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DBS Reports Second-Highest Net Profit on Record: 5 Highlights from the Bank’s Latest Earnings

After reporting a blockbuster set of earnings for fiscal 2021 (FY2021), DBS Group (SGX: D05) has once again impressed with its latest set of earnings.

The lender released its business update for fiscal 2022’s first quarter (1Q2022) and reported a net profit of S$1.8 billion, its second-highest on record.

DBS managed this performance despite growing macroeconomic headwinds such as slower global growth, higher inflation and supply chain disruptions brought about by the Russia-Ukraine war.

Here are five highlights from the bank’s latest results.

A creditable financial performance

Net interest income for 1Q2022 came in at S$2.19 billion, up 4% year on year from S$2.11 billion.

However, net fee and commission income dipped by 7% year on year due to lower wealth management and investment banking fees.

As a result, the bank’s total income dipped 3% year on year to S$3.75 billion.

Expenses rose 4% year on year to S$1.64 billion, and profit before allowances declined by 7% year on year to S$2.1 billion.

DBS’ cost to income ratio stood at 43.9%, higher than the prior quarter’s 41.2% but significantly lower than the 50.7% chalked up in its previous quarter.

Net profit fell by 10% year on year to S$1.8 billion.

A rebound in net interest margin

Rising interest rates have led to DBS reporting a reversal in the downtrend for net interest margin (NIM).

NIM stood at 1.46% for 1Q2022, down slightly from the 1.49% reported a year ago.

However, it was 0.03 percentage points higher than the 1.43% for 4Q2021 and represents a potential rebound with interest rates creeping up.

At the same time, the bank also reported a healthy 8% year on year growth in its loan book to S$416.2 billion.

The growth in its customer loans more than offset the slight weakening of NIM for the quarter, resulting in a 4% year on year increase in net interest income.

Fee income moderates from a high

Gross fee income, however, took a dip from S$1.09 billion in 1Q2021 to S$1.02 in the current quarter.

The decline was led by a fall in investment banking and wealth management fees as markets turned volatile in 1Q2022.

Back in 1Q2021, market conditions remained buoyant, thereby attracting higher levels of activity for both areas.

Despite these declines, DBS saw loan-related fees and card fees increasing year on year, while transaction service fees also ticked upwards slightly.

Continued write-back of provisions

DBS made specific provisions of S$167 million for the quarter, 17% lower than the S$200 million set aside a year ago.

The lender continued to write back general provisions worth S$112 million due to credit upgrades, a sign that the economic recovery is gaining pace.

The bank’s general allowance reserve stood at S$3.75 billion, slightly above the requirement set by the Monetary Authority of Singapore.

DBS’ non-performing loans (NPL) ratio stood at 1.3%, unchanged with the previous quarter but down from the 1.5% reported in 1Q2021.

A S$0.36 quarterly dividend declared

In line with the good performance, DBS has declared a quarterly dividend of S$0.36 per share, unchanged on quarter on quarter basis.

Compared to a year ago, interim dividend doubled year on year from S$0.18 as Singapore’s central bank had lifted restrictions on dividend payments for the local banks in July last year.

Annualised dividend per share for DBS stands at S$1.44, and its shares offer a trailing 12-month dividend yield of 4.4%.

Get Smart: A cautious outlook

DBS CEO Piyush Gupta sounded a cautious tone as he warned that slower growth and supply chain disruptions remained key risks to watch for.

There was also lingering uncertainty related to COVID-19 as the world watches for potential variants of concern.

However, the bank had stress-tested vulnerable sectors and countries and this revealed no material worries for now.

He also assured us that China’s lockdown will have no material impact on the bank.

On the bright side, DBS’ loan book was expected to grow further in the second quarter, with the first half of 2022 projected to grow by around 3% to 4% year on year.

Fee income, however, could be further negatively impacted by market conditions.

However, the bank flagged “significant” earnings upside from a potentially faster pace of interest rate increases.

Each 0.01 percentage point increase in interest rates would translate to around S$18 million to S$20 million of additional net interest income for DBS.

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Disclaimer: Royston Yang owns shares of DBS Group.

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