DBS Third Quarter 2002 Net Profit Attributable to Members Declined 0.9% to S$199 million

Singapore.28 Oct 2002

First half core operating expenses down 9.3%

Singapore, 28 Oct 2002 - DBS Group Holdings ("DBS") today announced its third quarter 2002 results.

Third Quarter results

Net profit attributable to members was S$199 million, a decline of 0.9% compared to the third quarter of 2001. Excluding goodwill amortisation, net profit attributable to members for the quarter rose 1.4% to S$268 million.

Operating profit for the third quarter was S$462 million, down 9.5% compared to the third quarter of 2001, but up 40.1% if the one-time S$181 million gains from the sale of shares in Insurance Corporation of Singapore ("ICS") and Keppel Capital are excluded from the 2001 results.

Nine Months results

Operating profit for the first nine months of 2002 was S$1,434 million, up 11.2% compared to the same period in 2001. The results include the consolidation of Dao Heng's income for nine months of 2002 but only from July 1 for the corresponding period in 2001.

For the first nine months of 2002, net profit attributable to members was down 11.5% to S$735 million. However, net profit attributable to members excluding goodwill amortisation was up 5.2% from the previous year to S$940 million.

Stronger net interest income, margins, and fee income in third quarter

Compared to the same period last year, net interest income in the third quarter of 2002 grew by 14.0% to S$671 million, due to stronger interest margins. The net interest margin was 2.00%, up from 1.77% in the third quarter of 2001. Although customer loans declined 6.6% to S$63.4 billion from a year ago, DBS grew interest income by focusing on improving the risk adjusted yield from its interest bearing assets, and by proactively managing its funding costs.

Fee income increased 19.5% over the third quarter of 2001 to S$201 million. Correspondingly, over the same period, fee income as a percentage of total income improved to 20.4% from 16.2%. Fee income was supported during this period by stronger wealth management, and investment banking fees as well as higher brokerage fees from the consolidation of DBS Vickers.

Despite the continued soft economic conditions and weak equity markets, DBS managed S$723 million in sales of wealth management products in the third quarter of 2002. Sale of wealth management products totalled S$2.7 billion for nine months 2002, almost 40% more than that achieved for the whole of 2001.

Investment banking fees were boosted by major deals such as the successful underwriting of CapitaLand's S$205 million Real Estate Investment Trust in July.

Other income declined to S$95 million, a 64.6% drop, due primarily to the one-time gains from the sale of shares in ICS and Keppel Capital in 2001, and lower Treasury earnings in 2002 to-date.

Cost management initiatives continue to produce results

DBS continued to exercise discipline in managing operating costs. For the third quarter, total operating costs declined 2.6% to S$452 million, as compared to the same period last year. The improvement in expenses was driven primarily by a 13.9% decline in staff costs excluding recent acquisitions.

Headcount has been trimmed globally at all managerial, front-line and support levels, resulting in an aggregate 11.6% reduction at end September 2002 compared to end September 2001. DBS' cost to income ratio for the third quarter of 2002 was 46.0%, compared to 44.7% for the same period last year, as the ratio for last year was lower due to the sale of shares in ICS and Keppel Capital.

Asset quality improves, capital adequacy remains strong

DBS' total non-performing loans declined to S$4.2 billion at the end of September 2002, down 9.2% compared to the previous year. Since the acquisition of Dao Heng, DBS has reduced its total non-performing loans for five consecutive quarters. The ratio of non-performing loans to total non-bank loans at the end of September 2002 decreased to 5.7% from the 5.9% level at the end of June 2002, despite a reduction in total non-bank customer loans.

Provision charges in the third quarter of 2002 were down significantly compared to a year ago but higher than the provisions run rate for the first half of 2002. Provision charges in the third quarter of 2002 were S$150 million as DBS continues to prudently monitor non-performing loans and build up reserves against the uncertain economic conditions. DBS took loan provisions of S$112 million, but also recorded provisions for equities of S$47 million due to the volatile stock markets. DBS took a similar S$116 million provision for equity holdings in third quarter of 2001. These provisions were substantially written back in the fourth quarter of 2001, following an improvement in global markets.

Overall, the provision coverage ratio increased to 61.0% from 58.7% a year ago. As a policy, provisions have been increased since 1999, following the low-point of 44.4% provision coverage at the end of 1998.

The total capital adequacy ratio for DBS, as of September 30, 2002, remained strong at 19.0%, more than twice the BIS minimum requirements. The Tier 1 capital ratio stood at 13.7%. Taking into consideration the final January 2003 payment for the 28.4% Dao Heng that DBS does not own, DBS' Tier 1 and total capital ratios would be 10.2% and 15.7% respectively. This pro-forma calculation at September 30, 2002 assumes that there would be no retained earnings for the remainder of 2002.

Regional operations show progress

Dao Heng operating profit for the third quarter of 2002 improved to S$125 million, up 5.6% compared to the third quarter 2001. The increase was driven by cost savings from the successful integration of DBS operations in Hong Kong. Income before expenses were down 0.7% to S$217 million and expenses decreased by 8.0% to S$92 million. Net profit after tax at Dao Heng rose 5.5% to S$88 million, compared to S$84 million a year ago.

DBS Thai Danu Bank, a subsidiary of DBS Bank, already reported on October 18, 2002, a net profit after tax of Baht 80 million (S$3 million) for the third quarter of 2002, representing a 95.1% increase from the same period last year. The year-on-year improvement was driven by a 15.5% increase in net interest and dividend income to Baht 615 million and a 28.7% rise in fee income to Baht 125 million. Operating expenses increased by 12.3%, to Baht 577 million, reflecting higher IT related expenditure and marketing expenses for launching of the Bank's products. During the quarter, DBS Thai Danu Bank outsourced its IT operations to IBM.

Dao Heng enhances DBS' ability to capture long-term China opportunities

DBS currently operates in China through DBS Bank and Dao Heng branch offices in Shenzhen, Beijing and Shanghai, and representative offices in Fuzhou and Tianjin. DBS's Beijing and Shanghai branches are now authorised to conduct foreign currency transactions with Chinese individuals. Previously, DBS branches were only allowed to conduct RMB and foreign currency transactions with foreign and Chinese enterprises as well as foreign currency transactions with foreign individuals.

With this enhanced authority, China further becomes a key market in DBS' Pan-Asian franchise. DBS expects to expand its operations to capture growth opportunities in China in line with the World Trade Organisation's liberalisation timetable. The focus will be on the three main geographic regions, the Pearl River Delta, the Yangtze Delta and the Beijing-Tianjin Corridor, areas where DBS already has operations. DBS will leverage its existing customer relationships in Singapore and Hong Kong and will tap its capital markets, treasury, structured finance, syndication, trade services, cash management and private equity capabilities to support existing DBS customers as well as to acquire new customers.

Dao Heng Acquisition Plans

In line with the Group's strategy of creating a stronger platform for its North Asia expansion, it is DBS' current intention to exercise in early January 2003 its call option to acquire all of the DBS Diamond Holdings Limited ("DBS Diamond") shares not currently owned by it ("Call Option"). DBS Diamond owns 100% of Dao Heng Bank Group Limited. The Group will send notice of the exercise of the Call Option to the other shareholders of DBS Diamond in due course.

Notwithstanding the exercise of the Call Option by the Group, DBS Diamond shareholders will continue to receive any dividends payable in respect of their holdings of DBS Diamond shares for the six-month period ending December 31, 2002.

Better execution despite weak markets

S. Dhanabalan, DBS Chairman, said that the third quarter results reflected better execution despite weak markets. "While revenues remain soft in the current economic environment, our results show more discipline in the way we managed our business", said Dhanabalan. "Both expenses and NPLs continue to be managed down."

"I am encouraged that management was able to act decisively and cohesively to reduce and deploy our resources and reorganize our structure to meet changed market conditions", said Dhanabalan. "The tough steps we have taken will position DBS well to capitalize on the upside when the global and regional economies recover."

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