DBS plans 'broader retail offering' on crypto exchange; Q3 profit up 31%

DBS D05 is looking to open its members-only crypto exchange to the broader retail market over the next year, the bank's chief executive Piyush Gupta said at its third-quarter results briefing on Friday (Nov 5). This is still subject to regulatory approvals, the bank later told The Business Times.

The DBS Digital Exchange has seen "very encouraging" performance in the past few months since it started operating round-the-clock in August, and now holds some S$600 million of assets under custody.

"That shows you how much demand there is for these activities as a business. Our intent over the next year is to continue broadening the customer base and to look at moving out of that narrow private banking space, into a broader retail offering. That is something we just need to wait and watch for," Gupta said.

The exchange currently serves about 500 institutional and accredited investors, and Gupta had previously said the bank was targeting to grow this base to about 1,000 by the end of this year. It launched in December 2020 and was initially operational only between 9am and 4pm.

The bank reported a net profit of S$1.7 billion for Q3 FY2021, rising 31 per cent from a year ago due to higher loans and fee income. This beat analyst estimates of S$1.6 billion, based on forecasts compiled by Refinitiv.

The board has declared an interim dividend of S$0.33 per share, amounting to an estimated dividend payable of S$848 million and bringing the dividend for 9M FY2021 to S$0.84 per share.

Gupta said the bank saw overall credit portfolio improvements in the third quarter, both in terms of upgrades and repayments of its exposures. A general allowance write-back of S$138 million was made in the third quarter, bringing the 9-month write-back to S$413 million.

The chief executive sounded a positive outlook on his bank's credit portfolio, noting that total loans under moratorium are now about 0.5 per cent of its total loan book, and that the bank does not foresee any pickup in delinquencies.

"Asset quality continues to be resilient and total allowances are likely to remain low. These positives will offset expected cost pressures as the economic recovery takes hold," he said.

Loans for Q3 grew 2 per cent over the quarter or 2 per cent in constant-currency terms to S$405 billion.

DBS also reported a 1 per cent growth in net interest income to S$2.1 billion.

Net interest margins fell 2 basis points to 1.43 per cent compared to a year ago due to lower market interest rates. Compared to a year ago, net interest income was 3 per cent lower as a 10 basis point decline in net interest margin was moderated by a broad-based loan growth of 9 per cent.

Net fee income was up 2 per cent from the previous quarter to S$888 million, the second highest on record, with growth across most activities. Wealth management fees, transaction services fees and card fees rose across the board but were moderated by declines in investment banking fees and loan-related fees.

Other non-interest income fell 6 per cent from a year ago to S$569 million, but was 10 per cent lower than the previous quarter due to high trading gains being more than offset by the decline in investment gains.

Gupta expects DBS's loan growth for 2021 to top out with an additional percentage point in the last quarter, rounding up to about 9-10 per cent this year.

While acknowledging uncertainties around supply chain bottlenecks, he expects business momentum to continue, as he noted that manufacturing and capacity utilisation may have gone down in some areas but this is "not material". He is expecting about 6-7 per cent loan growth in the coming year.

"If you look at our pipelines across the region, there has been growth. In particular, we will see good loan growth come out of places like India next year, which we think should be quite helpful.

"In a normal year pre-pandemic, we were seeing 4-5 per cent loan growth. This year, it'd be 9-10 per cent. But for next year, I don't see 9-10 per cent repeating, because we don't have the low-base effect. But somewhere in between, about 6-7 per cent loan growth is quite possible."

Rising interest rates could prove another upside to the bank, said Gupta, noting that a pickup in rates has already been observed last month after hitting an all-time low in September.

Globally, the Federal Reserve on Wednesday laid out its plans to start tapering the pace of its asset purchases later this month as it pulls back on pandemic aid.

Gupta said: "The underlying question is how many rate increases will we see from the Fed. The short answer is, I don't know... Certainly the market is pricing in two-and-a-half rate increases next year. Based on what Powell is saying, you might not see two to three increases, you might see one to two rate increases though. And if that happens, some of it will filter through in Singapore and some economies might even front run some of the increases."

One uncertainty as to how this will translate to domestic borrowing rates is Singapore's benchmark interest rates reform, Gupta said.

The transition from the Singapore Dollar Swap Offer Rate (SOR) to the Singapore Overnight Rate Average (SORA) will see domestic rates be less dependent on foreign exchange policies and swap points between USD and Singdollar, and driven more by Singapore's market liquidity conditions instead, he said.

DBS has also seen positive business momentum across its regional markets, Gupta noted, highlighting in particular the bank's platforms in growth areas like India and China. The smooth integration of Lakshmi Vilas Bank into DBS Bank India will enhance growth potential of its India franchise, he said, noting that the bank will fork out about S$100-150 million into this market.

On China, the bank should expect to see a "healthy uplift" to its economics when its stake in Shenzhen Rural Commercial Bank is to be equity accounted from the fourth quarter, given that it has received the necessary approvals.

The latest set of results brings DBS's nine-month net profit to S$5.4 billion, up 46 per cent, with Q1, Q2 and Q3 FY2021 being the three highest in history.

DBS shares closed at S$32.29 on Friday, up 8 cents or 0.25 per cent.

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