First quarter 2003 results
Net profit attributable to members was S$279 million, an increase of 0.4% compared to the first quarter of 2002. Excluding goodwill amortisation, net profit attributable to members for the quarter rose 11.7% to S$386.3 million.
First quarter operating profit before goodwill amortisation and provisions was S$612.3 million, up S$47 million, or 8.3%, from the same period last year. First quarter operating profit was driven by the Bank's increasingly geographic and product diversified earnings. DBS achieved record wealth management investment product sales in Hong Kong and Singapore that significantly improved DBS' Treasury income from the distribution of structured products. Treasury and Markets also recorded strong non-interest income from the gains on Singapore Government securities in a lower interest rate environment. At the same time, operating expenses fell another 3.7%.
Net profit declined 1.1% compared to the fourth quarter 2002. The fourth quarter profits benefited from the reduction in taxation as a result of one-time adjustments taken with the adoption of deferred tax accounting under Financial Reporting Standards 12. Operating profit before goodwill amortisation and provisions increased 6.2% compared to the fourth quarter, even though it included a one-time S$96 million gain from the sale of NatSteel Ltd shares.
Net Interest Income
For the current quarter, net interest income was S$598.8 million, down 10.6% from first quarter last year. Net interest margin dropped from 2.02% in the first quarter last year to 1.87% this quarter, primarily due to intense housing loan competition and a lower contribution from the reinvestment of net free funds. Gross customer loans decreased 7.2% year-on-year to S$63,801 million, or 5.9% after giving effect to the impact of foreign exchange translations, as compared to a year ago.
Net interest income decreased 6.7% compared to the fourth quarter of 2002, also due to a squeeze in net interest margin from 1.97% to 1.87%. Reversing the declining trend, gross customer loans in the current quarter rose 1.4% from levels at the end of December 2002. Singapore corporate loans increased slightly and Singapore housing loans were about even with the prior quarter.
Non-Interest Income
The substantial S$101.4 million or 28.6% increase in non-interest income was largely contributed by income from structured investment products and the gains on Singapore Government securities as DBS took advantage of lower interest rates. The lower interest rate environment supported the continued progress in the sale of wealth management investment products in both Hong Kong and Singapore. In the first quarter of 2003, DBS distributed a record S$1.9 billion of investment products, slightly less than the sales volume recorded for whole of 2001.
Fee and commission income for the quarter was S$160.4 million, down 16.7% from the S$192.6 million in the first quarter of 2002. The reduction was mainly due to weaker fees from the securities business. Although DBS achieved substantial volume gains in investment product sales, not all earnings from this effort is recorded as fee income. Today, a significant amount of our wealth management products incorporate our own Treasury structured products and therefore, revenues from these structured products are recorded in ?ther Income?category.
Non-interest income grew 12.2% over the fourth quarter of 2002, despite the one-time S$96 million NatSteel gain recorded in the fourth quarter.
Operating expenses
DBS continued to actively manage down its operating expenses, which decreased 3.7% or S$16.9 million, to S$442.3 million in the first quarter. The reduction was primarily due to a 7.6% decline in staff costs. Consequently, DBS' cost-to-income ratio fell 2.9 percentage points to 41.9%.
Compared to the fourth quarter of 2002, expenses declined an even sharper 6.2% and the cost-to-income ratio was reduced by 3 full percentage points from 45.0%.
Asset quality and capital adequacy
DBS' total non-performing loans (NPLs) at March 31, 2003 were S$4.133 billion or 5.9% of total non-bank loans, compared to S$4.503 billion or 5.9% of total non-bank loans at March 31, 2002, and S$4.224 billion or 6.1% of total non-bank loans at end December 2002. The overall grading of the NPLs remained satisfactory with 68% of NPLs classified as substandard and 32% graded doubtful or loss.
DBS' Hong Kong credit card annualised charge-off rate for first quarter 2003 was 12.8%, 1 percentage point higher than the 11.8% 2002 full year charge-off rate, but still below the 13.3% full-year 2002 industry rate previously reported by the Hong Kong Monetary Authority. Under the same calculation basis, Singapore credit card annualised charge-off rate for the current quarter was 4.0%.
DBS maintained a cautious approach to provision levels due to the continued sluggish economy. For the first quarter 2003, the total provision charge was S$115.1 million, but only about 62% of the total charge, or S$70.6 million, was loan related. The rest was for equities (S$16.2 million) and for properties and other assets (S$28.3 million).
At March 31, 2003, DBS' BIS Tier 1 and total capital adequacy ratio (CAR) stood at 9.8%1 and 14.5%1 respectively, exceeding the minimum 8% total CAR under BIS standards.
Overseas operations
The Group continued to make progress as an integrated banking operation through its wholly owned DBS Kwong On, and Dao Heng franchises. In the first quarter 2003, DBS' Hong Kong operations were able to surpass S$1 billion in investment product sales, higher even than the sales achieved in Singapore. Under Hong Kong accounting standards, the combined DBS Kwong On and Dao Heng Bank Group operating profit before provisions increased 11.3% to HK$746 million (S$168 million) compared to the first quarter of 2002. The operating results were driven by a net interest income decrease of 5.2% to HK$881 million (S$199.2 million) and non-interest income increase of 21.7% to HK$371.5 million (S$84 million). Operating expenses decreased 10.9% to HK$506.4 million (S$114 million), and cost-to-income ratio fell from 45.9% to 40.4%. The cost efficiencies reflect the Group's rationalisation of its Hong Kong branch network by 25% since December 2000, and integrated processes within Hong Kong and across the region.
DBS continues to leverage on our large Hong Kong Small and Medium Enterprise customer loans in seizing business opportunities in the South China region. DBS has received approval and is now operating RMB facilities at Dao Heng's Shenzhen branch. DBS has a RMB license in both its Shanghai and Shenzhen branches, and is able to significantly increase its level of service for customers that are seeking expansion in China.
As reported on April 16, 2003, DBS Thai Danu Bank (DTDB) achieved net profit growth of 64.7% to Baht 98.3 million (S$4 million) for the first quarter of 2003 compared to the corresponding period in 2002. DTDB achieved 10.3% growth in interest and dividend income to Baht 604.8 million (S$24.9 million) and non-interest income growth of 36.6% to Baht 290.1 million (S$11.9 million). The net interest income growth was primarily driven by a 4.1% loan growth to Baht 79.1 billion (S$3.3 billion). Operating expenses were up 8.6% to Baht 576.5 million (S$23.7 million) primarily due to technology related investments to enhance service quality, higher business taxes and Financial Institutions Development Fund contributions.
Conclusion
In the first quarter, DBS weathered regional recession, the threat of terrorism, war, and early signs of the SARS outbreak with its diversified businesses and continued discipline in cost management. Having rationalised its operations, and having worked to improve its asset quality, the Group remains well positioned for the effects of the sluggish economy and the uncertainties of the SARS outbreak. Moreover, the Group continues to enjoy a strong capital position.
More information on the above announcement is available at www.dbs.com/investor.
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About DBS
DBS Bank is the largest bank in Singapore as measured by assets, with dominant positions in consumer banking, treasury and markets, securities brokerage, Singapore dollar loans, deposits, and equity and debt fund raising. With the receipt of executive and legislative approval for the merger of its wholly-owned Dao Heng Bank and DBS Kwong On Bank operations in Hong Kong, DBS Bank is now the fourth largest banking group in Hong Kong. Beyond the anchor markets of Singapore and Hong Kong, DBS Bank serves corporate, institutional and retail customers through its operations in Thailand, The Philippines, and Indonesia. The bank's credit ratings are amongst the highest in the Asia-Pacific region. More information about DBS Group Holdings and DBS Bank can be obtained from our website www.dbs.com.
