decrease compared to the 13.0% of total non-bank loans reported a year earlier, reflecting DBS' aggressive management of its NPL portfolio across the region.
During the year, DBS sold to third parties 77% of NPLs in its DBS Thai Danu Bank subsidiary, and 17% of its Indonesian NPLs. At year-end, about 80% of the NPLs were classified in the substandard category, with a relatively smaller portion in the doubtful (8%) or loss (12%) categories. Of the 80% substandard NPLs, about 20% were classified due to weak financials, and debt servicing was current.
In 2000, DBS Group's Non-Performing Loans to borrowers outside of Singapore declined by S$3.0 billion or 53%. At year-end, cumulative provisions amounted to 130% of unsecured NPLs, and 52% of total NPLs.
During the year, revenue increased in all areas of operations with the exception of other income, which was lower compared to 1999, a year in which exceptional items contributed S$175 million.
Net interest income increased marginally (0.2%) in the year mainly due to intensified market competition resulting in lower outstanding corporate loans and narrower interest margins for housing loans. Funding costs incurred for DBS' 20.8% investment in Bank of the Philippine Islands (BPI) also reduced the increase in net interest income. Despite a 4.3% decline in customer loans, net interest margins equalled last year's 2.02% level. Excluding the funding costs for the investment in BPI, net interest margin would have been 2.09% for 2000.
Fee and commission income increased 20.2%, to S$508 million compared to S$423 million in 1999. Investment Banking fees rose 15.5% to S$98 million, reflecting the firm's continued leadership in equity and debt underwriting. Fund Management fees more than doubled to S$62 million, boosted in part by the successful introductions of two major fund products, DBS' Horizon and ei8ht, during the year. Fees from stockbroking activities declined 24.6% to S$77 million due to lower stock market turnover. Overall, the Group's fee-to-income ratio improved from 14.0% in 1999 to 17.3% for 2000.
Dividend income registered a 164.8% increase to S$83 million compared to S$31 million a year ago, due in part to a special dividend of S$50 million from its shareholding in NatSteel Limited.
Other income declined 47.3% to S$268 million from the S$509 million reported for 1999, a year in which the Group recognised the sale of DBS Tampines Centre (S$58 million) and the sale of its interests in Singapore Petroleum Company (S$117 million). Foreign exchange income was up 32.0% to S$119 million, in line with DBS' build up of its Treasury and Markets businesses. However, income from derivatives and the trading of government and other securities fell 70.1% to S$55 million. Contribution from equity securities trading was modest compared to profits of S$126 million in 1999, reflecting weakening global equity markets.
Overall, operating profit declined 14.2% as a result of the decrease in other income and higher operating expenses.
Operating expenses were up 17.0% on the year, with staff costs, marketing and systems and technology-related expenses accounting for more than half of the increase. With the consolidation of DBS Kwong On Bank (DKOB) from May 1, 1999, DKOB's operating expenses for all of 2000 were included in the Group's accounts, compared to an eight-month period in 1999. Excluding the impact of DKOB, the increase in operating expenses would have been 12.4%.
As expected, operating costs increased as a result of the Group's continuing effort to build a more internationally seasoned management team, peg staff compensation to market-based levels, upgrade and improve its technology platform across the region and aggressively market an increasingly broad range of products and services.
Total assets year-over-year increased by S$4.8 billion, or 4.5%, despite a S$2.3 billion (4.3%) decline in customer loans. Deposits fell by S$1.5 billion (1.9%). The decrease in customer loans is primarily attributable to weaker loan demand in Singapore and in the region, as well as the Group's adoption of more stringent credit underwriting standards. The decrease in customer deposits reflects in part increased investments by consumers in higher-return investment instruments such as Moneyplus, Horizon and ei8ht compared to traditional bank deposits.
DBS Group's total return on assets for the year were 1.28%, an improvement over last year's 1.04%, bringing it back to pre-Asian financial crisis levels. Total return on equity increased to 12.89% versus the 10.35% reported a year ago, and exceeding pre-Asian financial crisis levels.
Beginning with the financial reporting year 2000, DBS disclosed results from its principal business segments in compliance with a new Singapore Accounting Standard (SAS 23). The segment share of after-tax profits for 2000 and the prior year were, respectively, 45% versus 51% for Consumer Banking; 40% versus 33% for Investment Banking; 15% versus 17% for Treasury and Markets; 1% versus 38% for Central Operations; and -1% versus -40% for DBS Thai Danu Bank.
Subsequent to the close of year 2000 results, DBS Bank announced on Feb. 13, 2001 that it would acquire a 59.5% ownership stake in Vickers Ballas Group and merge it with DBS Securities' operations. The new entity will be renamed DBS Vickers Securities following Vickers Ballas' shareholder approval at an Extraordinary General Meeting expected in April 2001. Goodwill resulting from the acquisition will not be material to DBS Group results, and will be charged to the Group profit and loss statement over a 20-year period. On a proforma basis, the acquisition would have increased DBS Group total fee-to-income ratio for 2000 from the reported 17.3% to 21.6%.
Given the Group's performance, and in line with its goal to gradually move the Group's dividend payout rate to levels comparable to the world's leading financial institutions, the DBSH Board at its March meeting voted to increase the dividend rate from 25% to 30%, and to make a special 15% dividend payment to shareholders on record on May 18, 2001.
S Dhanabalan, DBS Group Chairman, said the results were satisfactory for a year marked by increasing uncertainty in the economic recovery of the region, and more competitive market conditions in Singapore, its home market.
"Our results were quite satisfactory given the challenges the Group faced in 2000, and given our continuing commitment to invest in people, technology and establishing the Group's brand regionally. We are a much stronger and deeper organisation than we were a year ago.
"The many systems and business initiatives the Group has undertaken over the past three years have clearly prepared us to manage short-term fluctuations in market conditions. And in terms of overall asset quality and credit management skills, we are far better prepared to withstand longer-term economic dislocations. These are no small achievements," said Dhanabalan.
"We are especially pleased to have been able to make such a significant decline in NPL provisions into mid-single-digits from a high of 13.1% in June 1999. We remain determined to bring our NPL ratio back to pre-Asian financial crisis levels as soon as possible. Progress to date has resulted, to a certain extent, from a lessening of the pressures of the Asian economic crisis that began in mid-1997. But it also reflects our aggressive approach to managing the problems.
"Operating expenses did increase during the year, with our cost-to-income ratio rising into the low 40% range from the 35% reported for 1999. But the increase in expenses was expected and in line with our budgets, and reflects our commitment to invest aggressively in staff, technology, systems, processes and marketing.
"We are convinced this investment in people, technology and in our brand will result in both better management and an improved competitive capabilities in the years ahead. We remain highly focused on expense control, but we have not changed our view toward investing in critical areas where there are clear medium-term benefits.
"By improving our IT and Processing and Servicing capabilities, we have reduced the Group's exposure to downside risks and are positioning ourselves to be a higher quality, lower cost competitor. This, and our resolve to attract a more seasoned management team with a diverse international background, will allow us to capitalize on improvements in regional prospects going forward. We are increasingly well-positioned for upside growth when it comes," Dhanabalan said.
In regard to the increased dividend payout, Dhanabalan said the DBSH board and management felt strongly the Group should move to a higher, but sustainable, dividend payout rate to ensure DBSH remains an attractive investment among financial institutions in the region and the world.
"Dividend sustainability is extremely important, and rather than radically move the payout rate higher this year, we have opted instead for an increase together with a special dividend of 15% to reward investors who have been loyal to DBS and supportive of our vision to transform DBS into a leading financial group in Asia," he said.
DBS Bank is the flagship bank of DBS Group Holdings in Singapore. It is ranked among the top banks in Asia, and is the 70th largest in the world. A recognised leader in Internet banking and e-commerce, DBS is the market leader in Singapore-dollar loans and deposits, and equity fund raising. Beyond Singapore, DBS Group serves corporate, institutional and retail customers through subsidiaries in Hong Kong, The Philippines, Indonesia and Thailand, and international banking services through a network of 13 overseas branches and offices.
[End]
About DBS
