DBS full year 2003 net profit down 7% to $1.03 billion; fourth quarter net profit up 2% at $292 million

Singapore.20 Feb 2004

Business momentum in lending, wealth management, investment banking continues into the new year

Singapore, 20 Feb 2004 - DBS Group Holdings (DBS) today announced net profit attributable to members of $292 million for the fourth quarter ended 31 December 2003, up 1.7% from the fourth quarter of 2002.

Net profit for the full year was down 6.6% to $1.03 billion from $1.10 billion the year before. The decline resulted mainly from changes in accounting policy on the classification and valuation of trading and investment securities.

Without the accounting changes, net profit for 2003 would be at $1.02 billion, similar to the level reported for 2002.


Financial Highlights

4Q 2003 versus 4Q 2002

2003 versus 2002

·  Net profit up 1.7% to $292 million

·  Net profit down 6.6% to $1.03 billion

·  Cash* net profit up 11.7% to $402 million

·  Cash* net profit up 5.8% to $1.46 billion

* * *

* * *

·  Operating profit before goodwill amortisation and provisions down 2.1% to $571 million

·  Operating profit before goodwill amortisation and provisions up 2.7% to $2.36 billion

·  Provision charges down 54.7% to $82 million

·  Provision charges down 0.6% to $541 million

·  Non-performing loan (NPL) ratio improved to 5.2% from 6.1%

·  NPL ratio improved to 5.2% from 6.1%

·  Cash* ROA was 1.01% vs 0.97%

·  Cash* ROA was 0.94% vs 0.91%

·  Cash* ROE was 10.91% vs 10.20%

·  Cash* ROE was 9.99% vs 9.95%

·  Return on tangible equity (ROTE) was 21.98% vs 18.34%

·  ROTE was 20.68% vs 18.75%

·  Annualised Basic EPS* was $1.08 vs $0.97

·  Basic EPS* was $0.98 vs $0.93


* Excluding goodwill amortisation

Before goodwill amortisation and provisions, fourth quarter operating profit was 2.1% lower at $571 million. This was mainly attributable to lower net interest income and higher operating expenses. Expenses were up 2.3% to $482 million compared to the previous corresponding quarter, mainly because of higher revenue-related expenses.

Net profit in the fourth quarter was boosted by higher fee income and lower provisions. Interest margin dropped 16 basis points from 1.97% in the fourth quarter 2002 to 1.81% due to narrower spread on loans and debt securities in a competitive market and low interest rate environment. Total provisions fell 54.7% from $181 million in the year-ago quarter to $82 million because of lower charges for bad loans and writebacks from property and other assets.

Excluding goodwill amortisation, net profit attributable to members rose 11.7% to $402 million in the fourth quarter and 5.8% to $1.46 billion for the whole year.

DBS Bank (Hong Kong) Limited reported a 108.6% increase in fourth quarter net profit to $146 million. Operating profit after provisions rose 143.5% to $168 million. Net interest margin in Hong Kong improved to 2.45% in the fourth quarter, helped by the widening spread between the Prime and the HIBOR rates.

For the full year, DBS Bank (Hong Kong) net profit was 33.3% higher at $440 million.

DBS Vice-Chairman and CEO, Jackson Tai, said: "Our results were achieved against a backdrop of uneven business conditions in 2003. We lived through a first half slump in business and consumer confidence but the robust rebound in the second half has continued into the new year.

"For most of 2003, our strategy of diversifying our income base through fee-based businesses has helped us prevail in a period of persistent low interest rates and sluggish credit demand.

"We are expanding scale, distribution and customer access and are well-positioned to tap the opportunities that flow from the economic recovery."

Group net profit rose 31.9% in the second half of 2003 to $583 million from $442 million in the first half.

Strong non-interest income underpins Q4 Group operating income

Compared to fourth quarter last year, operating income was relatively flat at $1.05 billion. The relative stability of the Group's operating income was underpinned mainly by a 3.2% increase in non-interest income to $425 million, contributed by higher fees from stockbroking, investment banking, higher trading income and wealth management sales.

The ratio of non-interest income to operating income improved to 40.4% in the fourth quarter against 39.1% in the year-ago quarter. For full year 2003, the ratio rose to 43.4% from 36.2% a year ago.

In the fourth quarter, DBS expanded its loan book by 0.7% to $64.3 billion and 6% from the end of 2002, representing the fourth consecutive quarter of expansion.

Wealth management reached record level

DBS maintains its leadership in the distribution of retail wealth management products in Singapore and Hong Kong, the bulk of which was structured inhouse. Sales in 2003 reached a new record of $8.8 billion, nearly two times the volume of the previous year. In the fourth quarter, sales totalled $2.5 billion, comprising $1.1 billion in Singapore and $1.4 billion in Hong Kong.

In other consumer banking business, DBS announced in the fourth quarter a joint venture with the Shin Corporation Public Company of Thailand to form a consumer finance company called Capital OK. The joint venture will sell unsecured loan products including credit cards and personal credit lines through Advanced Info Services' nationwide retail outlets.

Stockbroking up, investment banking expands regionally

In December, DBS' Treasury & Markets led a revival of the call warrants market in Singapore with the successful launch of two major tranches of warrants on highly liquid Singapore shares.

This new business initiative boosted income for placement agent, DBS Vickers Securities, which on the back of a bouyant stock market, reported fee and commission of $60 million in the fourth quarter, up $40 million from the fourth quarter of 2002. For the full year, fee and commission income grew 42% to $169 million, marking the stockbroking business' highest contribution to Group fee income.

Fees from investment banking improved by 20% to $24 million while those from loan related activities rose 2.4% to $43 million in the fourth quarter.

DBS' investment banking team made several notable breakthroughs in the region last year and won numerous awards and accolades for its structured finance, syndicated loan and bond issues.

It became the first non-US bank to clinch the coveted IFR Asia's Loan House of the Year award, and lead-managed the first real estate investment trust for a Hong Kong issuer, the biggest bond issue and the biggest IPO in Singapore last year. It also led marquee deals in Malaysia, South Korea, Taiwan and Indonesia, raising US$265 million for Astro All Asia Networks, US$600 million for Hanaro Telecom and the NT$10.57 billion for Taiwan Broadband Communications.

Operating expenses up on higher brokerage commissions

Operating expenses rose 2.3% in the fourth quarter to $482 million mainly because of higher brokerage commissions paid for equity and derivative businesses.

Cost to income ratio rose to 45.8% in the fourth quarter from 44.7% in the fourth quarter of 2002. However, full year operating expenses were down 0.5% to $1.84 billion while cost to income ratio improved to 43.9% from 44.6%.

NPLs decline, strongest asset quality post-Asian crisis

Asset quality was the strongest since the Asian financial crisis. Total non-performing loans (NPLs) fell 10.5% to $3.78 billion or 5.2% of total non-bank loans, at December 31, compared to $4.22 billion or 6.1% of total non-bank loans at the end of 2002. The overall grading of the NPLs remained stable - 73% were graded substandard and 27% were graded doubtful or loss.

Total provisions charged fell 54.7% to $82 million as the overall business climate improved. Specific loan provisions dropped 30.4% to $78 million. Properties and other assets saw a writeback of $14 million in the fourth quarter versus a charge of $39 million in the year-ago quarter. Total provision coverage of NPLs improved to 63.2% from 59.2% at the end of 2002.

At December 31, 2003, DBS' total capital adequacy ratio (CAR) stood at 15.1%, comfortably above the minimum 8% total CAR under BIS standards. DBS' Tier 1 CAR was 10.5%.

Dividend rate maintained

At its meeting today, the DBS Board recommended the payment of second-half dividend of 16 cents per share. Combined with the dividend of 14 cents per share in the first half 2003, the full year dividend was maintained at 30 cents per share with a dividend payout ratio of 36%.

About DBS

Headquartered in Singapore, DBS is one of the largest financial services groups in Asia. The largest bank in Singapore and one of the top five in Hong Kong as measured by assets, DBS has dominant positions in consumer banking, treasury and markets, asset management, securities brokerage, equity and debt fund raising. Beyond the anchor markets of Singapore and Hong Kong, DBS serves corporate, institutional and retail customers through its operations in Thailand, The Philippines, and Indonesia. In China, the bank has branches and representative offices in Shanghai, Beijing, Shenzhen, Fuzhou and Tianjin. The Bank's credit ratings are among the highest in the Asia-Pacific region.

More information on the above announcement is available at www.dbs.com/investor

The presentation for journalists and analysts will be webcast from 1715 hours (Singapore and Hong Kong time)