DBS Third-Quarter Earnings at SGD 402 Milion despite challenging operating environment

Singapore.07 Nov 2008

Lower market-related income and higher prudential allowances offset by disciplined expense management

Singapore, 07 Nov 2008 - DBS Group Holdings today reported net earnings of SGD 402 million for third quarter 2008, reflecting lower market-related income, higher allowances to strengthen the balance sheet and disciplined expense management efforts. Interest income continued to grow as loans and deposits expanded while fee income outside of capital market related activities was stable. The earnings included a SGD 70 million charge set aside as compensation to certain customers who had bought Lehman-exposed investment products.

For the nine months, net earnings fell 13% from a year ago to SGD 1.67 billion. Profit before allowances declined by 1% from a year ago to SGD 2.64 billion.

Net interest income up 2% as loans continue to grow

Net interest income rose 2% from a year ago and 1% from the previous quarter to SGD 1.07 billion.

Customer loans rose 8% for the quarter to SGD 127.5 billion. While the appreciation of the US and Hong Kong currencies contributed 2% points, the growth was largely due to Singapore-dollar borrowing across a broad range of sectors. Loan growth is expected to moderate in the coming quarters in line with slower economic activity.

Customer deposits increased 5% from the previous quarter to SGD 166.4 billion as a result of foreign currency and Singapore-dollar deposit inflows, reflecting the strength of DBS' customer franchise during a period of market dislocations.

Interest margins fell five basis points from the previous quarter to 1.99%. Interbank asset yields declined as tenors were shortened as part of the group's liquidity management. Interest margins were also affected by narrower Hong Kong prime-Hibor spreads.

Non-interest income lower due to markets

Net fee income declined 22% from a year ago and 8% from the previous quarter to SGD 316 million as stockbroking, investment banking and wealth management fees decreased 55% from a year ago and 21% from the previous quarter. Fee income outside of capital markets, such as trade and remittances and loan-related activity, was little changed from the previous quarter and 10% higher than a year ago.

Trading losses of SGD 13 million included net losses related to the unwinding of the Lehman-exposed investment products, which more than offset gains in other areas. The trading results also included SGD 74 million of gains resulting from the reclassification of certain trading assets as available-for-sale investment securities in line with recent amendments to accounting standards.

Cost-income ratio at 41%

Expenses fell 11% from a year ago and 16% from the previous quarter to SGO 578 million as a result of proactive management of controllable expenses. OBS however continued to invest for future growth as it selectively added headcount in the emerging markets. The cost-income ratio improved to 41% from 43% in the previous quarter.

Balance sheet remains strong

General allowances of SGO 129 million were taken to strengthen the balance sheet against increased macroeconomic uncertainties. These additional general allowances raised the coverage for non-ABS COOs in the investment portfolio to 25% from 6% previously. These COOs are still performing, with 97% rated A or better. With the expected repayment of two tranches in the near term, the allowance coverage will increase to 30%. Cumulative allowances for all COOs in the investment portfolio are in excess of the decline in their marked-to-market values.

Specific allowances for loans rose to SGO 106 million from SGO 52 million in the previous quarter. Half of the increase related to equity financing to individuals, while the remainder of the increase was for SME and corporate loans. The amount of non-performing loans was little changed at SGO 1.69 billion or 1.3% of the loan portfolio.

The overall allowance coverage for non-performing assets rose to 123% from 116% in the previous quarter. If collateral was considered, the coverage reached 209% from 195% in the previous quarter.

The Group continued to be well capitalised with the tier-1 capital adequacy ratio at 9.7% and the total capital ratio at 13.4%.

DBS CEO Richard Stanley said, "The operating environment is increasingly challenging for financial institutions the world over. I feel deeply for our retail customers who are affected by Lehman's collapse and regret the anguish they are experiencing.DBS is committed to doing the right thing and we are doing our best to resolve the situation. We also believe in standing steadfast by our corporate clients during these difficult times. We took upfront prudential levels of allowances to strengthen our balance sheet and with strong capital and liquidity, I believe we are well positioned to ride out the uncertainties ahead."

The Board of Directors declared a one-tier tax-exempt dividend of 20 cents per share, unchanged from the previous quarter.


About DBS

DBS is one of the largest financial services groups in Asia with operations in 16 markets. Headquartered in Singapore, DBS' "AA-" and "Aa1" credit ratings are among the highest in the Asia-Pacific region.

As a bank that specialises in Asia, DBS leverages its deep understanding of the region, local culture and insights to serve and build lasting relationships with its clients. DBS provides the full range of services in corporate, SME, consumer and wholesale banking activities across Asia and the Middle East. The bank is committed to expanding its pan­ Asia franchise by leveraging its growing presence in mainland China, Hong Kong and Taiwan to intermediate the increasing trade and investment flows between these markets. Likewise, DBS is focused on extending its end-to-end services to facilitate capital within fast-growing countries in Indonesia and India.

DBS acknowledges the passion, commitment and can-do spirit in each of its 15,000 staff, representing over 30 nationalities. For more information, please visit www.dbs.com.