Digitally-transformed franchise with structurally higher ROE

We achieved a record performance for a third consecutive year in 2023 as net profit rose 26% to SGD 10.3 billion. Total income grew 22% to cross SGD 20 billion for the first time from a higher net interest margin, a rebound in fee income and record treasury customer sales. The underlying cost-income ratio improved to 39%. Asset quality continued to be resilient with specific allowances remaining low at 11 basis points of loans.

Notably, return on equity (ROE) reached a new high of 18%, significantly above previous years and placing us among the world’s best performing banks. The ROE was six percentage points above 2006 when Fed rates were last above 5% and credit conditions similarly benign, reflecting structural improvements from the franchise and digital transformations we carried out over the past decade. At the same time, our ROE advantage over peers also widened.

At our Digital Investor Day in May 2023, we highlighted three ways that our digital transformation had boosted ROE.

First, it strengthened our current and savings account (Casa) franchise by improving our standing as the primary bank for retail and corporate customers. During the quantitative easing of 2020-21, our Casa deposits increased by 60% or SGD 143 billion to SGD 381 billion, faster than the industry. More than half of this increase was in foreign currencies, enabling us to grow foreign currency loans with greater profitability.

Despite industry-wide Casa outflows since mid-2022 due to rising interest rates, total Casa deposits at end-2023 were SGD 48 billion higher than at end-2019. Our SGD and foreign currency Casa ratios stood at 86% and 35% in 2023 compared to 69% and 21% in 2006.

Second, technology and data enabled us to gain wallet share in fee income from better customer targeting and engagement. Since 2014, our fee income has grown at a compounded annual growth rate of 6%. This was significantly faster than peers, which continued to be the case in 2023. We achieved a stronger recovery in wealth management fees following an industry-wide decline in 2022 when interest rates rose and geopolitical tensions flared. Net new money inflows, which had more than doubled in 2022 compared to the average of preceding years, were sustained in 2023 at SGD 24 billion. As risk appetite returned in 2023, the ease of using our digital platforms acted as an additional spur for customers in converting their cash assets under management (AUM) to investments, boosting fee income growth.

Third, credit costs were lowered as we used data analytics and artificial intelligence for early warning and portfolio management. Up until 2018, our credit costs had tended to be above the peer average. Since then, they have been consistently lower.

These improvements, which had been masked by low interest rates, became apparent in 2022 and more fully in 2023 as interest rates rose. The successful integration of Lakshmi Vilas Bank (LVB) in 2021 and Citigroup Inc.’s consumer banking business in Taiwan (Citi Consumer Taiwan) in 2023, significantly expanded our footprints in India and Taiwan, providing a solid foundation for improving their profitability.

We believe these initiatives will enable us to sustain medium-term ROE at 15-17% after assuming more normalised interest rates and credit conditions.

Record performance in 2023

The group’s net interest income grew 25% to SGD 13.6 billion as full-year net interest margin expanded 40 basis points to 2.15%. Significantly, after an increase of 62 basis points in the four quarters of 2022, quarterly net interest margin continued to rise in the first three quarters of 2023, deviating from peers, before easing in the fourth quarter. The improvement was due to the repricing of floating-rate assets as well as a portion of fixed-rate assets. Deposit costs also increased, but at a slower rate as Casa outflows eased during the year.

Net interest income for the commercial book, which excluded Treasury Markets, rose by a faster 33% while its net interest margin increased 65 basis points to 2.76%. Higher funding costs and accounting asymmetry resulted in a bigger drag in Treasury Markets’ net interest income as interest rates rose. The drag was partially offset by higher gains in Treasury Markets non-interest income.

Loans were little changed at SGD 416 billion. Excluding Citi Consumer Taiwan, which added SGD 10 billion, underlying loans fell 1% or SGD 4 billion.

Trade loans declined 8% or SGD 3 billion, accounting for most of the full-year decline in group loans, due to lower activity and unattractive pricing.

Non-trade corporate loans were stable at SGD 246 billion. Although the loan pipeline was healthy, rising interest rates resulted in higher repayments from corporates that had spare cash on hand. By geography, growth in Singapore and India was offset by a decline in Greater China, where the greatest repayments occurred due to the significantly lower interest rates in the mainland.

Housing loans were little changed as loan disbursements were offset by repayments. Disbursements were lower as new bookings declined from the previous year in line with market transactions after a new round of cooling measures in April 2023.

Other consumer loans declined 2% or SGD 1 billion as wealth management customers repaid loans in a high interest rate environment.

Deposits rose 3% to SGD 535 billion. Excluding Citi Consumer Taiwan, which added SGD 12 billion, underlying deposits were stable. Casa outflows decelerated compared to the previous year and were replaced by fixed deposits. Liquidity remained ample, with liquidity coverage ratio of 144% and net stable funding ratio of 118% well above regulatory requirements.

Net fee income grew 9% to SGD 3.38 billion. Card fees grew 22% to SGD 1.04 billion, crossing SGD 1 billion for the first time. Card spending reached a third consecutive record with travel spending surpassing pre-pandemic levels. The consolidation of Citi Consumer Taiwan also contributed to the growth in card fees.

Wealth management fees rose 13% to SGD 1.51 billion, reflecting strong net new money inflows, a shift from deposits to investments and bancassurance as risk appetite returned, and contributions from Citi Consumer Taiwan.

Loan-related fees grew 21% to SGD 554 million. Investment banking fees increased 3% to SGD 125 million from higher debt and equity capital market activities. Transaction service fees fell 4% from lower trade finance and brokerage volumes.

Other non-interest income rose 28% to SGD 3.15 billion. Treasury customer sales reached a record while Treasury Markets non-interest income was also higher.

By business unit, Consumer Banking/ Wealth Management income rose 35% to SGD 8.96 billion from higher interest rates and growth in wealth management product sales, cards, and loan fees. Wealth Management income increased to a record, with AUM growing 23% to a new high of SGD 365 billion, underpinned by strong net new money inflows and the consolidation of Citi Consumer Taiwan. Institutional Banking income grew 22% to SGD 9.36 billion as cash management income rose 73% from higher interest rates. Treasury Markets income declined 38% to SGD 725 million due to higher funding costs.

By region, Singapore income rose 26% to SGD 13.4 billion. Higher interest rates boosted net interest margin and more than offset a decline in loans. Non-interest income improved from higher treasury customer sales and growth in cards and wealth management fees. Hong Kong income increased 10% to SGD 3.21 billion, led by an expansion in net interest margin while non-interest income was little changed. Rest of Greater China benefited from the consolidation of Citi Consumer Taiwan as income grew 20% to SGD 1.40 billion with double-digit percentage increases in net interest income and non-interest income.

Expenses rose 14% to SGD 8.06 billion led by an increase in staff costs from salary increments and a higher headcount.

Excluding Citi Consumer Taiwan and nonrecurring technology and other costs, expenses rose 10% and the underlying cost-income ratio was 39%.

Profit before allowances grew 29% to a record SGD 12.1 billion.

Balance sheet remains strong

Asset quality remained resilient throughout the year. Non-performing assets were little changed at SGD 5.06 billion and the nonperforming loans (NPL) ratio was unchanged at 1.1%. New non-performing asset formation remained low and was more than offset by repayments and write-offs. Specific allowances amounted to 11 basis points of loans or SGD 512 million, slightly above the eight basis points a year ago and remaining below the cycle average. General allowances of SGD 78 million were taken compared to a write-back of SGD 98 million in the previous year.

Total allowance reserves amounted to SGD 6.48 billion, comprising general allowance reserves of SGD 3.90 billion and specific allowance reserves of SGD 2.58 billion. Allowance coverage was at 128% and at 226% when collateral was considered.

Capital remained strong, with the Common Equity Tier 1 ratio unchanged at 14.6%. The leverage ratio of 6.6% was more than twice the regulatory requirement of 3%.

Strengthened Taiwan franchise

Citi Consumer Taiwan was consolidated on 12 August 2023, making DBS the largest foreign bank in Taiwan by assets with leading positions in deposits, cards and investments. The consolidation added SGD 10 billion to loans, SGD 12 billion to deposits and SGD 20 billion to investment assets under management. It also boosted DBS Taiwan’s credit card accounts by five-fold to over 3 million.

Total shareholder returns boosted by higher dividends

Total shareholder returns for the calendar year amounted to 5%. We paid out a dividend of SGD 2.30 per share during the calendar year (consisting of fourth-quarter 2022 and first-quarter 2023 ordinary dividend of 42 cents each, second- and third-quarter 2023 ordinary dividend of 48 cents each, as well as a 2022 special dividend of 50 cents). The dividend partially offset a moderate share price decline of 2%.

Bonus issue and further increase in dividend

The Board proposed a final dividend of 54 cents per share, an increase of six cents from the previous payout. This brings the ordinary dividend for the financial year to SGD 1.92 per share, an increase of 42 cents or 28% from the previous full year.

In addition, the Board proposed a bonus issue on the basis of one bonus share for every existing 10 ordinary shares held. The bonus shares will qualify for dividend payments starting with the first-quarter 2024 interim dividend, increasing the pace of capital returns to shareholders. Barring unforeseen circumstances, the annualised ordinary dividend going forward will be SGD 2.16 per share over the enlarged share base, which is an increase of 24% from 2023.

Outlook

At time of writing, the macroeconomic outlook has become more settled after an extended period of uncertainty. There is consensus that interest rates have peaked and the debate is on the pace of reductions. The International Monetary Fund recently raised its forecast for global growth for 2024 from 2.9% previously to 3.1%, saying it saw a higher chance for a soft landing. With the greater clarity, consumer and investor confidence have also improved.

The better outlook will support our business prospects in the coming year. We expect net interest income to be maintained around 2023 levels as loan growth offsets the effects of a slightly lower net interest margin. Fee income should grow by double-digit percentage terms. Wealth management should benefit from stronger investor confidence and the strong net new money inflows we have had, while cards should benefit from further growth in spending and travel. All these income streams will also benefit from the full-period impact of the Citi Consumer Taiwan consolidation.

Although asset quality remains resilient, we are assuming credit costs will begin to normalise with specific allowances moving towards 17-20 basis points of loans. In the event that credit costs deteriorate beyond our assumptions, we have the capacity to release general allowance overlays that had been prudently built up in previous years. If these forecasts hold, we expect full-year earnings for the coming year to be around the record levels in 2023, with ROE within our medium-term range of 15-17%.

(A) Digitalisation
In 2023, we continued to make significant progress in digital transformation. For the consumer and SME businesses in Singapore and Hong Kong, the proportion of digital customers exceeded the 60% target set in 2017, reaching 62%. Income per customer and ROE for the digital segment continued to outperform that of traditional customers, affirming the value of digitalisation in enhancing customer engagement and operational efficiency. Digital customers generated three times the income on average than traditional ones, reflecting more diverse product holdings and more transactions. Having achieved our digital adoption target, focus shifted to intensifying efforts to capture larger wallet shares. At the investor day in May, we outlined our approach, including the use of data and AI/ ML models to generate hyper-personalised nudges, to drive increased product adoption and revenue per customer.

Beyond the consumer and SME businesses in Singapore and Hong Kong, digital transformation became more pervasive across the organisation. At the investor day, we highlighted the expansion of digitalisation efforts in recent years to wealth management, transaction services and treasury customer sales across the region. The percentage of group income from these high-ROE segments rose from 40% in 2017 to 46% in 2022, and further increased to 52% in 2023, with income from wealth management, transaction services and treasury customer sales all achieving record levels. Our digital efforts in these areas, such as leveraging data and AI/ ML to provide relationship managers with insights to better engage their customers, and investments in API and core processing capabilities to seize opportunities in low-value real-time payments, supply chain financing and treasury customer solutions, advanced our goal of becoming the primary bank for an increasing number of wealth and business clients. This contributed to accelerated growth in foreign currency deposits and improved cross-sell into fee and treasury customer income-based activities. The ROE for the overall business in 2022 was 37%, with the digital segment at 39% compared to 24% for the traditional segment.

In our growth markets of India, Indonesia, China and Taiwan, we progressed in addressing historical sub-scale challenges by leveraging digitalisation. At the investor day, we explained our phygital approach in these markets, and outlined our aim to grow a high-quality base of consumer and SME customers and improve ROEs with increased scale. We effectively extended our reach through ecosystem partnerships by leveraging our extensive API and connectivity capabilities. We also scaled our business through inorganic acquisitions. In Taiwan, we acquired Citi Consumer Taiwan which positioned us as the largest foreign bank in Taiwan by assets with leading positions in deposits, cards and investments. The acquisition of LVB in 2020 was a similar move to boost scale. LVB significantly expanded our network and customer base in India, providing a scaled platform to overlay our digital banking capabilities. Since 2017, the cumulative growth in customers in our four growth markets, including from ecosystem partnerships and acquisitions, amounted to about eight million. During the same period, total income from these markets grew 84% while net profits surged by almost five-fold.

(B) Business unit performance
Consumer Banking/ Wealth Management total income grew 35% to SGD 8.96 billion. Net interest income rose 45% to SGD 6.2 billion from a higher net interest margin and growth in loan and deposit volumes. Non-interest income grew 16% to SGD 2.76 billion on higher investment product, bancassurance, card, and loan fees. Expenses increased 16% to SGD 4.41 billion. Total allowances rose 71% to SGD 270 million due mainly to higher specific provisions. Profit before tax increased by 59% to SGD 4.28 billion.

Institutional Banking total income rose 22% to SGD 9.36 billion, driven by stronger cash management income, offset by lower trade finance income. Expenses increased 10% to SGD 2.49 billion. Total allowances rose to SGD 88 million from a writeback of SGD 204 million a year ago due to a lower writeback from general allowances. Profit before tax rose 20% to SGD 6.79 billion.

Treasury Markets total income decreased 38% to SGD 725 million mainly due to lower contributions from interest rate, credit and foreign exchange activities, partially offset by higher income from equity derivatives activities. Expenses increased 2% to SGD 630 million from higher business-related expenses. Profit before tax fell 85% to SGD 87 million.

The Others segment encompasses the results of corporate decisions that are not attributed to business segments. It 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. DBS Vickers is also included in this segment.

(C) Net interest income
Commercial book net interest income, which excludes Treasury Markets, rose 33% to SGD 14.3 billion, driven by a 65-basis point expansion in net interest margin to 2.76%. Yields on loans and other interest-bearing assets repriced higher with interest rates. Although deposit costs also rose, the pace was slower compared to asset yields.

The growth in commercial book net interest income was moderated by a decline in Treasury Markets net interest income. Treasury Markets faced higher funding costs for its operations as interest rates rose. The drag on its net interest income was partially offset by gains in the non-interest income line.

Overall net interest income grew 25% to SGD 13.6 billion.

Gross loans increased 1% or SGD 6 billion in constant-currency terms to SGD 422 billion. The consolidation of Citi Consumer Taiwan added SGD 10 billion to loans, more than offsetting a SGD 3 billion decline in trade loans resulting from lower activity and unattractive pricing. Non-trade corporate loans were stable. Despite a healthy loan pipeline, rising interest rates led to higher repayments. Additionally, there was a shift in China corporate borrowing to cheaper options onshore in the first half. Housing loans were little changed, with a SGD 1 billion growth in the fourth quarter offsetting a decline in the first nine months. Other consumer loans fell SGD 1 billion as wealth management customers repaid loans in a high interest rate environment.

Deposits rose 3% or SGD 13 billion in constant-currency terms to SGD 535 billion. Citi Consumer Taiwan contributed SGD 12 billion, while underlying deposits were stable. Casa outflows decelerated compared to the previous year and were replaced by fixed deposits.

(D) Non-interest income
Net fee income rose 9% to SGD 3.38 billion. Card fees grew 22% to a new high of SGD 1.04 billion from higher spending and the consolidation of Citi Consumer Taiwan.

Wealth management fees rose 13% to SGD 1.51 billion, reflecting strong net new money inflows, a shift from deposits to investments and bancassurance, and contributions from Citi Consumer Taiwan.

Fee income from other activities rose 4% as higher loan-related fees were partially offset by weaker transaction service fees as trade finance slowed.

Other non-interest income rose 28% to SGD 3.15 billion. Treasury customer sales reached a record while Treasury Markets non-interest income was also higher.

(E) Expenses
Expenses rose 14% to SGD 8.06 billion led by a 15% increase in staff costs to SGD 5.04 billion. Excluding Citi Consumer Taiwan and non-recurring technology and other costs, expenses rose 10% and the underlying cost-income ratio was 39%.

(F) Asset quality
Non-performing assets were little changed at SGD 5.06 billion and the NPL ratio was unchanged at 1.1%. New non-performing asset formation remained low and was more than offset by repayments and write-offs.

Specific allowances amounted to SGD 512 million or 11 basis points of loans, slightly above the eight basis points a year ago and remaining below the cycle average. General allowances of SGD 78 million were taken compared to a SGD 98 million write-back a year ago.

Total allowance reserves amounted to SGD 6.48 billion. General allowance reserves stood at SGD 3.90 billion, which included SGD 2.20 billion of general allowance overlays. Specific allowance reserves amounted to SGD 2.58 billion. Allowance coverage of non-performing assets was at 128% and at 226% after considering collateral.