DBS first half revenues up 32% to S$2.0 billion
First half core operating expenses down 9.3%
Oon Kum Loon named Chief Financial Officer
Income before operating expenses rose 32.1% over the same period last year, primarily due to its operations in Hong Kong. Operating profit before goodwill amortisation rose 41.1% to S$1.1 billion. Net profit before goodwill amortisation rose 6.1% to S$668 million, despite an increase in provisions to S$201 million from S$47 million in the same period last year. Net profit after goodwill amortisation decreased 15.6% to S$531 million.
Operating profit before goodwill amortisation grew by 7.4% against the second half of 2001, which is most comparable because of the full consolidation of Dao Heng Bank Group ("Dao Heng"), and the partial consolidation of DBS Vickers Securities, in the second half of 2001. The favorable result was helped by lower operating expenses, which were down by 7.3%, as well as by higher net interest and fee income. Net profit before goodwill amortisation benefited from lower provisions and rose 33.3% over the second half of 2001.
Compared to the first quarter of 2002, operating profit before goodwill amortisation declined 5.4% in the second quarter, due to translation effects of a weaker Hong Kong dollar and lower trading income. Rigorous cost controls kept operating expenses almost flat, offsetting the marginal S$9 million increase in provisions for the second quarter.
Operating income improved
Net interest income for the first half of 2002 increased by 37.4% to S$1,321 million, compared to the same period last year. This increase was attributable to stronger net interest margins, which improved by 0.21 percentage points to 1.99% as a result of lower cost of funds and an expanded loan book arising from the Dao Heng acquisition.
Fee income improved to S$403 million in the first half of 2002, a 60.7% increase compared to the same period last year, aided by the addition of Dao Heng operations. Wealth management products generated sales volume of S$1.94 billion in the first half of 2002, surpassing the S$1.92 billion total for the whole of 2001.
Other income decreased 3.4% on a year-on-year basis due to the strong Treasury gains recorded on government securities and the inclusion of S$31 million profit from the sale of the DBS Securities Building in the first half of 2001.
Total staff and other operating expenses increased by 22.8% to S$920 million compared to the first half of 2001, less than the 32.1% increase in income before operating expenses. Excluding the expenses of newly-acquired Dao Heng and DBS Vickers, as well as the associated restructuring and integration costs, operating expenses declined consecutively for the last two half year periods, due to continued discipline in expense management. The cost to income ratio for the first half of 2002 was 45.5%, well below the 49.0% registered in the same period of 2001.
Subsidiaries' performance satisfactory against challenging regional environment
Dao Heng's revenues for the first half of 2002 declined by 9.8% to S$414 million compared to the second half of 2001 due to the weaker market conditions. Operating profit for the first half of 2002 grew by 4.8% to S$233 million over this period (DBS did not consolidate Dao Heng in the first half of 2001). The increase was driven by a 23.5% reduction in expenses as most of the cost synergies scheduled for 2002 have been realised. Dao Heng's contribution to the Group's net profit declined over this period by 55.1% to S$64 million due mainly to increased provisions. Nonetheless, Dao Heng continues to earn interest margins that are more than 20% higher than the rest of the Group, and operates at a cost to income ratio (43.8%) that is less than that for DBS overall.
DBS Thai Danu Bank, a subsidiary of DBS Bank, reported on July 19, 2002, a net profit of Baht130.9 million (S$6 million) for the first half of 2002, representing a 78.8% increase from the same period last year. The year-on-year improvement was driven by a 5.3% increase in net interest and dividend income to Baht1,140.6 million and an 18.1% rise in non-interest income to Baht416.6 million. Operating expenses increased by 5.8%, to Baht1,086.3 million, due to IT related expenditure and marketing expenses for launching of the Bank's products.
Improving asset quality
DBS' total volume of non-performing loans fell again to S$4.4 billion for June 30 2002, as compared to S$4.5 billion at the end of the first quarter 2002. The ratio of non-performing loans to total non-bank loans remained at 5.9%, a level similar to that registered at the end of the first quarter of 2002. The absolute quantum of non-performing loans (excluding that from Dao Heng) has fallen 54% from its peak in December 1999. Including Dao Heng's non-performing loans, the volume of non-performing loans has declined for four consecutive quarters since June 30, 2001. This favourable trend reflects the application of rigorous risk and credit management, more sophisticated collection efforts, as well as determined resolution or restructuring of non-performing assets.
DBS continues to monitor its credit card business in Hong Kong, where it is the third largest issuer of credit cards. Through June 30, 2002, the delinquency rate was 1.01% for 90 days past due, and 2.26% for 30 days past due. The credit card write-off rate was 10.3% which DBS believes remains below the average write-off rate for card issuers in Hong Kong. Even with the increase in write-off rate, the DBS Hong Kong credit card business, which accounts for approximately 2% of total Group loans, remains one of the higher return on equity businesses of the Group.
Maintaining prudent provision policy
In view of the uncertain economic conditions, DBS continued to set aside provisions to cover general credit weakness, consumer bankruptcy filings in Hong Kong, and declines in asset values. Of the S$201 million of provisions taken in the first half of 2002, S$69 million was attributable to a decline in the value of DBS owned properties in Hong Kong. DBS' total loan provision coverage ratio has, accordingly, increased to 60.4% from 54.7% at the end of the same period last year.
Capital adequacy remained strong
The total capital adequacy ratio for DBS, as of June 30, 2002, remained strong at 17.6%, comfortably above the BIS minimum requirements. The Tier 1 ratio stood at 12.6%. Taking into consideration the payment of second tranche of the Dao Heng transaction in January 2003, and excluding the expected retained earnings for the rest of 2002, DBS' Proforma Tier 1 and total ratio would be 9.2% and 14.4% respectively.
Integration of Hong Kong operations
DBS also announced that its integration of its Hong Kong operations, including Dao Heng and DBS Kwong On Bank is largely complete. The Group now awaits the legal merger of its Hong Kong subsidiaries, expected in early 2003. Synergies from cost savings and revenue enhancement have run ahead of the pace for the HK$750 million target announced in the fourth quarter of last year. Most of the integration teams have been disbanded, and no further DBS Hong Kong branch closures or staff retrenchment programs are anticipated. Selectively, DBS intends to hire seasoned professionals to capitalise on revenue opportunities in Hong Kong and Greater China.
Board and Senior Management appointments
DBS announced today the appointment of C.Y. Leung to the DBS Group Holdings Board. He will join its next meeting in October 2002, which will be convened in Hong Kong for the first time. Leung is Chairman of DTZ Debenham Tie Lung Global, a leading property services company throughout Asia. Leung is active in Hong Kong public service and was extensively involved in the establishment of Hong Kong as a Special Administrative Region (SAR). Among other public offices, Leung was Convenor of the Executive Council for Hong Kong SAR. In July 2002, he was re-appointed a non-official member of the Executive Council. He has also been active in the development of land-use policies and property development in Mainland China since 1978. Leung was appointed to the Dao Heng Bank Board following DBS' acquisition last year.
Chief Financial Officer
DBS today appointed Oon Kum Loon as Chief Financial Officer for the Bank. Oon was head of DBS' Risk Management Group since 1999. During that time, she has developed DBS' risk management practice as one of the best among Asian banks.
In addition to traditional responsibilities in financial reporting and controllership, Oon will focus on risk-based capital management, and rebalancing the Bank's asset composition. She will also be charged with extending the Group's cost management, and will participate in the analysis of acquisition and alliance opportunities.
Oon was formerly Executive Vice President and head of Treasury. During her 28-year career at DBS, she was also engaged in the capital markets and corporate credit. She received a Bachelor's degree (with honors) from the University of Singapore.
DBS also announced that, subject to regulatory approval, its Board of Directors will be recommending to shareholders at the next Annual General Meeting the appointment of Ernst & Young as DBS' new external auditor for the 2003 financial year, well ahead of the regulatory deadline. The Board of Directors also approved a S$0.14 gross dividend per share for shareholders on record as of August 5, 2002. The dividend will be payable on August 19, 2002.
Conclusion
Jackson Tai, Chief Executive Officer, emphasised continuity in strategy, saying DBS remained on course to build a strong pan-Asian financial services franchise.
"We are focussed on execution in our twin hubs of Singapore and Hong Kong. Where necessary we will continue to re-calibrate our investments and resources to changed market conditions in the region. We believe we are well-positioned for the economic recovery."
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About DBS
DBS Bank is the leading bank in Singapore, with dominant positions in consumer banking, treasury and markets, securities brokerage, Singapore dollar loans, deposits, and equity and debt fund raising. Through its Dao Heng Bank and DBS Kwong On Bank operations, DBS Bank is the fourth largest banking group in Hong Kong. Beyond the anchor markets of Singapore and Hong Kong, DBS Bank serves corporate, institutional and retail customers through its operations in Thailand, The Philippines, and Indonesia. The Bank's credit ratings are amongst the highest in the Asia-Pacific region. More information about DBS Group Holdings and DBS Bank can be obtained from our website www.dbs.com.