DBS second-quarter earnings up 1% to SGD 668 million
Steady revenues and cost discipline underpin resilient performance amid challenging operating environment
With the inclusion of one time charges totalling SGD 16 million, net earnings for the second quarter were SGD 652 million. This comprised an impairment charge for DBS' investment in TMB Bank, partially offset by gains from the sale of office buildings in Hong Kong.
DBS successfully bid for Bowa in February 2008 to strengthen its presence in Taiwan and better capture trade and investment flows within the Greater China region. The consolidation of Bowa Commercial Bank in Taiwan during the quarter had minimal impact on second quarter earnings and affected only certain balance sheet items.
Net interest income up 3% from year ago
Net interest income of SGD 1.06 billion was 3% higher than a year ago and similar to the previous quarter.
Customer loans amounted to SGD 118.6 billion. Excluding Bowa, they increased 18% from a year ago and 2% for the quarter. The second quarter's underlying increase was led by SME loans in Hong Kong and consumer loans in Singapore.
Net interest margins fell five basis points from the previous quarter to 2.04%. Singapore margins declined with lower interest rates while Hong Kong margins were stable.
For the first half, net interest income rose 6% to SGD 2.12 billion as the benefit of higher loan volumes was partially offset by a 14 basis point decline in net interest margins to 2.07%.
Lower capital market fees offset by improved trading income
Net fee income fell 8% from a year ago to SGD 342 million as contributions from stockbroking, investment banking and wealth management declined with subdued capital markets. However, most other activities continued to grow, including loan syndication, trade finance and credit cards. Compared to the previous quarter, net fee income declined 3% as stockbroking and investment banking contributions were lower. Other non-interest income rose to SGD 199 million from SGD 153 million a year ago as a result of a better trading performance. Net trading income recovered from a loss in the previous quarter as FX and interest rates activities picked up.
Gains from the sale of financial investments standing at SGD 49 million, were lower than both comparative periods.
For the first half, net fee income rose 2% to SGD 695 million while other non interest income fell 15% to SGD 352 million.
Cost-income ratio unchanged at 43% from year ago
Expenses rose 4% from a year ago and 5% from the previous quarter to SGD 687 million as staff and non-staff costs rose. The cost-income ratio of 43% was similar to a year ago but slightly above the 42% in the previous quarter. Excluding Bowa, headcount rose 8% from a year ago but fell 1% from the previous quarter.
For the first half, expenses rose 2%, which was in line with revenues, to
SGD 1.34 billion, with the cost-income ratio at 42%.
Asset quality remains good
The non-performing loan (NPL) rate rose from 1.0% in the previous quarter to 1.4%. Excluding Bowa, the NPL rate was 1.1%, a similar level to December 2007 and compared to 1.4% a year ago. The amount of NPLs rose from SGD 1.19 billion in the previous quarter to SGD 1.68 billion, including SGD 0.39 billion from Bowa.
Specific allowances for loans amounted to SGD 52 million or 18 basis points of loans, similar to the 19 basis points a year ago but higher than the 13 basis points in the previous quarter. There were no allowance charges in the second quarter for Bowa as adequate allowances had already been set aside prior to consolidation.
With the consolidation of Bowa, cumulative allowances amounted to 116% of non-performing assets compared with the 124% a year ago and 138% in the previous quarter.
Return on equity excluding one-time items was 13.0% compared with 13.6% a year ago and 11.6% in the previous quarter. For the first half, return on equity fell to 12.4% from 13.4% a year ago.
The total capital adequacy ratio stood at 13.8%, with the tier-1 ratio at 10.0%, compared to 13.4% and 9.2% respectively in the previous quarter.
DBS CEO Richard Stanley said, "Amid turbulence and uncertainty in the global financial markets, DBS has performed well. We will continue to be watchful and vigilant in the months ahead as the operating environment becomes increasingly challenging. We remain focused on growing our core businesses, deepening relationships with our customers and expanding our regional footprint. With the successful integration of Bowa Commercial Bank into DBS, we look forward to better serving our customers through our expanded network in Greater China."
The Board of Directors declared a one-tier tax-exempt dividend of 20 cents per share, unchanged from the previous quarter. A gross dividend of 20 cents per share less tax was paid a year ago.
DBS is one of the largest financial services groups in Asia with operations in 16 markets. Headquartered in Singapore, DBS is the largest bank in the country as measured by assets, and a leading bank in Hong Kong. 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 expand 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.