Two changes to the results disclosure format were introduced for DBS Group Holdings’ 4QFY2022 ended December results announcement. The banking group has separated its commercial book’s net interest income, fee income and non-interest income from the treasury and markets (T&M) division net interest income and non-interest income.
“The profit and loss items for treasury markets were already previously available in the business units section of the performance summary, so the information is not new. What the format change does is to improve the transparency of the performance for institutional banking and consumer banking and wealth,” says Chng Sok Hui, DBS’s group CFO.
Rising interest rates are unfavourable for Treasury markets revenue. This is due to higher funding costs for its non-interest bearing and mark-to-market assets where the returns are shown under the non-interest income line, as well as leading to net interest margin compression for fixed income instruments.
“The commercial book therefore better represents the underlying net interest income trends of the group,” Chng says. The new disclosure includes the commercial book’s net interest margin and interest-earning assets which are additional data to enable the market to understand the key drivers of its net interest income. The revised format is in line with global banks which have already adopted such disclosure formats for some time.
Chng points out that the net interest income derived from higher interest rates incurred by Treasury markets is generally offset by gains in other non-interest income.
“It is for this reason that our guidance for Treasury markets has always been on the total income basis. The current guidance is for Treasury markets total income to average $275 million per quarter, or $1.1 billion a year consistent with previous guidance,” she says.
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The second change is how the income from associates and joint ventures is recorded. Previously, it had been classified as other non-interest income because the amount was not material. However, Shenzhen Rural Commercial Bank in which DBS has a 13% stake is becoming more material. In FY2022, the Shenzhen bank contributed $207 million to profit before tax, up 90% y-o-y.
However, the change in format has a minor impact on the reported cost-to-income ratio amounting to a rise of 0.3 percentage points in 4QFY2022, to 42.8%.
