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DBS Group Holdings Ltd’s Latest Earnings: A Year for a Record Profit

DBS Group Holdings Ltd (SGX: D05) reported its fourth quarter earnings this morning for the financial year ended 31 December 2014. The reporting period was for 1 October 2014 to 31 December 2014.

DBS is one of the three major banks based out of Singapore, along with Oversea-Chinese Banking Corp. Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11). DBS Group considers itself a leading financial services group in Asia, with 250 branches across 17 markets.

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You can catch up with DBS Group’s second quarter earnings here.

Financial highlights

Here’s a quick rundown on DBS Group’s income (essentially the “revenue” for a bank):

  1. For the fourth quarter, net interest income for the bank rose by about 15% to $1.67 billion on a year-on-year comparison. DBS Group finished 2014 with $6.32 billion in net interest income, 14% above 2013’s net interest income of $5.57 billion.
  2. Net fee and commission income for the quarter increased by 5% year-on-year to $459 million. For the full year, this income bucket came in at $2.03 billion, up 8% from 2013.
  3. Next up, other non-interest income fell 20% compared to last year to end the fourth quarter with $207 million. For the whole of 2014, other non-interest income was $1.27 billion, some 14% lower than what was achieved last year.

Taken together, the total of the three income streams mentioned above meant that DBS made $2.34 billion in total income for the fourth quarter of 2014, or 9% above the fourth quarter of 2013. For the whole of 2014, DBS Group made $9.6 billion in total income, representing an 8% increase from 2013.

As for the costs and expenses side of things:

  1. DBS Group’s expenses recorded a 9% increase year-on-year for the fourth quarter. For the year, expenses rose by 11% to $4.3 billion compared to 2013.
  2. For the fourth quarter, allowances for credit and other losses increased 40% year on year to $211 million. This allowance was $667 million for the whole of 2014, some 13% lower compared to what was seen in 2013.

In summation, DBS Group’s net profit (excluding one-time items) of $838 million in 2014 is 4% higher than the fourth quarter of 2013.

For the entire 2014, net profit (this time including one-time items) was $4.05 billion, or up 10% compared to a year ago. 2014’s net profit, which included a one-time gain of $198 million mainly due to DBS Group’s divestment of its stake in the Bank of the Philippine Islands, was a new record for the bank. Excluding one-time gains, DBS Group’s 2014 net profit would be $3.85 billion.

DBS Group declared a final dividend of 30 cents per ordinary share. Including the interim dividend of 28 cents per share, the bank will distribute a total dividend of 58 cents per share for 2014, unchanged from 2013.

The bank’s book value per share also increased by 14.5% from $13.61 at the end of 2013 to $14.85 at the end of 2014.

Operational highlights

Net interest income grew in 2014 due to an increase in regional corporate loans and consumer loans. Meanwhile, the increase in net fee and commission income for the year was driven by a 23% increase in wealth management fees from higher unit trust and bancassurance sales.

Customer Loans for the fourth quarter rose 11% from a year ago to reach $275.6 billion. The non-performing loans rate was 0.9%, an improvement from 1.1% a year ago.

Elsewhere for the quarter, Customer Deposits of $317.1 billion was 8% higher compared to a year ago. The loan to deposit ratio was 87% as at 31 December 2014. As my colleague James Yeo had noted before:

“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.”

Based on regulatory requirements from the Monetary Authority of Singapore, banks in Singapore must have at least the following Capital Adequacy Ratios (CARs) from 1 January 2015 onward: Common Equity Tier 1 (CET1) at 6.5%, Tier 1 at 8% and Total at 10%.

DBS Group can be considered well capitalized as its CARs as at 31 December 2014 are comfortably higher than MAS’ requirements at 13.1%, 13.1% and 15.3% respectively.

Chief Executive Officer Piyush Gupta summarized the bank’s fourth quarter results with a few words:

“DBS hit a new milestone, with full-year profit exceeding SGD 4 billion in 2014. This is testament to the strength and resilience of the franchise. We believe that the multiple business engines we’ve built are sustainable and scalable. As the way in which people do banking is rapidly changing, we are also stepping up our investments in digital banking.”

Foolish summary

At its opening price of $19.45 this morning, DBS Group traded at around 1.3 times its book value and has a trailing-12-month dividend yield of 3%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.