Additional allowances of SGD 170 million were taken during the fourth quarter for the SGD 267 million of CDOs with exposure to US sub-prime assets, bringing cumulative allowances to SGD 240 million or 90% of such CDOs. In addition, general allowances of SGD 30 million were taken during the fourth quarter as a prudential measure for the remaining SGD 944 million of CDOs in the investment portfolio.
One-time impairment charges of SGD 209 million were taken during the year, including SGD 67 million in the fourth quarter, for DBS' 6.8% stake in TMB Bank. After inclusion of this non-operating item, earnings would be SGD 2.28 billion for the full year and SGD 491 million for the fourth quarter.
Full-year performance led by interest and fee income growth. Higher net interest and fee incomes boosted full-year total income to SGD 6.16 billion, a 15% increase from 2006.
Net interest income rose 14% to SGD 4.11 billion as an increase in loan volumes was partially offset by lower margins. Loans rose 25% to SGD 108.4 billion, led by corporate and SME borrowing across the region and housing loans in Singapore. Interest margins declined slightly from 2.20% to 2.17% as spreads between prime lending rates and funding costs fell in Hong Kong.
Net fee income expanded 27% to SGD 1.46 billion. Led by stockbroking, loan syndication and wealth management, the increase in fee income was broad-based and reflected strength in wide range of economic activities. Sales of wealth management products rose 12% to SGD 7.8 billion, led by a 51% rise in unit trust sales.
Net trading income fell to SGD 180 million from SGD 522 million in 2006. Trading gains in foreign exchange and interest rate instruments were offset by losses in credit trading and structured credit activities. The decline in net trading income also included a marked-to-market loss of SGD 136 million for CDOs held by Rosa, a fully-consolidated conduit.
While net trading income was lower, gains from the sale of investment securities rose to SGD 450 million from SGD 229 million in 2006 as conditions were conducive for profit-taking on some equity investments.
Management of expenses resulted in total costs increasing 11%, a lower rate than revenue growth, which improved the cost-income ratio to 42% from 44% in 2006 even as wage and other operating cost pressures were felt during the year. Staff costs rose 11% on a 13% increase in headcount to support business expansion, while other expenses increased 10% from higher computerisation and business expansion costs.
Asset quality continued to improve with the non-performing loan rate declining to 1.1% from 1.7% in 2006 and total non-performing assets falling 6% to SGD 1.44 billion. Specific loan allowances fell to nine basis points from 19 basis points in 2006. Total cumulative specific and general allowances reached 135% of non-performing assets from 115% in 2006.
Return on equity rose to 12.7% from 12.3% in 2006, while return on assets was unchanged at 1.15%. The capital adequacy ratio was 13.4%, with tier-1 at 8.9%.
Fourth-quarter profit before allowances unchanged from previous quarter. Recent operating trends were sustained in the fourth quarter with total income and profit before allowances remaining at the previous quarter's levels.
Net interest income rose 1% from the previous quarter and 14% from a year ago to a quarterly record of SGD 1.06 billion as corporate borrowing resulted in loans growing 4% during the quarter. Net interest margins fell three basis points from the previous quarter to 2.11% due to narrower interest spreads in Hong Kong.
Net fee income fell 6% from the previous quarter's record to SGD 379 million as income from some capital markets activities such as investment banking and loan syndication declined, but it was 25% above a year ago as stockbroking commissions and wealth management fees were higher.
Net trading income recorded a narrower loss of SGD 25 million from SGD 63 million in the previous quarter. Stronger trading income from the trading businesses was more than offset an additional marked-to-market loss of SGD 91 million for Rosa's CDOs.
The cost-income ratio remained at the previous quarter's 42% but was lower than the 45% a year ago. Total expenses fell 1% from the previous quarter to SGD 648 million. Compared to a year ago, total expenses rose 3% compared to a 10% increase in revenues.
Specific loan allowances fell to six basis points from 11 basis points in the previous quarter and 27 basis points a year ago as asset quality remained strong.
DBS Chairman Koh Boon Hwee said, "Our fourth quarter performance caps a year of good growth for DBS. The record net interest and fee incomes in 2007 reflect a further strengthening of DBS' franchise in Asia."
He added, "With the additional allowances we took this quarter, we are well covered for risks associated with US sub-prime assets. I believe that despite the turmoil in the global financial market today, banks in Asia are much less affected. At DBS we will continue to stay vigilant and strengthen our risk management capabilities. Our balance sheet is strong and I remain cautiously optimistic about the year ahead."
The Board of Directors will recommend a one-tier tax-exempt dividend of 20 cents per share for the fourth quarter. This is in addition to the total gross dividends of 60 cents per share that were paid out for the first three quarters of 2007. For 2006, DBS paid out a total of 71 cents per share in gross ordinary dividends.
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About DBS
Headquartered in Singapore, DBS is one of the largest financial services groups in Asia with operations in 15 markets. The largest bank in Singapore as measured by assets, and a leading bank in Hong Kong, DBS' "AA-" and "Aa1" credit ratings are among the highest in the Asia-Pacific region. DBS has leading positions in corporate, SME and consumer banking, treasury and markets, wealth management, securities brokerage, equity and debt fund raising. Beyond the anchor markets of Singapore and Hong Kong, DBS serves corporate, institutional and retail customers through its operations in China, India, Indonesia, Malaysia, Thailand and The Philippines. More information about DBS Group Holdings and DBS Bank can be obtained from our website www.dbs.com.
