DBS third quarter net profit rises 70% to S$291 million; Nine month net profit down 4% on earlier economic weakness

Singapore.31 Oct 2003

Growth across most businesses with pronounced upturn in hong kong


Singapore, 31 Oct 2003 - DBS Group Holdings (DBS) today announced a 70% rise in net profit attributable to members to S$291 million for the third quarter ended September 30 compared to the second quarter of 2003.

Against net profit in the third quarter of 2002, the increase was 29%. Total net profit for the nine months 2003, which includes the impact of a slowdown in regional economies earlier this year and an accounting policy change, was $733 million, down 4% from the same period in 2002.

During the third quarter, DBS changed its classification of trading and investment securities, as well as the valuation of trading securities at fair value. This change is in line with a revision of the Monetary Authority of Singapore Notice 605, and also with international practice. Had DBS not adopted the accounting policy change and made retroactive changes to previously announced results, net profit for the nine months 2003 would have been $742 million, or 1% higher than the originally reported $735 million in net profit for the corresponding period in 2002.

Financial Highlights

3Q 2003 versus 2Q 2003

9M 2003 versus 9M 2002

·  Net profit up 70% to $291 million

·  Net profit decreased 4% to $733 million

·  Cash* net profit increased 43% to $398 million

·  Cash* net profit increased 8% to $1,053 million

* * *

* * *

·  Operating profit before goodwill amortisation and provisions up 25% to $655 million

·  Operating profit before goodwill amortisation and provisions up 4% to $1,786 million

·  Provision charges down 18% to $154 million

·  Provision charges increased 18% to $459 million

·  Non-performing loan (NPL) ratio declined to 5.7%

·  NPL ratio stable at 5.7%

·  Cash* ROA was 1.00% vs. 0.70% (2Q 2003)

·  Cash* ROA was 0.91% vs. 0.86% (9M 2002)

·  Cash* ROE was 10.74% vs. 7.48% (2Q 2003)

·  Cash* ROE was 9.56% vs. 9.31% (9M 2002)

·  Return on tangible equity (ROTE) was 21.70% vs. 15.30% (2Q 2003)

·  ROTE was 19.79% vs. 14.78% (9M 2002)

·  Annualised Basic EPS* $1.07

·  Annualised Basic EPS* $0.94

* Excluding goodwill amortisation

Operating profit before goodwill amortisation and provisions was $655 million, up 25% from the second quarter of 2003. Expenses were managed to be virtually flat at $458 million, as compared to the previous quarter.

Excluding goodwill amortisation, net profit attributable to members rose 43% to $398 million in the third quarter.

"After a challenging second quarter, we are pleased with the pronounced upturn across most of our businesses," said DBS Vice-Chairman and CEO, Jackson Tai. "Our latest results demonstrate the strength, diversity and flexibility of the DBS franchise in our key markets of Singapore and Hong Kong. We are particularly encouraged by the progress made in growing our non interest income to a record 47.2% level in the third quarter."

Business momentum picked up considerably in Hong Kong during the third quarter, and DBS Bank (Hong Kong) reported yet another record level of sales in wealth management products. As compared to the second quarter of this year, third quarter operating income grew 11% while expenses were managed down 6% and provisions fell 17%. As a result, operating profit after provisions rose 51% to $143 million and net profit increased 48% to $118 million. DBS banking operations in the Territory were rebranded as "DBS Bank (Hong Kong)" on July 21, following the receipt of local regulatory and legislative approvals to merge DBS' multiple banking licenses.

DBS Thai Danu Bank, a 51.7% owned subsidiary of DBS, reported a net loss of Thai Baht 2.5 billion (or S$108 million) in the third quarter after making additional provisions, as earlier announced by DBS on August 25, following notification by the Bank of Thailand. This loss, however, had no impact on the DBS Group results for this quarter as the Group had already recorded more provisions for its Thailand operations under its more stringent provisioning policy.

Group operating income up

Operating income for the third quarter rose 13% to $1.11 billion on stronger performance across most business units and product lines. Higher loan volumes and net interest margins raised net interest income by 5% to $588 million.

DBS' loan book grew 2% from the last quarter to $63.9 billion and 5% from the end of last year. A firming of the Singapore interbank rates in the third quarter together with higher interest yield on debt securities lifted net interest margin by 4 basis points to 1.72% from 1.68% in the second quarter. Net interest margins in Hong Kong remained relatively stable at 2.34%.

Non interest income continued its uptrend, growing 24% to $525 million in the third quarter due to higher income from wealth management, treasury activities, investment banking, lending and stockbroking. The ratio of non interest income to operating income rose to 47.2% in the third quarter against 43.1% in the previous quarter.

DBS solidified its position as a leader in the distribution of retail wealth management products in Singapore and Hong Kong, setting a new sales record of $6.3 billion in the nine months of this year, almost one-and-half times the volume for the whole of 2002. Sales in the third quarter totalled $2.4 billion, comprising $1.0 billion in Singapore and $1.4 billion in Hong Kong. Earnings from the distribution of wealth management products are attributed to "wealth management fees" to reflect selling fees and commissions on these products, as well as to "other income, net gain on treasury activities - treasury products", to reflect the earnings on the booking of financial instruments that underlie the wealth management products sold to DBS customers.

Wealth management fees of $27 million were helped by the successful launch of DBS Asset Management's Star Track capital protected fund, which invests in leading global stocks.

Treasury and markets business continued to deliver sustained growth in the face of extreme volatility in the bond and currency markets during the third quarter. Net gain on treasury activities increased 48% to $201 million, contributed by fees from structuring an array of treasury products, corporate client risk management services and trading gains.

DBS actively manages its portfolio of fixed income securities, including its holdings of Singapore government securities with the use of corresponding financial derivatives for dynamic hedging. During the quarter, DBS recorded a $135 million loss on trading Singapore government securities which, however, was offset by gains from financial derivatives that were transacted to hedge the interest rate risks from the fixed income portfolio.

During the third quarter, with the revision in classification and valuation of its trading and investment securities, securities classified under trading are now marked to market and the accounts have been restated to conform to the new policy.

Fees from investment banking rose 30% to $30 million and loan related activities increased 23% to $43 million in the third quarter. DBS' wholesale banking business continued its breakthrough in regional markets, closing high-profile mandates including a HK$1.04 billion real estate investment trust for Hong Kong's Cheung Kong Properties, a US$265 million syndicated loan for Astro, Malaysia's cable TV operator and a US$230 million syndicated loan for Malaysia's largest plantation owner, Kumpulan Guthrie.

Stockbroking commission rose 84% to $59 million buoyed by higher market volumes.

Trade finance income grew 4% to $28 million. The Group's enterprise banking businesses in Singapore and Hong Kong stepped up their lending to small and medium-sized enterprises (SMEs). In Hong Kong, the Bank commands a 12% share of the SME market and is well positioned to support increased customer activities into the China market.

Group operating expenses down 11% from peak

Operating expenses were virtually flat at $458 million, as compared to the previous quarter. With operating income growing by 13%, DBS' cost to income ratio improved to 41.2% in the third quarter from 46.6% in the second quarter. Total operating expenses were down 11% from its peak of $516 million in fourth quarter 2001, the first period following the full consolidation of both the Dao Heng and DBS Vickers acquisitions. The 41.2% cost to income ratio for the quarter is now at its lowest point since the 53.4% peak in the fourth quarter 2001.

Drop in NPLs and rise in provision coverage strengthen asset quality

Asset quality continued to strengthen in the third quarter. Total non-performing loans (NPLs) fell slightly to $4.14 billion or 5.7% of total non-bank loans, at September 30, compared to $4.22 billion or 6.1% of total non-bank loans at the end of December 2002. The overall grading of the NPLs remained stable - 71% were graded substandard and 29% were graded doubtful or loss.

Total provisions fell 18% to $154 million as the overall business climate improved. Specific provisions declined 28% to $116 million. Of the specific provisions, $125 million were related to loans. Properties and other assets saw a writeback of $4 million in the third quarter compared to a provision charge of $53 million in the quarter before. Total provision coverage of NPLs increased to 63% from 60% in the previous quarter.

At September 30, 2003, DBS' total capital adequacy ratio (CAR) stood at 15.2%, comfortably above the minimum 8% total CAR under BIS standards. DBS' Tier 1 CAR was 10.5%.

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, 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 about DBS Group Holdings and DBS Bank can be obtained from our website www.dbs.com.

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

The presentation for Media and Analysts will be webcast from 1730 hours (Singapore and Hong Kong time)