DBS first quarter earnings at SGD 603 million
Earnings reflect business volume growth and disciplined cost management amid weaker financial markets
Compared to the previous quarter, net earnings rose 8%, a result of lower allowances and higher net gains from the sale of investment securities. Although net fee income declined from weaker capital markets activities, business volumes in other areas were maintained.
Net interest income up 9% from year ago as loans increase
Net interest income of SGD 1.06 billion was 9% higher than a year ago and similar to the previous quarter.
Customer loans rose 5% during the quarter to SGD 114.2 billion, bringing growth to 21% from a year ago. While loan growth was broad-based, the largest increase during the quarter came from corporate borrowing.
Net interest margins fell two basis points from the previous quarter to 2.09%. In Singapore, asset yields declined due to lower interest rates despite widening credit spreads on loans. Declining asset yields were offset by an improving deposit mix and lower deposit costs. While prime-Hibor spreads widened during the quarter, Hong Kong margins fell partly due to a lag in the repricing of fixed deposit costs.
Net fee income up 14% from year ago
Net fee income rose 14% from a year ago to SGD 353 million, largely due to a 55% increase in loan syndication fees. Most other fee activities were comparable to a year ago. However, net fee income fell 7% from the previous quarter due to weaker capital market activities such as wealth management, investment banking and stockbroking. Weaker investor sentiment resulted in wealth management product sales falling 33% from the previous quarter to SGD 1.24 billion.
Net trading income recorded a net loss of SGD 161 million, compared to a net loss of SGD 25 million in the previous quarter and a net gain of SGD 171 million a year ago. A weaker credit environment linked with a previously-announced charge of SGD 86 million for Rosa resulted in losses recorded under net trading income.
Net gain on financial investments rose from SGD 104 million in the previous quarter to SGD 211 million. The first quarter's gains included a profit of SGD 53 million arising from the initial public offering of Visa Inc.
Cost-income ratio improves to 42%
Expenses of SGD 656 million were similar to a year ago as costs continued to be carefully managed. Higher revenue-related costs were offset by a reduction in staff and computerisation expenses. The cost-income ratio improved from 43% a year ago to 42%. Compared to the previous quarter, expenses rose 1% as higher staff costs were largely offset by a reduction in non-staff expenses. Headcount was little changed from the previous quarter.
Asset quality remains good
The non-performing loan rate improved further to 1.0% from 1.5% a year ago and 1.1% in the previous quarter. The amount of non-performing assets of SGD 1.46 billion was little changed from a year ago but 2% higher than the previous quarter.
Specific allowances for loans of SGD 37 million or 13 basis points of average loans were within the range of recent quarters. Specific allowances for non-loan assets fell to SGD 13 million from SGD 100 million in the previous quarter, which had included substantial allowances for collateralised debt obligations. General allowances of SGD 90 million were taken on account of the strong loan growth during the quarter and were higher than the SGD 66 million taken in the previous quarter. Total allowance coverage rose to 138% from 135% in the previous quarter.
Excluding one-time items, return on equity of 11.6% was lower than the 13.0% a year ago but better than the 10.9% in the previous quarter.
Under the Basel II framework adopted on 1 January 2008, DBS' regulatory capital adequacy ratio stood at 13.4%, with the tier-1 ratio at 9.2%. This compared with 13.4% and 8.9% respectively in the previous quarter under the previous regulatory framework.
DBS Chairman Koh Boon Hwee said, "Despite the challenging trading and capital markets environment, we continued to grow our customer franchise and increase business volumes, while remaining prudent and vigilant on costs. In the past quarter, DBS made breakthroughs into new markets like Taiwan and Vietnam and the bank continues to gain momentum in countries like China, Indonesia and India, where it recently received the approval to set up eight new branches."
The Board of Directors declared a one-tier tax-exempt quarterly dividend of 20 cents per share, similar to the previous quarter. A gross dividend of 20 cents per share less tax was paid a year ago.
DBS Group Holdings today reported net earnings of SGD 603 million for first quarter 2008, a 2% dip from a year ago as sustained business volume growth and disciplined cost management offset the impact of weak trading and capital markets activities.Compared to the previous quarter, net earnings rose 8%, a result of lower allowances and higher net gains from the sale of investment securities. Although net fee income declined from weaker capital markets activities, business volumes in other areas were maintained.
Net interest income up 9% from year ago as loans increase
Net interest income of SGD 1.06 billion was 9% higher than a year ago and similar to the previous quarter.
Customer loans rose 5% during the quarter to SGD 114.2 billion, bringing growth to 21% from a year ago. While loan growth was broad-based, the largest increase during the quarter came from corporate borrowing.
Net interest margins fell two basis points from the previous quarter to 2.09%. In Singapore, asset yields declined due to lower interest rates despite widening credit spreads on loans. Declining asset yields were offset by an improving deposit mix and lower deposit costs. While prime-Hibor spreads widened during the quarter, Hong Kong margins fell partly due to a lag in the repricing of fixed deposit costs.
Net fee income up 14% from year ago
Net fee income rose 14% from a year ago to SGD 353 million, largely due to a 55% increase in loan syndication fees. Most other fee activities were comparable to a year ago. However, net fee income fell 7% from the previous quarter due to weaker capital market activities such as wealth management, investment banking and stockbroking. Weaker investor sentiment resulted in wealth management product sales falling 33% from the previous quarter to SGD 1.24 billion.
Net trading income recorded a net loss of SGD 161 million, compared to a net loss of SGD 25 million in the previous quarter and a net gain of SGD 171 million a year ago. A weaker credit environment linked with a previously-announced charge of SGD 86 million for Rosa resulted in losses recorded under net trading income.
Net gain on financial investments rose from SGD 104 million in the previous quarter to SGD 211 million. The first quarter's gains included a profit of SGD 53 million arising from the initial public offering of Visa Inc.
Cost-income ratio improves to 42%
Expenses of SGD 656 million were similar to a year ago as costs continued to be carefully managed. Higher revenue-related costs were offset by a reduction in staff and computerisation expenses. The cost-income ratio improved from 43% a year ago to 42%. Compared to the previous quarter, expenses rose 1% as higher staff costs were largely offset by a reduction in non-staff expenses. Headcount was little changed from the previous quarter.
Asset quality remains good
The non-performing loan rate improved further to 1.0% from 1.5% a year ago and 1.1% in the previous quarter. The amount of non-performing assets of SGD 1.46 billion was little changed from a year ago but 2% higher than the previous quarter.
Specific allowances for loans of SGD 37 million or 13 basis points of average loans were within the range of recent quarters. Specific allowances for non-loan assets fell to SGD 13 million from SGD 100 million in the previous quarter, which had included substantial allowances for collateralised debt obligations. General allowances of SGD 90 million were taken on account of the strong loan growth during the quarter and were higher than the SGD 66 million taken in the previous quarter. Total allowance coverage rose to 138% from 135% in the previous quarter.
Excluding one-time items, return on equity of 11.6% was lower than the 13.0% a year ago but better than the 10.9% in the previous quarter.
Under the Basel II framework adopted on 1 January 2008, DBS' regulatory capital adequacy ratio stood at 13.4%, with the tier-1 ratio at 9.2%. This compared with 13.4% and 8.9% respectively in the previous quarter under the previous regulatory framework.
DBS Chairman Koh Boon Hwee said, "Despite the challenging trading and capital markets environment, we continued to grow our customer franchise and increase business volumes, while remaining prudent and vigilant on costs. In the past quarter, DBS made breakthroughs into new markets like Taiwan and Vietnam and the bank continues to gain momentum in countries like China, Indonesia and India, where it recently received the approval to set up eight new branches."
The Board of Directors declared a one-tier tax-exempt quarterly dividend of 20 cents per share, similar to the previous quarter. A gross dividend of 20 cents per share less tax was paid a year ago.
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About DBS
DBS is one of the largest financial services groups in Asia with operations in 16 markets. Headquartered in Singapore, DBS is the largest bank in the country as measured by assets, and a leading bank in Hong Kong. DBS' "AA-" and "Aa1" credit ratings are among the highest in the Asia-Pacific region.
As a bank that specialises in Asia, DBS leverages its deep understanding of the region, local culture and insights to serve and build lasting relationships with its clients. DBS provides the full range of services in corporate, SME, consumer and wholesale banking activities across Asia and the Middle East. The bank is committed to expanding its pan- Asia franchise by leveraging its growing presence in mainland China, Hong Kong and Taiwan to intermediate the increasing trade and investment flows between these markets. Likewise, DBS is focused on extending its end-to-end services to facilitate capital within fast-growing countries in Indonesia and India.
DBS acknowledges the passion, commitment and can-do spirit in each of its 15,000 staff, representing over 30 nationalities. For more information, please visit www.dbs.com.