DBS third-quarter earnings rise 6% to SGD 1.07 Billion

Singapore, Regional.02 Nov 2015

Nine-month earnings at SGD 3.45 billion, underpinned by 12% rise in total income


Singapore, Regional, 02 Nov 2015 - DBS Group reported third-quarter earnings of SGD 1.07 billion, up 6% from a year ago. Total income rose 8% to SGD 2.71 billion as net interest income reached a record with net interest margin at a four-year high. Asset quality remained healthy with the non-performing loan rate unchanged at 0.9%. Specific allowances were similar to recent quarters while allowance coverage of 161% was around historical highs.

Compared to the previous quarter, total income and profit before allowances were both little changed. An increase in net interest income was offset by a decline in non-interest income. Financial market volatility during the quarter reduced fee income from wealth management and investment banking. Net profit declined 5% due to an increase in general allowances.

The results included a charge of SGD 50 million taken to trading income as DBS incorporated funding valuation adjustments to the fair value of over-the-counter derivatives. In doing so, DBS becomes an early adopter in Asia of a newly-instituted industry best practice. Adjusting for the charge, net profit would have been 10% higher than a year ago and stable from the previous quarter.

For the nine months, net profit grew 8% to a record SGD 3.45 billion. Improved net interest margin and broad-based non-interest income growth resulted in a 12% increase in total income to SGD 8.14 billion. Excluding one-time items, net profit rose 10% to SGD 3.32 billion.

Third-quarter earnings rise 6% from year ago

Net interest income increased 13% from a year ago to SGD 1.81 billion. Loans grew by a reported 9% to SGD 285 billion. In constant-currency terms, loans rose 3% as an 8% increase in consumer and non-trade corporate loans was partially offset by a decline in trade loans. Net interest margin increased ten basis points to 1.78%, the highest since second quarter 2011.

Net fee income fell 7% to SGD 517 million due to a high base for investment banking fees a year ago. Fees for loan-related activities, cards and stockbroking were higher.

Other non-interest income rose 7% to SGD 382 million. Trading income was 6% higher at SGD 286 million as higher corporate customer activities were partially offset by the funding valuation adjustment charge of SGD 50 million. There was also a gain of SGD 43 million from the sale of properties in Hong Kong.

Expenses increased 14% to SGD 1.26 billion from headcount growth and investments. Excluding currency translation effects and the one-time impact of acquisitions, underlying expenses were 9% higher. The underlying cost-income ratio was 45%.

Total allowances were stable at SGD 178 million. An increase in general allowances from SGD 22 million to SGD 35 million was offset by a moderate decline in specific allowances from 22 basis points of loans to 20 basis points.

Third-quarter earnings 5% lower than previous quarter

Net interest income rose 4% from the previous quarter. Net interest margin increased three basis points to 1.78% as Singapore-dollar loans were re-priced in line with higher interbank and swap offer rates. In addition, deposit costs in Singapore and Hong Kong were lower as steps were taken to further reduce higher-cost deposits. While loans grew 2% on a reported basis, they fell 1% in constant-currency terms as a 1% increase in non-trade loans was more than offset by a 10% decline in trade loans.

Net fee income fell 11%. Volatility in financial markets resulted in lower fee income from wealth management, investment banking and stockbroking activities. Other income increased 5% from higher trading income. Stronger trading gains and corporate customer activities more than offset the charge for funding valuation adjustment.

Total income rose slightly while expenses were 3% higher. Profit before allowances was little changed.

Total allowances were 30% higher. The increase was due to general allowances, which amounted to SGD 35 million in line with reported loan growth. Specific allowances were stable.

Excluding one-time item, nine-month earnings up 10%

For the nine months, net interest income rose 13% to SGD 5.25 billion. The increase was due to higher loan volumes as well as a seven basis point improvement in net interest margin to 1.74%.

Non-interest income increased 10% to SGD 2.89 billion. Fee income rose 6% to SGD 1.66 billion. The increase was broad-based and led by double-digit percentage growth in wealth management, cards and loan-related activities. Other non-interest income increased 16% to SGD 1.23 billion as trading income performed strongly from favourable positions in foreign exchange as well as from higher customer activities.

Total income increased 12% to SGD 8.14 billion. By business segment, Consumer Banking / Wealth Management income rose 24% to SGD 2.64 billion, led by improved returns on deposits and higher wealth management sales. Institutional Banking income grew 7% to SGD 4.02 billion. Higher income from lending activities and cash management was partially offset by lower trade finance income. Treasury income from trading rose 4% to SGD 889 million as a strong performance in the first half was moderated in the third quarter.

Expenses increased 14% to SGD 3.66 billion. Underlying expenses rose 10% and the underlying cost-income ratio was unchanged at 44%. Profit before allowances increased 10% to SGD 4.48 billion.

Total allowances rose 9% to SGD 496 million. An increase in specific allowances was partially offset by lower general allowances in line with the slower loan growth during the nine months.

A one-time gain of SGD 136 million was recorded for the nine months from the disposal of a property investment.

Balance sheet strength maintained

Asset quality remained healthy. The non-performing loan rate was unchanged from recent quarters at 0.9% while allowance coverage was maintained around historical highs at 161%. If collateral was considered, allowance coverage was 324%.

Liquidity continued to be strong. Deposits rose by a reported 4% during the quarter to SGD 318 billion, and the loan-deposit ratio of 90% was little changed from the previous quarter. The liquidity coverage ratio during the third quarter was 121%, above the final regulatory minimum of 100% effective 2019. The net stable funding ratio was also above the requirement due in 2018.

Capital remained healthy. While the Common Equity Tier-1 ratio fell 50 basis points to 12.9% due to the payment of interim dividends and to currency translation effects, it remained comfortably above regulatory requirements. The leverage ratio of 7.1% exceeded the minimum of 3% currently envisaged by the Basel Committee.

DBS CEO Piyush Gupta said, “In a quarter marked by slower regional growth and intense market volatility, the bank’s earnings continued to hold strong. Significantly, net interest margin is at a four-year high. The ability to deliver a solid set of numbers in the face of headwinds testifies to the resilience of the DBS franchise and the soundness of our risk management practices.”

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