The underlying operating performance was strong. Revenues rose 13% from the previous quarter and 6% from a year ago to a record SGD 1.66 billion. Net trading income improved while net interest income was steady despite lower interest rates. Cost discipline measures resulted in lower expenses of SGD 638 million. Together with higher revenues, this resulted in the cost-to-income ratio falling below 40%.
With the economic environment remaining uncertain, operating conditions continue to be challenging. The robust first-quarter operating performance, strong regulatory capital levels and prudent cumulative allowance coverage attest to the underlying strength of the DBS franchise to weather these challenges ahead.
Strong net interest and non-interest incomes contribute to record revenues
Net interest income rose 2% from a year ago to SGD 1.08 billion but fell 3% from the previous quarter.
Customer loans rose 3% from the previous quarter to SGD 130.6 billion. Most of the increase was due to Singapore-dollar corporate loans. Loans in Hong Kong fell in local currency terms in line with the industry. Customer deposits grew 6% to SGD 179.8 billion, with most of the growth coming from inflows into Singapore-dollar savings and current accounts.
Net interest margins fell five basis points from the previous quarter to 1.99% mainly due to lower interbank rates offset by higher credit spreads as well as better margins in Hong Kong.
Net fee income rose 21% from the previous quarter to SGD 317 million mainly due to loan related activities. Fees from capital market activities – stockbroking, wealth management, fund management and investment banking – remained subdued at previous quarter’s level. Compared to a year ago, fee income fell 10% as the decline in capital market revenues was partially offset by higher contributions from other fee activities.
Other non-interest income performed well. Trading income rose to SGD 150 million, led by interest rate and foreign exchange activities supported by strong customer flows. Gains from the sale of investment securities of SGD 106 million were similar to the previous quarter but lower than a year ago.
Expenses held below recent quarters
Expenses fell 7% from the previous quarter to SGD 638 million. Expenses declined as ongoing efforts to improve productivity yielded cost savings, partially offset by continued investment in technology improvements and in emerging markets. The strong revenues and lower expenses resulted in the cost-to-income ratio falling from 47% in the previous quarter to 38%, the lowest in several years.
NPLs increase in line with expectations, balance sheet remains strong
The non-performing loan rate increased from 1.5% in the previous quarter to 2.0%. The increase in NPLs was led by SME loans in Hong Kong and corporate loans in line with weaker economic conditions. Non-performing assets increased 35% from the previous quarter to SGD 3.23 billion. 34% of NPAs were current in both principal and interest but were classified for prudential reasons. Specific allowances for loans were little changed from the previous quarter at SGD 225 million or 70 basis points of loans.
To bolster the balance sheet against economic uncertainties, SGD 182 million in general allowances were taken during the quarter. SGD 49 million were for the non-ABS CLO portfolio and the remaining SGD 133 million were for the loan portfolio. Total cumulative allowance coverage for non-performing assets was prudent at 97% and at 156% if collateral was considered.
DBS continued to be well capitalised, with the tier-1 capital adequacy ratio at 12.5% and total capital adequacy ratio at 16.7%, well above regulatory requirements.
Return on equity was 8.0% compared with 7.6% in the previous quarter and 11.6% a year ago, while return on assets was 0.69% compared with 0.59% and 0.99% respectively.
Chairman Koh Boon Hwee said, “DBS is one of the best-capitalised banks in Asia and our capital ratios and underlying earnings remain strong. Given continuing uncertainties over how protracted the downturn will be, we remain vigilant in managing our balance sheet and ensuring that the franchise is in a solid position to capture future growth opportunities.”
The Board of Directors declared a dividend of 14 cents per share, unchanged from the previous quarter.
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About DBS DBS - Living, Breathing Asia DBS is a leading financial group in Asia, with over 280 branches across 18 markets. Headquartered and listed in Singapore, DBS has a growing presence in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia. The bank's capital position, as well as "AA-" and "Aa1" credit ratings, is among the highest in Asia-Pacific. DBS has been recognised for its leadership in the region, having been named "Asia's Best Bank" by The Banker, a member of the Financial Times group, and "Best Bank in Asia-Pacific" by Global Finance. The bank has also been named "Safest Bank in Asia" by Global Finance for seven consecutive years from 2009 to 2015.
DBS provides a full range of services in consumer, SME and corporate banking activities across Asia. As a bank born and bred in Asia, DBS understands the intricacies of doing business in the region’s most dynamic markets. These market insights and regional connectivity have helped to drive the bank’s growth as it sets out to be the Asian bank of choice. DBS is committed to building lasting relationships with customers, and positively impacting communities through supporting social enterprises, as it banks the Asian way. It has also established a SGD 50 million foundation to strengthen its corporate social responsibility efforts in Singapore and across Asia.
With its extensive network of operations in Asia and emphasis on engaging and empowering its staff, DBS presents exciting career opportunities. The bank acknowledges the passion, commitment and can-do spirit in all of our 20,000 staff, representing over 30 nationalities. For more information, please visit www.dbs.com.
