All eyes are on Singapore’s banks after the Monetary Authority of Singapore’s (MAS) urged the big three banks to limit their dividend payments to 60% of last year’s total annual dividend.
DBS Group Holding Ltd (SGX: D05), who was among the first of the trio to report its earnings on Thursday, provided us with some insight.
As expected, the bank declared a quarterly dividend of S$0.18, down 45% from the S$0.33 in its previous quarter.
DBS Group will be offering a scrip dividend option for investors as well.
But that’s not all that we learnt from the quarter. Here are 10 things you should know:
1. Net interest income for the quarter fell by 5% year on year to S$2.3 billion.
2. Loan growth came in at a healthy 7% year on year. However, net interest margin plunged to 1.62% from 1.91% a year ago due to a lower global interest rate environment.
3. On the non-interest income side, fee and commission income declined by 11% year on year during the quarter, but was offset by a 45% year on year rise in other non-interest income.
4. DBS Group was able to keep a lid on expenses, reporting a cost-to-income ratio that was below 40% for the quarter.
5. As a result, profit before allowances was up 4% year on year to S$2.2 billion, a solid result given the situation.
6. However, the bank continued to increase both its general and specific provisions to buffer against borrower stress arising from the pandemic. Total allowances rose to S$849 million for the quarter, more than triple the amount set aside a year ago.
7. As a result, net profit fell by 22% year on year to S$1.25 billion.
8. Meanwhile, non-performing loans (NPL) ratio remained unchanged from a year ago at 1.5%.
9. For the outlook for the rest of 2020, CEO Piyush expects loan growth to remain resilient, led by non-trade corporate loans. Full-year net interest margin, however, is expected to contract further to around 1.6%.
10. Meanwhile, fee income has been improving since lockdowns eased, and the bank will continue to review its cost structure to maintain a low cost-to-income ratio.
Get Smart: The calm before the storm
At the moment, the bank is not seeing many NPLs and does not see the need to make additional specific provisions.
However, as the government’s Job Support Scheme tapers off, we are likely to see more loans come under pressure.
As it stands, DBS Group has set aside S$1.94 billion in allowances and other losses during the first half of the year. The next few quarters will give us a clearer view of how many loans will slip and fall into the NPL bucket.
As a Smart Investor, this is the metric you should be monitoring closely in the remaining months of this year.
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Disclosure: Chin Hui Leong owns shares of DBS Group Holdings.