DBS second-quarter earnings rise 30% to SGD 718 million before goodwill impairment

Singapore.30 Jul 2010

Results underpinned by broad-based loan growth and customer-driven non-interest income allowance coverage exceeds 100%

Singapore, 30 Jul 2010 - DBS Group Holdings recorded net earnings of SGD 718 million for second quarter 2010, before a goodwill impairment charge of SGD 1.02 billion for DBS Hong Kong Limited.

The earnings before the one-time charge were up 30% from a year ago and 35% from the previous quarter. Operating trends strengthened further as DBS progressed in its efforts to grow loan market share and customer-driven non-interest income. Allowance coverage exceeded 100% as additional general allowances were taken and asset quality continued to improve. The quarterly earnings were the highest in DBS’ history.Operating trends strengthen

Net interest income remained stable at SGD 1.07 billion. DBS utilised its capital and liquidity position to support customers’ financing needs as regional economic conditions strengthened. Loans expanded 9% from the previous quarter from broad-based regional corporate loan demand and from housing loan drawdowns in Singapore and Hong Kong. DBS was also active in supporting corporate customers’ financing needs through bond issues.Net interest margins declined nine basis points from the previous quarter to 1.84%. More than half of the margin decline was due to a shift in the securities portfolio towards higher-quality issues with lower yields. In addition, deposit costs were higher due to competition for USD and HKD funding.Non-interest income rose 16% from the previous quarter to SGD 748 million. Fee income increased 5% to SGD 358 million. Wealth management fees benefited from increased product sales while credit card revenues increased with higher transaction volumes. Loan syndication fees remained at the previous quarter’s strong levels.

Trading income grew 21% from the previous quarter to SGD 278 million. The rise was driven by customer revenues, which grew 45% and accounted for more than half of total trading income. Investment gains doubled to SGD 98 million as there were increased opportunities for profit-taking of debt securities.Expenses rose 2% from the previous quarter to SGD 717 million. The cost-income ratio was little changed at 40%.

Specific allowances for loans fell from SGD 324 million in the previous quarter to SGD 68 million as asset quality improved. Non-performing assets declined 8% to SGD 3.72 billion due to customer repayments, bringing the non-performing loan rate down from 2.7% to 2.3%. General allowances of SGD 124 million were also set aside in line with loan growth. Cumulative allowances rose to 101% of non-performing assets from 92% in the previous quarter. If collateral was considered, the ratio was 126%.Return on equity was 11.1% and return on assets was 1.07%, compared with 8.2% and 0.82% respectively in the previous quarter.Goodwill impairment has no impact on regulatory capital

A one-time goodwill impairment charge of SGD 1.02 billion was taken during the quarter for DBS Hong Kong Limited. Since the previous review, there have been noticeable and persistent strains in wholesale funding markets, which have driven banks to adjust their funding strategies and liquidity positions. Given these structural changes,  there is an increased likelihood that the interest margin compression recently experienced by DBS’ operations in the territory will persist.Taking a balanced view of the different factors driving projected cash flows of DBS Hong Kong Limited, DBS has assessed that it is appropriate to take an impairment charge. The charge reduces the carrying value of DBS Hong Kong to SGD 8.4 billion, equivalent to 2.2 times its book value as at 30 June 2010.

As goodwill was fully deducted from regulatory capital on consolidation, the impairment charge has no impact on DBS’ capital adequacy ratios. As such, it does not impede DBS’ ability to carry out ongoing business and expand, as well as to pay dividends. Hong Kong remains the anchor for DBS’ Greater China operations. DBS has a fundamentally strong franchise in Hong Kong and is implementing initiatives to expand it.Outlook remains healthy

DBS continues to be well-positioned to participate in Asia’s growth. Its liquidity is healthy while its total capital adequacy ratio of 16.5% and a tier-1 ratio of 13.1% remain above regulatory requirements.DBS CEO Piyush Gupta said, “DBS’ core earnings reached a record high this quarter, reflecting the strong growth in underlying drivers in line with our strategic direction. In addition, notwithstanding the goodwill impairment, we remain structurally bullish on prospects for Hong Kong and China, which are integral to the Asia growth story. Hong Kong is the anchor for our Greater China operations, and we will continue to build the business."

The Board declared a dividend of 14 cents a share, unchanged from the previous quarter. The scrip dividend scheme will be applicable to the dividend. New shares will be issued, to shareholders who elect to receive their dividends in scrip, at a price that is at a 5% discount to the average of the last dealt price on each of 20, 23 and 24 August 2010.

About DBS
DBS is one of the largest financial services groups in Asia with operations in 16 markets. Headquartered in Singapore, DBS is a well-capitalised bank with "AA-" and "Aa1" credit ratings that 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 14,000 staff, representing over 30 nationalities. For more information, please visit www.dbs.com.