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What Investors Should Know About An Important Part of DBS Group Holdings Ltd’s Revenue

In the first-half of 2016, some 24.7% of DBS Group Holdings Ltd’s (SGX: D05) total revenue of S$4.87 billion came from net fee and commission income.

I want to look at the net fee and commission income here. If we can know the sources of its net fee and commission income, we can better appreciate the impacts of various developments in the financial markets on DBS’s business.

Unlike net interest income, net fee and commission income is a source of revenue that is relatively insulated from changes in the interest rate environment. My colleague David Kuo has said that a rise in interest rates can benefit banks such as DBS. But if interest rates are to fall, having net fee and commission income would help provide a buffer.

Let’s have a look at the breakdown of DBS’s fee and commission income in the first-half of 2016:

dbs-fee-and-commission-income-table
Source: DBS earnings release

Wealth Management is the largest category within DBS’s fee and commission income segment. This reflects the stature of DBS Private Bank, the arm of DBS that provides wealth management services to wealthy clients.

In 2015, Private Banker International ranked DBS as the eight largest private bank in the Asia Pacific region. DBS’s ranking had jumped after its assets under management had increased by 35% following its 2014 acquisition of Societe Generale’s Asian private banking arm for US$220 million.

The second largest chunk is income from Trade and Transaction Services, which came in at S$290 million in the first-half of 2016. It is interesting to note that while this inched up by 2% compared to a year ago, DBS’s interest income from trade loans had declined over the same period.

Loan-related fees had increased by 4% from S$234 million in the first-half of 2015 to S$244 million. The bank had managed to grow the average balance of its non-trade loans from S$230 billion to S$243 billion, thereby benefitting loan-related fees.

Notably, the investment banking category saw a 35% jump in income because of higher equity market activities. The same can’t be said for the brokerage category as income there dropped by 22%. DBS’s brokerage arm – which some of you reading this might be familiar with – is DBS Vickers.

The environment for the brokerage business can be competitive as there are brokers offering lower commissions per trade for investors as compared to DBS Vickers.

A Foolish Conclusion

DBS manged to reduce its fee and commission expense in the first-half of 2016 by 1% to $140 million. Together with a 5% increase in fee and commission income to S$1.34 billion, this resulted in net fee and commission income climbing by 5% to S$1.20 billion from the first-half of 2015.

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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 Ong Kai Kiat owns shares in DBS Group Holdings.