First-Quarter earnings excluding goodwill fall 30% to $412 million; Decline is 15% using GAAP numbers

Singapore.29 Apr 2005

Interest income highest in ten quarters following nine consecutive quarters of loan growth; subdued markets moderate non-interest income


Singapore, 29 Apr 2005 - DBS Group Holdings (DBS) today reported net profit of $412 million for the first quarter ended March 31, 2005. The result was 30% lower from the same period last year if goodwill amortisation is retroactively excluded from 2004 results for consistency of comparison. As this year’s accounting change for goodwill amortisation is not retroactively applied to 2004 reported results, the decline in net profit was 15%.


First Quarter 2005 Financial Highlights
versus 1Q 2004versus 4Q 2004
·  Net profit excluding goodwill amortisation down 30% from $592 million to $412 million·  Net profit excluding goodwill amortisation declined 3% from $426 million
·  Net profit on GAAP basis down 15% from $482 million·  Net profit on GAAP basis rose 30% from $316 million
·  Operating profit before goodwill amortisation and provisions declined 26% to $563 million·  Operating profit before goodwill amortisation and provisions up 16%
·  Operating income declined 16%, due to 36% drop in non-interest income partially offset by 5% rise in net interest income·  Net interest and non-interest income rose 4%
·  Operating expenses declined 1%·  Operating expenses fell 6%

The year-on-year net profit decline was due mainly to a 36% drop in non-interest income as unfavourable market conditions reduced trading opportunities.The fall in non-interest income compares to record net gain on treasury activities a year ago, and was only partially offset by a 5% increase in net interest income as loans expanded 9%. The first quarter results incorporate several changes in Financial Reporting Standards (FRS), including the fair value measurement of financial instruments, (FRS 39); the expensing of stock options (FRS 102) and the cessation of goodwill amortisation (FRS 103).

First-quarter operating performance improved over the previous quarter. Net interest and non-interest income both rose 4% while operating expenses fell 6%, resulting in a 16% increase in operating profit. The first-quarter results also included provision charges of $62 million compared to a net provision write-back of $31 million in the previous quarter.Annualised ROE this quarter amounted to 9.9%, compared to 10.5% in the previous quarter and 15.8% in the year-ago period.DBS Vice-Chairman and CEO Jackson Tai said, "DBS' vigour and challenger spirit are captured in the 22% or $13 billion growth in our loan book over nine consecutive quarters.

Our work in expanding our loan assets to a record level of $71 billion has produced the highest net interest income in ten quarters, and positions us well for rising interest rates and spreads. "We continued to grow our customer franchises across the region, including our Consumer, Enterprise, and Corporate and Investment Banking businesses, and the business pipeline remains strong. In particular, our Consumer Banking and Enterprise Banking sustained their profit growth during the quarter. Together, their net profit was up 18% and accounted for 57% of DBS' total net profit for the quarter."Interest income at highest level in ten quartersNet interest income advanced to $664 million in the current period, the highest level since third quarter 2002. It was 4% higher than the previous quarter and 5% above a year ago. Interest margins of 1.76% were 1 basis point higher than the previous quarter. There was continued pricing pressure on mortgage loans, while deposit volumes grew and costs of interbank-pegged deposits increased. These were offset by higher yields for interbank assets, securities and floating-rate corporate loans.

Customer loans rose 2% during the quarter and 14% compared to a year ago to a record $71.1 billion, extending loan growth to nine consecutive quarters (excluding DBS Thai Danu loans). The expansion in the current quarter was led by regional corporate loans, SME loans in Singapore and Hong Kong, and consumer loans in Singapore. The loan-deposit ratio stood at 61%, little changed from December 2004 but higher than the 58% a year ago. Including non-trading debt securities, the ratio of loan and non-trading debt securities to deposits was 81%. Fee income from annuity businesses stays healthyFee income of $253 million was similar to the previous quarter. Compared to a year ago, fee income fell 10% from lower stockbroking commissions. Contributions from annuity fee income businesses remained steady against both comparative periods. Fees from sales of unit trusts and bancassurance of $37 million were higher than the $32 million in the fourth quarter of 2004 and $34 million a year ago. Total sales of wealth management products, comprising unit trusts, bancassurance and structured deposits, amounted to $2.07 billion, up 12% from the previous quarter but 25% below a year ago.Operating expenses fall despite rising wage pressuresDespite rising wage costs, overall expenses were contained.

Total operating costs of $509 million were 6% below the previous quarter and slightly lower than a year ago. Staff expenses rose 2% during the quarter to $265 million as end-period headcount increased 2% to 11,649. The expense also included $4 million of charges for employee stock options, which under recently-adopted accounting standards were also applied retrospectively to previous comparative periods.Non-staff costs were generally lower compared to both the previous quarter and the year-ago period as efforts were made to keep operating costs in line with lower revenues. The total cost-income ratio of 47% was lower than the previous quarter’s 53% but slightly higher than the 46% for full year 2004. NPL rate eases furtherAsset quality strengthened further. The non-performing loan rate edged down from 2.5% in December 2004 to 2.4%, the lowest level since before the 1997 Asian financial crisis. Total non-performing assets, including debt securities and contingent liabilities, rose marginally to $1.93 billion on a larger asset base.

During the quarter, $43 million of specific provisions were set aside, amounting to 24 basis points of average loans. This compared with $36 million or 21 basis points in the previous quarter. DBS also took $4 million in specific provisions for investment securities and $15 million in general provisions in line with loan growth. Cumulative provisions amounted to 90% of NPLs in March 2005, compared to 89% three months earlier.The capital adequacy ratio remained strong at 15.3%, with the tier-1 ratio at 10.9%. Both ratios were well above the minimum required by MAS. In line with DBS' stated policy of paying a sustainable and progressively increasing dividends, DBS has instituted a quarterly dividend programme. The first quarter dividend has been set at 11 cents per share.

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 dominant 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.