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• OVERVIEW
• NET INTEREST INCOME
• NET FEE AND COMMISSION INCOME
• OTHER NON-INTEREST INCOME
• EXPENSES
• ALLOWANCES FOR CREDIT AND OTHER LOSSES
• PERFORMANCE BY BUSINESS UNIT
• PERFORMANCE BY GEOGRAPHY
• CUSTOMER LOANS
• NON-PERFORMING ASSETS AND LOSS ALLOWANCE COVERAGE
• FUNDING SOURCES
• CAPITAL ADEQUACY RATIOS
• UNREALISED VALUATION SURPLUS
management discussion and analysis
 

  OVERVIEW
  2007 2006 % chg
Selected income items ($m)      
Net interest income 4,108 3,591 14
Net fee and commission income 1,462 1,155 27
Net trading income 180 522 (66)
Net income from financial instruments designated at fair value (86) (192) 55
Net income from financial investments 450 229 97
Other income 49 39 26
Total income

 6,163 5,344 15
Less: Expenses 2,618 2,369 11
Profit before allowances

 3,545 2,975 19
Less: Allowances for credit and other losses 431 135 >100
Share of profits of associates

 110 70 57
Profit before tax 3,224 2,910 11

Net profit

 2,487 2,175 14
Add: One-time items (209) 94 nm
Net profit including one-time items and goodwill charges 2,278 2,269 0
Selected balance sheet items ($m)      
Customer loans(1) 108,433 86,630 25
Interbank assets(1) 26,564 26,515 (7)
Total assets

 233,591 197,372 18
Customer deposits(2) 153,572 131,373 17
Total liabilities 210,433 176,326 19
Shareholders’ funds 20,481 18,675 10
Key financial ratios
(excluding one-time gains and goodwill charges) (%)		      
Net interest margin 2.17 2.20 -
Non-interest/total income 33.3 32.8 -
Cost/income ratio 42.5 44.3 -
Return on assets 1.15 1.15 -
Return on equity 12.66 12.33 -
Loan/deposit ratio 70.6 65.9  
NPL ratio 1.1 1.7 -
Specific allowances (loans)/average loans (bp) 9 19 -
Tier-1 capital adequacy ratio 8.9 10.2 -
Total capital adequacy ratio 13.4 14.5 -
Per share data ($)      
Per basic share      
– earnings excluding one-time gains and goodwill
   charges		 1.64 1.44 -
– earnings 1.50 1.50 -
– net book value 13.20 12.08 -
Per diluted share      
– earnings excluding one-time gains and goodwill
   charges		 1.57 1.39 -
– earnings 1.44 1.45 -
– net book value 12.93 11.84 -
(1) Includes financial assets at fair value through profit or loss
(2) Includes financial liabilities at fair value through profit or loss
 


The Group generated net profit of $2,487 million in 2007 excluding one-time items, a 14% increase over the prior year, and a 14% compounded annual growth over five years, as the Group capitalised on continued economic strength in the region to build its customer franchise.

A one-time net charge of $209 million was recorded in 2007, comprising $264 million of impairment charges on the Group’s investment in TMB Bank in Thailand offset by a $55 million gain from an allowance write-back for a property in Singapore. In comparison, a one-time gain of $94 million from the sale of buildings was booked in 2006. Including these items, the Group’s reported net profit amounted to $2,278 million in 2007 compared to $2,269 million in 2006. The following commentary excludes the effects of these non-operating items.

Total income reached $6,163 million in 2007, an increase of 15% compared to 2006. The rise was driven by higher net interest income and non-interest income. Net interest income grew 14% to $4,108 million in 2007, primarily due to higher loan volumes across most business and geographical segments. For the year, net customer loans expanded 25%, the fastest growth recorded since 2001.

Non-interest income rose 17% to $2,055 million, with higher net fee income and gains on sales of financial investments partially offset by lower trading income. Net fee income rose 27% to $1,462 million for a ninth consecutive year of growth as both corporate and consumer activities grew.

Net trading income, affected by US subprime mortgage concerns, declined from $522 million to $180 million. Wider spreads in the credit markets led to lower mark-to-market values of trading securities and credit-linked derivatives. The decline in net trading income included $136 million of mark-to-market losses for collateralised debt obligations (CDOs) in Red Orchid Secured Assets (Rosa), a fully-consolidated conduit. Subsequent to 31 December 2007, Rosa was liquidated, its CDOs dismantled and its component risks transferred to the trading book to be hedged and managed.

Gains on sales of financial investments were $450 million in 2007, up from $229 million a year ago, as the Group took profits on some equity positions.

The cost-income ratio improved to 42% from 44% a year ago through continued cost management. Expenses rose 11% to $2,618 million. Staff costs increased 11% to $1,384 million, reflecting tight labour markets and a 13% increase in headcount to support business expansion.

The credit environment remained benign. The non-performing loan ratio fell to 1.1% from 1.7% in 2006. Specific allowances for loans fell 42% to $92 million. Total allowances, however, increased due to allowances for investment CDOs which amounted to $270 million. At the end of 2007, the Group had set aside allowances amounting to 90% of its investment CDOs with exposure to US sub-prime mortgages.

The Group’s return on assets was unchanged from a year ago at 1.15%, while return on equity improved to 12.7% from 12.3%.

There were no significant accounting changes for the year.

Goodwill was tested for impairment using the same methodology and key assumptions as the previous year. Goodwill for all entities tested was found to be intact.
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NET INTEREST INCOME
    2007     2006  
Average balance sheet Average
balance
($m)
Interest
($m)		 Average
rate
(%)		 Average
balance
($m)
Interest
($m)		 Average
rate
(%)
Interest-bearing assets            
Customer loans 97,423 5,405 5.55 82,561 4,559 5.52
Interbank assets 37,596 1,261 3.35 30,718 1,001 3.26
Securities 53,996 2,424 4.49 49,908 2,249 4.51
Total 189,015 9,090 4.81 163,187 7,809 4.79
Interest-bearing liabilities            
Customer deposits 141,232 3,079 2.18 123,779 2,746 2.22
Other borrowings 38,864 1,903 4.90 31,713 1,472 4.64
Total 180,096 4,982 2.77 155,492 4,218 2.71
Net interest income/margin   4,108 2.17   3,591 2.20
 
Net interest income rose 14% to record $4,108 million in 2007. This amount represented 67% of the Group’s total income in 2007, little changed from a year ago.

Average interest-earning assets expanded 16% to $189,015 million, with the asset mix improving as the proportion of customer loans increased.

Overall asset yields rose two basis points to 4.81%, slower than liability costs which rose by six basis points to 2.77%. As a result, the Group’s net interest margin narrowed from 2.20% to 2.17%.

The table below indicates that higher volumes had a greater impact on net interest income growth in 2007 than interest margins.
Volume and rate analysis ($m)
Increase/(decrease) due to change in		 Volume Rate Net change
Interest income      
Customer loans 821 25 846
Interbank assets 224 36 260
Securities 184 (9) 175
Total 1,229 52 1,281
Interest expense      
Customer deposits 387 (54) 333
Other borrowings 329 102 431
Total 716 48 764
Net interest income 513 4 517
 
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NET FEE AND COMMISSION INCOME
($m)		 2007 2006 % chg
Stockbroking 250 141 77
Investment banking 171 150 14
Trade and remittances 206 190 8
Loan related 232 166 40
Guarantees 36 30 20
Deposit related 78 79 (1)
Credit card 132 115 15
Fund management 43 62 (31)
Wealth management 249 170 46
Others 65 52 25
Total 1,462 1,155 27
 
Net fee and commission income grew 27% from a year ago to $1,462 million from a wide range of corporate and consumer activities. Net fee income accounted for 24% of total income, above the 22% in 2006.

Stockbroking commissions climbed 77% to $250 million from buoyant equity markets in Singapore and Hong Kong. The Group’s growing customer franchise resulted in higher wealth management product sales and credit card transactions. Wealth management fees rose 46% to $249 million as unit trust sales grew 51% to $5,735 million, while credit card fees rose 15% to $132 million as average spend per card increased.

Investment banking and loan-related fees were 14% and 40% higher respectively as capital market activities increased across the region. DBS continued to do well in various domestic league tables during the year, such as bookrunning Singapore dollar bonds, arranging syndicated loans, advising on M&A deals and underwriting real estate investment trusts.
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OTHER NON-INTEREST INCOME
($m)		 2007 2006 % chg
Net trading income 180 522 (66)
  From trading businesses 196 532 (63)
  From other businesses (16) (10) (60)
Net income from financial instruments designated at fair value (86) (192) 55
Net income from financial investments 450 229 97
Net gain from fixed assets 6 10 (40)
Others 43 29 48
Total 593 598 (1)
 
Other non-interest income fell 1% to $593 million as a decline in net trading income from $522 million to $180 million was offset by a net gain in financial investments.

Net trading income decreased as higher trading gains in equity, interest rate and foreign exchange markets were more than offset by mark-to-market losses on structured credit trading activities and CDOs held by Rosa.

Net income from financial investments rose from $229 million to $450 million as a result of profit-taking on some equity holdings.
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EXPENSES
($m)		 2007 2006 % chg
Staff 1,384 1,244 11
Occupancy 216 193 12
Computerisation 428 404 6
Revenue-related 135 105 29
Others 455 423 8
Total 2,618 2,369 11
 
Expenses increased 11% to $2,618 million.

Staff costs rose 11% as headcount grew 13% to 14,523. Headcount increased primarily in Singapore, Greater China and Indonesia to support business expansion.

Computerisation expenses were 6% higher due to expenses for major ongoing projects such as Basel II implementation and core banking.
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ALLOWANCES FOR CREDIT AND OTHER LOSSES
($m)		 2007 2006 % chg
General allowances (“GP”) 202 88 >100
Specific allowances (“SP”) for loans 92 159 (42)
Singapore (22) 79 NM
Hong Kong 69 78 (12)
Other countries

 45 2 >100
Specific allowances (“SP”) for securities, properties and other assets 137 (112) NM
Total 431 135 >100
 
Total allowances increased to $431 million from $135 million in 2006.

Part of the increase was due to $243 million of allowances charged to the income statement for investment CDOs, comprising $93 million in general allowances and $150 million in specific allowances.

In addition, there was also an increase in general loan allowances due to the strong growth in loans and commitments during the year.

Specific allowances for loans declined to $92 million from $159 million in 2006 as credit conditions remained benign.

There were write-backs in Singapore and lower charges in Hong Kong. By business unit, the decline was due to Consumer Banking and Enterprise Banking. Specific allowances for loans amounted to 9 basis points of average loans, compared to 19 basis points in 2006.

In 2006, there had been a net write-back of $112 million in specific allowances for the recovery of corporate debt securities and a write-back for buildings in Singapore as market valuations improved.
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PERFORMANCE BY BUSINESS UNIT
($m)		 CBG EB CIB GFM CTU Central Ops
2007            
Net interest income 1,718 792 736 946 349 (433)
Non-interest income 688 396 552 78 16 326
Total income

 2,406 1,187 1,288 1,024 365 (107)
Less: Expenses 1,091 375 421 516 31 184
Profit before allowances

 1,315 812 867 508 334 (291)
Less: Allowances 23 103 209 5 262 (171)
Share of profits of associates 0 0 0 13 0 97
Profit before tax 1,292 709 658 516 72 (23)
Net profit

 1,060 583 510 420 51 (137)
2006            
Net interest income 1,765 736 592 595 280 (377)
Non-interest income 514 330 585 274 (64) 114
Total income

 2,279 1,066 1,177 869 216 (263)
Less: Expenses 985 338 376 411 31 228
Profit before allowances

 1,294 728 801 458 185 (491)
Less: Allowances 52 119 77 (3) (5) (150)
Share of profits of associates 0 0 0 5 0 65
Profit before tax 1,242 609 724 466 190 (321)
Net profit 1,001 500 603 383 166 (478)
 
A description of DBS’ reported business unit segments can be found in Note 52.1 of the financial accounts on page 107.

Consumer Banking (CBG)
CBG’s total income rose 6% from a year ago as a 3% decline in net interest income was more than offset by a 34% rise in noninterest income. Interest income was lower despite increased loan and deposit volumes as deposit margins in Singapore and loan margins in Hong Kong narrowed. Non-interest income rose from higher wealth management product sales, as well as increased credit card fees.

Expenses grew 11% mainly from higher staff and operating costs in Singapore and Hong Kong. Expenses were also higher in Indonesia where 12 Treasures priority banking centres were opened during the year.

Total allowances fell as higher general allowances for loan growth were more than offset by lower specific allowances in Singapore and Hong Kong as credit quality improved.

Enterprise Banking (EB)
EB’s net interest income increased 8% as the benefits of higher loan and deposit volumes in Singapore and Hong Kong more than offset the effects of lower interest margins in Hong Kong. Non-interest income rose 20% led by higher sales of treasury products, such as foreign currency hedging instruments, in Hong Kong.

Expenses grew 11% due to mainly higher wage and operating costs. Total allowances fell 13% as a decline in specific allowances more than offset an increase in general allowances.

Corporate and Investment Banking (CIB)
CIB’s net interest income grew 24% from higher loan and deposit volumes, while non-interest income fell 6% as the benefits of higher investment banking and capital market activities across the region were more than offset by marked-to-market losses for Rosa’s CDOs.

Compared to the previous year, expenses rose 12% from higher wage and operating costs.

Total allowances rose due to higher general allowances for loan growth.

Global Financial Markets (GFM)
GFM’s total income rose 18%. Net interest income was higher from increased money market activity. Non-interest income declined as losses incurred from marked-to-market losses on credit-linked trading instruments were partially offset by higher stockbroking commissions.

Expenses increased 26% with both wage and non-wage costs contributing to the rise.

Central Treasury (CTU) and Central Operations
CTU manages the Group’s asset and liability interest rate positions as well as investments arising from the Group’s excess liquidity. Central Operations encompasses a wide range of activities from corporate decisions as well as income and expenses not attributable to other business segments. Asset management and private banking activities are also included in this segment.

CTU’s total allowances in 2007 included the general and specific allowances set aside for investment CDOs.
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PERFORMANCE BY GEOGRAPHY
($m)		 S’pore Hong
Kong		 Rest of
Greater China		 South,
S-East Asia		 Rest of
world
2007          
Net interest income 2,719 1,064 100 151 74
Non-interest income 1,223 554 106 118 54
Total income

 3,942 1,618 206 269 128
Less: Expenses 1,611 698 109 141 59
Profit before allowances

 2,331 920 97 128 69
Less: Allowances 186 96 40 77 32
Share of profits of associates 10 0 13 87 0
Profit before tax 2,155 824 70 138 37
Net profit

 1,627 686 72 106 (4)
2006          
Net interest income 2,255 1,145 47 90 54
Non-interest income 1,129 377 100 91 56
Total income

 3,384 1,522 147 181 110
Less: Expenses 1,474 668 82 89 56
Profit before allowances

 1,910 854 65 92 54
Less: Allowances 26 100 0 (6) 15
Share of profits of associates 10 0 0 60 0
Profit before tax 1,894 754 65 158 39
Net profit

 1,345 626 55 127 22
 
A description of DBS’ reported geographic segments can be found in Note 52.2 of the financial accounts on page 109.

Singapore
Net interest income rose 21% as consumer, corporate and SME loans, as well as savings deposits, grew. The benefits of higher volumes were partially offset by lower corporate loan yields and return on surplus funds in line with a decline in interbank rates.

Non-interest income rose 8% from a wide range of fee income activities and gains from the sale of investment securities. Trading income was weaker due to marked-to-market losses in trading securities and credit-linked derivatives.

Expenses increased 9% from higher wage costs, partly due to a larger headcount, as well as computerisation and revenuerelated expenses.

Total allowances increased due to charges for CDOs. Allowances for loans decreased as a net write-back in specific allowances was greater than the increase in general allowances for loan growth. In the previous year, there had also been a write-back for properties and securities.

Hong Kong
The results for Hong Kong incorporate the effects of an appreciation of the Singapore dollar against the Hong Kong dollar by 5% in the profit and loss account and 6% in the balance sheet.

Net interest income declined 7% due to lower interest margins and exchange translation effects. The average spread between prime lending rates and cost of funds was lower than a year ago, and this offset the benefit of higher loan volumes.

Non-interest income increased 47%, led by fees from stockbroking as well as higher contributions from the sale of treasury and wealth management products.

Expenses rose 4% primarily due to higher wage and computerisation expenses. Allowances were lower as writebacks increased.

Other regions
The largest earnings contributors are Indonesia through a 99%-owned subsidiary, China through a 100%-owned subsidiary, and India where the Group has two branches and a 37.5% stake in Cholamandalam DBS, a non-bank finance company with about 200 branches.
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CUSTOMER LOANS(1)
($m)		 2007 2006 % chg
By business unit      
Consumer Banking 31,213 29,538 6
Enterprise Banking 22,334 20,101 11
Corporate and Investment Banking 48,940 33,764 45
Others

 7,287 4,677 56
By geography      
Singapore 62,019 48,789 27
Hong Kong 29,141 27,216 7
Rest of Greater China 6,371 4,443 43
South and Southeast Asia 4,737 2,993 58
Rest of the world 7,506 4,639 62
       
Gross Total 109,774 88,080 25
(1) Includes financial assets at fair value through profit or loss      
       
Gross customer loans expanded 25% to $109,774 million.

Loans booked in Singapore, comprising both Singapore-dollar and foreign-currency loans, rose 27% to $62,019 million. Singapore-dollar loans increased 20% to $42,675 million, giving DBS an 18% market share of Singapore-dollar loans, unchanged from the prior year.

The growth in Singapore-booked loans was led by corporates and SMEs, and was broad-based across industries. Housing loans rose 10%.

In Hong Kong, loans grew 14% in local-currency terms and 7% in Singapore-dollar terms to $29,141 million. The growth in Hong Kong was largely due to corporate and SME borrowing. DBS’ overall share of Hong Kong-dollar loans was 5%, little changed from a year ago.

With a smaller base, loans in other regions grew faster than in Singapore and Hong Kong as DBS expanded its banking franchise to other parts of Asia.
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NON-PERFORMING ASSETS AND LOSS ALLOWANCE COVERAGE
By geography NPA
($m)		 2007
NPL
(% of loans)		 (GP+SP)/
NPA(%)		 NPA
($m)
2006
NPL
(% of loans)		 (GP+SP)/
NPA(%)
Singapore 533 1.0 122 811 1.8 99
Hong Kong 418 1.5 109 363 1.3 118
Rest of Greater China 80 1.0 144 68 1.3 112
South and Southeast Asia 71 0.9 221 112 2.5 119
Rest of the world 66 0.5 137 106 1.6 109
Total non-performing loans

 1,168 1.1 126 1,460 1.7 106
By business unit            
Consumer Banking 238 0.8 158 307 1.0 127
Enterprise Banking 690 3.1 82 691 3.4 76
Corporate and Investment Banking 178 0.4 302 396 1.2 131
Others 62 0.9 (10) 66 1.4 185
Total non-performing loans

 1,168 1.1 126 1,460 1.7 106
Debt securities 160 - 215 36 - 223
Contingent liabilities 114 - 113 37 - 327
Total non-performing assets 1,442 - 135 1,533 - 115
 
Non-performing loans (NPLs) fell from $1,460 million to $1,168 million on an enlarged loan base. As a percentage of loans, the NPL rate declined from 1.7% to 1.1%. NPL rates for most geographical and business segments improved.

Including debt securities and contingent liabilities, the amount of non-performing assets fell from $1,533 million to $1,442 million, 38% of which were still current and were classified for prudential reasons.

Overall loss allowance coverage increased from 115% to 135% of total non-performing assets. As a percentage of nonperforming loans only, allowance coverage rose from 106% to 126%. 45% of all non-performing assets were secured against collateral.
($m) 2007 2006
Unsecured non-performing assets

 744 740
Secured non-performing assets by collateral type    
Properties 376 556
Shares and debentures 24 46
Fixed deposits 13 38
Others 235 153
Total non-performing assets 1,442 1,533
 
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  FUNDING SOURCES

($m)		 2007 2006 % chg
Customer deposits by currency and product(1)
Singapore dollar 84,099 71,242 18
  Fixed deposits 27,708 21,940 26
  Savings accounts 46,622 40,838 14
  Current accounts 9,258 8,030 15
  Others 511 434 18
Hong Kong dollar 24,775 23,059 7
  Fixed deposits 17,302 15,905 9
  Savings accounts 4,556 4,472 2
  Current accounts 1,935 2,024 (4)
  Others 982 658 49
US dollar 28,507 24,758 15
  Fixed deposits 20,375 18,061 13
  Savings accounts 1,849 1,627 14
  Current accounts 3,976 3,394 17
  Others 2,307 1,676 38
Others 16,191 12,314 31
  Fixed deposits 13,152 10,812 22
  Savings accounts 778 554 40
  Current accounts 1,477 661 >100
  Others 784 287 >100
Total customer deposits 153,572 131,373 17
       
Interbank liabilities 16,481 8,537 93
Other borrowings and liabilities 43,057 38,787 11
Shareholders’ funds 20,481 18,675 10
Total 233,591 197,372 18
(1) Includes financial liabilities at fair value through profit or loss
 
Total funding increased 18% to $233,591 million. Customer deposits grew 17% to $153,572 million.

Singapore-dollar deposits rose 18% to $84,099 million, with savings and fixed deposits growing by similar amounts in dollar terms. DBS’ market share for total Singapore-dollar deposits was 27%, little changed from a year ago. DBS also retained its leadership in savings deposits.

Hong Kong-dollar deposits rose 7% to $24,775 million, with fixed deposits leading the increase. DBS’ market share of Hong Kong-dollar was stable at 4%.
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CAPITAL ADEQUACY RATIOS
($m)		 2007 2006
Tier 1    
Paid-up ordinary and preference shares 4,164 4,042
Disclosed reserves and others 18,040 16,556
Less: Goodwill (5,845) (5,840)
Total

 16,359 14,758
Tier 2    
Cumulative general allowances 1,210 1,033
Subordinated debts 7,087 5,038
Others 75 103
Total

 8,372 6,174
Total capital 24,731 20,932
Risk-weighted assets 184,601 144,086
 
Based on regulatory guidelines, the total capital adequacy ratio fell from 14.5% to 13.4% as the amount of risk-weighted assets increased with a higher customer loan base. The tier-1 ratio declined from 10.2% to 8.9%.

In May, the Group issued US$2,000 million of tier-2 subordinated debt, which was partially offset by the amortisation of existing tier-2 subordinated debt. The tier-2 ratio rose slightly from 4.3% to 4.5%.
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UNREALISED VALUATION SURPLUS
($m)		 2007 2006
Properties 650 371
Financial investments 43 11
Total 693 382
 
The amount of unrealised valuation surpluses increased from $382 million to $693 million, with most of the increase due to properties as market valuations improved.
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