DBS Group Holdings (SGX:D05) is the first of the 3 Singapore banks to release their updates for the first quarter of financial year 2020 ended 31 March 2020 before trading hours this morning (30 April.)

As the bank switched to half-yearly reporting, they only provided an update of the most important statistics this time round.

I have studied the bank’s latest set of updates and in this post, you will find a summary of it, along with my personal thoughts:

Selected Income Statement Items (Q1 FY2019 vs. Q1 FY2020):

The following table is a year-on-year (y-o-y) comparison of some of the income statement items:

	Q1 FY2019	Q1 FY2020	% Variance
Total Income (S$’mil)	$3,551m	$4,026m	+13%
– Net Interest Income (S$’mil)	$2,310m	$2,482m	+7%
– Net Fee & Commission Income (S$’mil)	$730m	$832m	+14%
– Other Non- Interest Income (S$’mil)	$511m	$712m	+39%
Net Profit (S$’mil)	$1,651m	$1,165m	-29%

All three business components (net interest income, net fee and commission income, and other non-interest income) of the bank saw y-o-y improvements, leading to its total income to also grow by 13% to a record high of S$4,026m.

• Net interest income went up by 7% on a y-o-y basis mainly due to growth in non-corporate loans mostly from Singapore and Hong Kong, offset by declines in trade loans and wealth management customer loans.
• Net fee and commission income improved by 14% y-o-y to S$832m – which is a new high for the bank. The growth was led by a 17% rise in loan-related fees, and a 64% increase in investment banking fees, offset by a 8% decline in card fees due to lower transactions across the region.
• Other non-interest income climbed by 39% y-o-y to S$732m, mainly contributed by gains in investment securities

The only negative was the bank’s net profit, which went down by 29% on a y-o-y basis to S$1,165m, due to total allowances of S$1.09b to accelerate the build-up of the bank’s reserves – of which, two-thirds (or S$703m) are for general allowances to anticipate a deeper and more prolonged economic impact from the Covid-19 pandemic, while the remaining one-third (or S$383m) is for specific allowances, mainly for new exposures recognised as non-performing during the quarter.

My Thoughts: The y-o-y improvement in the bank’s net interest income came as a surprise to me; I initially expected it to record a y-o-y decline, but its total income to continue to see a y-o-y growth, due to improvements in its net fee and commission income, as well as in its other non-interest income.

Another surprise from the bank’s latest set of results is its record breaking total income and net fee and commission income for the quarter under review.

All-in-all, DBS’ latest Q1 FY2020 results was above my expectations, and I personally am happy with it.

Key Financial Ratios (Q4 FY2019 vs. Q1 FY2020):

Compared to the previous quarter (i.e. Q4 FY2019 ended 31 December 2019), how did the bank’s latest key financial figures measure up?

Let us have a look at them in the table below:

	Q4 FY2019	Q1 FY2020	Difference (in percentage points)
Net Interest Margin (%)	1.86%	1.86%	–
Return on Assets (%)	1.04%	0.78%	-0.26pp
Return on Equity (%)	12.1%	9.2%	-2.9pp
Non-Performing Loans Ratio (%)	1.5%	1.6%	+0.1pp

The only positive here is that, compared to the previous quarter (i.e. Q4 FY2019), the bank’s net interest margin remained consistent.

Separately, non-performing assets went up by 14% compared to the previous quarter to S$6.59b, with two percentage points of increase due to currency effects. The bank’s non-performing loans ratio, compared to the previous quarter, was up by 0.1 percentage points to 1.6%.

My Thoughts: Everything was within my expectations, in light of the uncertainty.

Dividend Payout:

As I expected, the bank kept to their promise to shareholders and declared a dividend payout of 33 cents/share for the current quarter under review (which is a 10.0% quarter-on-quarter increase from 30.0 cents/share declared in Q1 FY2019.)

Looking ahead, the bank’s CEO, Piyush Gupta, updated in his presentation that earnings generation is currently expected to be sufficient for maintaining its quarterly dividend payout at 33 cents/share.

My Thoughts: I never doubted the bank’s ability to pay out 33 cents/share every quarter in the financial year 2020, and I was proven right.

The CEO’s update on the bank’s dividend payouts for the remaining quarters ahead was reassuring.

Summary of DBS’ Outlook Ahead from the CEO’s Presentation:

• Full-year profit before allowances to be around 2019 levels after factoring in declines for the rest of the year.
• The net interest margin reported in the first quarter of financial year 2020 does not reflect the impact from the recent interest rate cut. It will, however, be felt from the second quarter onwards as benchmark rates driving the decline in the net interest margin.
• In terms of loan growth, it is expected to remain resilient, with healthy non-trade corporate loan pipelines from top-end customers. Housing and consumer loans are expected to be little changed. However, trade loans will be affected by lower global trade volumes.
• As far as the bank’s fee income growth is concerned, it is likely to trend lower ahead, but mitigated by diversified fee income streams. Finally, its other non-interest income growth in the remaining quarters of the year ahead provides upside.
• The bank’s capital, funding and liquidity remains strong, and the CEO added that it is well-positioned to support their customers in uncertain markets.

In Summary:

I am happy with yet another set of resilient results reported by the bank.

While there are headwinds ahead in the remaining quarters, I remain confident in the bank’s ability to navigate through it, and emerge stronger at the end of it.

Download Your Copy of DBS Group Holdings’ Latest Q1 FY2020 Trading Updates Below:

• Trading Updates
• CEO Presentation
• CFO Presentation

Disclaimer: At the time of writing, I am a shareholder of DBS Group Holdings.

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