Early this afternoon (31 March 2022), DBS Group Holdings Limited (SGX:D05), or DBS for short, held its annual general meeting (AGM) for the financial year ended 31 December 2021, which I’ve attended online as a shareholder of the bank (no physical attendance allowed as a precautionary measure due to the current Covid situation in Singapore.)
The meeting was a long one (1.5 hours from start to finish – in fact, it’s the longest virtual AGM I have attended so far!) with the presentation by the bank’s CEO, Mr Piyush Gupta, a very detailed one, and questions raised by fellow attendees during the meeting were all responded to (well done, DBS!)
In this post, you’ll find a summary of the presentation by Mr Gupta, responses to questions posed by AGM attendees, as well as results of the 14 resolutions put to vote during the meeting:
Presentation by CEO Piyush Gupta
Strong Business Momentum & Performance in 2021:
Mr Gupta opined that the bank’s results for 2021 was a truly outstanding one. Particularly, he highlighted the following:
- Despite headwinds posed by the low interest rate environment, and by Covid, the bank’s total income only edged down 2% on a year-on-year (y-o-y) basis to $14.3b.
- He further elaborated that while the bank’s income as a result of interest rate decline (due to the Fed slashing interest rates 4 times in 2019 and another 5 times in early-2020) fell by $2.8b, but its volume growth (of $1.0b), consumer and institutional non-interest income (of $0.7b), and T&M trading and corporate treasury (of $0.9b) more or less made up the shortfall, hence the resilient total income reported by the bank.
- While the bank’s expense went up by 5% to S$6.5b, but Mr Gupta pointed out that this was contributed by expenses incurred by Lakshmi Vilas Bank (LVB), along with the lack of government grants – excluding these 2 items, the bank’s expenses would have been up by just 1%.
- As a result of a huge reduction in general and special provisions (due to recoveries and repayments), DBS’ net profit jumped 44% to S$6.8b – a record for the bank, to which Mr Gupta branded as “solid.”
- Return on Equity (or RoE), at 12.5%, was the second highest on record for the bank – which Mr Gupta described as “impressive”, citing that the last time when interest rates were at close to zero, the bank’s RoE was under 10.0%. He attributed the impressive performance to changes the bank have made over the years in the texture of their franchise.
Strong Balance Sheet:
Mr Gupta shared that the bank’s balance sheet is in a very good position:
- Non-Performing Loans ratio declined from 1.6% in FY2020 to 1.3%, as a result of improved asset quality from higher repayments, declines in the new NPA formation to pre-Covid levels.
- General provision reserves of $3.9b is $0.4b above MAS’ requirement, as well as $1.1b beyond Tier-2 eligibility.
- CET-1 at 14.4% was above the management’s operating range and more importantly, above regulatory requirements.
- Payout of 36 cents/share in Q4 FY2021, up 9% compared to its payout of 33 cents/share in Q4 FY2019 (pre-Covid), was in-line with the bank’s policy of paying sustainable dividends that grow progressively with earnings, while keeping an eye on the outlook and opportunities for growth.
- Together with its payout of 18.0 cents/share in Q1, and 33.0 cents/share in Q2 and Q3, the bank’s total dividend payout for the financial year is $1.20/share. Including capital gains (the bank’s share price at one point in time hit an all-time high), Mr Gupta shared that total shareholder returns was about 35%.
- Moving forward, he shared that barring unforeseen circumstances, annualised dividend will be at $1.44/share.
- Balance sheet is poised to benefit from rising interest rates (where net interest margin will see an increase of $18m to $20m per basis point of interest rate hike), but Mr Gupta commented that the real benefit will only be seen in 2023, as interest rates go up gradually following Fed’s interest rate hike announcements in the coming months of the year.
- Despite of that, the global outlook remains uncertain due to the following:
- Russia-Ukraine Impact: the general assessment is that global GDP will see a slowdown by 1-1.5%; also, the risk-off sentiment triggering sell-offs in the market poses another headwind;
- Inflation: while Mr Gupta commented that trade loans tend to go up in tandem with inflation (which is god for the bank), but he cautioned that the biggest challenge will be stagflation, and the bank will have to be nimble to negotiate through it if it happens;
- Uneven opening of countries post-pandemic.
- Mr Gupta shared that the bank’s credit outlook is relatively secure, with asset quality remaining resilient (no signs/stresses in its books), and a “as good as zero” direct exposure to Russia and Ukraine. He also does not expect to see any major credit impact on the bank as a result of recent lockdowns in China (in its attempt to maintain a “Zero Covid” policy.)
- On the other hand, inflation and interest rates could put pressure on the bank’s SME portfolio (but Mr Gupta is not worried as they are largely secured and well-stress tested.) Also, volatile commodity prices and supply chain could lead to idiosyncratic risks in large corporates, but there’s no immediate deterioration evident (but Mr Gupta opined that it is still something to keep a watch on.)
Future-Proofing the Bank’s Businesses:
Mr Gupta shared that the following initiatives will help add approximately $1.2b – $1.3b to the bank’s revenue, and an incremental $500m to its bottom line:
- Geographic Expansion: in Lakshmi Vilas Bank (where its growth is currently on-track, with the bank able to grow its deposit and loan book; however, Mr Gupta highlighted the need to grow the bank’s technology platform), Shenzhen Rural Commercial Bank (where DBS’ experience in the international market could help the bank’s customers), and Citibank Taiwan (where Mr Gupta updated that the aim is for the banking operations to be integrated by the middle of next year.)
- New Businesses: with its China Securities Joint Venture, New Economy Companies (i.e. Pre-IPO Companies) including Growth Debt Fund with Temasek Holdings, along with Digital Exchange.
- Becoming a Technology Company: through Partior (which already has 30 MOUs signed with banks around the world), Climate Impact X (which the bank had a 23% shareholdings to, and that the project kicked off well), FIX Marketplace (where it currently has $4b of issuances), as well as Software Businesses (with financial and non-financial customers, and the bank is currently working with 2 potential partners.)
Moving forward, Mr Gupta added that the bank will continue its work on the core banking businesses, and at the same time, look at other opportunities with which the bank can expand.
DBS have established a Board Sustainability Committee (chaired by CEO Mr Gupta himself) to enhance the bank’s governance process in relation to climate and broader ESG matters centred on the 3 pillars:
- Responsible Banking: where the bank has made a commitment to net-zero by 2050, committed $20.5b to sustainable finance in 2021 (and cumulatively, the bank have already committed $39b – $40b, and are well on their way to achieve their $50b target), launched green products (green auto and renovation loans, along with green credit card) and DBS LiveBetter Platform (to support more sustainable lifestyles), as well as scaling up financial inclusion through supporting migrant workers in Singapore, and extending credit to low-income segments in India and Indonesia (and good progresses have been made on that front.)
- Responsible Business Practices: where the bank have target net-zero operational carbon by 2022 (to achieved this, they have reduced the size of their data centres, created 4 facilities to generate their own renewable energy – 2 in Singapore, 1 in India, and 1 in Indonesia), committed 100% of new suppliers to DBS’ Sustainable Sourcing Principles, and launched Opportunity Marketplace using Artificial Intelligence/Machine Learning to help employees identify career aspirations and skills needed.
- Impact Beyond Banking: where they supported communities hard-hit by the pandemic with relief support, contributed $100m of additional funding to further improves lives in Asia (such as in education as well as in the elderly), as well as contributed more than 100,000 employee volunteering hours (with volunteering up 75% from last year) to serve the community.
Responses to Questions Posed by AGM Attendees
- One shareholder highlighted that the CEO’s pay was increased by 40% for the financial year under review, which was aligned to the bank’s net profit growth. However, he expressed his disappointment that shareholders were not rewarded for their investment in the bank (particularly, there were no special dividends being declared, and that the growth of dividends was up only by 9% from FY2019.) To which, the Chairman of DBS, Mr Peter Seah, responded that the bank’s dividend payout have increased steadily over the years, in-line with its policy of paying sustainable dividends that grow progressively with its earnings (the only exception was in FY2020, where they were acting on the advise of MAS to cap their dividend payout to 60.0% of what was paid out in FY2019.) He also pointed out that total shareholder returns (capital gains plus dividends received) for the year was at 35% (in-line with the growth of the bank’s net profits.)
- Responding to a question as to whether or not the bank have any plans to allow customers to trade Cryptocurrencies or Ethereum, Mr Gupta replied that currently, DBS Digital Exchange is for institutional and accredited investors only, due to regulators having concerns about the trading of cryptocurrencies on the retail market. While he is of the opinion that digital currency/cryptocurrencies will be pervasive in time to come (but added it will not replace cash), and regulators will eventually have to come to terms with it, but he do not foresee it to happen anytime soon.
- On concerns as to whether Board members, who have other appointments concurrently, will be able to contribute to the bank meaningfully, Mr Seah gave his assurance that thorough exercises are conducted regularly to ensure the Board Members dedicate sufficient time to the DBS Board. He also added that the they have contributed immensely with the experience they have in the bank’s strategic planning activities.
- Another shareholder posed a question on how long will it be before India becomes the second largest contributor to DBS’ revenue. In response to this, Mr Seah cited the case of Hong Kong where the bank have made a huge investment for many years before it currently contributes one-third of the bank’s overall profits. That said, the same is going to be the case in India, where it is going to take awhile before the operations in the country will contribute substantially to DBS’ bottom-line. Mr Gupta also gave a realistic timeframe of between 15-20 years for that to happen.
- Pertaining to a question on the impact to DBS if stagflation hits, along with how the bank intends to navigate through it, Mr Gupta said that as long as nominal aggregates are going up, the bank will continue to do just fine. However, the challenge is in the cost of credit and income projection – as such, the bank has to be nimble on the customer selection front.
Results of 14 Resolutions Put to Vote during the AGM
- Resolution #1: Adoption of Directors’ statement, audited financial statements and auditor’s report, was passed with 99.9757% of the votes for, and 0.0243% of the votes against.
- Resolution #2: Declaration of final dividend on ordinary shares, was passed with 99.9942% of the votes for, and 0.0058% of the votes against.
- Resolution #3: Approval of proposed non-executive Director’s renumeration of SGD 4,266,264 for FY2021, wad passed with 99.8175% of the votes for, and 0.1825% of the votes against.
- Resolution #4: Re-appointment of PricewaterhouseCoopers LLP as auditor and authorisation for Directors to fix its renumeration, was passed with 97.9884% of the votes for, and 2.0116% of the votes against.
- Resolution #5: Re-election of Dr Bonghan Cho as Director retiring under article 99, was passed with 99.1402% of the votes for, and 0.8598% of the votes against.
- Resolution #6: Re-election of Mr Olivier Lim Tse Ghow as a Director retiring under article 99, was passed with 99.0755% of the votes for, and 0.9245% of the votes against.
- Resolution #7: Re-election of Mr Tham Sai Choy as a Director retiring under article 99, was passed with 97.9914% of the votes for, and 2.0086% of the votes against.
- Resolution #8: Re-election of Mr Chng Kai Fong as a Director retiring under article 105, was passed with 90.8132% of the votes for, and 9.1868% of the votes against.
- Resolution #9: Re-election of Ms Judy Lee as a Director retiring under article 105, was passed with 99.9723% of the votes for, and 0.0277% of the votes against.
- Resolution #10: Authority to grant awards and issue shares under the DBSH Share Plan, was passed with 89.2046% of the votes for, and 10.7954% of the votes against.
- Resolution #11: Authority to grant awards and issue shares under the California Sub-Plan to the DBSH Share Plan, was passed with 89.4468% of the votes for, and 10.5532% of the votes against.
- Resolution #12: General authority to issue shares and to make or grant convertible instruments subject to limits, was passed with 90.0650% of the votes for, and 9.9350% of the votes against.
- Resolution #13: Authority to issue shares pursuant to the DBSH Scrip Dividend Scheme, was passed with 97.4046% of the votes for, and 2.5954% of the votes against.
- Resolution #14: Approval of the proposed renewal of the Share Purchase Mandate, was passed with 99.2949% of the votes for, and 0.7051% of the votes against.
Disclaimer: At the time of writing, I am a shareholder of DBS Group Holdings Limited.
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