DBS Bank

 Parent Company -DBS Bank Ltd

 Category -Banking
 Sector -Banking & Financial Services
Financial Commentary basis the June 2020 Financials -
 Net profit for first-half 2020 fell 26% from a year ago to $2.41 billion as general allowances of
$1.26 billion were conservatively set aside for risks arising from the Covid-19 pandemic. Profit
before allowances increased 12% to a new high of $4.71 billion. Total income rose 7% to $7.75
billion while expenses were stable at $3.04 billion.
 Net interest income increased 1% to $4.79 billion as higher loan and deposit volumes were
offset by a lower net interest margin in the second quarter. Loans increased 5% in constant-
currency terms as growth in non-trade corporate loans was moderated by declines in trade
loans and consumer loans. Net interest margin fell 16 basis points to 1.74% from lower global
interest rates as well as the deployment of excess deposits into lower-yielding assets in the
second quarter.
 Net fee income increased 1% to $1.51 billion. A 14% growth in the first quarter was offset by an
11% decline in the second quarter as regional lockdowns resulted in lower activity.
 Other non-interest income rose 42% to $1.45 billion from a three-fold increase in net gain on
investment securities. Trading income fell 6% to $752 million as a decline in the first quarter
due to wider credit spreads was moderated by an increase in the second quarter. Treasury
customer income was higher in both quarters.
 Expenses were stable at $3.04 billion. The positive jaw of seven percentage points lowered the
cost-income ratio by three percentage points to 39%.
 Non-performing assets rose 10% from the previous half year to $6.35 billion. Most of the
increase occurred in the first quarter, which included a significant oil trader exposure. The NPL
rate was unchanged from the previous half year at 1.5%.
 Total allowances rose five-fold from a year ago to $1.94 billion, with two-thirds of the amount
due to general allowances of $1.26 billion. Specific allowances nearly doubled to $672 million or
30 basis points of loans, with all of the increase due to the significant exposure in the first
quarter.
 Total allowance reserves rose 25% to $6.72 billion, with general allowance reserves increasing
50% to $3.80 billion or 24% above MAS minimum requirements. The increase in total
allowances boosted allowance coverage to 106%. If collateral was considered, allowance
coverage was at 199%.
 The first-half liquidity coverage ratio was at 134% and the net stable funding ratio was at
121%. The Common Equity Tier 1 ratio was at 13.7% while the leverage ratio was at 6.8%. All
of these ratios were comfortably above regulatory requirements.

SWOT DBS Bank –

Strengths –
1. Strong market position in Singapore and Hong Kong
2. Diversified products and offerings will help in generating revenue
3. Awarded the ‘Best Bank in Singapore’ and ‘Safest Bank in Asia’ by Global Finance
4. Serving over 4 million customers and presence in 15 countries
5. Dividend yield considerably high when compared to industry and sector scores
6. Close to 20,000 employees work for DBS Bank
Weaknesses:
1. Highly skewed presence within the Asian markets & low penetration in Europe and Americas
2. Major chunk of the revenue comes from consumer banking, treasury and asset management, less
revenue comes from the other offerings

Opportunities:
1. Positive outlook of the asset management industry
2. Growth of retail savings and investments in Asia pacific
3. High opportunity to expand into developing countries like India through acquisitions

Threats:
1. Uncertainty in the current Asian and world financial markets will affect the business
2.Increasing competition from European and American banks will affect the bank
3. Liquidity regulations can affect the bank

Top 3 DBS Bank competitors:

1. Oversea – Chinese Banking Corporation Limited
2.HSBC
3. Standard Chartered Bank

Recommendation:
It is of the view that the bank will maintain its strong market position, its sound capital and earning
capability, as well as its adequate risk management in the coming 18 months to 24 months. DBS
Bank can likely face increasing downward pressures on its financial profile due to the turning of the
credit cycle in Asia. The lender's loan growth is expected remain at low-single-digit levels over the
next 24 months, but its capital position is expected to remain adequate.
With net profit yoy growth of more than 40% it is expected that the bank's earnings to recover this
year after DBS stepped up provisions in 2020.
With NPL at 1.5% as on 31 March 2020 with provision coverage ratio at 88%, the bank has adopted
a focused strategy to manage stressed assets, and NPAs in the challenging macroeconomic
environment and pandemic aftereffects.
The Group achieved a strong first-quarter as total income rose 13% or $475 million from a year ago
to cross $4 billion for the first time. Net interest income, fee income and other non-interest income
all recorded increases year-on-year, growing by 7%, 14% and 39% respectively. Net interest
margin was stable on quarter at 1.86%. Expenses were well-managed, declining by 3% from the
previous quarter. Cost-to-income ratio improved to 39%. Operating profit before allowances rose
20% from a year ago to a new high of $2.5 billion, which allowed us to pre-emptively set aside $700
million of general allowances to fortify our balance sheet against risks arising from the ongoing
Covid-19 pandemic. The charge increased the amount of general provision reserves by 29% to
$3.23 billion, or 1.08% of assets under regulatory definition. With the build-up of general
provisions, first quarter net profit declined 29% to $1.17 billion. The NPL rate rose to 1.6% from
1.5% the previous quarter. Allowance coverage of NPL was at 92%, and allowance coverage of
unsecured NPL was at 173%.
Liquidity is healthy. Deposits recorded their highest quarterly increase of $30 billion, rising 7%.
The loan-deposit ratio declined from 89% in the previous quarter to 83%. Both the liquidity
coverage ratio of 133% and the net stable funding ratio of 112% were well above regulatory
requirements. The Common Equity Tier-1 ratio of 13.9% was above the group’s target operating
range of 12.5% to 13.5%, and well above regulatory requirements of 9.1%
The Group has ensured that its LCR remains above the specified regulatory minimum requirements
which is achieved by:
(i) Establishing internal early warning triggers and thresholds based on observed movements
in LCR over time.
(ii) Monitoring and managing the LCR closely to ensure it stays within established boundaries;
and
(iii) Strategically managing the liquidity risk arising from the balance sheet structure.
The Group maintains a healthy liquidity position by keeping a stable balance sheet structure that is
supported by a diversified funding base.
The DBS Group strives to develop a diversified funding base with access to funding sources across
retail and wholesale channels. The Group's funding strategy is anchored on strengthening the core
deposit franchise as the foundation of its long-term funding advantage.
With DBS having strong free cash flows that provide resources in the hand of the company to
expand into new projects. DBS has built expertise at entering new markets and making success of
them. The expansion has helped the organization to build new revenue stream and diversify the
economic cycle risk in the markets it operates in.
With 25%-50% of small and midsize enterprise portfolio still being under moratorium, it is also
likely that credit costs and nonperforming loans to remain elevated this year before recovering in
2022. DBS reported an NPL ratio of 1.6% in the fourth quarter, unchanged over the previous three
months and higher than 1.5% in the fourth quarter of the previous year.
With the purchase of India's Lakshmi Vilas Bank Ltd. in November 2020 it will also help it grow in
the key South Asian market, though the acquisition dragged on the company's result via elevated
impairment provisions as Lakshmi Vilas Bank's impairments were absorbed by DBS, adding S$212
million in nonperforming assets.
While the effects of the COVID-19 credit downturn may persist for another six months to a year, it
can be believed DBS has enough financial resilience supported by the bank's leadership in
Singapore, diversified regional presence, sound capital buffer and risk profile, as well as strong
deposit funding base