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3 Positive Trends from DBS Group Holdings Ltd’s 2018 First Quarter Results

Banks in Singapore have seen their businesses perform well over the past two years. This has not gone unnoticed by investors, as the share prices of the banks have risen considerably in the same period.

Last week, DBS Group Holdings Ltd (SGX: D05) reported its results for the first quarter of 2018. As expected, it was a stellar quarter for the bank as it recorded a 16% year-on-year increase in total income and generated a 13% return on equity, the highest in a decade.

Besides these strong headline numbers, there are other positive trends in its business that bode well for its future. Here are three that are worth highlighting.

Net interest margin growth on track

The net interest margin (NIM) is the difference between a bank’s cost of capital and the income it earns from the loans that it provides. A higher NIM will result in a higher amount earned on each dollar of loan the bank makes.

The management team of DBS had previously guided for a full-year net interest margin of 1.85% for 2018, which is 10 percentage points better than 2017.

During the first quarter of 2018, DBS had a strong performance in this area as its NIM increased by 5 percentage points sequentially to 1.83%. Below is a chart showing the trends of the bank’s NIM and net interest income.

 

As you can see from the chart, DBS’s NIM has been steadily increasing from 1.74% in the first quarter of 2017. With further hikes in interest rates this year expected from the US Federal Reserve, DBS is on track to meet its 2018 goal of  a NIM of 1.85%.

Wealth management income jumps 45.8%

During the first quarter of 2018, DBS recorded wealth management fees of S$331 million. This is a whooping 45.8% increase from the fourth quarter of 2017. Besides having low capital requirements, wealth management is also considered a highly profitable business.

Through the growth of the wealth management business, DBS can, therefore, increase both its profitability and return on equity.

Hong Kong net profit surges 91%

Income earned from Hong Kong grew by 38% to a record S$721 million on a year-on-year basis. Meanwhile, the geography’s net profit grew even faster at 91% to S$436 million; on an adjusted basis, Hong Kong’s net profit was up by a still-impressive 66% year-on-year to S$350 million.

The strong performance from DBS’s Hong Kong business means that the market now contributes a meaningful 23% to the bank’s overall net profit. This has reduced DBS’s reliance on its major market of Singapore, and thereby mitigated some of the bank’s geographical concentration risk.

With Hong Kong’s economy continuing to do well, DBS’s Hong Kong business is poised for continued growth throughout the rest of this year.

The Foolish bottom line

DBS once again demonstrated strong growth in most of its segments including net interest income and fee income. Together with positive macro-economic conditions, the future continues to look bright for DBS and its shareholders.

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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.