DBS second-quarter earnings up 28% excluding last year's one-time gains

Singapore, Hong Kong, China, India, Indonesia, Taiwan, Regional.29 Jul 2005

Growth in customer loans propels interest income to highest in 14 quarters; fee income rises to quarterly record and asset mix improves

Board raises ordinary dividend to 15 cents a share for second quarter

Singapore, Hong Kong, China, India, Indonesia, Taiwan, Regional, 29 Jul 2005 - DBS Group Holdings (DBS) today announced net profit of $441 million for the second quarter to June 30, 2005. The result was 28% above reported earnings a year ago if one-time gains of $497 million from the DBS Thai Danu Bank merger and the divestment of DBS’ stake in Wing Lung Bank are excluded. If last year’s one-time gains are included, net profit was down 48%.

Compared to first quarter 2005, net profit for the second quarter rose 7%. Stronger net interest income, on the back of a growing loan book, and record fee income, compensated for lower contributions from treasury activities.

Net profit for first half 2005 amounted to $853 million, or 3% better than a year ago if one-time gains are excluded.

DBS Vice Chairman and CEO Jackson Tai said: "Our strategy over the last few years of changing the asset mix, growing recurring income and improving our asset quality continued to pay off. Even though our treasury and markets income declined due to a flat yield curve and low market volatility, DBS recorded the highest quarterly net interest income in 14 quarters and the highest quarterly fee income ever.

"We didn’t wait for interest margins and the yield curve to come our way. Instead, DBS methodically grew the loan book and pursued higher fee income. It was more than coincidence that the higher combined contribution from our consumer and SME segments helped offset the lower returns from our treasury and markets businesses.”

The second quarter’s results adopted the proportionate consolidation method for accounting of joint ventures, which unlike equity accounting, recognises DBS' share of contributions from joint ventures on a line-by-line basis in the financial statements. The accounting change has been applied retrospectively and has no impact on net earnings.

Strong loan growth boosts interest income

Net interest income in the second quarter was the highest in 14 quarters, totalling $695 million, 4% higher than the previous quarter and 5% higher than a year ago.

Customer loans rose 11% quarter-on-quarter and 21% from a year ago to $78.7 billion. The growth was driven by corporate and SME loans in Singapore, Hong Kong and the region, and mortgage loans in Singapore and Hong Kong. The strong loan growth lifted the loan-to-deposit ratio to 68% from 61% in March 2005 and 60% a year ago. Customer deposits were unchanged from the previous quarter at $115.9 billion.

With a better mix of higher return assets, interest margins rose two basis points from the previous quarter to 1.80%. Rising rates for corporate loans and higher Hong Kong prime rates boosted customer loan yields, and yields on interbank loans and securities also increased. Higher cost of funds partially offset the impact of improved asset yields.

For first half 2005, net interest income rose 5% from a year ago to $1.37 billion.

Fee income sets quarterly record on higher business activity

Fee income set a quarterly record of $290 million, which reflected a broad-based increase in business volumes. The amount was 15% higher than the previous quarter and 18% above a year ago. Higher fee income was achieved despite the lower contribution from stockbroking business. Compared to both periods, DBS achieved double-digit growth in fees for investment banking, loan syndication, trade and remittances, credit cards and fund management.

Fees from sales of unit trusts and bancassurance totalled $37 million, similar to the previous quarter and 54% higher than a year ago. Total sales of all wealth management products, comprising unit trusts, bancassurance and structured deposits, amounted to $1.86 billion, down 10% from the previous quarter and 11% from a year ago.

Net gain on treasury activities fell 76% to $27 million from the first quarter and 73% from the year before as market conditions, exacerbated by a flat yield curve, remained difficult. As a result, total non-interest income fell 3% (excluding one-time gains in second quarter 2004) against both comparative periods to $397 million.

For the first half 2005, fee income rose 3% to $543 million compared to first half 2004. Higher revenues from annuity fee businesses were largely offset by a 27% fall in stockbroking income. Lower treasury contributions resulted in a 23% drop (excluding one-time gains in first half 2004) in total non-interest income to $805 million.

Operating costs decline from previous quarter

Operating costs fell 2% from the previous quarter to $500 million. Compared to a year ago, operating expenses were stable as wage cost increases were offset by lower non-staff expenses. This quarter’s cost-income ratio of 45.8% was better than the previous quarter and a year ago (excluding one-time gains in second quarter 2004).

For first half 2005, operating expenses were unchanged from a year ago at $1.01 billion.

Asset quality further enhanced as non-performing assets fall

DBS’ asset quality, already among the best in the region, strengthened further during the quarter. Leaving aside an expanded loan base, non-performing assets (including debt securities and contingent liabilities) of $1.90 billion was 2% lower than the quantum for March 2005 and 13% from that a year ago. The non-performing loan rate eased to 2.2% from 2.4% in March 2005 and 3.0% a year ago.

During the quarter, DBS set aside $51 million of specific provisions for loans, equal to 27 basis points of average loans. Specific provisions for the first half 2005 were $95 million or 25 basis points of average loans, as compared to 17 basis points in first half 2004.

Total cumulative specific and general provisions reached a record 94% coverage of non-performing assets in June 2005, compared to the 90% coverage in March 2005 and 83% a year ago.

As a result of strong customer loan growth this quarter, the capital adequacy ratio was lower at 14.7%, compared to 15.3% in March 2005. The tier-1 ratio was 10.6%. Both ratios were still comfortably above minimum regulatory requirements.

The Board of Directors raised the ordinary dividend to 15 cents a share for the second quarter. Together with the 11 cents paid in the first quarter, total dividends for the first half of 2005 amounted to 26 cents a share compared to the 18 cents a share in first half 2004.

Going forward, the Board expects to sustain this level of quarterly dividend.


About DBS

Headquartered in Singapore, DBS is one of the largest financial services groups in Asia. The largest bank in Singapore and the fifth largest banking group in Hong Kong as measured by assets, DBS has leading 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, Malaysia, Indonesia, India and The Philippines. In China, the bank has branches and representative offices in Shanghai, Beijing, Guangzhou, Shenzhen, Fuzhou, Tianjin and Dongguan. The Bank's credit ratings are one of the highest among banks competing in the Asia-Pacific region, and the highest among banks in Singapore. More information about DBS Group Holdings and DBS Bank can be obtained from our website www.dbs.com