The full-year performance was augmented by $497 million in one-time gains recorded in the second quarter. Excluding these gains, net profits of $1.52 billion from continuing operations were still the highest ever and represented a 48% rise over the whole of 2003. It surpassed the previous record of $1.39 billion set in 2000. Return on equity was the highest in four years at 12.7%.
DBS Bank (Hong Kong)'s full year net profits rose 27% to $534 million as operating income grew 4% and provision charges fell 47%.
Fourth-quarter earnings were supported by continued loan growth and write-backs in provisions for investment securities, offsetting lower treasury income that resulted from sluggish market conditions worldwide.
DBS Vice Chairman and CEO Jackson Tai said: "Leaving aside the one-time gains, the drive towards record net earnings started more than eight quarters ago when we dedicated ourselves to growing recurring income from our customer franchise, including that from our consumer and SME loan book."
"Strong loan growth and our broad base of fee income helped cushion the slowdown in market activity that affected many financial institutions in the latter part of last year. Our larger asset base, more diversified business platform, and a continued strong pipeline of business will support DBS' growth, whether from our twin hubs of Singapore and Hong Kong or from our growing presence in Greater China and the rest of South and Southeast Asia."
Net interest income declines marginally, loans continue to grow
Fourth-quarter net interest income declined 1% from the previous quarter to $636 million but was 1% higher compared to the fourth quarter of 2003. Net interest margins eased eight basis points from 1.83% in the third quarter to 1.75%, mainly attributable to the costs of a growing deposit base in Singapore and higher borrowing costs in general in Hong Kong. In addition, short-term, interbank-pegged deposit rates rose faster than loan yields. Additional funding expenses were also incurred by higher carrying costs for subordinated debt including a US$750 million issue that closed during the quarter.
Loans grew 4% during the quarter to $69.7 billion. The expansion was led by corporate, SME and consumer loans in Singapore, as well as corporate and SME loans in Hong Kong and the region.
For the whole of 2004, DBS' loan book grew 8%, with margins stable at 1.79% while full-year net interest income rose 8% to $2.57 billion. The loan-deposit ratio was 62% compared to 60% in December 2003. Adjusting for the deconsolidation of DTDB, loans rose 13% during the year and net interest income by 10%.
Fee income climbs 15% for full year from all-round business growth
Fourth-quarter fee income was stable at $249 million compared to a year ago as well as the previous quarter. Against fourth quarter 2003, a drop in stockbroking revenues and loan-related fees was compensated by higher income from investment banking and wealth management sales.
Sales of wealth management products slowed in the fourth quarter as uncertainties in the financial markets and prospects of a slowdown in the global economy dampened investors' sentiment.
Sales of unit trusts and treasury products for the fourth quarter totalled $1.80 billion, down 19% from $2.22 billion in the third quarter. Compared to 2003, total sales for last year were flat at $8.81 billion.
For the full year, fee income rose 15% to $1.01 billion with increases chalked up in almost all categories. Fees from investment banking rose 25% to $104 million, trade and remittances were up 15% to $128 million, loan-related income was up 18% to $183 million, stockbroking grew 17% to $198 million, and wealth management jumped 47% to $132 million.
Fourth-quarter net gain on treasury activities of $93 million fell 23% from a year ago and 36% from the previous quarter due to the year-end slowdown in customer flows and a further flattening of the yield curve amid rising interest rates. For the full year, net gain on treasury activities fell 9% to $590 million.
Operating expenses rise 10% on higher wage and advertising costs
Operating expenses for the fourth quarter increased 10% from the previous year to $530 million. Wage costs for the quarter rose 17% to $253 million as a result of higher bonus accruals and headcount. Additional expenses were also incurred for advertising and promotions for consumer banking products both in Singapore and Hong Kong.
For the full year, operating expenses of $2.01 billion were 9% higher than in 2003. The cost-income ratio (excluding one-time gains) rose from 44% in 2003 to 45%. Headcount increased 10% to 11,454 and wage costs by 15% to $953 million compared to 2003 (after adjusting for the deconsolidation of DTDB) but staff levels remained 9% below the peak in 2001. A $25 million or 9% rise in technology costs was offset by lower occupancy costs.
NPLs fall to 2.5% with provision coverage at 89%
NPLs fell to 2.5% of total loans compared to 5.2% in December 2003. Total non-performing assets, including non-performing debt securities and contingent liabilities, amounted to $1.92 billion, compared to $3.78 billion in December 2003. 71% of non-performing assets were classified as sub-standard, the least severe category.
A net specific provision write-back of $17 million was made during the quarter. It included a $53 million write-back for investment securities as better economic conditions resulted in improved valuations. In addition, there was a net general provision write-back of $14 million during the quarter, reflecting the implementation of a transitional framework for general provisions place ahead of the adoption of Basle II. The general provision write-back was also in line with recently released guidelines from the Monetary Authority of Singapore. Provision coverage for non-performing assets, including debt securities and contingent liabilities, stood at 89% compared to 63% in December 2003.
The capital adequacy ratio (CAR) stood at 15.8%, with the tier-1 ratio at 11.3%. Both ratios were above the minimum required by MAS. The tier-2 ratio of 4.5% included US$750 million of subordinated debt from October 2004.
The Board of Directors declared a final dividend of 22 cents per share, which together with the interim payout of 18 cents per share brings the full dividend rate to 40 cents. This is a 33% increase over the 30 cents per share paid out for full-year 2003.
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About DBS
Headquartered in Singapore, DBS is one of the largest financial services groups in Asia. The largest bank in Singapore and the fifth largest banking group in Hong Kong as measured by assets, DBS has leading positions in consumer banking, treasury and markets, asset 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 Thailand, Malaysia, Indonesia, India and the Philippines. In China, the bank has branches and representative offices in Shanghai, Beijing, Guangzhou, Shenzhen, Fuzhou, Tianjin and Dongguan. The Bank's credit ratings are one of the highest among banks competing in the Asia-Pacific region, and the highest among banks in Singapore. More information about DBS Group Holdings and DBS Bank can be obtained from our website www.dbs.com.
