Earnings season is coming around again.
This time around, though, many companies have opted for voluntary disclosures and operational updates based on the new risk-based framework set out by the Singapore Exchange.
The three big banks in Singapore are no exception.
Each will provide an operational update along with key numbers and ratios, as well as a commentary on business conditions and prospects.
The first of the banks to report its earnings was DBS Group Holdings Ltd (SGX: D05).
Here are three interesting findings from the bank’s latest operational update, and how it is navigating the COVID-19 pandemic.
Increased provisions for loans
The bank reported a stellar set of earnings, with net income up 13% year on year, hitting S$4 billion for the first time.
Profit before allowances was up 20% year on year to a new high of S$2.47 billion.
However, allowances made by the bank for potential bad loans rose from just S$76 million a year ago to S$1.09 billion during the current quarter.
Of this amount, two-thirds, or S$703 million was for general allowances. The bank anticipates a worsening of the economic situation, and is setting aside some allowance for loans that may go bad.
The remaining S$383 million constitutes specific allowances. This reserve constitutes loans that are already recognised as non-performing during the quarter.
Oil and gas is another area of weakness. Oil prices briefly turned negative in April, which led to a prominent oil trader, Hin Leong, going bust.
DBS’ reported that exposure to this borrower was US$290 million, so part of the specific allowance may have been for Hin Leong.
Hiring instead of firing
Large European and US banks are in deep trouble due to loan exposures.
With provisioning at an all-time high, profitability has also been badly hit.
European banks have even been retrenching staff to cut costs.
However, instead of laying off people, DBS is hiring “judiciously” instead.
The bank seeks to manage costs by reducing discretionary non-staff costs in areas such as travelling.
Also, the bank has promised no retrenchments or pay cuts during these difficult times.
Instead, bonuses will be aligned closely to earnings. If earnings plunge due to provisions, this means the bank has the discretion to pay out less in bonuses, too.
In this way, jobs can be retained such that when the upturn arrives, DBS has the staff capacity to take on business expansion.
Quarterly dividend kept constant
DBS has opted to keep its quarterly dividend constant at S$0.33 per share, unchanged from the previous quarter.
With a strong capital base and regulatory ratios well above requirements, the bank is confident of being able to sustain the dividend this round.
However, CEO Piyush Gupta acknowledged that the pandemic may cause more economic pain.
The bank will, therefore, continue to proactively monitor the evolving crisis and may make dividend adjustments in subsequent quarters, if need be.
At the last traded share price of S$19.70, DBS’ shares offer a trailing dividend yield of around 6.7%.
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Disclaimer: Chin Hui Leong owns shares in DBS Group Holdings Ltd.