DBS raises dividends amid record Q4 profit; CEO expects FY2023 outlook to remain robust

DBS shareholders are in for a bumper payout, after the company announced it intends to pay a special dividend on top of a higher final dividend, for its fourth quarter ended Dec 31, 2022.

Singapore’s largest lender posted record results for the period, with earnings up 69 per cent to S$2.34 billion. Speaking at the bank’s results briefing on Monday (Feb 13), chief executive Piyush Gupta expressed optimism for 2023 on the back of strong asset quality and sustained loan momentum.

While Gupta thinks interest rate hikes will moderate in 2023, he does not expect any rate cuts in the year. Confidence will likely also return to markets as China reopens.

Gupta noted that the bank is maintaining its full-year guidance for a mid to single-digit loan growth and a double-digit fee income growth for FY2023.

DBS’ fourth quarter earnings had beat the S$2.16 billion average estimate in a Refinitiv survey of three analysts.

This came as DBS’ total income rose 41 per cent to a record S$4.6 billion on higher net interest income. Trading income and investment gains also improved from a low base, the bank said.

To reflect its improved earnings profile and strong capital position, the bank is recommending a final dividend of S$0.42 per share, which is S$0.06 higher than its previous payout, as well as a special dividend of S$0.50 per share.

Together with the interim dividend of S$1.08, this would bring total dividends for the year to S$2 per share.

For the three months ended Dec 31, 2022, net interest income for the bank’s commercial book operations grew 74 per cent to S$3.4 billion. Net fee income was down 19 per cent to S$661 million on lower wealth management and investment banking fees, while other non-interest income rose 13 per cent to S$320 million due to an increase in treasury customer sales. 

Net interest income from treasury market operations was a negative S$125 million, although non-interest income jumped to S$329 million, compared with S$12 million. As a whole, total income for the segment improved by 6 per cent to S$204 million.

The bank’s group net interest margins (NIM) rose to 2.05 per cent for the quarter, from 1.43 per cent in the year-ago period, as commercial book NIM rose to 2.61 per cent from 1.61 per cent.

Gupta said DBS’ peak group NIM guidance of 2.25 per cent may experience downside risk from outflows to Treasury bills, a stronger Singapore dollar and higher treasury market funding costs.

But he expects the group’s commercial book NIM will continue to be supported by lagged asset repricing. The bank separated its NIM classification into commercial book and treasury markets to better reflect the performance trends of its customer franchise.

Gupta sees upsides to the bank’s current cost growth guidance of 9 to 10 per cent.

He noted that in the fourth quarter, the group made one-off payments to staff, and accelerated the impairment of some of its technology spent that “did not seem to be that effective”.

DBS’ return on equity hit a new quarterly high of 17.2 per cent in Q4 2022, up from 9.9 per cent in Q4 2021. According to Gupta, this is also 4 percentage points higher than when the bank’s NIM was last at current levels.

Gupta said: “The difference reflects a structural change in the nature of the bank. It reflects both the change in income mix as well as some of the outcomes of the transformation agenda that we’ve laid out over the last decade or so.”

The bank’s non-performing loans ratio also improved to 1.1 per cent in the quarter, compared with 1.3 per cent in the same period a year ago.

In the quarter, new non-performing asset formation was more than offset by repayments and write-offs, as well as currency effects. Specific allowances fell to six basis points of loans, and there was a general allowance write-back of S$116 million due to transfers to non-performing assets, upgrades and repayments.

The bank lowered its FY2023 guidance for specific allowances to 10 to 15 basis points, from 15 to 20 basis points.

Gupta said while the bank had been concerned with rising rates in the third quarter, it was “quite clear that things are not looking that bad” by the end of 2022. He noted that the lender’s loan books remain robust, with no material signs of weakness in any of its portfolios anywhere.

He added that DBS has sufficient general allowances and management overlay buffer that it has not touched to cushion idiosyncratic risks.

On DBS’ exposure to India’s Adani Group, Gupta noted that the bank has an exposure of around S$1 billion to finance cement companies, and around S$300 million to a range of different businesses within the group.

Gupta said the bank is “not concerned about the exposure” as long as the finances are ringfenced. He also noted that the cement companies are cash-generating, while the other companies also have secure cashflows.

Gupta added that the lender does not have exposure to any of the shares of Adani, thus it is not affected by its changes in share prices.

The Q4 results bring DBS’ net profit for the second half of 2022 to S$4.6 billion, up 48 per cent from the previous year. Total income for the period reached a new high, rising 34 per cent to S$9.1 billion, as net interest income saw a boost from higher interest rates.

For the full year ended Dec 31, net profit was up 20 per cent to a record S$8.2 billion. Total income climbed 16 per cent to S$16.5 billion, passing the S$16 billion mark for the first time. The bank said it booked higher net interest income from its commercial book operations, which more than offset a decline in non-interest income.

Total allowances for the full year rose to S$237 million from S$52 million due to higher general allowances.

Senior management changes

Separately, in a statement after market close, DBS said it appointed Shee Tse Koon, its country head of DBS Singapore, as its new group head of consumer banking (CBG) and wealth management.

The appointment, which will take effect on Apr 1, comes after the bank said its current group head of CBG and wealth management Sim S Lim is retiring from executive duties. Lim, who has been at the bank since 2010, will stay on as a senior advisor.

DBS also announced other senior level rotations, effective on Apr 1. Han Kwee Juan, its current group head of strategy and planning, will take over the role of Singapore country head.

Lim Him Chuan, chief executive of DBS Bank Taiwan, will return to Singapore and take over as group head of strategy and planning; and Ng Sier Han will take over as chief executive of DBS Bank Taiwan from his current role as director of integration for Taiwan.

Meanwhile, Sebastian Paredes, who is chief executive of DBS Bank Hong Kong, will also assume the newly-created role of head of North Asia, on top of his current role. His new role will have oversight of Hong Kong, China and Taiwan, and “underscores the importance of the region”, DBS noted.

Commenting on the management changes, Gupta said they “reflect DBS’ deep bench strength and our grooming of talent from within”.

Shares of DBS closed 2 per cent or S$0.71 lower at S$35.32 on Monday.