DBS's Q3 Earnings Review: Strong Business Performance While Monitoring Risks of Interest Rate Fluctuations

Total income reached a historic high in FY23Q3. The total income increased 16% to record SGD 5.19 billion. The net profit for FY23Q3 was SGD 2.63 billion, an increase of 18% year-on-year but a decrease of 2% quarter-on-quarter. The revenue mainly came from net fees for commercial books, which reached SGD 843 million, an increase of 9% compared to the previous year. The sales of banking insurance and investment products increased, leading to wealth management fees of SGD 393 million, a year-on-year increase of 22%. Net fee income increased by 2% compared to the previous quarter.

Net interest margin and non-interest income from commercial books grew. Deposits in FY23Q3 increased by 2% compared to the previous quarter, reaching SGD 531 billion. Citigroup's consumer banking business in Taiwan was merged on August 12, 2023, adding SGD 10 billion in loans and SGD 12 billion in deposits, making DBS Bank the largest foreign bank in Taiwan in terms of assets and a leader in deposits, credit cards, and investments. Underlying deposits were unchanged as a decline in Casa deposits was offset by an increase in fixed deposits. Expenses increased by 12% year-on-year to SGD 2.04 billion, with basic expenses up by 10%. Due to increased expenses and the integration of Citigroup Taiwan, card fees increased by 21% to SGD 269 million. Loan-related expenses increased by 12% to SGD 137 million. Transaction costs remained almost unchanged at SGD 228 million, while investment banking fees fell by 16% to SGD 21 million due to a slowdown in capital market activities.

The upward trend in overall revenue was due to an improvement in net interest margin (Company: 2023Q3/2022Q3=2.19%/1.9%, Commercial books: 2023Q3/2022Q3=2.82%/2.30%).

The improvement in net interest margin was mainly due to the increase in global risk-free rates caused by the Fed's rate hike, which led to banks entering a favorable cycle. The growth in wealth management came from Singapore's impressive economic growth after the pandemic.

Net fee and commission income for FY23Q3 was SGD 843 million, an increase of 9% year-on-year. Stock client sales and other income reached SGD 499 million, an increase of 8% year-on-year due to an increase in sales to financial customers.

Assetquality was healthy, and the NPL ratio is low. The company's NPL ratio increased by 1.2% year-on-year in FY23Q3. Due to the integration of Citigroup Taiwan, nonperforming assets rose by 6% quarter-on-quarter to SGD 5.3 billion. Specific allowances were set aside prudently for risk exposures related to a recent money laundering case in Singapore, resulting in an 18 basis points increase in specific loan allowances compared to the low levels in recent quarters. After considering collateral, reserve coverage ratios were 125% and 216%, respectively. Liquidity remained ample, with a liquidity coverage ratio of 138% and a net stable funding ratio of 117%, both higher than the regulatory requirement of 100%. The Tier 1 capital adequacy ratio was 14.1%, unchanged from the previous quarter, as growth in profits and a decrease in risk-weighted assets were offset by the impact of the integration of Citigroup Taiwan. The leverage ratio was 6.4%, twice the minimum regulatory level of 3%.

The company's dividend for FY23Q3 was SGD 0.48 per share, bringing the nine-month dividend to SGD 1.38 per share. The shareholder return rate for FY23Q3 reached 18.2%. Earnings per share were SGD 4.The company has distributed a total of 98 dividends since listing and places great emphasis on shareholder returns.