DBS Group Holdings Ltd’s Latest Earnings: Banking on Higher Revenue and Profit

DBS Group Holdings Ltd (SGX: D05) reported its fiscal second-quarter earnings this morning. The reporting period was for 1 April 2015 to 30 June 2015.

DBS, 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), is a leading financial services group in Asia with 280 branches across 18 markets.

You can catch up with DBS’s first-quarter earnings in here.

Financial highlights

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

  1. For the second quarter of 2015, net interest income for DBS Group rose by 12% year over year to $1.74 billion.
  2. Next up, net fee and commission income for the reporting quarter increased by 16% to $582 million compared to a year ago.
  3. Finally, other non-interest income had spiked by 44% from the same quarter last year to $365 million.

Taken together, the total of the three income streams above meant that DBS Group made $2.69 billion in total income for the reporting quarter, or a good 16% above the second quarter of last year.

On the expense side of things:

  1. DBS’s expenses marched 16% higher year over year to S$1.22 billion for the reporting quarter.
  2. Allowances for credit and other losses increased by 7% to $137 million.

In summation, DBS’s net profit for the second-quarter of 2015 was $1.1 billion, representing a solid 15% increase from a year ago.

The higher profit brought with it higher rewards for shareholders as DBS also declared an interim dividend of S$0.30 per ordinary share for the quarter. This is a step up from the dividend of S$0.28 per share that was seen in the same period in the previous year.

DBS ended the reporting quarter with a book value per share of $15.29, up 6.7% from the selfsame figure of $14.32 seen a year ago.

Operational highlights

DBS’s net interest income rose 12% year over year in the reporting quarter in part due to growth in loans and the repricing of Singapore dollar loans to higher interbank and swap offer rates.

The net interest margin for the reporting quarter was 1.75%, up from the self-same figure of 1.67% seen in the second quarter of 2014; an expansion in the net interest margin is a good development for a bank and investors may want to watch the future progress of this financial metric.

Meanwhile, the 16% year over year increase in the net fee and commission income that was seen was due to broad-based growth. DBS had benefited from a 33% rise in wealth management fees stemming from increased unit trust and insurance sales as well as higher brokerage commissions resulting from higher equity market activity.

Elsewhere, the 44% jump in DBS’s other non-interest income came from stronger trading income.

Customer Loans for the reporting quarter rose 9% from a year ago to reach $280.1 billion. The non-performing loan (NPL) ratio remained at 0.9%, unchanged from a year ago.

For the second quarter of 2015, average customer deposits came in at $313.9 billion or 5.7% higher from the same quarter a year ago. The loan to deposit ratio was 92%. My colleague James Yeo had previously noted the importance of this ratio:

“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: Common Equity Tier 1 (CET1) at 6.5%, Tier 1 at 8%, and Total at 10%.

DBS can be considered to be well capitalized as its CARs are comfortably higher than MAS’ requirements at 13.4%, 13.1% and 15.3% respectively.

Chief Executive Officer Piyush Gupta summarized the reporting quarter with a few words:

“Despite slowing growth across the region, DBS achieved record earnings in the first half of the year driven by strong broad-based income growth. Notably, net interest margin is at its highest in 13 quarters. In a reflection of our confidence in the sustainability of our earnings, we are pleased to raise first-half dividends to reward shareholders.”

Foolish summary

At its opening price of $21.45 this morning, DBS Group traded at around 1.4 times its latest book value and has a trailing-12-months dividend yield of 2.8%.

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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.