DBS Group Holdings Ltd’s Latest Earnings: Growth In Profit Seen

DBS Group Holdings Ltd (SGX: D05) reported its third-quarter earnings yesterday. The reporting period was for 1 July 2016 to 30 September 2016.

As a quick background, DBS Group is one of the three major banks based out of Singapore. It 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

The following’s a quick rundown on DBS Group’s total income (essentially the “revenue” for a bank) for the third-quarter of 2016:

  1. Net interest income was flat, ending at $1.85 billion.
  2. But net fee and commission income increased by 19% year-on-year to $614 million.
  3. Other non-interest income also showed strong growth, climbing by 32% to $500 million.

Taken together, the three income streams brought DBS Group $2.93 billion in total income for the reporting quarter, or 8% above last year’s third-quarter.

On the expense side of things:

  1. DBS Group’s expenses declined 5% year-on-year to $1.2 billion for the third-quarter.
  2. But allowances for credit and other losses increased almost 145% to $436 million. The bank said that it took general allowances of $169 million as a prudent measure.

In summation, DBS Group’s net profit for the third-quarter was $1.07 billion, a 0.5% increase from a year ago. DBS Group ended the reporting quarter with a book value per share of $16.68, up 8.2% from the selfsame figure of $15.42 seen a year ago.

Operational highlights

DBS Group’s net interest margin was 1.77% for the reporting quarter, relatively unchanged compared to a year ago, but down from the 1.87% seen in the previous sequential quarter.

Meanwhile, net fee and commission income benefitted from increases in wealth management fees and card fees. 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 $290.2 billion. The non-performing loan (NPL) ratio was 1.3%, up a good bit from the 0.9% recorded during 2015’s third-quarter.

For the third-quarter of 2016, average customer deposits was $324.3 billion or 2% higher compared to the same quarter a year before. The loan to deposit ratio was 89.5%, a slight decline from the 89.7% seen a year ago.

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 Group can be considered well capitalized as its CARs are comfortably higher than MAS’ requirements at 14.4%, 14.9% and 16.5% respectively.

Piyush Gupta, DBS Group’s chief executive, had summarized the reporting quarter with a few words:

“The resilience of our earnings and balance sheet in challenging operating conditions this year underscores the quality of our franchise. Broad-based growth has resulted in a consistently strong year-on-year increase in total income over the three quarters. Investments to digitise the bank and efforts to manage costs are galvanising into faster productivity gains.

All this has enabled us to maintain earnings stability and balance sheet strength while taking higher allowance charges. We will continue to support customers and assiduously manage risks in order to deliver steady financial performance for shareholders.”

DBS Group’s shares closed at a price of $15.00 each yesterday. At that price, the bank is trading at 0.90 times book value and a trailing dividend yield of above 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.