DBS Group Holdings Limited (SGX:D05) is the first of the 3 Singapore banks to hold its annual general meeting (AGM) for the financial year ended 31 December 2022 last Friday (31 March 2023), which I’ve attended as a shareholder – UOB will be holding its AGM on 21 April 2023, and OCBC on 25 April 2023.
It was the first time I’m attending a general meeting of a bank physically (the last 2 meetings I attended were both virtually, due to the pandemic) and I was surprised by the snaking queues to register. However, the queue moved pretty fast:
Apart from seeking the management’s updates in-person from such meetings, it was also my pleasure to meet up with some community members on InvestingNote, and I look forward to meeting more fellow community members in time to come.
In today’s post, you’ll find a summary of the Singapore bank’s AGM, responses to questions raised during the meeting, along with results of the 12 resolutions put to vote during the meeting – which I’ve compiled for the benefit of those who weren’t able to attend:
Disruption of the Bank’s Digital Services on Wednesday, 29 March 2023
- Both the bank’s Chairman (Mr Peter Seah), as well as CEO (Mr Piyush Gupta) called the incident (where the bank’s digital banking services were disrupted for 10 hours, and such incident was second time in 16 months) ‘unfortunate and disappointing’, as well as an ’embarrassment’ for the bank, and offered their apologies on behalf of the board and management.
- Mr Gupta shared that the disruption was similar to the previous incident (in November 2021, where the bank’s digital banking services were disrupted as a result of a malfunctioning access control server) – following which, it had shored up its engineering team to better understand its third-party systems, along with making improvements on the bank’s recovery protocols.
- He added that on Wednesday, 40-50% of the bank’s customers still managed to access the bank’s digital banking, but the bank decided to fire up the backup servers after lunch (which required a ‘complete downtime’ in that none of the banks’ customers could use the bank’s digital banking system for the duration), and full services were restored at around 5.30pm. At this point in time, the root cause of the disruption was still unknown.
- Mr Seah shared that the bank will be convening a special board committee to conduct a thorough investigation. The bank will also be engaging external experts with the experience in overseeing large-scale IT systems to work together with the committee to review and provide recommendations. He added that the Monetary Authority of Singapore (MAS) was supportive of the proposal.
- Finally, both the Chairman and the CEO expressed their confidence in the bank emerging stronger after this episode, and committed to do better in the future.
- 2022 saw the bank’s Total Income hit a record high of $16.5 billion; the same can also be said for its Net Profit of $8.2 billion, and also for its Return on Equity (RoE) of 15.0%. The only slight negative was a 22% decline in Treasury Markets income, which Mr Piyush explained was due to a high-base in FY2021.
- Institutional Banking Group’s full-year total income grew 28% to $7.7 billion (mainly contributed by capital management income), a testament of work done to build up its capability over the years.
- Total income from the bank’s Consumer Banking Group rose by 25% to $6.7 billion, which can be attributed to high loan and deposit income. Wealth Management Assets Under Management (AUM) climbed by 3% in constant currency to a record high of $297m – Mr Piyush shared that DBS was one of the few wealth banks in the region that recorded improvements in its Wealth Management income in 2022.
- Balance sheet remains healthy, with non-performing loans ratio down to 1.1%, along with special provisions at a record low – to which Mr Gupta was quite pleased with given the uncertainty in China (as a result of the country remaining close for most parts of the year in its strict ‘Zero Covid’ policy.)
- Non-Performaning Assets (NPA) coverage was very strong at 122% and 215% after including collateral, and Mr Gupta shared that there is a very strong buffer to help if situation worsens.
- In terms of the bank’s liquidity (in which its LCR [Liquidity Cover Ratio] was at 140%, NSFR [Net Stable Funding Ratio] at 117%, and LDR [Loan-to-Deposit Ratio] at 79%), it continues to stay strong, and moving forward, the bank will continue to maintain a robust liquidity.
- Together with its 42.0 cents/share, and special dividend of 50.0 cents/share in the fourth quarter, the bank’s full year dividend amounts to $2.00/share – this was in-line with the bank’s policy to pay consistent dividend that grow progressively with earnings. Barring unforeseen circumstances, the bank’s annualised dividend will be $1.68/share in 2023 (i.e. 42.0 cents/share per quarter.)
- In terms of macro outlook, Mr Gupta was of the view that while uncertainties remain, macroeconomic conditions have improved, with China’s reopening providing tailwind to the regional operating environment.
- Headwinds include high interest rates (Mr Gupta was of the opinion the Federal Reserve will not cut rates this year), along with parts of the credit chain not doing well – to which the bank will continuously monitor. Another headwind will be the ongoing geopolitical tensions between US and China – including the decoupling of semiconductor supply chains.
- Business outlook for 2023 is quite robust, with Net Interest Margin (NIM) guidance of 2.25%, along with 5-7 bps downside risks due to outflows to T-bills, strengthening SGD, and higher TM funding costs.
- Full-year guidance of mid-single digit loan growth, and double-digit fee income growth, and cost growth guidance at 9-10%.
- Mr Gupta shared that last year, Harvard Business School studied DBS as a model for digital transformation which focused on the use of Artificial Intelligence/Machine Learning. He added that the transformation (on the way DBS work) was a purpose-driven one, with progress are on-track, notwithstanding macroeconomic situation.
- He also added that results of this transformation was reflected on the bank’s financial performance, particularly:
- Return on Equity of DBS in the top-tier of global peers group at 15.0%; in 2022, its ranked #8 in the world’s 100 largest banks (from #44 in 2015);
- Shares of the bank traded at the high-end of global peer group; in 2022, its P/B at 1.53x is ranked #8 in the world’s 100 largest banks (from a P/B at 1.04x, and a rank of $40 in 2015);
- Annualised total shareholders returns since end-2015 of 16% saw DBS being placed at the 4th position among its global peers.
Entrenching DBS as a Force for Good:
- Mr Gupta stressed that the bank’s focus has always been on the development of Singapore, with a sense of purpose embedded in everything they do.
- On DBS’ path towards Net Zero by 2050, it has launched a report titled ‘Our Path to Net Zero – Supporting Asia’s Transition to a Low Carbon Economy’ for 9 of the most carbon intensified sectors, with specific glidepaths to edging towards Net Zero by 2030. On top of that, a Board Sustainability Committee had been formed to look into the bank’s decarbonisation approach to help clients get to the same glidepath.
- Some of the initiatives the bank have introduced beyond banking to support the community include: (i) its ‘5 million hawker meals’, where, over the next 12 months, customers can enjoy a $3 discount off their hawker meal when they use DBS PayLah! to pay for a meal; (ii) employees contributing their time and skills via volunteering in areas such as education, elderly environment, etc.; (iii) $5.6 million to fund programmes under the Community Impact Chapter to help the underserved gain digital and financial literacy skills to enable the community to more digitally resilient.
- Senior leadership changes have also been made, with a focus on generation renewal (where leaders are a good 5-10 years younger than current generation) in the organisational team. Mr Gupta added that DBS remains committed to grow leaders for the next generation.
Responses to Questions Raised by Fellow AGM Attendees
- On a question regarding the implementation of Basel IV, Mr Gupta said that MAS will make an announcement on this in July 2023, and the bank should be moving towards Basel IV by January 2024. As to whether the move will impact the bank’s Earnings Per Share, Mr Gupta was of the opinion it will not be impacted.
- Another shareholder wanted to know about the progress of the integration of Lakshmi Vilas Bank into DBS’ operations. Mr Gupta updated that while there were challenges on the implementation of digitalisation at the start (similar to challenges every startups face at the beginning), but they were able to apply what was implemented in Indonesia (where it has a physical, as well as a digital presence) and he was satisfied on the progress made. Staffs were also trained to adopt to DBS’ standards, and the next step would be to scale up on the business, where he was optimistic that in the next 2-3 years, the platform will contribute positively to DBS’ performance. In terms of business, Mr Gupta shared that currently, India was DBS’ best growing business outside of Singapore.
- A shareholder voiced concerns about the ‘closing down’ of the bank’s physical branches in Singapore, and the inconvenience it brought about to the elderly who relied on visiting the physical branches to go about their banking activities. On this, Mr Gupta clarified that the bank did not close down the physical branches, but converted them into digital branches with the use of digital teller machines, and staff were present on-site to provide assistance. On top of that, he shared that the bank have a fully-manned branch within an accessible distance. He also re-assured the shareholder that the bank will continue to use data to calibrate and determine the best way to serve its customers.
- On concerns as to whether the bank’s move to implement hybrid working (where staff work from home 2 days a week) affect productivity, Mr Gupta said that productivity has not come down. In fact, the management was very satisfied with the productivity levels such that it is now implementing the same in other countries such as Hong Kong.
- With the proliferation of digital banking, customers can now withdraw huge sums of money in a touch of a button. As such, in any adverse event where hordes of customers tried to do the same, it could result in a bank having liquidity problems. With that in mind, a shareholder wanted to know if there are any safeguards in place to prevent such problems from happening to the bank. In response, Mr Gupta reassured the shareholder that the bank had huge liquidity buffers in place – particularly, in Singapore alone, the bank had $50 billion of liquidity buffers in place. This is in addition to liquidity policies that the bank have in place to make sure it remains strong.
- Responding to a question on the sustainability of the bank’s Return on Equity should interest rates dip drastically, Mr Gupta said the days of ultra low interest rates of 0-0.25% is behind us. In fact, he was of the opinion that the Federal Reserve will hike rates for another time to bring it up to the 5-5.25% level, and keeping it as such for the rest of 2023. However, interest rates is likely to come down gradually from 2024 to around the 3.0% range, which will be the new normal.
- Another shareholder was concerned about DBS’ $1.3 billion exposure to Adani Group (for context, you can read the article reported by The Straits Times here), and wanted to know if the Group were to fall into trouble, how will the bank manage. On this, Mr Gupta expressed his confidence that the loan will not be defaulted, as the Group’s operations still remain robust, with their cash flows secure.
- Should the United States fall into a recession, Singapore is unlikely to be spared. That said, a shareholder wanted to know if the bank’s risk management is robust enough to keep its non-performing loans ratio from rising. Mr Seah shared that the Board has a very strong risk committee to look at risk profiles and policies, including country exposures. This is on top of an Executive Committee the bank has to look at major loans getting into trouble and guide management to make provisions accordingly. Finally, he said the bank conducts regular stress testing on its liquidity and profits based on various negative scenarios so as to avoid getting caught by ‘surprises.’
- Finally, on the bank’s exposure crypto risks through its ‘DBS Digital Exchange’, Mr Gupta said the bank does not hold any cryptos in the exchange. Rather, it holds custodies on the cryptos when customers buy and sell. On another question relating to its path to profitability, Mr Gupta said that it should make a positive contribution next year.
Results of the 12 Resolutions Put to Vote during the AGM
- Resolution #1, on the adoption of Directors’ Statement, Audited Financial Statements, and Auditor’s Report, was passed with 99.88% of the votes for, and 0.12% of the votes against.
- Resolution #2, on the declaration of final dividend and special dividend on ordinary shares, was passed with 99.99% of the votes for, and 0.01% of the votes against.
- Resolution #3, on the approval of proposed non-executive Directors’ renumeration of SGD 4,617,248 for FY2022, was passed with 99.56% of the votes for, and 0.44% of the votes against.
- Resolution #4, on the re-appointment of PricewaterhouseCoopers LLP as Auditor and authorisation for Directors to fix its renumeration, was passed with 98.50% of the votes for, and 1.50% of the votes against.
- Resolution #5, on the re-election of Mr Peter Seah Lin Huat as a Director retiring under article 99, was passed with 89.75% of the votes for, and 10.25% of the votes against.
- Resolution #6, on the re-election of Ms Punita Lai as a Director retiring under article 99, was passed with 98.40% of the votes for, and 1.60% of the votes against.
- Resolution #7, on the re-election of Mr Anthony Lim Weng Kin as a Director retiring under article 99, was passed with 99.85% of the votes for, and 0.15% of the votes against.
- Resolution #8, on the authority to grant awards and issue shares under the DBSH Share Plan, was passed with 91.03% of the votes for, and 8.97% of the votes against.
- Resolution #9, on the authority to grant awards and issue shares under the California Sub-Plan to the DBSH Share Plan, was passed with 91.06% of the votes for, and 8.94% of the votes against.
- Resolution #10, on the general authority to issue shares and to make or grant convertible instruments subject to limits, was passed with 90.07% of the votes for, and 9.93% of the votes against.
- Resolution #11, on the authority to issue shares pursuant to the DBSH Scrip Dividend Scheme, was passed with 96.82% of the votes for, and 3.18% of the votes against.
- Resolution #12, on the approval of the proposed renewal of the Share Purchase Mandate, was passed with 99.83% of the votes for, and 0.17% of the votes against.
Disclaimer: At the time of writing, I am a shareholder of DBS Group Holdings Limited.
Launch Event for My First Book: building your REIT-irement portfolio
After months of hard work, my first book, 'Building Your REIT-irement portfolio' is finally ready! In this easy-to-follow 178-page guide, you'll learn everything you need to know about building a REIT portfolio that can provide for you in your retirement years. You can check out a preview of the book here.
I'm extremely thankful to the team at InvestingNote and ShareInvestor for their help to organise a book launch event for me on Tuesday, 26th September 2023, from 6:00pm to 8:00pm at their office in New Tech Park.
For more details and to RSVP (seats are extremely limited), click on the link below: