DBS Group Holdings CEO Piyush Gupta will step down in March 2025, concluding a tenure that began in November 2009 and will last nearly 16 years. The bank has appointed Tan Su Shan as deputy CEO in addition to her present role as group head of institutional banking.
Tan, who will be the first CEO appointed from within DBS, joined the bank in 2010. She has experience in wealth management, consumer banking and institutional banking, including the wholesale and other divisions that make the largest contribution to DBS’s earnings. She will succeed Gupta, who is set to retire at the bank’s next AGM on March 28, 2025. Like Gupta, Tan is also a former Citibank employee.
DBS announced the news on Aug 7, at the start of its results briefing for 1HFY2024, which ended June 30. In her introductory speech to the media, Tan highlighted the "4Cs" — culture, customers, collaboration and continuity.
Tan says: “I think the biggest and best thing we can do to celebrate Piyush’s legacy is to continue the path that he has led us on, which is one of transformation, innovation and growth. So I’m hopeful that with the continuity and the leadership of the team, myself, [chairman] Peter [Seah] and the board, we’ll continue his legacy.”
She adds that she has big shoes to fill, but hers are “different shoes”. “Our styles may be different, but some things will not change going forward.” Tan has the support of the bank’s chairman. Seah, who joined the board in November 2009 and assumed the role of chairman in May 2010, says: “Su Shan is the first homegrown person within the bank to succeed as CEO of DBS. So, we’re particularly pleased that our years of robust talent management have enabled us to produce an internal successor.”
When Gupta was appointed DBS’s CEO, he took over from a bank that made $2 billion a year to a record-breaking $10 billion in FY2023. Under his leadership, DBS has become the largest company listed in Singapore. During his 15-year tenure, the bank achieved several milestones, including surpassing $100 billion in market capitalisation following record results in 1Q2024.
See also: DBS and Japan Finance Corporation sign MOU to support regionalisation of Japanese SMEs
In an interview with The Edge Singapore in August 2023, Gupta noted that his longevity was a “low bar” to pass. None of Gupta’s four predecessors were in the role for more than five years. In the year Gupta joined DBS, the bank had five CEOs over the previous decade.
During the same briefing, he revealed that his decision to retire was made during the Covid-19 pandemic in 2020. Gupta adds: “[The pandemic] gave me a chance to reflect on what to do with my life and the next phase of my life. So, in 2021, I told the board that 65 is a good time to retire. To me, 43 years of a banking career, 15 years of having run DBS, it would be a great time to pass the baton.”
2QFY2024 profit beats forecasts
See also: Trust Bank to launch TrustInvest in 2025
The bank reported a net profit of $2.8 billion for 2QFY2024 ended June 30, 4% higher y-o-y, beating the consensus estimate of $2.72 billion. For the quarter, the return on equity (ROE) was 18.2%, down from 19.2% in 2QFY2024.
For 1HFY2024, the bank’s net profit reached a new high of $5.76 billion, 9% higher than last year’s record figure. Its ROE for the six months stood at 18.8%. Earnings per share (EPS) for 1HFY2024 stood at $4.05.
DBS has declared a 54 cents per share dividend for 2QFY2024, bringing 1HFY2024 dividend to $1.08 per share. This is up from 90 cents this time last year. 1HFY2024 total income rose by 11% y-o-y to $11.04 billion thanks to growth in the bank’s commercial book total income and offset by lower markets trading income.
Commercial book total income was up by 11% y-o-y to $10.61 billion. Net interest income (NII) grew by 6% y-o-y to $7.42 billion due to growth in the balance sheet and a slightly higher net interest margin (NIM) of 2.83%, 2 basis points (bps) higher y-o-y and 6 bps higher q-o-q.
For 1HFY2024, group NIM was unchanged at 2.14% y-o-y, while commercial book NIM was up 5 bps to 2.80%. Loans grew by 1% to $425 billion, led by trade and non-corporate loans. Deposits also increased by 2% to $551 billion in constant currency terms.
Current account and savings account (Casa) outflows slowed from the previous year, offset by an increase in fixed deposits. However, Casa continued to decline, reaching $278 billion as of June 30.
DBS’s high-quality liquid assets (HQLA) continued to grow during the quarter to $161 billion, up from $151 billion as of March 31 and $149 billion this time last year. In 1HFY2024, net fee income reached a new high, surging by 25% y-o-y to $2.09 billion. In 2QFY2024, fee income rose on a y-o-y basis due to wealth management, cards and loan-related fees.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Other non-interest income (non-II) under the commercial book rose by 23% y-o-y to $1.1 billion from record fee income and treasury customer sales, which also reached a new high. Excluding non-recurring gains, other non-interest income was up by 12% y-o-y.
Markets trading income fell 3% y-o-y to $433 million as NII saw a deeper loss of $317 million, 21% higher than the loss of $261 million in the year before. Non-interest income rose by 6% y-o-y to $750 million. DBS’s cost-to-income ratio stood at 38.5% during 1HFY2024, up from 38.2% in the corresponding period the year before.
In 2QFY2024, non-performing assets (NPA) fell 3% from the previous quarter to $5.08 billion as new NPA formation was more than offset by repayments and write-offs. The non-performing loan (NPL) ratio stood unchanged at 1.1%.
Specific allowances for 2QFY2024 amounted to $97 million, or 8 bps of loans, bringing 1HFY2024 amount to $210 million, or 9 bps. General allowances of $51 million were taken in 2QFY2024 and $73 million for 1HFY2024.
In 2QFY2024, total allowances as a percentage of NPA rose slightly to 129% from 125% in the previous quarter, while total allowances as a percentage of unsecured NPA rose to 227% from 223% last quarter.
The liquidity coverage ratio of 148% and the net stable funding ratio of 116% were well above regulatory requirements of 100%. Capital remained healthy, with the common equity tier-1 (CET-1) ratio at 14.8%, up from 14.7% last quarter and 14.1% this time last year. The leverage ratio was 6.5%, unchanged q-o-q and y-o-y and over twice the regulatory minimum of 3%.
‘Mid- to high-single digit’ full-year net profit growth
Gupta is guiding for full-year group net interest income growth of mid-single digit per cent. He notes that NII sensitivity has been reduced to $4 million per bp of the US Fed funds rate, down from $18 million to $20 million in 2021. He is also guiding commercial book non-interest income growth to be in the mid-to-high teens, with “some risks if market uncertainty persists”.
He expects total income growth for FY2024 to be in the high single digits, net profit growth in the mid- to high-single digits, the cost-to-income ratio to be around 40% and specific provisions (SP) around 10 bps to 15 bps.
Commercial real estate (CRE) remains a concern for investors. Gupta said that total CRE exposure in China is around $14 billion, of which $6 billion is for state-owned enterprises and $4 billion is for private enterprises, including network customers from Singapore. Total exposure to Hong Kong CRE is HK$18 billion, with the bulk of that to the Hongs.
“As the portfolio migrates, the weakness shows up in the expected credit loss (ECL) and this explains the lift in ECL,” Gupta says, referring to the more than 100% rise q-o-q for 2Q2024. “We’ve had two NPLs in our portfolio between China and Hong Kong of $100 million in the first quarter and $100 million in the second quarter, but we expect to get paid back.”
“While recent market volatility and ongoing geopolitical tensions have resulted in heightened uncertainty, we have built resilience against the risks of an economic slowdown and lower interest rates,” adds Gupta. “Our high general allowance reserves, reduced interest rate sensitivity, strong capital position and ample liquidity will position us to continue supporting customers and delivering shareholder returns.”
Analysts keeping estimates
Analysts have kept their calls, estimates and target prices unchanged, even though DBS’s 1HFY2024 core earnings were ahead of Street expectations. Citi Research analyst Tan Yong Hong kept his “sell” call with an unchanged target price of $31.90 even after DBS’s 2QFY2024 results beat his expectations on NII and fees. Tan downgraded all three major Singapore banks on Aug 5 after factoring in an estimated 225 bps of rate cuts by the US Federal Reserve in 10 months after the recent weak US data.
DBS’s PBT of $3.22 billion stood relatively in line with Citi’s estimate of $3.21 billion and 6% of the consensus forecast of $3.05 billion.
Tan highlighted a key positive: improved asset quality sequentially and stable NPL ratio on lower absolute NPA. Lower wealth fees despite q-o-q growth in the bank’s assets under management (AUM) and sequentially higher operating expenses (opex) were negatives.
Tan also points out that though the bank’s quarterly dividend of 54 cents per share was expected, this may have disappointed some investors. “We continue to expect a lift to dividend per share only in 4QFY2024 to 60 cents.”
“Given [DBS’s] massive underperformance over past weeks, higher guidance plus stable asset quality could offer some relief to the market before focusing on FY2025 earnings outlook again,” he adds.
At the same time, CGS International analysts Andrea Choong and Lim Siew Khee have kept their “hold” call with an unchanged target price of $39.30 as DBS’s 2QFY2024 net profit came in line with their expectations. “[DBS’s] key operating metrics were in line; asset quality still sound,” they write in their Aug 7 note.
On DBS’s upgraded guidance for FY2024, the analysts point out that DBS has “built resilience against risks of economic slowdown and lower interest rates” amid market volatility and geopolitical tensions.
Overall, the analysts expect DBS to register positive share momentum given the earnings beat, but they remain neutral as they think earnings growth over FY2025 to FY2026 could be limited due to the impending US Fed rate cuts.
Maybank Securities and RHB Bank Singapore have maintained their “buy” ratings for DBS, with target prices of $33.09 and $41.20, respectively, as the bank’s results exceeded their full-year estimates. Maybank noted that DBS’s strong fee income and notable recovery in wealth management are similar to OCBC’s results. This trend is likely due to clients investing in low-margin products like bonds.
Trading income also did better than expected. The brokerage notes that the drop in Casa, which fell to 45% of deposits from 51% in 2QFY2023, implies competitors are taking away the bank’s market share. It adds that DBS’s “resilient” NIMs also point to a funding cost advantage. However, the lack of updates on the bank’s capital management measures was a “disappointment”.
