DBS Group (SGX: D05) is the first of the trio of local banks to report its 2023 earnings.
The lender did not disappoint.
The blue-chip bank reported a record net profit for the year as higher interest rates boosted its net interest income and margin.
In line with the good results, DBS upped its quarterly dividend to S$0.54 per share and declared a 1-for-10 bonus issue.
Here are five highlights from the bank’s latest earnings report.
1. A record net profit
For the fourth quarter of 2023 (4Q 2023), DBS saw total income rise 9% year on year to S$5 billion, led by a 7% year-on-year increase in net interest income (NII) for its commercial book segment.
Expenses, however, rose 12% year on year to S$2.2 billion, resulting in profit before allowances improving by 7% year on year to S$2.8 billion.
Net profit came in at S$2.3 billion, down 3% year on year, and was impacted by a one-time integration expense of S$24 million for Citigroup’s (NYSE: C) Taiwan consumer banking division along with a S$100 million corporate social responsibility (CSR) commitment.
Excluding these items, net profit would have been 2% higher than the prior year at S$2.4 billion, though this level of profit was 9% below the previous quarter’s S$2.6 billion.
For 2023, DBS broke several records.
Total income came in at S$20.2 billion, a new high, as NII jumped 33% year on year to S$14.3 billion.
Profit before allowances was also at a record high of S$12.1 billion, up 29% year on year.
Net profit stood at S$10.1 billion, 23% higher than a year ago and setting yet another record for the lender.
2. A slight decline in NIM with flat loan book
The group’s net interest margin (NIM) increased from 1.75% in 2022 to 2.15% in 2023, with the rise attributed to the surge in interest rates last year.
For 4Q 2023, NIM came in at 2.13%, slightly higher than 4Q 2022’s 2.05%.
However, this level of NIM was lower than the previous quarter’s 2.19%.
The decline was because of higher deposit rates imposed in 3Q 2023 along with pressure from Treasury markets.
DBS’s loan book remained flat year on year at S$416.2 billion and would have risen 1% year-on-year assuming constant currency.
Citi Taiwan contributed S$10 billion to the loan book; excluding this, loans would have dipped by 1% year on year.
Trade loans made up the bulk of the decline with an 8% year-on-year drop due to lower activity and unattractive pricing.
There was also a shift in China corporate borrowing to cheaper onshore options that impacted loan growth.
3. Healthy growth in fee income
Fee income did well, rising by 11.5% year on year in 2023 to S$4.1 billion.
Wealth management fees increased by 13% year on year to S$1.5 billion as net new inflows boosted the bank’s assets under management (AUM), a shift from deposits into investments and insurance products, and contributions from Citi Taiwan.
DBS’s wealth management AUM increased by 23% year on year to an all-time high of S$365 billion with customers increasing by 50% to 18 million.
Card fees grew by 22% year on year to S$1 billion, also a record high, on increased spending along with contributions from Citi Taiwan.
Trade finance activities slowed, though, resulting in a fall in fee income from S$929 million to S$896 million for transaction services.
4. Corporate social responsibility and accountability for digital disruptions
DBS is doing its part in giving back to the community.
The bank recently announced a corporate social responsibility (CSR) commitment of S$1 billion over 10 years to support vulnerable communities, with the first tranche of S$100 million set aside from 2023’s profits.
The first initiative from this CSR pledge is a S$30 million partnership with the Ministry of Social and Family Development to help underprivileged families with children living in rental flats.
The bank also held the CEO and group management committee accountable for last year’s digital disruptions.
This group’s collective variable compensation was reduced by 21% year on year despite the bank’s record profits.
CEO Piyush Gupta suffered a sharper reduction of 30% amounting to S$4.1 million.
5. An increase in dividends along with a bonus issue
In line with the strong results, DBS has increased its quarterly dividend from the previous quarter’s S$0.48 to S$0.54 per share.
This level of dividend is also nearly 29% higher than the S$0.42 paid out for 4Q 2022.
The total ordinary dividend declared for 2023 amounted to S$1.92, higher than the total ordinary dividend of S$1.50 paid in 2022.
2022 also included a special dividend of S$0.50 per share.
The lender also announced a bonus issue of one share for every 10 shares held, and these bonus shares will qualify for dividends starting from the first interim dividend of 2024.
Assuming an annualised dividend of S$2.16 per share and accounting for the bonus issue, this will represent a 24% year on year increase in DBS’s ordinary dividends.
Get Smart: A sanguine outlook for 2024
DBS is maintaining its guidance for NII in 2024 to be around 2023 levels, supported by the full-year impact of the consolidation of Citi Taiwan.
NIM, however, may come in slightly lower than 4Q 2023’s 2.13%.
On a positive note, the lender expects fee income to grow by double-digits with more card spending and strong money inflows.
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Disclosure: Royston Yang owns shares of DBS Group.
