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What Investors Need To Know About DBS Group Holdings Ltd’s Latest 2nd Quarter Earnings

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DBS Group Holdings Ltd (SGX: D05) released its 2nd quarter results for 2014 last Friday and achieved a record net profit of S$2 billion for the 1st half of the year, a 9% increase over 2013.

DBS is among the leading Singapore-based banks with a regional network of 250 branches that spans 16 countries. DBS’s local peers include Oversea-Chinese Banking Corp. Ltd (SGX: O39), the second-largest banking group in Singapore by total assets, and United Overseas Bank Ltd (SGX: U11), one of the biggest regional banks with a network of more than 500 offices in 19 countries.

Operating results for DBS

For the 2nd quarter of 2014, DBS grew its net interest income by 13% year-on-year to S$1.56 billion. This can be attributed to a 10% increase in loans-made and an improvement in net interest margin by five basis points (0.05%) to 1.67%.

It was also able to grow its net fee and commission income by a more modest growth rate of 5% to S$503 million. Higher wealth management, investment banking, and card fees had contributed to the growth.

Elsewhere, other non-interest income plunged 44% from a year ago to S$253 million due to weaker net trading income while expenses rose 7% to S$1.05 billion. Coupled with a 48% decline in allowances for credit and other losses to S$128 million, DBS ended the quarter with a profit of S$969 million, some 9% higher compared to a year ago.

Financial Position & Outlook

Based on regulatory requirements from the Monetary Authority of Singapore, banks in Singapore must have at least the following Capital Adequacy Ratios (CARs): Common Equity Tier 1 at 5.5%, Tier 1 at 7% and Total at 10%. DBS can be considered well capitalized as its CARs are comfortably higher than MAS’ requirements at 13.5%, 13.5% and 15.7% respectively.

The bank’s asset quality continued to strengthen as its non-performing loan rate has improved steadily from 1.3% in 2011 to 0.9% in the second quarter of 2014 (the lower the non-performing loan rate the better!).

Elsewhere in the bank, its deposit to loan ratio also remains healthy at around 86% with deposits climbing 8.7% during the past 12 months from S$275 billion to S$299 billion; a bank’s deposit to loan ratio should not be too high as that might cause liquidity issues if there were a sudden flood of depositors needing to withdraw their deposits from the bank. The increase in deposits was led by US dollar deposits and Singapore dollar savings accounts. Together with funding from wholesale sources, there is ample liquidity for DBS to fund future growth.

Piyush Gupta, Chief Executive of DBS, commented  on the bank’s achievement for the first half of 2014:

“DBS reached a new milestone with half year earnings crossing the SGD 2 billion mark for the first time. Margins rose, annuity income remained strong and asset quality improved. This broad-based performance enabled us to continue our multi-year track record of solid growth.”

With its closing price of S$18.31 last Friday, DBS is trading at a price to book ratio and price/earnings ratio of 1.25 and 11.11, respectively. The bank also sports a dividend yield of 3.17%.

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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.