DBS Group (SGX: D05) is the second of the trio of local banks to report its fiscal 2023’s first quarter (1Q 2023) earnings.
Last week, its peer United Overseas Bank Ltd (SGX: U11), or UOB, reported a record net profit of S$1.6 billion for the quarter.
DBS also did not disappoint, chalking up a record-high net profit of S$2.57 billion on the back of surging total income.
The lender’s return on equity (ROE) also hit a historical high of 18.6%, underscoring its strong franchise and resilience.
Here are five highlights from Singapore’s largest bank’s latest earnings report.
1. A stellar financial performance
DBS has split its business into “commercial book” and “treasury markets” to better showcase its results.
The commercial book division reported a 69% year on year surge in net interest income (NII) to S$3.4 billion, buoyed by higher interest rates that lifted the bank’s net interest margin (NIM).
Fee and commission income, however, dipped slightly by 4% year on year to S$851 million.
Other non-interest income jumped 22% year on year to S$432 million, helping to offset some of the fee decline.
Group total income climbed 34% year on year to S$4.9 billion, and was also 8% higher than the previous quarter’s (4Q 2022) S$4.6 billion.
Expenses only rose by 14% year on year, resulting in profit before allowances soaring 50% year on year to S$3.1 billion.
Net profit improved by 43% year on year to S$2.57 billion and was also 10% higher than 4Q 2022’s net profit of S$2.34 billion.
2. Fee income remained resilient
Fee income has held up well in 1Q 2023.
Wealth management fees dipped to S$365 million in 1Q 2023, down from S$408 million a year ago because of a high base in January 2022.
For February and March this year, these fees have remained stable year on year.
Loan-related fees remained fairly constant while transaction services fees fell slightly from S$240 million in 1Q 2022 to S$230 million in 1Q 2023.
These declines were mostly offset by a jump in card fees as travel spending increased with border reopenings.
Card fees increased by 21% year on year to S$227 million for the quarter.
3. Increasing net interest margin offset by flat loan growth
DBS’ NIM continued to improve on a year on year and quarter on quarter basis.
Group NIM came in at 2.12% for 1Q 2023, up 0.66 percentage points from 1Q 2022’s 1.46%.
This NIM was also 0.07 percentage points better than 4Q 2022’s 2.05%.
In contrast, UOB saw its NIM fall by 0.08 percentage points from 2.22% to 2.14%.
The lender’s loan book remained largely flat year on year at S$417 billion but was 1% higher than 4Q 2022’s S$414.5 billion.
DBS’ loan book was also impacted by foreign exchange effects; excluding these, its loan book would have grown by 3% year on year.
4. Cost to income ratio falls below 40%
With total income rising more than total expenses, DBS saw its cost-to-income ratio benefit.
For 1Q 2023, the cost-to-income ratio came in at 38.1%, significantly lower than the prior year’s 44.7%.
This achievement was impressive as the cost-to-income ratio had stayed above the 40% level for the whole of last year.
Deposits increased by around 1.8% year on year to S$576 billion, helped by a flight to safety that also saw net new money flow into DBS’ wealth management arm.
The Current Account Savings Account (CASA) balance stood at S$302 billion or around 52.4% of total deposits, a sharp drop from the 69.3% recorded in 1Q 2022.
However, this level of CASA was still higher than UOB’s 47.9% for 1Q 2023.
5. Declares a higher year-on-year interim dividend
In line with the robust results, DBS has declared an interim dividend of S$0.42, a 16.7% year on year increase from the prior year’s S$0.36.
The annualised dividend stands at S$1.68, giving the blue-chip bank a forward dividend yield of 5.1%.
Get Smart: A bright outlook despite the challenges
CEO Piyush Gupta sees healthy business momentum for the bank moving forward.
Loan growth is projected to be in the range of 3% to 5% year on year but could be negatively impacted by the government’s recent property cooling measures.
Management believes that fee income can achieve a high-single-digit year-on-year growth that is supported by the recovery in wealth management and investment banking.
Revenge travel should also ensure that card spending continues growing.
He believes that NIM may have peaked in 1Q 2023 and should gradually decline, bringing 2023’s NIM to between 2.05% to 2.1%.
The good news is that full-year ROE should stay above 17% while 2023’s cost-to-income ratio should remain below 40%.
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Disclosure: Royston Yang owns shares of DBS Group.
