DBS Group’s net profit crossed the $10 billion mark for the first time in FY2023, rising 26% y-o-y to $10.3 billion. Total income grew 22% to $20 billion on the back of higher net interest margin (NIM) of 2.15% for the full year, a rebound in fee income and record treasury customer sales. ROE rose to 18%, a new high, from 15%.
Shareholders are likely to cheer the board’s proposal to raise the final dividend to 54 cents in 4QFY2023, up 6 cents q-o-q. The full-year dividend is $1.92. Going forward, the quarterly dividend is likely to be raised to 54 cents translating into full-year dividend of $2.16 a year. Based on the closing price on Feb 2, DBS’s dividend yield is 7.5%.
DBS’s board has also proposed a 1-for-10 bonus issue. The bonus shares will qualify for dividends starting in 1QFY2024 and “will increase the pace of capital returns to shareholders”, the DBS results release says.
“The stepped-up capital returns reflect the group’s strong capital position and are in line with the policy of paying sustainable dividends that rise progressively with earnings,” the DBS announcement says.
Net fee income for FY2023 was up 9% y-o-y to $3.38 billion, led by higher fees from cards and wealth management. Treasury customer sales and other income grew 18% y-o-y to $1.78 billion.
Net interest income (NII) under DBS’s commercial book business rose 33% to $14.3 billion as NIM expanded 65 basis points to 2.76% from higher interest rates. The improvement in NIM resulted from the repricing of assets with higher interest rates. Although deposit costs also increased, the pace was slower compared to asset yields.
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Loans rose 1% or $6 billion in constant-currency terms to $416 billion. Excluding Citi Taiwan, which contributed $10 billion, underlying loans fell 1% or $4 billion.
Trade loans accounted for most of the decline, falling 8% or $3 billion due to lower activity and unattractive pricing. Non-trade corporate loans were stable at $246 billion.
Despite a healthy loan pipeline, rising interest rates led to higher repayments. Additionally, there was a shift in China corporate borrowing to cheaper options onshore in the first half.
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Deposits for the full year grew 3% y-o-y $535 billion. Citi Taiwan contributed $12 billion, while underlying deposits were stable. Casa outflows decelerated compared to the previous year and were replaced by fixed deposits.
Net fee income from its commercial book business rose 9% y-o-y to $3.38 billion. Card fees grew 22% y-o-y to $1.04 billion from higher spending as well as the integration of Citi Taiwan.
Wealth management fees increased 13% y-o-y to $1.51 billion, reflecting strong net new money inflows, a shift from deposits into investments and bancassurance and contribution from Citi Taiwan.
Fee income from other activities rose 4% y-o-y as higher loan-related fees were partially offset by weaker transaction service fees as trade finance slowed.
Commercial book other non-interest income increased 18% to $1.79 billion as treasury customer sales reached a record. Treasury markets total income declined 38% to %725 million due to higher funding costs.
Expenses for the full year rose 14% y-o-y to $8.06 billion, led by an increase in staff costs from salary increments and a higher headcount. Excluding Citi Taiwan and non-recurring technology and other costs, expenses rose 10% y-o-y and the underlying cost-income ratio was 39%. Profit before allowances grew 29% y-o-y to a new high of $12.1 billion
For its 4QFY2023, total income rose 9% y-o-y to $5.01 billion from higher NII and fee income, resulting in a 7% increase in profit before allowances to $2.8 billion. Total allowances of $142 million were higher than a year ago, when there had been a general allowance write-back.
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Compared to the preceding quarter, net profit declined 9% due to a lower NIM, seasonally lower non-interest income and increased expenses.
Non-performing assets declined 5% from the previous quarter to $5.06 billion while the non-performing loan (NPL) ratio improved from 1.2% to 1.1%. New non-performing asset formation fell and was more than offset by repayments and write-offs.
Specific allowances for the fourth quarter remained low at $139 million or 11 basis points of loans, bringing the full-year amount to $512 million or 11 basis points of loans. General allowances of $3 million were taken in the fourth quarter and $78 million for the full year, compared to write-backs for both corresponding periods a year ago.
Allowance coverage stood at 128% and at 226% for 4QFY2023 and FY2023 respectively, after considering collateral.
As at Dec 31, 2023, DBS’s Common Equity Tier-1 ratio stood at 14.6%, while the leverage ratio of 6.6% was twice the regulatory minimum.
As part of a recently announced CSR commitment of up to $1 billion over 10 years to support vulnerable communities, an inaugural contribution of $100 million was set aside from the year's profits. Hence in 4QFY2023, net profit, including the $100 million CSR commitment and the one-off costs for the Citi Taiwan's integration, fell by 3% y-o-y and 12% q-o-q to $2.269 billion.
DBS’s Board determined that the variable compensation for the CEO and other members of the Group Management Committee should be cut to hold them accountable for the series of digital disruptions during the year. Their 2023 variable compensation was collectively reduced by 21% from the previous year despite record 2023 profits. The CEO took a deeper cut of 30%, which amounted to $4.14 million.
DBS says it has made a whole-of-bank effort and committed $80 million to implementing its technology uplift and resilience roadmap. “These efforts will enable the bank to better pre-empt disruptions to its services, provide customers with alternate channels for payments and account enquiries during disruptions,” DBS says.
