DBS Q2 net profit up 37%, loan book resilient amid Covid resurgence
D05 maintains a "very high" degree of confidence going into the second half of 2021, with full-year allowances unlikely to exceed S$500 million even as Covid-19 infections make a resurgence across Asean, said its chief executive officer Piyush Gupta.
Net profit for the second quarter ended June 30, 2021 rose 37 per cent to S$1.70 billion, as the lender joined its peers in posting a smaller allowance from the year-ago period.
At a media briefing on Thursday, Mr Gupta noted that macroeconomic data such as PMI (Purchasing Managers' Index) and GDP (gross domestic product) growth suggest that impact from rising Covid cases in Asean is not translating into the bulk of economic activity in the region.
"Isolated sectors (such as food and beverage and tourism) tend to suffer, but certainly if you look at the nature of our book, our actual exposure to those sectors is very small. The bulk of our exposure (includes) manufacturing, TMT (technology, media and telecommunications) and property. Property prices are on fire around the world," he said.
DBS' allowances in the second quarter stood at S$79 million, down 91 per cent from the year-ago period. This included a general provision write-back of S$85 million - lower than compared with that of the last quarter of S$190 million.
While markets like Indonesia and Malaysia are buckling under a fresh wave of infections, Mr Gupta stressed that overall impact on loan book is more driven by business segments over geographical mix.
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"It's quite helpful that we have a disproportionately large part of our portfolio in the large corporate and secured business segments. Our exposure in the SME and consumer segment - excluding the mortgage book in Singapore which is fine - is really not very large.
"If you look at some of the other banks in the region, they do have larger exposures in South-east Asia and also large SME books in some of those countries. That might have some bearing," he said.
Year to date, DBS' loan book increased by 6 per cent to S$403 billion on broad-based growth. Non-trade corporate loans, at S$231 billion, accounted for more than half of the book.
The bank declared a quarterly dividend of S$0.33 per share, restoring dividend payout to its pre-pandemic level. This brings its first-half dividend payout to S$0.51 per share. It has also suspended its scrip dividend scheme.
Net interest income was 9 per cent lower than a year ago, as a 17 basis points fall in net interest margin (NIM) more than offset broad-based loan growth. NIM stood at 1.45 per cent.
Compared to a year ago, fee income grew 27 per cent to S$868 million as all activities increased by double-digit percentages.The growth was led by a 31 per cent rise in wealth management fees, a more than doubling in investment banking fees, and a 26 per cent increase in card fees as financial market activity and consumer spending recovered from the trough a year ago.
Mr Gupta reckoned that capital market activity will be "fairly solid" in the second half, in part lifted by record low interest rates.
He added: "With all the tensions between China and US, I think you'll start seeing a lot more listings in Hong Kong and China and that will help the general sentiment as well."
Other non-interest income came in at S$632 million in Q2, 15 per cent lower than a year ago, and 20 per cent below the previous quarter.
The declines were due to lower trading income in comparison to the two strongest trading quarters on record and to higher investment gains a year ago.
Profit before allowances was 9 per cent lower than a year ago, as higher business volumes were more than offset by a lower NIM and a decline in investment gains.
Non-performing loan ratio stood at 1.5 per cent, unchanged over both the quarter and the year-ago period.
At the briefing, DBS chief financial officer Chng Sok Hui said loans under moratorium and delinquencies have not changed since March. First-half new non-performing asset formation has fallen to pre-Covid levels and was significantly offset by repayments.
Mr Gupta added: "The delinquencies are looking fairly decent. We're not seeing a big pickup in people's inability to pay once they come off moratorium."
Still, there is some uncertainty in the consumer book, with cards-related delinquencies up in Taiwan and Indonesia's numbers at risk of weakening towards the end of the year.
"But we could see some upside. We certainly don't think we will exceed half a billion dollars on the provision line. While risks remain, our pipeline remains healthy and we expect business momentum to be sustained in the coming quarters," said Mr Gupta.
New initiatives are expected to bring in revenues of around S$350 million next year, with the bulk of that coming from DBS' takeover of Lakshmi Vilas Bank and its stake in Shenzhen Rural Commercial Bank.
It is in the process of reviewing Citi's consumer assets up for sale in Asia, notably in India, Indonesia and Taiwan. "We're mindful of making sure we do transactions that can be accretive in a reasonable period of time," said Mr Gupta.
With the bank "sitting on surplus capital", there is "some cushion" without having to raise fresh capital for future deals, he added.
DBS' CET-1 (Common Equity Tier 1) ratio stood at 14.5 per cent as at June 2021, up from 13.9 per cent last December.
Other new businesses include the DBS Digital Exchange, Climate Impact X and Muzinich Fund. The bank is also accelerating growth in retail wealth, supply chain financing and its securities joint venture in China.
The Monetary Authority of Singapore (MAS) in late July lifted its dividend cap on locally-incorporated banks and finance companies based in Singapore.
In July and August last year, the regulator had called on local banks and finance companies to respectively cap their total dividends per share (DPS) for FY2020 at 60 per cent of FY2019's DPS, and offer shareholders the option of receiving the remaining dividends to be paid for FY2020 in shares in lieu of cash.
With DBS closing the results season, all three Singapore banks have restored their dividend payouts to pre-pandemic levels. Analysts have expected the banks - which are highly capitalised - to be able to normalise their payouts, following the lift in dividend cap by the regulator.
DBS shares closed S$0.22 or 0.7 per cent higher at S$30.80 on Thursday.
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