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DBS Group Holdings Ltd’s Latest Earnings: “Well Prepared” for the Challenges Ahead, Says CEO

DBS Group Holdings Ltd (SGX: D05) reported its second-quarter earnings this morning. The reporting period was for 1 April 2016 to 30 June 2016.

As a quick background, 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 is a leading financial services group in Asia with 280 branches across 18 markets.

You can catch up with the results from DBS’s previous quarter here.

Financial highlights

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

  1. For the second-quarter of 2016, net interest income rose by 5% year-on-year to $1.83 billion.
  2. Net fee and commission income for the reporting quarter increased by 8% year–on-year to $628 million.
  3. Other non-interest income was up 22% to $458 million.

Taken together, the three income streams brought DBS $2.92 billion in total income for the reporting quarter, or 8% above last year’s second-quarter.

On the expense side of things:

  1. DBS’s expenses marched 8% higher to $1.29 billion for the reporting quarter.
  2. Allowances for credit and other losses increased over 100% to $366 million in the second-quarter. DBS took a $150 million net allowance charge for its loan expsoure to Swiber Holdings Limited (SGX: BGK).

In summation, DBS’s net profit for the second-quarter of 2016 was $1.05 billion, representing a 6% decrease from a year ago. The selfsame figure for the second quarter of 2015 was $1.12 billion (excluding one-off items).

DBS ended the reporting quarter with a book value per share of $16.48, up 7.7% from the selfsame figure of $15.29 seen a year before.

The bank’s directors have declared an interim dividend of S$0.30 per share for the first-half of 2016, unchanged from a year ago.

Operational highlights

DBS’s net interest income rose in the reporting quarter due to an increase in the net interest margin from 1.75% in the second-quarter of 2015 to 1.87%.

Meanwhile, net fee and commission income benefitted from increases in investment banking. Elsewhere, other non-interest income grew from higher trading income and gains from investment securities.

Customer loans for the reporting quarter grew by 2% from a year ago to $284.8 billion. The non-performing loan (NPL) ratio was 1.1%, up slightly from the 0.9% recorded during 2015’s second-quarter.

For the second-quarter of 2016, average customer deposits was $310.1 billion, representing 2% growth compared to the same quarter a year before. The loan to deposit ratio was 91.8%, a small climb from the 91.6% seen in the second-quarter of 2015.

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

DBS can be considered as well capitalized given that its CARs are comfortably higher than MAS’s requirements. The bank has a CET1 CAR of 14.2%, a Tier 1 CAR of 14.4%, and Total CAR of 16.3%.

Piyush Gupta, the chief executive of DBS, summarised the reporting quarter with a few words:

“We achieved two consecutive quarters of record total income despite a challenging operating environment in the first half. The strong income growth in the second quarter enabled profit before allowances to grow 10%.

Despite an unexpected significant allowance charge, first-half earnings were at a record. The performance demonstrates our ability to consistently capture opportunities across our businesses and effectively manage costs.

While there remains some uncertainty in the second half, our business momentum is good and our balance sheet healthy. We are well prepared to meet the challenges ahead.”

At its opening share price of $14.89 this morning, DBS traded at around 0.9 times its latest book value and has a trailing dividend yield of 4.0%.

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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.