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DBS Banks in Record Profit of S$3.50 Billion

DBS Group Holdings (SGX: D05) released its full-year results for 2013 last Friday and achieved a record net profit of S$3.50 billion, a 4% increase over 2012.

DBS is among the leading Singapore banks with a regional network that spans across 250 branches in 16 countries. The bank’s area of operations lies mainly in Asia, with Singapore and Hong Kong accounting for the lion’s share of its profits – the two regions accounted for 62% and 21%, respectively, of the bank’s net profit in 2012.

DBS is also rated as one of the most well-capitalized banks in the Asia-Pacific region, bagging financial publication Global Finance’s “Safest Bank in Asia” accolade for five consecutive years from 2009 to 2013. Incidentally, DBS’s local peers, Oversea-Chinese Banking Corporation (SGX: O39) and United Overseas Bank (SGX: U11), are ranked second and third respectively in the “Safest Bank in Asia” list for 2013.

Financial Highlights

Coming back to DBS’s financial results for 2013, the bank ended the year  with a 11% increase in its total income (i.e. sales) from S$8.06 billion to S$8.93 billion, driven by higher loan volumes and broad-based non-interest loan growth. There are three components to DBS’s total income:

1. Net interest income (dependable on loans and net interest margin)

2. Fee and commission income (think account-related fees from credit cards for example)

3. Other non-interest income (e.g. wealth management, trade and transaction services & treasury customer flows)

The growth for net interest income was boosted by an increase in loan volumes across trade, corporate and consumer segments which offset a decrease in net interest margin from 1.7% in 2012 to 1.62% in 2013. On a positive note, with the recent United States Federal Reserve’s tapering swinging into full gear, the record low net interest margins may rise in the near future and result in even stronger income growth going forward.

Meanwhile, net profits were down by 4% from S$3.81 billion to S$3.67 billion due to a number of reasons. The first was an increase in expenses such as employee benefits and allowances for credit and other losses. Then, there was also the one-time items comprising of: A gain of S$221 million from the partial divestment of a stake in the Bank of the Philippine Islands (down from a gain of S$450 million in FY2012); and, a $50 million expense DBS has set aside to establish the DBS Foundation, an effort by the bank to provide relief and support in many community programs and innovative social initiatives across Asia.

If the one-time items were stripped off, DBS’ profits had actually grown by 4% from S$3.36 billion to S$3.50 billion, as mentioned previously.

As of 30 December 2013, DBS also shows ample liquidity with its overall Loan-to-Deposit ratio (LDR) increasing just slightly from 83.1% to 85%. The bank’s balance sheet, meanwhile, has strengthened a little as the ratio of its total equity to total assets has increased from 9.2% to 9.4%.

DBS’ capital adequacy ratios (CAR) – a measure of the amount of ‘cushion’ a bank has on its balance sheet to meet losses – ended the year well in excess of the Monetary Authority of Singapore’s minimum requirements, though it must be noted that the ratios have dipped a little since 2012.

MAS Requirement

2013

2012

Tier 1 CAR

6%

13.7%

14.0%

Total CAR

10%

16.3%

17.1%

Source: DBS Group Holdings’ 2013 earnings release

Dividends and Valuation

The bank’s Board of Directors have declared a final dividend of S$0.30 per share for 2013, an increase of 7.14% from the final dividend of S$0.28 per share in 2012. As a result, it brings the total payout for DBS in 2013 to S$0.58 per share, up from the dividends of S$0.56 per share in 2012. This also marks the first time since 2009 that DBS has increased its annual dividends.

DBS CEO Piyush Gupta has this to say for the bank’s 2013results: “Our record earnings in a year marked by significant market volatility are testament to the strength and resilience of our franchise. DBS is today operating on a higher trajectory and increasingly recognized as a leading Asian bank. To reward shareholders, we are pleased to raise our full-year payout to 58 cents per share. Going forward, we will invest in intensifying our efforts to digitize the bank and redefine the customer experience. We remain committed to stakeholder value creation and to shaping the future of banking.

Shares of DBS are currently down 3.63% to S$16.48 year-to-date mainly due to the fears of a slowdown in emerging markets and any possible negative impacts from the tapering activities of the US Fed. At that price, DBS is valued at 1.21 times its book value and carries a trailing dividend yield of 3.52% based on its S$0.58 per share pay-out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.