It wasn’t too long ago when DBS Group Holdings Ltd (SGX: D05) reported its full-year 2020 earnings.
Investors were faced with ballooning provisions and compressed net interest margins as the lender navigated one of the worst pandemics in a century.
That said, CEO Piyush Gupta did sound a note of optimism in early February when he stated that economic data back then supported a strong economic rebound for 2021.
Fast forward to today, and DBS has announced a blowout set of earnings for its fiscal 2021’s first quarter (1Q2021).
Its net profit surged by 72% year on year to S$2 billion, achieving a first in the bank’s history.
Earnings estimates for DBS’ net profit hovered at S$1.44 billion, implying that DBS has handily beaten these forecasts.
Here are five other interesting facts about the bank’s latest earnings that investors should know about.
1. Record-high fee income
Net interest income (NII) fell by 15% year on year to S$2.1 billion as lower global interest rates crimped DBS’ net interest margin (NIM).
The decline was not surprising as the NIM was 1.86% during the same period last year before the outbreak of the pandemic.
However, non-interest income in the form of fee and other income surged to a new record high and helped to mitigate some of the impact from a lower NIM.
Wealth management fees climbed 24.2% year on year to S$519 million while transaction services logged a 10% year on year boost to S$230 million as more people opened investment accounts.
The healthy increase in fee income helped to buffer the decline in NII and allowed DBS to report just a slight 4% year on year dip in total income.
2. Write-back of allowances
DBS reported that its loan book remained healthy, with delinquent loans for both corporate and individual customers at low levels despite moratoriums tapering off.
Total non-performing loans declined slightly by 2% compared to the fourth quarter of 2020 (4Q2020), leading to a fall in the non-performing loans (NPL) ratio to 1.5% from 1.6% a year ago.
Specific allowances for bad debts stood at S$200 million, 48% lower than the S$383 million provided for a year ago, despite the ongoing crisis.
With the improved outlook, DBS had written back S$190 million of its prior general provisions.
Because of this write-back, total allowances for 1Q2021 stood at just S$10 million, significantly lower than the S$1.1 billion set aside in 1Q2020 as a pre-emptive measure in anticipation of the pandemic.
3. Loan growth with stable NIM
The bank reported a healthy 5% year on year growth in its loan book to S$386.4 billion.
The contribution was broad-based, coming from rises in Singapore housing loans, trade and non-trade corporate loans.
Business momentum remains strong and DBS has upgraded its full-year loan growth estimate to mid-to-high single digits.
The bank’s NIM has remained stable at 1.49% for 1Q2021 and has stayed flat compared to 4Q2020.
The flattening of the NIM curve suggests that we may be close to seeing the bottoming of DBS’ NIM.
If so, future loan growth with stable NIM should translate to progressively higher net interest income for the bank.
4. A steady dividend
DBS has kept its interim dividend at S$0.18 for 1Q2021, in line with the Monetary Authority of Singapore’s (MAS) call for banks to moderate their dividend payments in light of the crisis.
At S$0.18, the lender’s interim dividend is 45% lower than the S$0.33 paid out in 1Q2020.
The bank is awaiting more clarity from MAS on whether the dividend cap will be relaxed or lifted, as regulators in other jurisdictions have already softened their stance on banks’ dividend distributions.
CEO Gupta had mentioned at the bank’s full-year 2020 earnings briefing that it has “the capacity to pay more dividends”.
5. Multiple growth engines
Rather than just relying on loan growth and higher fee income, DBS has undertaken several initiatives to diversify its revenue streams.
The lender has undertaken two acquisitions in the last six months.
Back in November last year, it acquired Lakshmi Vilas Bank in India for around S$463 million to gain a stronger foothold there.
And just this month, DBS announced the acquisition of a 13% stake in a Chinese bank in Shenzhen for S$1.1 billion.
The bank has also started two new businesses, one of which is its new digital exchange that leverages blockchain technology to enable the trading of digital assets such as cryptocurrency.
The other is a new initiative announced just this week where DBS will partner with JP Morgan (NYSE: JPM) and Temasek Holdings to establish a platform that enhances digital payments and bank transfers.
Known as “Partior, which means “to distribute and share” in Latin, it is targeting for a launch in the third quarter of this year.
Get Smart: Geared up for growth
DBS has announced a blockbuster set of earnings for 1Q2021 as economic sentiment improves.
Although net interest income declined, it was offset by higher fee income and healthy loan growth.
Investors should also note that the bank has undertaken both acquisitive and organic growth strategies to set itself up for a post-pandemic future.
The lender is gearing itself up for growth in the years ahead as it awaits guidance from MAS regarding dividend curbs.
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Disclaimer: Royston Yang owns shares of DBS Group.