We reported record net profit of SGD 6.80 billion in 2021, restoring a trend of consecutively higher earnings that had been disrupted by the pandemic the previous year. Net profit was 44% higher than 2020 and 6% above the previous high in 2019. Return on equity was 12.5%.

The results were achieved despite a further setback of SGD 1.0 billion in net interest income due to the full impact of interest rate cuts made by central banks in response to the pandemic. Together with a reduction of SGD 1.8 billion in 2020, net interest income was set back by SGD 2.8 billion compared to 2019. In addition, we had realised SGD 0.5 billion of exceptional investment gains in 2020 as a result of market opportunities, which were not repeated in 2021.

Two factors drove the record performance.

The first was business volume growth. Loans rose 9% in constant-currency terms, the fastest since 2014. The increase was broad-based across corporate, trade, housing and wealth management loans. Fee income increased 15% to a record SGD 3.52 billion as most fee activities grew. Treasury Markets income from both trading and customer activities also reached new highs. Given the unevenness of the economic recovery, our ability to capture such diversified growth reflected not only cyclical factors but also structural improvements we made in recent years to entrench our franchise.

The second factor driving the record performance was the prudence of our risk management. We had carried out a rigorous process at the onset of the pandemic to estimate credit costs resulting from the economic disruption. The unsecured consumer, SME and several sectors among large corporates were identified to be the more vulnerable portfolios. Using various stress assumptions, we estimated total allowances to be SGD 3 billion-5 billion over 2020-21. We front-loaded the estimated charges by setting aside SGD 3.07 billion in 2020, which included SGD 1.71 billion of general allowances, to fully cover credit costs for the least-stressed scenario.

Asset quality turned out better than our least-stressed scenario. With new non-performing asset formation falling to pre-pandemic levels and offset by repayments of existing non-performing assets, non-performing assets declined 13% and the non-performing loan rate fell from 1.6% to 1.3%. Specific allowances fell by two-thirds to SGD 499 million or 12 basis points of loans, below pre-pandemic levels. The quality of our performing loan portfolio improved from repayments of weaker exposures and credit upgrades, and general allowances of SGD 447 million were written back.

Strong broad-based business momentum

Net interest income fell 7% to SGD 8.44 billion due to the full impact of interest rate cuts made in March 2020. Net interest margin fell 17 basis points to 1.45%, with the majority of the decline occurring in the first half. Net interest margin stabilised towards year-end, with the 1.43% in the fourth quarter unchanged from the third quarter.

Broad-based loan growth moderated the net interest margin pressure. Loans expanded 9% or SGD 34 billion to SGD 409 billion, twice our expectations at the beginning of the year. All loan categories contributed to the increase.

Non-trade corporate loans grew 8% or SGD 18 billion to SGD 241 billion. The growth was diversified. More than half was from the region compared to two-thirds from Singapore in the previous year. By industry, three-fifths of the increase was in real estate for business restructuring, acquisitions and privatisations. The remainder was spread across other industries, led by technology, media and telecoms; and energy and resources. We carried out 112 sustainable loan transactions with a committed amount of SGD 21 billion, double the 54 transactions amounting to SGD 10 billion the previous year.

Trade loans grew 10% or SGD 4 billion to SGD 43 billion. The growth was in line with higher regional trade activity, partially offset by lumpy repayments in the second half.

Housing loans rose 5% or SGD 4 billion to SGD 79 billion. Growth in the past two years had been affected by the extended impact of cooling measures introduced in mid-2018 and by lockdowns in 2020. New bookings were strong throughout 2021 for both new launches and resale transactions, with the full-year amount rising 27% to a record.

Other consumer loans increased 15% or SGD 6 billion to SGD 45 billion, led by wealth management customers.

Deposits grew 7% or SGD 32 billion to SGD 502 billion. The increase was from current and savings account (Casa), which rose SGD 41 billion, enabling us to release higher-cost fixed deposits. The proportion of Casa to total deposits increased three percentage points to a record 76%. The strong Casa deposit growth reflected our longstanding dominance in savings deposits in Singapore as well as an improved Casa franchise in the rest of the group. In Hong Kong, the Casa ratio rose to 83%.

Surplus deposits were placed with the central bank, which resulted in a seven-basis-point headwind to net interest margin as they yielded less than customer loans. They were however accretive to earnings and to return on equity as central bank placements did not incur any risk weights.

The larger deposit base and higher Casa ratio, together with refinements to the balance sheet, have heightened our leverage to interest rate movements. A one-percentage-point rise in USD interest rates would now increase net interest income by SGD 1.8 billion-2.0 billion compared to SGD 1.4 billion previously.

The ample liquidity resulted in a liquidity coverage ratio of 135% and net stable funding ratio of 123%, well above regulatory requirements.

Net fee income rose 15% to SGD 3.52 billion. Notably, the first three quarters of the year were the three highest on record; fee income was seasonally low in the fourth quarter. Both cyclical and structural factors contributed to the growth.

Wealth management fees increased 19% to a record SGD 1.79 billion. While low interest rates and an improving economic outlook created a conducive environment, the growth was also due to business initiatives we undertook. We expanded our reach to the retail segment, which now contributed 15-20% of investment product and bancassurance income. Our digital platforms enabled customers to carry out transactions when face-to-face activity was restricted by lockdowns, spurring a longer-term shift to digital transactions because of their ease of use and instantaneous completion. The increased customer engagement has resulted in a higher wallet share for us. Finally, annuity products such as our discretionary portfolio service have provided new sources of income that are recurring.

Card fees increased 12% to SGD 715 million as combined credit and debit card spending reached record levels even as travel spending remained subdued.

Transaction service fees grew 13% to SGD 925 million, also a new high. Cash management fees were boosted by the convenience and speed of our digital platforms as well as our culture of working hand-in-hand with customers to devise solutions for their specific needs. Trade fees grew from higher regional trade volumes and supply chain financing.

Investment banking fees rose 47% to SGD 218 million. Fixed income fees reached a new high with strong issuances in a low interest rate environment. Sustainable transactions were a focus, for which we arranged 41 issues totalling SGD 23 billion to corporates, financial institutions and statutory boards. Equity market fees grew by double-digit percentages from a low year-ago base, with transactions that included Reits and special-purpose acquisition companies. Our China securities joint venture, which began operations in the second half, was quick off the mark with five onshore China investment banking deals.

Treasury Markets trading income rose 5% to SGD 1.51 billion, while customer income grew 13% to SGD 1.71 billion. Both were at new highs. The growth was driven by expanded distribution of our digital platforms, better targeting of products to customers from data analytics and mining, and enhanced management of trading positions from algorithms.

Part of Treasury Markets income was reflected under other non-interest income, which fell 5% to SGD 2.33 billion. The higher Treasury Market contributions were offset by a decline in investment gains due to a high base arising from market opportunities a year ago. Other non-interest income also included a maiden, two-month associate contribution of SGD 26 million for our 13% stake in Shenzhen Rural Commercial Bank (SZRCB).

By business unit, Consumer Banking/ Wealth Management income declined 8% to SGD 5.32 billion. The impact of lower interest rates was moderated by higher income from loan and deposit growth, investment products, bancassurance and cards. Institutional Banking income rose 4% to SGD 5.98 billion as the impact of lower interest rates was offset by loan and deposit growth and higher non-interest income including treasury customer sales and capital market activities. Treasury Markets trading income increased 5% to SGD 1.51 billion, double the level three to four years before, from higher contributions in a range of activities including equities and credit trading.

By region, Singapore income was impacted by lower interest rates and fell 4% to SGD 8.95 billion. Net interest margin narrowed as loans repriced in line with lower interest rates and a more liquid balance sheet was maintained. Partially offsetting the lower net interest margin were higher asset volumes and record performances in fee and trading income. Hong Kong income rose 1% in constant-currency terms to SGD 2.48 billion as higher non-interest income more than offset the impact of lower interest rates on net interest income. The increase in non-interest income was broad-based across product and customer segments. Rest of Greater China income rose 11% to SGD 1.23 billion driven by stronger wealth management and treasury customer income. South and Southeast Asia income rose 2% to SGD 1.12 billion due mainly to the amalgamation of Lakshmi Vilas Bank (LVB). Organic loan-related fees and treasury customer income were also higher in India.

Expenses were well managed at SGD 6.47 billion. Excluding LVB and the previous year’s government grants, underlying expenses were up only 1%, with the increase occurring in the second half. Base salary increments were carried out at mid-year (instead of the usual beginning of the year) after the economic recovery had taken hold. Investments for future growth were also stepped up. These cost increases were moderated by lower occupancy costs, which fell as we began rationalising our office space with the implementation of flexible work policies since end-2020. The cost-income ratio was 45%.

Asset quality improves

Asset quality turned out better than we expected at the beginning of the year, when Covid-19 infections were still surging in many parts of the world. Uncertain about how loans exiting government moratoriums would perform, we had guided for total allowances of SGD 1 billion for the year. Credit quality remained benign as the year progressed, and credit costs came in well below initial guidance.

At end-2021, loans under moratorium declined to SGD 0.4 billion from SGD 13 billion the year before. Full-year new non-performing asset formation fell to pre-pandemic levels. Repayments of existing non-performing assets increased, including for oil and gas support service exposures that exceeded their written-down values as well as the full repayment of two significant exposures in the fourth quarter. As a result, total non-performing assets fell 13% to SGD 5.85 billion, and the non-performing loan rate improved from 1.6% to 1.3%. Specific allowances fell two-thirds to SGD 499 million or 12 basis points of loans, below pre-pandemic levels.

At the same time, the quality of the performing loan portfolio improved, underpinned by stronger economic conditions. Repayment of weaker exposures, credit upgrades as well as transfers to non-performing assets resulted in a general allowance write-back of SGD 447 million. The write-backs did not touch general allowance overlays built up in previous years, which were fully maintained.

With the decline in specific allowances and writeback of general allowances, total allowances amounted to SGD 52 million for the year.

Allowance reserves continued to be high. General allowance reserves amounted to SGD 3.88 billion, which were SGD 0.4 billion above the MAS requirement and SGD 1.1 billion above Tier-2 eligibility. Together with specific allowance reserves, total allowance reserves amounted to SGD 6.80 billion. Allowance coverage of non-performing assets was at 116% and at 214% when collateral was considered.

One-time items

Two one-time items were recorded for the year. There was a gain of SGD 104 million on completion of the SZRCB transaction. There was also a contribution of SGD 100 million to the DBS Foundation and other charitable causes. We had previously set aside SGD 50 million in 2013 to establish the Foundation to further our commitment to social and community development.

Capital ratios remain strong

Our Common Equity Tier 1 (CET-1) ratio rose from 13.9% to 14.4% as profit accretion outpaced risk-weighted asset growth. The leverage ratio of 6.7% was more than twice the regulatory requirement of 3%.

Two events subsequent to 31 December 2021 had an impact on the CET-1 ratio. The acquisition of Citigroup’s Taiwan consumer banking business, which was announced on 28 January 2022, had an impact of 0.7 percentage points. An operational risk penalty imposed in February 2022 due to the two-day digital disruption in November 2021 had an impact of 0.4 percentage points. On the conservative assumption that the penalty is not lifted before the consolidation of the Taiwan business, and assuming no capital accretion, the CET-1 would be at 13.3%, which is at the upper end of our target operating range.

Increase in quarterly dividend

We are proposing, for approval at the forthcoming annual general meeting, a fourth-quarter dividend of SGD 36 cents per share, a 9% increase from the previous payout. This will bring the dividend for financial year 2021 to SGD 1.20 per share. It would also mean that, barring unforeseen circumstances, the annualised dividend going forward would be SGD 1.44 per share. The increase is in line with our policy of paying sustainable dividends that grow progressively with earnings.

Superior total shareholder returns

We delivered total shareholder returns of 35%, comprising share price gains and the dividend for the calendar year. Our share price rose 30%, outperforming the Straits Times Index as well as other financial sector shares on SGX. For the calendar year, we paid out a dividend of SGD 1.02 per share. For fourth-quarter 2020 and first-quarter 2021, we paid out 18 cents per share in line with an earlier guidance from MAS for banks to moderate their dividend. With the lifting of the restrictions, we reverted to our pre-pandemic payout of SGD 33 cents per share for the remaining two calendar quarters.

Outlook – cyclical factors structurally boosted by new growth engines

Over the past year or so, we made several acquisitions to expand our franchise in growth markets. LVB, which was amalgamated in November 2020, provides us with an enlarged footprint and significantly scales up our retail and SME customer base in India, particularly southern India, which has extensive business and cultural ties with Southeast Asia. To position ourselves to capture two-way deal-flow as China’s financial markets open further, we launched DBS Securities (China) Limited, a joint venture securities company, in June 2021. Our acquisition of a 13% stake in SZRCB, which was completed in October 2021, deepens our exposure in the Greater Bay Area. And our purchase of Citigroup’s prized Taiwan consumer banking franchise in January 2022 accelerates our growth in that market by more than ten years, provides us with a solid Casa deposit base and propels us to biggest foreign bank.

At the same time, we developed new digital assets to harness the benefits of emerging technologies. The DBS Digital Exchange offers tokenisation, trading and custody services for digital assets. Partior is a blockchain-based platform for the real-time settlement of cross-border interbank payments and aims to overcome inefficiencies in current practices. Climate Impact X is a global exchange and marketplace for high-quality carbon credits. We housed these platforms in a holding company, DBS Finnovation, to enhance transparency and better enable their future monetisation.

These new engines will provide a structural boost to our growth prospects in addition to the positive cyclical factors during the coming year. While there are risks from a US financial market sell-off and a slowdown in China, economic activity continues to pick up and borders are progressively re-opening.

We enter 2022 with healthy business pipelines. At time of writing, we are expecting loans to grow by better than mid-single-digit and fee income to grow by double-digit percentage terms. In addition, expected interest rate increases will progressively boost our earnings over time. We will continue to exercise cost discipline while investing for the future.

Asset quality, which improved over the past year, is expected to remain resilient and total allowances to remain low. There are potential asset quality risks in the SME portfolio from rising interest rates, but we have repeatedly stress-tested the portfolio and it is largely secured.

With a broad-based franchise that has been augmented by new growth engines, proven nimbleness in execution, a prudently managed balance sheet and cyclical tailwinds, we expect to deliver further earnings growth and shareholder returns in the coming year.

(A) Digitalisation
We continued to progress our digital transformation agenda for the Consumer and SME businesses in Singapore and Hong Kong. In 2021, we prospectively tightened the qualifying criteria for digital customers to reflect our drive towards deeper digital engagement with customers. To be considered digital, a customer now needed to have performed at least 75% of their financial or non-financial transactions using digital channels on a rolling 12-month basis, compared with 50% previously. The change did not materially impact the comparability of 2021 metrics with those reported for previous years.

The proportion of digital customers rose to 58% in 2021, an increase of six percentage points compared with the pre-Covid year 2019. This reflected an accelerated pace of digital adoption over the Covid period as the digital customer base grew 0.5 million to 3.8 million through conversion of traditional customers and new customer acquisition.

The higher profitability and greater resilience of the digital segment became even more apparent in 2021, when the full impact of interest rate cuts made in March 2020 were acutely felt by the Singapore and Hong Kong consumer and SME businesses. The digital segment fared significantly better as it was able to mitigate the income drag from lower interest rates with its more diversified product base including wealth management, bancassurance and cards. Consequently, the reported cost-income ratio of the digital segment was half that of the traditional segment in 2021. The overall Singapore and Hong Kong consumer and SME businesses continued to demonstrate cost discipline. Normalising for the effects of interest rates and government grants received in 2020, the cost-income ratio in 2021 of the overall businesses was flat to 2020.

The ROE differential between the two segments also widened substantially, with the digital segment’s at 23% compared to the traditional segment’s at 5%.

(B) Business unit performance
Consumer Banking/ Wealth Management total income declined 8% to SGD 5.32 billion. The impact of lower interest rates was moderated by higher income from loan and deposit growth as well as wealth management and card fees. Expenses increased 2% to SGD 3.35 billion. Total allowances fell to SGD 46 million from lower specific allowances and a general allowance write-back.

Institutional Banking income rose 4% to SGD 5.98 billion as higher income from loans and deposits, treasury customer activities and capital markets offset the impact of lower interest rates. Expenses increased 5% to SGD 2.09 billion. Total allowances fell to SGD 141 million from lower specific allowances and a general allowance write-back.

Treasury Markets income increased 5% to a record SGD 1.51 billion due to higher contributions from credit and equity derivatives activities. Expenses rose 2% to SGD 647 million.

The Others segment encompasses the results of corporate decisions that are not attributed to business segments as well as the contribution of LVB as its activities have not been aligned with the Group’s segment definitions. The segment includes earnings on capital deployed into high quality assets, earnings from non-core asset sales and certain other head office items such as centrally raised allowances. Total income fell 10% to SGD 1.48 billion due to lower gains on investment securities managed by Corporate Treasury. Total allowances of SGD 130 million were written back due to a general allowance write-back.

(C) Net interest income
Net interest income declined 7% to SGD 8.44 billion.

Net interest margin fell 17 basis points to 1.45% as benchmark interest rates used for pricing loans remained low and from an increased deployment of surplus deposits at lower yields.

In constant-currency terms, gross loans rose 9% or SGD 34 billion to SGD 415 billion. The increase was led by an 8% or SGD 18 billion increase in non-trade corporate loans led by Singapore and Greater China customers. Trade loans rose 10% or SGD 4 billion. Consumer loans rose 9% or SGD 10 billion from growth in wealth management and housing loans.

In constant-currency terms, deposits rose by 7% or SGD 32 billion to SGD 502 billion. Casa deposits grew SGD 41 billion, enabling more expensive fixed deposits to be let go. As a result, the Casa ratio rose from 73% to 76%. Our market share of total SGD deposits was maintained.

(D) Non-interest income
Net fee income increased 15% to SGD 3.52 billion. Wealth management fees grew 19% to a record SGD 1.79 billion. Strong investor sentiment amidst the low interest rate environment drove demand across a wide range of investment products. Part of the growth was due to business initiatives that increased customer engagement. Transaction service fees rose 13% to SGD 925 million from higher cash management and trade finance fees. Card fees rose 12% to SGD 715 million as card spending rose to a record. Investment banking fees were 47% higher at SGD 218 million from stronger equity underwriting and fixed income activities.

Other non-interest income fell 5% to SGD 2.33 billion as record trading income was offset by lower investment gains due to favourable market opportunities a year ago. Gains on investment securities fell 60% to SGD 387 million while trading income rose 27% to a record SGD 1.79 billion as Treasury Markets non-interest income and treasury customer income both rose to new highs.

(E) Expenses
Expenses were 5% higher at SGD 6.47 billion. Excluding the amalgamation of LVB and the previous year’s government grants, underlying expenses were up by 1%. Staff costs rose from the impact of base salary increments in the second half. Investments for future growth were also stepped up. These cost increases were moderated by lower occupancy costs from the rationalising of office space with the implementation of flexible work policies. The cost-income ratio was 45%.

(F) Asset quality and allowances
New non-performing asset formation fell to pre-pandemic levels as asset quality turned out better than expected. After repayments and write-offs, NPA fell 13% to SGD 5.85 billion and the NPL rate improved to 1.3% from 1.6% a year ago. Specific allowances fell two-thirds to SGD 499 million or 12 basis points of loans, below pre-pandemic levels.

Repayments of weaker exposures, credit upgrades as well as transfers to NPA resulted in a general allowance write-back of SGD 447 million. The write-backs did not touch general allowance overlays built up in previous years, which were fully maintained.

With the decline of specific allowances and write-back of general allowances, total allowances amounted to SGD 52 million for the year.

Allowance reserves continued to be high. General allowance reserves amounted to SGD 3.88 billion, which were SGD 0.4 billion above the MAS requirement and SGD 1.1 billion above Tier-2 eligibility. Together with specific allowance reserves, total allowance reserves amounted to SGD 6.80 billion. Allowance coverage of non-performing assets was at 116% and at 214% when collateral was considered.