DBS Group first-quarter profit jumps 2% to record S$950m

Non-interest income reached new high.

In its official results release, DBS Group Holdings’ revealed that net profit for first-quarter 2013 reached a record SGD 950 million, rising 25% from the previous quarter and 2% from a year ago. Total income rose 18% from the previous quarter to a new quarterly high of SGD 2.32 billion from loan and deposit volume growth as well as a broad-based increase in non-interest income. Return on equity rose to 12.0% compared to 11.2% for full-year 2012.

Meanwhile, net interest income grew 3% from the previous quarter to SGD 1.33 billion. Loans rose 6% or SGD 13 billion during the quarter to SGD 224 billion, which included SGD 4 billion of short-term financing for a corporate client. Underlying loan growth of 4% was led by trade finance. Net interest margin increased two basis points to 1.64% as underlying margin trends were stable from the previous quarter.
DBS boost some of its income segments to new highs. Non-interest income increased 49% from the previous quarter to a record SGD 990 million. Fee income rose 36% to a new high of SGD 507 million. Contributions from annuity businesses such as wealth management and trade and transaction services continued to grow while loan-related fee income was also higher. In addition, stockbroking and investment banking benefited from stronger capital market activities during the quarter.

Other non-interest income increased 64% from the previous quarter to SGD 483 million. Customer income from cross-selling treasury products doubled to a quarterly high of SGD 299 million and accounted for 48% of total Treasury income. Trading gains were also higher due to more favourable market conditions. Total income rose 18% from the previous quarter to a record SGD 2.32 billion.

Expenses were little changed at SGD 952 million as an increase in staff costs in line with higher income was offset by a decline in computerisation and general costs. The cost-income ratio was at 41%. Profit before allowances rose 34% to a new high of SGD 1.37 billion.

DBS said asset quality remained healthy. General allowances more than doubled from the previous quarter to SGD 110 million in line with the stronger loan growth. Specific allowances for loans rose from 15 basis points of loans to 21 basis points and amounted to SGD 114 million. The non-performing loan rate was unchanged at 1.2% while allowance coverage was maintained at 142%.

DBS also reported ample liquidity to support business growth and meet contingencies. Deposits grew 3% from the previous quarter to SGD 251 billion, bringing the loandeposit ratio to 89%. DBS continued to tap cost-efficient wholesale funding such as commercial papers and medium-term notes to supplement deposits.

"Wholesale funding remained prudent and was less than 10% of total funding sources. Strong capital adequacy ratios were maintained. DBS had a Common Equity Tier 1 ratio of 12.9%, Tier 1 ratio of 12.9% and total capital adequacy ratio of 15.5% based on the Basel III capital framework implemented in Singapore on 1 January 2013. The ratios were comfortably above the standards prescribed by the Monetary Authority of Singapore," DBS said.

DBS CEO Piyush Gupta said, “After a slower second half in 2012, we started the year on a very solid note. Business momentum is strong, and growth has been broadbased, showing the impact of our investments across all lines of business. We also benefited from favourable market conditions, enabling us to turn in yet another quarter of record earnings.”

The Chinese banks underperformed the market on disappointing economic data & concerns about increased regulation in early April but outperformed in the final week on their Q1 '13 earnings beats, leading a slight 30bp outperformance for the month.
After SHIBOR spiked towards the end of the month as liquidity tightened pre-Holiday, the PBOC added RMB 124bn of liquidity to the market via OMOs. No sign of tightening as key interest rates are flat-to-down, indicating loose liquidity conditions in China.
We continue to prefer the large banks as we expect their better fundamentals as reflected in their Q1 '13 & Q4 '12 earnings will be rewarded by the market. We rate BOC/ICBC/CCB Outperform; CMB Underperform.