DBS Group Holdings Ltd’s Latest Earnings: Banking On Growth

DBS Group Holdings Ltd (SGX: D05) reported its earnings for the quarter and year ended 31 December 2015 this morning.

For a brief background, 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). DBS Group is a leading financial services group in Asia, with over 280 branches across 18 markets.

You can catch up with the bank’s third-quarter earnings here.

Financial highlights

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

  1. For the fourth-quarter of 2015, net interest income for DBS Group rose by 11% year-on-year to $1.85 billion. For the full year, net interest income was $7.1 billion, up 12% from the year before.
  2. Net fee and commission income for the reporting quarter increased by 6% year-on-year to $485 million. For 2015, net fee and commission income was up 6% to $2.1 billion.
  3. Other non-interest income was also up, jumping by 50% year-on-year to $310 million. The segment recorded $1.5 billion for 2015, up 21% from 2014.

Taken together, the three income streams brought DBS Group $2.65 billion in total income for the reporting quarter, or a strong 13% above the fourth-quarter of 2014. For the whole of 2015, DBS Group eclipsed the $10 billion dollar mark, registering $10.8 billion in total income, up 12% from the previous year.

On the expense side of things:

  1. DBS Group’s expenses marched 10% higher year-on-year to $1.24 billion for the fourth-quarter of 2015. For the full year, expenses were 13% higher, ending at $4.9 billion.
  2. Allowances for credit and other losses increased 17% to $247 million in the fourth-quarter. For the full year, allowances was up 11% to $743 million.

In summation, DBS Group’s net profit for the fourth-quarter was a shade over $1 billion, representing a good 20% climb from a year ago. The selfsame figure for the full year was $4.3 billion (excluding one-off items), or 12% higher compared to 2014. If one-time items were included, 2015’s net profit would be $4.45 billion, representing a 10% increase from the $4.05 billion seen in 2014.

DBS Group ended the reporting quarter with a book value per share of $15.82, up more than 15% from the selfsame figure of $14.85 seen a year before.

The bank’s board of directors also recommended a final dividend of $0.30 per share, which brings the total dividend for 2015 to $0.60 per share. This is an improvement from the $0.58 per share paid out in 2014.

Operational highlights

DBS Group’s net interest income rose in the reporting quarter in part due to the repricing of Singapore dollar loans to higher interbank and swap offer rates. The net interest margin for the reporting quarter was 1.84%, up from the net interest margin of 1.71% recorded a year ago.

Meanwhile, net fee and commission income increased from growth in most activities. Elsewhere, other non-interest income rose from interest derived from funding swaps.

Customer loans for the reporting quarter grew by 3% from a year ago to reach $283.3 billion. The non-performing loan ratio remained at 0.9%, unchanged from 2014’s fourth-quarter.

For the fourth-quarter of 2015, average customer deposits was $320.1 billion or 1% higher from the same quarter a year before. The loan to deposit ratio was 88.5%, a step up from the 86.9% seen in the fourth-quarter of 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): A Common Equity Tier 1 (CET1) CAR of 6.5%, Tier 1 CAR of 8%, and Total CAR of 10%. These CARs measure a bank’s ability to absorb losses; the higher the ratios, the thicker the cushion.

DBS Group can be considered to be a well-capitalized bank as its CARs are comfortably higher than MAS’ requirements. At the end of 2015, the bank reported a Common Equity Tier 1 CAR, Tier 1 CAR, and Total CAR of 13.5%, 13.5%, and 15.4%, respectively.

Piyush Gupta, chief executive of DBS, had summarized the reporting quarter and the bank’s future positioning with a few words in the earnings release:

“The fourth-quarter caps a strong year when total income crossed SGD 10 billion for the first time. The consistency of our performance through the four quarters reflects the quality of our earnings profile.

Our balance sheet remains strong: asset quality is robust, allowance coverage is at comfortably high levels and capital ratios are well in excess of regulatory requirements. While unsettled financial markets in recent weeks have created short-term uncertainty, the region’s economic fundamentals are sound and the risks associated with slower growth are manageable. Amidst the challenging environment, we are well prepared and enter the year from a position of strength.”

Foolish summary

At its opening price of $13.88 yesterday, DBS Group traded at just 0.88 times its latest book value and had a trailing dividend yield of 4.3%.

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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.