DBS confident about strong fee income growth in H2 2023, but warns loans may slow

FEE income growth for Singapore’s largest lender is expected to remain “quite robust”, said DBS CEO Piyush Gupta in the Q2 earnings announcement on Thursday (Aug 3). 

He expects growth in the segment to come from higher card spending, as well as an expansion in the bank’s wealth-management segment. 

This comes after DBS recorded a 7 per cent rise in its second-quarter commercial book net fee income to S$823 million – the first year-on-year increase in six quarters. 

On the year, wealth-management fees rose 12 per cent to S$377 million from higher bancassurance and investment product sales, while card fees were up 17 per cent to S$237 million from higher spending, including for travel. 

Gupta noted that DBS’ customers’ expenditure on travel as a percentage of card spend was only at about 13 per cent, where it used to be around 15 per cent pre-Covid. 

“So we still think there’s an opportunity to get some more uses as the travel market continues to grow.”

On a quarterly basis, the net fee income was down 3 per cent, as improvements in wealth management and card fees were offset by lower investment banking, transaction service and loan-related fees. 

The lender has been hit by higher funding costs due to rising interest rates this year, leading to a negative drag on profitability of the bank’s assets. 

But its key metrics on assets, such as non-performing loan ratio, remained at 1.1 per cent, the same as last quarter’s. 

DBS on Thursday posted a record net profit of S$2.6 billion – up 45 per cent year on year from S$1.8 billion, and a historic high of 19.2 per cent on its return on equity.

Notwithstanding one-off integration costs of S$60 million accrued from the acquisition of Citigroup’s Taiwan consumer banking business, quarterly net profit would have been up 48 per cent to a record S$2.7 billion.

Meanwhile, net interest margin (NIM) at the group level stood at 2.16 per cent, up from 1.58 per cent in Q2 FY2022. At the commercial book level and excluding treasury markets trading income, NIM gained 96 basis points (bps) on the year, and was up 12 bps from the previous quarter to 2.81 per cent. 

Total income for the quarter also crossed the S$5 billion mark, with commercial book total income up 40 per cent on the year to S$4.9 billion on broad-based growth.

On the back of these results, DBS announced it would pay out a dividend of S$0.48 per share, up S$0.06 from the previous payout – bringing this year’s H1 dividends to S$0.90. 

Gupta said he expects loan growth to remain slow in the second half, noting that loan growth dipped into negative territory in the second quarter. 

“I do think that for the full year, we’ll still get a low, single-digit loan growth, but it won’t be the earlier guidance,” he added. 

DBS had earlier forecast a loan growth of between 3 and 5 per cent, which Gupta said was now unlikely. 

This has to do with the fact that loans within the banks’ booking centres in Hong Kong have shifted back to China, due to the lower rates and a steep depreciation of the renminbi against the US dollar, he said.

However, Singapore could also stand to benefit from the geopolitical tensions surrounding China and its tepid economic growth, arising from an influx of wealth into the country.

For the six months ended Jun 30, DBS reported S$12 billion of net new inflows – half of which came from North Asia.

Chinese companies have also been opening up treasury centres and operations in Singapore as well, Gupta noted.

“It’s not just the Western companies doing it in China... but even the Chinese companies are doing China plus one. So we benefit from that as well.”

Shares of DBS ended Wednesday (Aug 2) down S$0.56 or 1.6 per cent at S$33.84.