Many investors are eagerly awaiting the release of full-year 2022 (FY2022) earnings from Singapore’s three major banks.
DBS Group (SGX: D05) is the first of the trio to report its earnings.
The blue-chip lender did not disappoint as it announced a blowout set of financial numbers in line with the higher interest rate environment.
The bank’s total income crossed the S$16 billion mark for the first time while its net profit chalked up a new record-high of S$8.2 billion.
In line with the strong results, DBS also declared a special dividend of S$0.50.
The previous time the bank declared a special dividend was back in FY2017.
Also, for the first time, DBS split up the group’s results into “Commercial Book” and “Treasury Markets” to better reflect customer performance trends.
Here are some highlights from the lender’s latest set of earnings.
1. A blowout set of earnings
For FY2022, net interest income (NII) for DBS’ commercial book segment surged 40% year on year to S$10.7 billion as the bank benefitted from rising interest rates.
Fee income for the segment, however, dipped by 12% year on year to S$3.1 billion.
Despite the lower fee income, total income saw a 16% year on year uplift to a record S$16.5 billion.
With total expenses rising just 10% year on year, the lender’s profit before allowances jumped 22% year on year to S$9.4 billion.
Net profit for FY2022 climbed 20% year on year to S$8.2 billion.
A closer look at DBS’ fourth quarter (4Q FY2022) numbers shows that NII surged by 74% year on year to S$3.4 billion for its commercial book division as the full effect of higher interest rates kick in.
Total income almost touched S$4.6 billion, up 41% year on year while net profit for the quarter soared 68% year on year to S$2.3 billion.
2. A strong surge in net interest margin and income
A higher net interest margin (NIM) contributed strongly to the rise in NII.
Its commercial book NIM jumped to 2.11% for FY2022, up from 1.63% a year ago.
For 4Q2022, NIM hit 2.61%, almost a full percentage point higher than the 1.65% clocked in the first quarter of this year.
At the group level, NIM came in at 1.75% for FY2022, up 0.3 percentage points from 1.45% in FY2021.
There is reason to believe that DBS’ NIM can stay above 2% as its 4Q FY2022 group NIM came in at 2.05% and CEO Piyush Gupta does not expect the US central bank to cut rates this year.
He continues to expect a peak NIM of 2.25% but cautioned that NIM could come in at between 2.18% to 2.2% because of outflows to treasury bills and higher funding costs for the treasury markets division.
3. Fee income declines year on year
The bank’s fee income, however, dipped by 8.9% year on year to S$3.7 billion for FY2022 due to wealth management fees falling by a quarter.
However, card fees jumped 20% year on year to S$858 million in line with the increase in spending on overseas holidays as borders reopened.
Loan and transacted-related fees also improved year on year to offset some of the declines from wealth management.
China’s reopening should provide a much-needed boost to fee income, with CEO Gupta expecting double-digit year on year fee income growth in FY2023.
Elsewhere, the wealth management division saw its total income rise 20% year on year to a record high of S$3.3 billion.
DBS saw continued inflows that boosted its assets under management to a new high of S$297 billion, up 9% year on year.
4. Healthy loan growth with low provisions
Customer loans continued to climb in FY2022, inching up 1% year on year to S$414.5 billion.
This rate was, however, a sharp slowdown compared to FY2021’s 10% year on year rise.
The strong Singapore dollar was responsible for a three-percentage-point headwind to loan growth.
DBS ended the year with S$335 million in specific provisions, down a third from the S$499 million provided for in FY2021.
Looking ahead, Mr Gupta has projected a mid-single-digit year on year loan growth for FY2023, but this guidance could change depending on how businesses react to structurally-higher interest rates.
5. Higher core quarterly dividend along with a special dividend
In line with the bank’s blockbuster results, it has declared a special dividend of S$0.50 per share.
DBS’ core quarterly dividend was also raised from S$0.36 to S$0.42 in a show of confidence about its prospects.
The total dividend to be paid out for 4Q FY2022 is S$0.92 if approved at the bank’s annual general meeting, and FY2022’s total dividend stands at S$2 per share.
Looking ahead, the bank’s core annual dividend has increased from S$1.44 to S$1.68, giving its shares a forward dividend yield of 4.7%.
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Disclosure: Royston Yang owns shares of DBS Group.