DBS Group (SGX: D05) is the third and final local bank to report its fiscal 2021 second quarter (2Q2021) and first-half (1H2021) earnings.
OCBC Ltd (SGX: O39) and United Overseas Bank Ltd (SGX: U11), or UOB, had released their earnings a day before in which OCBC reported a surge in net profit while UOB hiked its dividend to a level higher than 2019.
Singapore’s largest bank delivered both — its net profit hit a new record for 1H2021 while it also raised its year on year dividend.
An uptick in business sentiment and resilient asset quality helped DBS to report a strong quarter, though a dip in net interest income dragged down overall revenue.
Still, the lender reported record fee income and another write-back of allowances in a sign that the group believes the worst is over.
Here are five highlights from DBS’ earnings that investors should take note.
1. A record set of earnings
For 2Q2021, DBS reported a 9% year on year decline in net interest income to S$2.1 billion.
The fall was due to lower interest rates that offset the rise in its loan book.
However, non-interest income rose 27% year on year to hit S$868 million.
Profit before allowances fell by 9% year on year to S$2 billion, but net profit shot up 37% year on year to S$1.7 billion due to a second write-back of general provisions.
For 1H2021, net profit surged by 54% year on year to a new record high of S$3.7 billion.
2. Continuous decline in net interest margin
Of concern, though, was the continuous decline in net interest margin (NIM) for the bank.
NIM declined further to 1.45% from the 1.49% reported in the previous quarter.
It is also 0.17 percentage points lower than the NIM of 1.62% in the second quarter of 2020 (2Q2020).
Unlike OCBC and UOB, it seems that DBS’ NIM has yet to stabilise and this is a metric that investors will need to closely monitor in the next few quarters.
The good news is that DBS managed to expand its loan book, with customer loans up 6% year on year to S$397 billion.
The broad-based growth in the bank’s loan book came from trade and non-trade corporate loans, as well as an increase in consumer housing loans.
3. Fee income sets a new benchmark
Fee income rose 26.2% year on year to S$991 million for the quarter and hit a new record-high of S$2.1 billion for 1H2021.
The biggest jump came from wealth management fees, which grew 27.4% year on year in the first half to S$945 million.
The jump came from higher investment product sales due to a persistently low interest rate environment.
Another area of growth was card fees, which increased by 10% year on year to S$334 million.
The recovery in consumer spending, along with a higher number of online transactions, provided the impetus for better numbers.
4. Healthy growth in assets
Wealth management assets under management (AUM) continued its ascent, with a 13% year on year increase to S$285 billion.
On the investment banking front, total assets inched up 1% year on year to S$305 billion.
It’s encouraging to see DBS growing its asset base, though the performance of both divisions was impacted by lower interest rates.
5. Dividend restored
In line with higher net profit and a brighter outlook, DBS has restored its quarterly dividend to S$0.33, in line with the payout for the first quarter of 2020 before the central bank capped banks’ dividends at 60% of 2019 levels.
For 1H2021, total dividends stand at S$0.51.
Both OCBC and UOB have also raised their dividends after the central bank announced that dividend restrictions will be lifted as the global outlook is improving.
All three banks have suspended their scrip dividend option, so investors will receive this round of dividends in cash.
Get Smart: Additional growth engines
CEO Piyush Gupta has remarked that business momentum and asset quality have been better than expected in the first half.
He expects this good performance to be sustained in the coming quarters.
New growth initiatives are also poised to bring in higher revenue of around S$350 million in 2022, an increase from the S$200 million this year.
Some of these include the acquisition of India’s Lakshmi Vilas Bank last year as well as new streams of income from the setting up of a digital exchange and Climate Impact X (a global carbon exchange and marketplace).
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Disclaimer: Royston Yang owns shares of DBS Group.