DBS Posts 2001 Net Profit of S$999 million

Singapore.18 Feb 2002

Strong revenue growth offset by prudent provisioning


Singapore, 18 Feb 2002 - DBS Group Holdings ("DBS" or the "Bank") today announced its financial results for fiscal year 2001. As a result of the partial year consolidation of Dao Heng Bank Group ("Dao Heng"), revenues for the year ending December 31, 2001 grew by 21% to S$3,545 million, driven by an 11% growth in net interest income to S$2,257 million, and a 45% increase in non-interest income to S$1,288 million. Operating profit before goodwill charges for the year grew by 7% to S$1,804 million.

Net profit, at S$999 million, was however down 28% from the previous year. The decline in net profit was primarily due to the S$325 million increase in provision charges that were taken as a prudent response to the general slowdown in the economy and lower asset values. DBS also recognised S$131 million in goodwill charges for acquisitions.

"Though 2001 was challenging, DBS has responded by focusing on key customer segments and launching new products and services," said Philippe Paillart, CEO of DBS. "I am pleased that the results started to show a positive trend in net interest and fee income in the latter part of the year. Progress has also been made in cost management, and our regional subsidiaries' financial performance has improved. In 2001, DBS made significant strides towards transforming itself into a customer-centric organisation that is more geographically diverse and well supported by an infrastructure that is increasingly scalable and more efficient."

Success in revenue expansion

Net interest income for DBS grew by 11% to S$2,257 million, driven by an expanded loan book and an increased focus on consumer credit products. Customer loans grew 31% to S$68.2 billion, driven by the newly acquired Dao Heng. Interest margins were under pressure for most of 2001 but showed improvement in the fourth quarter.

The 45% increase in non-interest income was mainly driven by stronger performances in treasury and wealth management. Fee income was supported by Dao Heng's strong presence in the trade finance and credit card businesses. DBS has been able to expand its Singapore credit card customer base by 25%, and with the Dao Heng acquisition, is presently the number three card issuer in Hong Kong.

In particular, DBS achieved significant success with the development of fee-based products. The launch of Up!, a principal and return guaranteed investment fund, contributed to the total investment product sales of S$1.9 billion during the year. DBS is the number one retail fund distributor and fund manager in Singapore.

DBS also realised non-interest income gains during the year from the sale of its stake in The Insurance Corporation of Singapore Ltd and in Keppel Capital Holdings for a total of approximately S$181 million.

Meeting cost control targets

DBS achieved the expense reduction goals established during the release of its first half 2001 results. Against a 26% growth in expenses in the first half, DBS committed to reducing the full year increase to a level below the previous year's growth rate of 17%. This target has been met.

Expenses for the year 2001, excluding the costs of acquisitions and restructuring, grew 16% to S$1,445 million. Expenses in the second half of 2001 were 7% lower than that reported in the first half of 2001.

DBS remains committed to disciplined expense management. It will continue to selectively invest in strategic infrastructure projects and new revenue generating ventures.

Asset quality and Capitalisation remain strong

DBS' non-performing loans ("NPLs") declined over each sequential quarter throughout 2001. DBS reported NPL levels of 7.6%, 6.2%, 6.0% and 5.7% as of December 2000, June 2001, September 2001, and December 2001 respectively.

However, in view of uncertain economic conditions and lower asset values, management decided to prudently increase provision charges to S$379 million for 2001. The additional provisions raised the provision coverage ratio for NPLs to 60%, up from 52% the previous year. As of December 2001, 68% of NPLs were classified as substandard, while 32% were classified as doubtful or loss. Approximately 37% of NPLs have been restructured.

The total capital adequacy ratio for DBS remained strong at 17.4% as of December 31, 2001, comfortably above the regulatory capital requirements. The Tier 1 ratio stood at 12.2%.

Improving overseas operations

Dao Heng's contribution to DBS' consolidated net profit after tax increased by 36% to S$114 million in the fourth quarter despite a S$19 million restructuring charge taken for one-time integration-related costs. Interest income increased by 14% to S$171 million and fee income increased by 11% to S$57 million. The NPL ratio was 4.2%, down from 4.9% as of June 30, 2001.

DBS Kwong On's operating profit grew by 4% to S$103 million in 2001. Supporting the operating income growth was net interest income growth of 21% to S$223 million and fee income growth of 69% to S$32 million. Contribution to DBS' consolidated profit after tax declined, however, by 67% to S$28 million as provisions for loan losses were raised to S$67 million. Loans grew 23% to S$5.6 billion and deposits grew 19% to S$6.8 billion. NPLs declined to 4.5% from 8.4% the previous year. The strong operating performance is largely due to the Bank's continued investment to upgrade its operations.

DBS Thai Danu reported its standalone 2001 results on January 17, 2002. Operating income and net profit grew to S$35 million and S$7 million respectively. Net interest income grew 19% to S$90 million, and fee income by 22% to S$15 million. The growth was driven by loan expansion of 12% to S$3.2 billion, and deposit growth of 10% to S$3.2 billion. NPLs based on MAS standards declined from 42.7% to 29.8% during the year.

The year of building capabilities

DBS expanded its capabilities in many areas in 2001, with success in acquisitions, product development, infrastructure enhancement and financial restructuring.

The most significant transformations centred on its acquisitions and integration of regional operations. In February, DBS announced the purchase of Vickers Ballas Securities, which gave DBS a 60% stake in DBS Vickers Securities. In April, DBS announced the acquisition of Dao Heng, a transforming transaction which positions DBS as the fourth largest banking group in Hong Kong.

In order to expand its product capabilities in 2001, DBS launched strategic alliances in June with TD Waterhouse, a leader in multi-market online securities trading, and in July with CGNU, the U.K.'s leading insurance operator. These alliances enable DBS to offer best-in-class bancassurance and online trading facilities to its customers.

DBS announced today that it will further its partnership with CGNU with a strategic alliance in bancassurance in Hong Kong. The move allows the Bank to tap Hong Kong's growing long-term savings market.

Finally, DBS took major steps to restructure its balance sheet and lower its overall weighted average cost of capital by tapping into new and less expensive forms of capital. In 2001, new capital was raised with hybrid Tier I and subordinated debt issuances in March, preferred shares in May, and new equity in November. These steps have helped the Bank to reposition itself for greater financial efficiency and flexibility going forward.

Conclusion

Paillart added, "While 2001 was a challenging year for DBS' operating results, it was also a time where the groundwork was laid for the expansion of our business capabilities and the building of a unique Pan-Asian franchise. The Bank's net profit was moderated due to the weak economy and increased level of competition, but the Bank is realising the benefits of an expansion in its markets and range of products. A real indication of success in building a franchise is the ability to grow revenues. We are seeing favourable trends in the progress of our businesses and although 2002 may well be another challenging year, we are well-positioned to benefit from any economic recovery."