After United Overseas Bank Ltd (SGX: U11) released a sparkling set of earnings for its fiscal 2022’s third quarter (3Q2022), it was DBS Group’s (SGX: D05) turn to show investors what it can do.
And Singapore’s largest bank did not disappoint.
The lender not only chalked up a record-high net profit for 3Q2022 but also saw its net profit for the first nine months of 2022 (9M2022) scale to a new high of S$5.85 billion.
Here are five interesting snippets from DBS’ latest earnings report.
1. A surge in total income and net profit
The bank’s net interest income (NII) surged by 44% year on year to S$3 billion on the back of higher interest rates.
Total income climbed 28% year on year to a new record high of S$4.5 billion.
With expenses rising just 9% year on year, the lender’s profit before allowances grew 44% year on year to S$2.7 billion, also a record.
Total allowances remained low at S$178 million, and DBS’ net profit clocked in at S$2.2 billion, up 32% year on year.
For 9M2022, total income grew 10% year on year to S$12.1 billion while net profit increased by 8% year on year to S$5.8 billion.
The annualised return on equity hit a record 16.3% for the bank as CEO Piyush Gupta emphasized the bank’s “significant structural improvements” along with its ongoing digital transformation.
2. Weaker fee income
Despite the surge in NII, DBS reported weaker fee income due to a fall in wealth management and investment banking fees.
Fee and commission income dipped by 13% year on year to S$771 million for 3Q2022 but remained fairly stable compared to the bank’s second quarter.
Volatile financial conditions saw wealth management fees fall 30% year on year to S$323 million.
However, the decline was offset by higher card fees which grew 23.9% year on year to S$223 million as consumers began opening their wallets amid border reopenings.
Loan-related fees also improved from S$106 million in 3Q2021 to S$122 million because of a growth in non-trade corporate loans and mortgage loans.
Meanwhile, other non-interest income surged 32% year on year to S$753 million, driven by higher treasury customer income and investment gains.
3. Healthy loan growth and a NIM boost
DBS saw healthy loan growth with customer loans rising 6% year on year to S$429.2 billion.
The main highlight for the lender, though, was its net interest margin (NIM).
The NIM surged by 0.47 percentage points year on year to hit 1.9% for 3Q2022, buoyed by the higher interest rate environment.
At 1.9%, the NIM was also significantly higher than 2Q2022’s 1.58%.
For 9M2022, DBS’ NIM clocked in at 1.65%, 0.2 percentage points higher than the 1.45% recorded in the prior period.
There is further room for the NIM to rise as the bank’s outlook for 2023 projects that the NIM could reach 2.25% by the middle of next year if the Federal Reserve pushes interest rates up to 4.75%.
Investors should note that just this morning, the Federal Reserve hiked interest rates by 0.75 percentage points for a fourth consecutive round, taking the benchmark rate to between 3.75% to 4%.
4. An improved cost-to-income ratio
With the surge in net interest income, DBS has also lowered its cost-to-income ratio to 40.2%.
This level was significantly lower than the 46.8% reported in the prior year and is also an improvement from the second quarter’s 43.7%.
DBS expects its cost-to-income ratio to remain below 40% in 2023.
Elsewhere, the bank booked specific allowances of S$25 million and general provisions of S$153 million for 3Q2022.
Amid the allowances booked, its non-performing loans (NPL) ratio declined from 1.3% in the previous quarter to 1.2% and was also lower than 1.5% in 3Q2021.
5. A slightly higher interim dividend
DBS has declared an interim dividend of S$0.36 for 3Q2022, 9.1% higher than the S$0.33 paid out in 3Q2021.
For 9M2022, the total dividend per share comes up to S$1.08, 28.6% higher than the S$0.84 paid out in the same period last year.
There could be room for a dividend increase if benign conditions continue.
DBS expects its loan pipeline to remain healthy with mid-single-digit year on year growth for 2023 along with double-digit year on year fee income growth.
Investors can look forward to more good news from the bank as interest rates continue to head up.
The bank did, however, warn of potential headwinds such as a US recession and an Asian slowdown, so investors need to be watchful of the risks, too.
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Disclaimer: Royston Yang owns shares of DBS Group.