10 Quick Things Investors Should Learn From DBS Group Holdings Ltd’s Management, Including More on the Swiber Holdings Limited Debacle

DBS Group Holdings Ltd (SGX: D05) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their quarterly earnings presentations.

In August, the company released its results for the second-quarter and first-half of 2016. I had spent time going through the webcast of DBS Group’s earnings presentation and took down 10 things that may interest investors.

As a quick background, DBS Group is Singapore’s largest bank by assets. It is also a leading financial services group in Asia, with 280 branches across 18 markets.

With that, here are my notes:

  1. Chng Sok Hui, DBS’s chief financial officer, kicked off the meeting with an overview of the bank’s performance. She said that DBS Group achieved record total income for the first-half and second-quarter of 2016. Chng said that this was achieved through diversified growth.
  2. Chng also shared a few key figures. DBS Group’s net interest margin (NIM) of 1.87% at the end of the second-quarter is the highest seen over the past six years. DBS Group also expects 2016’s NIM to exceed 2015’s 1.77%. The bank’s return on equity (ROE) was 11%.
  3. Chng mentioned as well that the strong performance provided a substantial cushion for DBS Group to adsorb allowances for Swiber Holdings Limited (SGX: BGK). She said that DBS Group charged $150 million in allowances for Swiber-related exposure.
  4. Chng had shared more details on Swiber. She said that DBS Group’s exposure to Swiber was $721 million as of 31 July 2016. DBS Group expects to recoup some of the proceeds through tangible assets such as vessels and property and trade receivables for work done.
  5. Speaking of provisions, Chng said that DBS Group has allocated $400 million in special provisions for Swiber. She added that this figure was conservative as the bank expects to recover more than $320 million (keep in mind the total exposure is $721 million). DBS Group drew down $250 million in general reserves to offset the $400 million special provision which led to the final figure of the $150 million allowance charge mentioned earlier.
  6. Chng said that DBS Group has built up a high general reserve over the years which exceeds 1% of its total customer exposure. The strong buffer is intended to adsorb lumpy instances such as the Swiber case, she noted. The cumulative general allowance reserve, after the Swiber drawdown, stands at $2.95 billion.
  7. For the second-quarter of 2016, customer loans rose by 2% or $5 billion year-on-year. DBS Group’s Consumer Banking/Wealth Management (CBG) loans saw a $6 billion uptick while its Institutional Banking (IBG) loans saw an increase of $10 billion. This was offset by an $11 billion fall in trade loans. DBS Group expects loan growth for the whole of 2016 to be in the mid-single digit range.
  8. As mentioned in an earlier article of mine on DBS Group’s second-quarter earnings, the bank reported a loan-to-deposit ratio of 91.8%. The Asian banking giant also had a liquidity coverage ratio of 116%, which is above the Basel III regulatory requirement (Basel III requires banks to have a liquidity coverage ratio of 100% by 2019). But, it is down from the 131% recorded a year ago.
  9. Fee income for DBS Group in the second-quarter rose by 7% year-on-year, led by investment banking. Investment banking income rose 60% from a year ago.
  10. For the first-half of the year, total IBG income was $2.65 billion while profit before tax was $1.04 billion. Total CBG income was $2.09 billion while profit before tax was $893 billion. DBS Group’s market share of Singapore savings account is 52% at the end the reporting quarter.

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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.