DBS sees upside to 2025 profits under Trump administration

DBS expects its pre-tax profits for 2025 to be around 2024 levels, but chief executive Piyush Gupta sees potential upsides to its income under a Donald Trump administration in the US.

“The general view is that the Trump regime is more inflationary. If that is the case, then the monetary policy may stay tighter than currently projected, which helps our net interest margins (NIMs),” Gupta said at a briefing for the lender’s third-quarter results on Thursday (Nov 7).

Potentially higher interest rates should also benefit the repricing of DBS’ fixed asset book.

Gupta noted that the lender is currently assuming “very minimal benefit” from fixed asset repricing as its current assets are already “relatively well-priced”.

“(But with) the way that the yield curves are moving in the last 24 to 48 hours, we might be able to replace that at better conditions than we originally assumed,” he said.

Furthermore, Gupta noted that the lender is beginning to see some reversal in the outflow of its current and savings accounts (Casa), which should boost net interest income if it can get “substantially more Casa back”.

Gupta warned that if higher rates and tariffs were to come through, this may impact overall growth, and hit DBS’ balance sheet and loan growth.

Nevertheless, he noted that the bank has not forecasted very strong loan growth for next year – in the mid-single digit range.

“In general, our sensitivity shows that we benefit more from the interest rate than we give up on the balance sheet – when you put all of that together, the higher interest rate environment is generally better for DBS,” he said.

Net profit should be below 2024 levels, however, as the implementation of a 15 per cent global minimum tax will likely amount to around S$400 million for DBS, and put some drag on its bottom line.

Record Q3 results 

Gupta was speaking against the backdrop of yet another set of record quarterly results at the bank.

On Thursday, DBS said its Q3 net profit rose 17 per cent on year to S$3.03 billion from S$2.59 billion, exceeding the S$2.76 billion average forecasted in a Bloomberg analyst poll.

Total income rose 11 per cent to S$5.8 billion from broad-based growth.

On the commercial book level, net interest income rose 3 per cent to S$3.8 billion due to balance sheet growth and a stable NIM at 2.83 per cent.

Net fee and commission income also rose 32 per cent to S$1.11 billion, while other non-interest income grew 4 per cent on the year to S$517 million. Both increases were attributed to higher contributions from wealth management.

“The strong wealth management performance was a highlight this quarter,” said DBS chief financial officer Chng Sok Hui.

In Q3, assets under management (AUM) reached a new high of S$401 billion, with net new money inflow from high-net-worth individuals of S$6 billion during the quarter.

Gupta said flows have been diversified, from North Asia, South-east Asia, the Middle East and Europe.

Clients also continued to put more money to work – the percentage of investments across DBS’ AUM is up to 56 per cent in the quarter, Gupta noted.

Meanwhile, markets trading income grew 99 per cent on the year to its highest level in 10 quarters at S$331 million, driven by foreign exchange, interest rates and equity derivatives.

On the group level, NIM stood at 2.11 per cent, down from 2.14 per cent a quarter ago, due to declines in its markets trading segment.

The lender had deployed into products with inherent accounting asymmetry – these were accretive to non-interest income, but added funding cost in the interest line, Gupta noted.

As for asset quality, he said that the non-performing loan (NPL) ratio fell to 1 per cent from 1.1 per cent a quarter ago.

While DBS saw the formation of two new non-performing assets in China, it also had strong recoveries and repayments from three different categories in Q3.

These were recoveries from the oil and gas provisions that were made some years ago; as well as in assets related to the money laundering case in Singapore.

DBS also managed to monetise or refinance some Hong Kong and China property assets that were classified as NPL earlier in the year.

Looking ahead, Gupta expects 2025’s cost-to-income ratio will be in the low 40 per cent range. He also has a “prudent” specific provisions target of 17 to 20 basis points, although he is not seeing signs of stress so far.

Commitment to returning capital

DBS declared an interim dividend of S$0.54 per share, up from S$0.48 per share in the same period a year earlier.

Its board also established a new S$3 billion share buyback programme, where the bank’s shares will be purchased in the open market and cancelled.

This marks the first time that repurchased shares will be cancelled. Buybacks will be carried out at the management’s discretion, subject to market conditions.

The programme is part of DBS’ capital management initiatives, and should result in a “permanent lift” to earnings per share, and a higher return on equity.

Based on the bank’s balance sheet as at September 2024, the buyback should reduce its fully phased-in CET-1 ratio – of 15.2 per cent – by around 0.8 percentage point when completed.

Gupta noted that the lender “still (has) a lot of capital to return”. Post share buyback, he expects DBS will still have around S$3 billion to S$5 billion in capital to return.

“So we’re going to have to use all three engines, which are step-up dividends, special dividends, as well as buybacks to the extent that we can,” he said.

DBS deputy CEO and CEO designate Tan Su Shan affirmed that the lender will continue in its philosophy to pay out more to shareholders the more it earns.

“Our toolkit to return shareholder capital is being expanded. We have to be active in our capital management. We also have to be fairly on the ball, on where we see rates going,” she said.

Shares of DBS were up 6.9 per cent at S$41.86 as at 1.33 pm on Thursday.