DBS Group Holdings Ltd’s Latest Earnings: What Investors Should Know

DBS Group Holdings Ltd (SGX: D05) reported in its third quarter earnings yesterday. The reporting period was for 1 July 2015 to 30 September 2015.

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

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

Financial highlights

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

  1. For the third quarter of 2015, net interest income for DBS Group rose by 13% year on year to $1.81 billion.
  2. Net fee and commission income for the reporting quarter decreased by 7% to $517 million compared to a year ago.    
  3. Other non-interest income was also up, increasing 7% from the same quarter last year to $382 million.  

Taken together, the total of the three income streams above meant that DBS Group made $2.71 billion in total income for the reporting quarter, or a solid 8% above the third quarter of last year.

On the expense side of things:

  1. DBS Group’s expenses marched 14% higher year on year to $1.26 billion for the third quarter.
  2. Allowances for credit and other losses was mostly flat at $178 million.  

In summation, DBS Group’s net profit for the third-quarter was $1.07 billion, representing a solid 6% increase from a year ago. DBS Group ended the reporting quarter with a book value per share of $15.42, up 6.6% from the selfsame figure of $14.46 seen a year ago.

Operational Highlights

DBS Group’s net interest income rose in the reporting quarter in part due to growth in loans and repricing of Singapore dollar loans to higher interbank and swap offer rates. The net interest margin was 1.78%, up from the net interest margin of 1.68% recorded a year ago.

Meanwhile, net fee and commission income declined from lower investment banking fees compared to a year ago. Elsewhere, other non-interest income rose from higher trading income and disposal of properties.

Customer loans for the reporting quarter grew by 9% from a year ago to reach $285 billion. The non-performing loan rate remained at 0.9%, unchanged from a quarter ago.

For the third quarter of 2015, average customer deposits was $318 billion or 4% higher from the same quarter a year ago. The loan to deposit ratio was 89.7%. As my colleague, James Yeo 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: 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 are comfortably higher than MAS’ requirements at 12.9%, 12.9% and 14.8% respectively.

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

“In a quarter marked by slower regional growth and intense market volatility, the bank’s earnings continued to hold strong. Significantly, net interest margin is at a four-year high. The ability to deliver a solid set of numbers in the face of headwinds testifies to the resilience of the DBS franchise and the soundness of our risk management practices”

Foolish summary

At its opening price of $17.25 yesterday, DBS Group traded at around 1.1 times price to book and a trailing dividend yield of 3.5%.

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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.