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DBS Group Holdings Ltd’s Profit Soars in 2018’s First Quarter

With banks in Singapore’s stock market among the top gainers over the last two years, there is understandably considerable interest in them when they release their earnings updates.

DBS Group Holdings Ltd (SGX: D05) kicked things off last Monday by being the first major bank to release its 2018 first quarter results. Here are 10 highlights:

1. Total income grew substantially by 16% from a year ago to a new record of S$3.36 billion. Profit before allowances subsequently rose 20% year-on-year to S$1.96 billion. Net profit jumped even more, by 26% to S$1.52 billion. Consequently, its annualised earnings per share increased by 24% to S$2.38 from S$1.90 a year ago.

2. Net interest income (income from loans) grew 16% year-on-year to S$2.12 billion. This was on the back of a nine basis point improvement in the bank’s net interest margin to 1.83% from 2017’s first quarter. Net interest margin is the difference between the bank’s cost of capital and the interest income earned from the loans it makes.

3. A 10% increase in loan volume to S$328.2 billion was also a significant contributor to DBS’s net interest income growth.

4. Gross fee income posted a strong increase of 15% year-on-year to S$851 million. This was largely due to a whopping 49% jump in wealth management fees to S$331 million from S$222 million a year ago.

5. DBS also managed to lower its cost-income ratio to 41.6%, down by 1.6 percentage points from a year ago. Together with the higher net interest margin and improved cost-efficiencies, DBS posted a return on equity of 13.1% in 2018’s first quarter, the highest in a decade. This was two percentage points higher than the return on equity of 11.1% seen in 2017’s first quarter.

6. DBS did particularly well in Hong Kong as it posted a 48% increase in total income to S$721 million. Net profit more than doubled to S$426 million from S$228 million during the same period last year.

7. DBS also recognised a large amount of non-performing assets in the fourth quarter of 2017. Consequently, its non-performing loans (NPL) ratio in the first quarter of 2018 was reduced sequentially to 1.6% from 1.7%.

8. In terms of its financial health, DBS looks well-covered. It had a leverage ratio of 7.6% at the end of 2018’s first quarter. DBS’s Common Equity Tier-1 Capital Adequacy Ratio, a common metric to measure if a bank can withstand any major loan losses, stood at 14%, and was comfortably above the Monetary Authority of Singapore’s regulatory requirement of 6.5%.

9. On the outlook, for the rest of the year, DBS’s CEO, Piyush Gupta, said that the bank is not expecting any direct negative impact from a trade war, and that a tighter monetary policy is unlikely to derail the bank’s growth. He also expects DBS to hit a net interest margin of 1.85%, and an 8% increase in loan growth.

10. DBS’s shares closed at S$28.80 last Friday. This translates to a price-to-book ratio of 1.57 and a trailing dividend yield of 3.2%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has a recommendation on DBS Group Holdings. Motley Fool Singapore contributor Jeremy Chia owns shares in DBS Group Holdings.