Singapore?s largest bank by assets, DBS Group Holdings Ltd (SGX: D05), released its 2016 third quarter earnings in October 2016.
During its earnings presentation, DBS Group covered a range of topics. Here?re five interesting quotes on the state of the bank?s business that investors might not want to miss.
Rebuilding after the Swiber debacle
By now, most investors should have heard about the mess at Swiber Holdings Limited (SGX: BGK) and how DBS Group has been dragged into the mud as one of the company?s major lenders. You can read more about the Swiber incident here.
In the second quarter of 2016, DBS Group reported…
Singapore’s largest bank by assets, DBS Group Holdings Ltd (SGX: D05), released its 2016 third quarter earnings in October 2016.
During its earnings presentation, DBS Group covered a range of topics. Here’re five interesting quotes on the state of the bank’s business that investors might not want to miss.
Rebuilding after the Swiber debacle
By now, most investors should have heard about the mess at Swiber Holdings Limited (SGX: BGK) and how DBS Group has been dragged into the mud as one of the company’s major lenders. You can read more about the Swiber incident here.
In the second quarter of 2016, DBS Group reported that it had a $721 million exposure to Swiber. After its assessment of the situation, DBS Group took a $400 million provision for its exposure and drew down $250 million from its general reserves for the aforementioned provision.
During the 2016 third quarter earnings presentation, DBS Group’s chief financial officer Chng Sok Hui said that the bank is building its general provisions again. She said that strong results gave room for DBS Group to maneuver:
“We achieved a strong operating performance for the quarter.
Higher total income, combined with cost containment, resulted in a 19% increase in profits before allowances to a record SGD1.73 billion.
Total income rose 8% to SGD2.93 billion from loan growth and broad based non-interest income growth. Costs fell 5% to SGD1.20 billion. The strong operating performance provided substantial headroom for higher general allowances which amounted to S$169 million for the quarter, to be taken as a prudent measure.”
The new buzzword: Digitization
Expenses were contained at DBS Group, leading to stronger performance. Chng noted:
“The cost to income ratio improved from 45% a year ago to 43% as past investments to digitize the Bank, as well as strategic cost management efforts, yielded productivity gains.”
Furthermore, Chng said that volumes had increased while headcount had declined, leading to higher productivity:
“As an indicator of the higher productivity, underlying headcount has declined slightly over the past year, even as business volumes have increased.”
There might be more to come, according to DBS Group’s chief executive, Piyush Gupta. He said that the savings were being used for other areas. Furthermore, he expects the productivity gains to continue:
“As a general rule, we’ve been taking some of those productivity savings and reinvesting, using the opportunity to reinvest them in several areas. That does give us the flexibility to be able to pace our expense growth. Going forward, you’ll see that we can drive increased productivity on the expense line.”
Previously, DBS Group had talked about its efforts in the digital sphere, and this might be one of the first signs of how the bank is benefiting from digital trends.
The biggest risk with Swiber
Going back to Swiber, Gupta shared during the 2016 third quarter earnings presentation that Swiber had been able to engage one of its biggest customers, Oil and Natural Gas Corporation (ONGC), to get its projects going again. Gupta also said the project-restart was important. If the projects were stopped, DBS Group will have way less options:
“ …. the projects having been started again, because the biggest risk to us was in the projects that were terminated because then what do you after that.”
Unfortunately, the situation has since taken a turn for the worse. On 19 December 2016, Swiber released an announcement regarding its project with ONGC.
According to the announcement, creditors have taken legal action against Swiber’s subsidiaries and ONGC, causing delays in the project’s timelines. As a result, ONGC sent a notice of suspension to Swiber on 15 December 2016. The notice also stated that ONGC will be taking over and executing the rest of the project on its own.
Swiber is exploring options with ONGC to complete the project. But there has been no further news on the matter. As it stands, the situation on DBS Group’s recoverable amounts from its Swiber exposure remains uncertain.
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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.