DBS First-Quarter earnings rise 39% to $518 million
Broad-based improvement in interest and non-interest income underpins stronger performance
The increase in total operating income compared to a year ago resulted from a combination of healthier interest margins, higher business volumes and a better trading environment as market conditions improved.
Compared to fourth quarter 2005, net profit was 35% higher while total operating income grew 14% if one-time gains and goodwill charges booked during the previous quarter were excluded. First quarter loan volumes, however, dipped slightly from December 2005 after 12 consecutive quarters of growth due to declines in housing loans in Singapore and Hong Kong as DBS exercised discipline amid intense mortgage competitive pricing pressures.
Interest income and margins at quarterly record
Net interest income climbed 24% from a year ago and 6% from the previous quarter to a record $850 million.
Interest margins rose from 1.82% a year ago and 2.06% in the previous quarter to a record 2.23%. In Singapore, loan yields, including housing loan yields, continued to increase across the board while the increase in funding costs was slower. In Hong Kong, the spread between prime lending rates and funding costs reached their highest level in five quarters.
Customer loans rose 11% from a year ago to $78.8 billion from lending to corporates and SMEs across the region. Compared to December 2005, customer loans fell 1% as housing loans declined 2%. Higher interest rates encouraged residential mortgage borrowers in Singapore to repay portions of their loans ahead of schedule with lower-yielding Central Provident Fund savings, while the housing loan market remained competitive in Hong Kong. By geographical region, a fall in customer loans booked in Singapore and Hong Kong was partially offset by higher volumes from the rest of the region.
The overall loan-deposit ratio stood at 66%, up from 61% a year ago but lower than the 68% in December 2005 as deposits continue to grow.
Non-interest income up 19% as both fee and trading incomes grow
Non-interest income amounted to $420 million, up 19% from a year ago and 34% from the previous quarter.
Fee income rose 14% from a year ago and 9% from the previous quarter to $262 million. The strongest growth was from fund management and stockbroking as a result of buoyant equity markets, while fees from trade and remittances, credit cards and wealth management also increased.
Sales of unit trusts, bancassurance and structured deposits were 7% below a year ago but rose 32% from the previous quarter to $1.92 billion. Unit trust sales were boosted by improved investor sentiment.
Net trading income from trading businesses amounted to $113 million, compared to $73 million a year ago and $5 million in the previous quarter. There were increased trading opportunities in foreign exchange and interest rate instruments, as well as higher demand from corporate and SME clients to hedge their foreign exchange risks against more volatile currency markets.
Cost-income ratio improves to 44%
Operating expenses grew 16% from a year ago and 2% from the previous quarter to $564 million. Staff costs increased 13% from a year ago on a 9% rise in headcount to 12,673. Compared to the previous quarter, headcount fell slightly while staff costs grew 8% as a result of higher bonuses and salaries amid a tight labour market. Non-staff costs were 19% higher than a year ago as technology and general expenses rose, but they were slightly below the previous quarter’s.
With total operating income rising faster than operating expenses, the cost-income ratio improved to 44% from 47% a year ago and 49% in the previous quarter.
Asset quality remains strong
The non-performing loan rate of 2.1% was unchanged from the previous quarter and below the 2.4% a year ago. Total non-performing assets, including debt securities and contingent liabilities, fell to $1.75 billion, 9% below a year ago and 6% below the previous quarter.
Specific provision charges set aside for loans amounted to $40 million or 20 basis points of average loans, compared to the 25 basis points a year ago and the 35 basis points in the previous quarter. Provision charges for new NPLs were lower during the quarter than in the two comparative periods and more than offset a decline in provision write-backs for loan recoveries. A general provision charge of $14 million was also taken during the quarter as a result of higher off balance sheet liabilities.
Total cumulative provision coverage reached 100%, the highest in DBS’ history, compared to 97% in December 2005 and 90% a year ago.
The total capital adequacy ratio stood at 14.1% with the tier-1 ratio at 10.2%, both comfortably above minimum regulatory requirements.
DBS Vice-Chairman and CEO Jackson Tai said, “Our better top-line revenues and bottom-line profit reflect margin expansion as well as our work over many quarters to re-shape our asset mix and grow our loan book. We are encouraged by the sustained growth in net interest margins and income, and the double digit increase in fee and trading income. We will build on this momentum as we continue to grow our customer franchise across the region.”
The Board of Directors declared an ordinary dividend of 17 cents per share for the quarter, unchanged from the previous quarter but 55% above the 11 cents per share paid a year ago.
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About DBS
Headquartered in Singapore, DBS is one of the largest financial services groups in Asia with operations in 15 markets. The largest bank in Singapore and the fifth largest banking group in Hong Kong as measured by assets, DBS’ “AA-” and “Aa2” credit ratings are among the highest in the Asia-Pacific region. DBS has leading positions in consumer banking, treasury and markets, asset management, securities brokerage, equity and debt fund raising. Beyond the anchor markets of Singapore and Hong Kong, DBS serves corporate, institutional and retail customers through its operations in China, India, Indonesia, Malaysia, Thailand and The Philippines. More information about DBS Group Holdings and DBS Bank can be obtained from our website www.dbs.com.