Headquartered and listed in Singapore, DBS Group Holdings Limited (SGX:D05) is not only the largest bank in its home country, but it is also a leading financial services group in Asia with a presence in a total of 19 markets (including Singapore.) The bank have won a slew of prestigious accolades in 2022, including being named as the “World’s Best Bank” by Global Finance, along with “Digital Workplace of the Year: Cutting Edge Award” by Digital Workplace Group. On top of that, it was also featured in the “100 Best Workplaces for Innovators” ranking from Fast Company.
Following the release of its fourth quarter, and full year 2022 results on 13 February 2023 (you can read my review about it here in case you’ve missed it), the Singapore-listed bank have published its annual report yesterday (09 March 2023) morning (which, as usual, is packed with details), along with notice of its upcoming annual general meeting (AGM.)
For the benefit of those who do not have the time to go through the report, you can read my summary about it in this post, along with details about its upcoming AGM.
Letter from Chairman Peter Seah & CEO Piyush Gupta
A Solid Performance Despite Slowing Economy:
- Despite key markets (in Singapore and Hong Kong) which the bank is in being impacted by slowing economy (where Singapore’s economy growth slowed down from 8.9% in 2021 to 3.6% in 2022, while Hong Kong’s economy shrank by 3.5% in 2022), it still managed to achieve a solid financial performance:
- Total income rose to a record of SGD 16.5 billion, particularly its total income crossed SGD 16 billion for the first time;
- Net profit hit an all-time high of SGD 8.19 billion, as the bank benefitted from higher interest rates and reaped the rewards of structural changes made to the bank’s franchise (including the buildout of higher-return business lines, and pervasive digital transformation) which they have embarked on since 2014;
- Return on Equity, at 15.0%, was not just a record, but also significantly higher compared to the previous highs around the 12-13% range.
- On top of that, DBS was also being named as the “World’s Best Bank” by Global Finance for 5 years in a row, and also the “Safest Bank in Asia” by Global Finance for the 14th consecutive year.
- However, non-interest income for the year was a drag for the bank, where it declined 3% to SGD 5.56 billion due to lower wealth management and investment banking fees amid the uncertain market environment, partly offset by a 20% growth in credit card spending, as travel spending gradually returned to pre-pandemic levels.
- Asset quality remained resilient, with the non-performing loans ratio at 1.1% (from 1.3% in 2021.) A range of stress tests had been done under conservative assumptions, (including stress testing oil at USD 200 a barrel, interest rates at 6-7% for its SME portfolio, and a deep recession impacting the cashflow of its customers by 30%) and it was concluded that the bank’s asset quality remained robust.
Updates on its Asia Franchises:
Greater Bay Area (GBA):
- DBS continued to make headway in growing this franchise since launching its GBA strategy in 2018, with the bank’s large corporate business targeting companies in China’s strategic industries including high-end manufacturing, technology, and the new economy seeing tremendous growth, and its SME business performing well.
- DBS Bank (Hong Kong) now provides investment products and solutions to customers from DBS China, Postal Savings Bank of China, and Shenzhen Rural Commercial Bank – making it the only bank with 3 Southbound Wealth Management Connect partners.
- Following the amalgamation of Lakshmi Vilas Bank (LVB) with DBS India in late 2020, all efforts have been focused on integrating both franchises smoothly.
- With an enlarged presence of over 520 branches across 350 locations, 2.5 million customers, and 15,000 corporate customers, DBS now have a strong platform from which to accelerate growth in India.
- Strategic partnerships formed with Bajaj Finserv to launch their first ever credit card in India, and with ODeX to provide straight-through credit solutions to freight forwarders, continued to scale well.
- DBS is on track to acquire Citi’s consumer banking business, and integrate the acquisition by August 2023 – and this will accelerate DBS Taiwan’s growth by at least 10 years, and make it the country’s largest foreign bank by assets.
- In November 2022, DBS opened a representative office in the country (which is an attractive investment destination for companies in various sectors, such as power, energy, and transport and logistics), bringing the bank’s presence to 19 markets globally.
- The establishment of DBS Dhaka will provide further impetus to the bank’s activities and enable greater market connectivity to DBS’ customers globally.
3 Areas which DBS have Invested that Continue to be Differentiating:
- First was the industrialisation of artificial intelligence/machine learning and data analytics usage across the bank – on the consumer banking front for instance, the bank sends personalised nudges each month to its customers across the region with suggestions on how they can make their money work harder; in the SME space, it provides businesses with early warning signals of potential credit stress.
- Second was its ecosystem strategy, which allowed the bank to scale up its business in large Asian markets without high customer acquisition costs, where the bank nearly doubled its ecosystem-led consumer finance lending in 2022.
- Third was the way the bank manages, where a big focus at DBS has been on enabling a workforce that is agile, nimble, experimental, learning, and willing to take risks.
- DBS unveiled a clear and detailed roadmap and plan on its net-zero commitment in September 2022 titled “Our Path to Net Zero – Supporting Asia’s Transition to a Low-carbon Economy”, which was one of the most comprehensive plan in global banking industry.
- Specifically, its 2030 interim decarbonisation targets are aligned with science-informed decarbonisation glidepaths for 7 sectors (power, oil and gas, automotive, aviation, shipping, steel, and real estate), with data coverage targets set for 2 sectors (food and agribusiness, along with chemicals) – these 9 sectors represent the most carbon-intensive institutional banking segments financed by DBS, and constitute the vast majority of the institutional banking group’s financed emissions.
- As part of the implementation roadmap, DBS will proactively partner its customers with advisory and financial solutions to accelerate their transition to a lower-carbon future. This confidence was borne out by its fast-growing sustainable finance book, where, as at end-2022, its sustainable finance portfolio was SGD 61 billion, exceeding its target well ahead of 2024 (which was at SGD 50 billion.)
- In-line with the bank’s efforts to embed sustainability into its business practices and operations, it refurbished a 30-year old office in Newton into Singapore’s first net-zero building by a bank, along with launching an in-house cafe at its headquarters (called “DBS Better World Cafe”) that incorporates a host of sustainability features in the fabric of its operations, including a sustainable kitchen which uses locally-sourced ingredients, hiring of disadvantaged individuals, and the deployment of food composting stations for employees to dispose of their food scraps.
- On the social front, the new Community Impact chapter of DBS Foundation aims to foster a more equitable and inclusive society, where a total of SGD 5.6 million had been committed towards 10 inaugural programmes across its core markets of Singapore, China, Hong Kong, India, Indonesia, and Taiwan.
- Finally, for the bank’s commitment to sustainability, it was recognised by Global Finance as the global winner for “Finance Leadership in Sustaining Communities”, along with being named to the Bloomberg Gender Equality Index and FTSE4Good Developed Index for the 6th consecutive year.
- Given the record profit and strong capital base, the Board has proposed a final dividend payout of 42.0 cents/share, and a special dividend payout of 50.0 cents/share, bringing the full-year dividend to SGD 2.00 per share.
- Barring unforeseen circumstances, the annualised dividend going forward will be SGD 1.68/share (meaning 42.0 cents/share every quarter.)
- While uncertainties remain, macroeconomic conditions are improving, with global expectation expected to decline this year, along with a rebound in economic activity following China’s reopening.
- Barring any unexpected shocks to the global economy, DBS’ ROE will comfortably be above 15.0%.
- DBS will continue to cement its digital banking leadership, while strategically placing its bets in emerging technologies. At the same time, the bank continues to remain focused on advancing its sustainability agenda and executing on its net-zero commitments.
CEO Piyush Gupta’s Reflections
Outlook for the Coming Year:
- Expect US interest rates to increase to around 5% and stay there in 2023.
- Several green shoots are also emerging, including (i) moderation of inflation (with energy prices declining due to a warmer northern winter, and the availability of replacement of Russian oil and gas, along with easing of supply chain constraints as port backlogs are cleared); (ii) the reopening of China will provide a substantial boost to economic activity, particularly in Asia; (iii) gradual easing of geopolitical tensions (on the US-China front, tones have softened since both countries’ Presidents met in Bali in November, along with the resumption of high-level exchanges), although spats could occur from time to time.
- Net interest margins are currently at the highest in more than at decade at 2%. This, along with the bank’s structural improvements from transformation initiatives, will enable it to sustain a ROE of more than 15.0% in the foreseeable future.
- At the same time, the restored confidence in financial markets will lead to a significant recovery to the bank’s wealth management fee income, which was a major drag on its performance in 2022.
Maintaining of ROE at above 15.0%:
- DBS’ ROE reached a new high of 17.0% in the 2nd half of 2022, which can be attributed to high interest rates, along with significant improvements made to its franchise – where the key was its digital transformation efforts, which led to its assets under management growing at an 8% compounded annual rate since 2017, outpacing the market in Asia. On top of that, transaction services fees also increased at an 8% compounded annual rate, while Global Transaction Services (GTS) Deposits rose almost 40%.
- The bank have also improved credit processes through the use of data and artificial intelligence for underwriting, early warning and portfolio management, which is expected to drive lower cost of credit going forward.
- In key growth markets, the bank is scaling up organically and through acquisitions.
- However, there will be a cyclical impact to ROE from changes in interest rates – particularly if they peak in the coming year, it will result in part of the ROE improvement so far coming off. However, as digital transformation becomes more pervasive, an ROE of 15.0% is sustainable if interest rates do not return to the unusually low levels seen during most of the past decade.
Impact from Collapse of Technology Valuations and Crypto Asset Prices on the Bank’s Strategy:
- While 2022 saw a major sell-off in the market, particularly of technology stocks and crypto assets, it has little bearing on technology as a continued driver of the global economy, for it has fundamentally altered the way we live, work, and play.
- Some of the examples include (i) artificial intelligence/machine learning playing a big part on our lives today (through the use of Siri, Alexa, along with ChatGPT – which took the world by storm recently); (ii) blockchain/distributed ledger technology allowing the bank to reimagine workflows, such as those pertaining to clearing and settlements, which could dramatically change back office operations by reducing costs and boosting overall efficiency and effectiveness.
- Moving forward, DBS will continue to build on its technological prowess in 2 ways: (i) internally, the bank will continue to train its staff in artificial intelligence/machine learning and other new technologies, and at the same time, invest in strengthen its technological muscle in areas such as cloud computing and site reliability engineering so as to improve scalability, automation, and speed to market, while enhancing system resilience at reduced costs; (ii) externally, the bank has sponsored several businesses, such as Partior [where it seeks to streamline inefficiencies in cross-border clearing and settlement] and Climate Impact X [which enables the trading of high-quality carbon credits], along with partnering with DBS Digital Data Exchange [a bank-backed crypto trading exchange], and FIX Marketplace [Asia’s first fully digital and automated fixed income execution platform] – these initiatives not only provide valuable insights into emerging technologies, but are also medium-term bets on the future of finance.
Details of DBS Group Holdings’ 24th Annual General Meeting
The following are details of DBS’ upcoming AGM:
Date: Friday, 31 March 2022
Venue: Marina Bay Sands Expo and Convention Centre, Level 4, Roselle and Simpor Ballrooms, 10 Bayfront Avenue, Singapore 018956
The meeting will be held physically, with no option for shareholders to attend virtually.
Questions? You can either raise them during the AGM in-person, or via email at DBSAGM2023@boardroomlimited.com (make sure you send in your questions no later than 17 Mar 2023.)
Disclaimer: At the time of writing, I am a shareholder of DBS Group Holdings Limited.
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