| Financial Review |
| Considering the difficult economic setting, I would say DBS had a reasonable year in 2002. |
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| Compared to 2001, net profit attributable to members rose 2% to S$1.017 billion. DBS managed a 15% increase in revenues, crossing over the S$4 billion mark for the first time. Operating expenses grew by 7% to S$1.851 billion. However, if we were to isolate the impact of acquisitions in 2001 such as Dao Heng Bank and DBS Vickers Securities, operating expenses would have declined 7.0%. Operating profit before goodwill amortization and provisions increased 23% to S$2.215 billion. |
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| These results must be seen in the context of the following factors: |
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We raised provisions by over S$150 million compared to 2001 for a total charge of S$534 million in order to cover market uncertainty and asset deflation. |
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The goodwill charge of S$278 million was over S$140 million higher than last year. |
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Last year there were over S$200 million one-off gains compared to the NatSteel S$96 million gain this year. |
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We faced tremendous market share and pricing pressure in residential mortgage loans, one of our most significant loan categories. |
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| Although our net profit grew a modest 2%, this was not easy in the face of a very tough domestic and regional economic environment. The net profit growth was achieved by: |
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Improving the efficiency of our operations |
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Gaining market share in higher margin products like wealth management, lifestyle credit, capital markets, treasury, and enterprise banking, while we have been under market share pressure in traditional products like mortgages and large corporate loans |
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Working hard to integrate our Hong Kong operations and making sure we are improving efficiency and starting to share revenue generating ideas |
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| 2002 was the first full year of our consolidation of Dao Heng Bank, and we are pleased to report that the operations of our integrated Hong Kong units are performing better despite the difficult conditions in Hong Kong. Our Hong Kong operations now account for almost one third of the Group’s operating income and assets. |
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| A Year of Consolidation |
| The top priority in the year was integrating systems and processes to make the Bank more competitive in the markets in which it operates. |
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| By the third quarter of 2002, the back offices of our two Hong Kong banking subsidiaries, DBS Kwong On Bank and Dao Heng Bank were largely integrated, and products and services were on a common platform. Revenue and cost synergies from the Hong Kong integration are one and a half times our original targets. |
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| 2002 also saw the deepening of our core businesses, including consumer banking, wealth management, investment banking, and treasury. The growth in the sale of investment products is noteworthy. In Singapore alone, DBS sold more investment products in 2002 than in the last four years combined. Management is continuing to build our consumer banking franchise in product origination and distribution capability. In investment banking, DBS made its mark in many groundbreaking transactions such as the successful launch of Singapore’s first real estate investment trust, CapitaMall. DBS?Treasury and Markets team utilized its expertise to develop products tailored to retail clients and investors while holding its position as the leading market maker for regional currencies and securities. |
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| We continued to address our cost structure. During the year, DBS established a ten-year, S$1.2 billion technology outsourcing alliance with IBM that will help reduce the cost of running the Bank’s networks and data centres in Singapore, Hong Kong and Thailand. We further centralized our back office processing to extract economies of scale and build centers of excellence. For example, we consolidated our trade finance processing in Hong Kong, and our treasury processing in Singapore. We will continue to exploit various cost efficient solutions over the course of the year. |
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| During the year, the Bank had to manage the consequences of the economic cycle as well as adjust to significant structural changes in Asian banking. Singapore and Hong Kong are now fully developed markets and require banks to provide more sophisticated financial services beyond traditional lending service. Prior to the Asian financial crisis of 1997 to 1998, high economic growth driven by large global direct investment flows into Asia helped loan growth across the region to levels that ranged from 15% to 50% per year. Banks in Asia will now have to develop a business model that is dependent not only on loans, but must offer more sophisticated financial services such as financial planning, lifestyle credit, investment banking and treasury services. |
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| While DBS has done much to prepare for the structural changes in Asian banking, I believe it needs to do better to respond to the downturn in the economic cycle. This is not easy as there is a natural contradiction in simultaneously addressing both structural and cyclical changes. We need to make substantial investments in the Group’s capabilities and processing efficiency to address long-term structural changes. Managing the economic cycle calls for focus on reducing operating costs. Despite the difficulty in balancing these two objectives in 2002, DBS managed to upgrade its business and product capabilities in many areas, while increasing discipline in capital and operating expenditure. |
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| Management Changes |
| The Board of Directors appointed Jackson Tai as Vice Chairman and Chief Executive Officer of DBS in June 2002. Jackson Tai was previously the President and Chief Operating Officer of DBS and has been a key member of the former Corporate Office since 1999. Although Jackson Tai is in a new role as Chief Executive Officer, the strategic direction for the Group remains the same, as he has been intimately involved in mapping the Bank's strategy over the past several years. |
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| The top management of the Bank has been reorganized into a Management Committee that is the principal executive decision-making body. The Committee includes Jackson Tai, Ng Kee Choe, Frank Wong, Chong Kie Cheong (Co-Head Investment Banking), David Lau (Head Global Treasury & Markets), Chief Financial Officer Oon Kum Loon and Chief Administrative Officer Jeanette Wong. I remain available to give guidance to the Management Committee. We also welcome five new Board members, Leung Chun Ying, Thean Lip Ping, John Ross, Ng Kee Choe and Peter Ong. The new Board members have a wealth of experience in different specialities. They will add to the existing DBS Board bench strength. |
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| Prospects for 2003 |
| So far there is little evidence that the economic environment will recover significantly in the near term. DBS will have to invest carefully to achieve greater efficiency in its operations. |
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| When the environment does improve and the interest rate cycle normalizes, DBS will emerge stronger than in the past because the Group has invested in building long-term competitive advantages. |
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| DBS?deposit franchise is a competitive advantage that will help differentiate it as a bank with funding cost advantages, combined with a dominant customer base and an extensive distribution network. The Bank has made gains in its product origination capability and is geared to grow this business. DBS has become a leader in Wealth Management, Investment Banking, and Treasury and Markets, which are higher riskadjusted return businesses. DBS?regional aspirations will be supported by its strong distribution and processing capabilities. And finally, DBS?investments and commitment to centralized processing will enable DBS to become a lower cost producer. |
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| Though the current environment looks challenging, I remain convinced that DBS is building a foundation that will put it in good stead in the years to come. |
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| Acknowledgements |
| I want to thank our staff at all levels of the Group for their passion and dedication during a difficult year. The Board has been most generous in spending time and attention to guide the management. This is deeply appreciated. |
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| I also thank all our customers, partners and shareholders for their continued support. |
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