DBS Group Holdings Ltd

Good morning, everyone, and welcome to DBS's second quarter financial results briefing. This morning, DBS announced solid second quarter earnings, which took our first half net profit to record $3.71 billion. Return on equity was 14%, significantly higher than a year ago. To tell us more, we have with us our CEO, Piyush Gupta, and our CFO, Chung Seok-hui. And without further ado, Seok-hui, please.

Good morning. We achieved the record first half performance as net profit rose 54% from a year ago to $3.71 billion. Return on equity rose from 9.5% a year ago to 14.0%. First and second quarter net profit were the two highest on record. Business momentum accelerated in the first half, mitigating the impact of lower interest rates. Loans grew 6%, deposits 3%, and fee income rose 20%, with the first and second quarters the two highest on record. Both Treasury customer flows and Treasury markets income also reached new highs. Underlying expenses were stable, and the cost-to-income ratio was 42%. Asset quality was resilient, with the NPL rate at 1.5%. New MPA formation fell to pre-pandemic levels and was significantly offset by repayments. Specific provisions declined 46% from a year ago to 18 basis points. There was a general allowance write-back of $275 million while overlays were maintained. General provision reserves remained prudent at $4.05 billion. They were $0.8 billion above MES minimum requirements and $1.2 billion above Basel Tier 2 eligibility. Total allowance coverage was 109% or 199% after taking collateral into account. Liquidity was amper, with CASA accounting for all the deposit growth over the past year. The CASA ratio rose 10 percentage points to 76%. The liquidity coverage ratio and the net stable funding ratio were at 136% and 127% respectively. Capital was healthy with the CET1 ratio rising to 14.5%, well above the group's target operating range. The leverage ratio of 6.8% was more than twice the regulatory requirement of 3%. With the full lifting of regulatory restrictions imposed a year ago, the Board declared a second-quarter dividend of $0.33 per share. The script dividend scheme has been suspended. First half net profit rose 54% from a year ago to a record $3.71 billion. Total income was 4% lower at $7.44 billion. A strong growth in business volumes was more than offset by the impact of lower interest rates and lower gains from investments. Asset quality was resilient and total allowances declined by $1.85 billion from the $1.94 billion set aside in first half 2020 to $89 million this half year. Net interest income fell 12% of $589 million to $4.20 billion as 7% loan growth was more than offset by a 27 basis points fall in net interest margin due to low interest rates. Fee income rose 20% or $308 million to a new high of $1.82 billion. All activities delivered strong performances with wealth management and transaction services rising to a record. Other income declined 2% or $28 million to $1.43 billion as record trading income offset low investment gains due to favourable market conditions a year ago. Expenses were 3% or $91 million higher at $3.13 billion due to the erstwhile Lakshmini Vilas Bank. Underlying expenses were stable. Asset quality was resilient. There was a general allowance right back of $275 million from repayments of weaker exposures and credit upgrades. This compared to the $1.26 billion set aside a year ago. Specific provisions were $308 million lower at $364 million. Second quarter net profit declined 15% to $1.7 billion from the previous quarter's record. Total income was 7% lower at $3.59 billion as both fee income and trading income declined from their first quarter highs. Profit before allowances fell 10% to $2.05 billion. Net interest income was 1% or $18 million lower at $2.09 billion as the three percentage loans growth was offset by a four basis point decline in net interest margin to 1.45%. Fee income was $868 million, 9% or $85 million lower than the previous quarter's record. The decline was due to a moderation in wealth management fees from exceptional levels a quarter ago. Other incomes declined 20% or $162 million to $632 million as trading income fell from the previous quarter's high. Expenses were 3% or $44 million lower at $1.54 billion. There was a smaller right back of GP this quarter of $85 million compared with $190 million in the previous quarter. Specific provisions were $36 million lower at $164 million. Next slide. First half net interest income was 12% lower than a year ago at $4.20 billion. Strong loan and deposit growth mitigated a 27 basis point decline in net interest margin to 1.47%. The fall in net interest margin was due to interest rates that remained low following steep cuts by central banks post the onset of COVID in March 2020. Second quarter net interest income was 1% below the previous quarter at $2.09 billion. Higher loan and deposit volumes offset the impact of lower net interest margin. Net interest margin fell four basis points to 1.45% due to an increased deployment of surplus deposits at lower yields as well as lower market interest rates. Next slide. Growth loans amounted to $4.3 billion. Growth accelerated from 1% in the previous half to 6% in first half, with a 3% increase in each of the first and second quarters. Non-trade corporate loans were $7 billion higher in first half, led by drawdowns in Singapore and Greater China. Trade loans increased $6 billion with a rebound in regional trade. Housing loans rose $2 billion as bookings continued to be strong, while wealth management loans were also higher on buoyant investor sentiment. Second quarter growth was led by trade and non-trade corporate loans. Housing loan and wealth management loan growth were sustained at the previous quarter's level. Deposits. Deposits rose 9% in constant currency terms from a year ago to $483 billion. Three percentage points, or $14 billion, of the growth was over the first half. The growth continued to be led by CASA, which enabled more expensive fixed deposits to be released. CASA rose $26 billion in the first half, while fixed deposits fell $13 billion. The CASA ratio was 76%, up 3 percentage points from end 2020 and 10 percentage points from a year ago. Faster-than-loan growth and deposit growth resulted in a loan-to-deposit ratio of 82%, up 2 percentage points from end 2020. Fee income. First half gross fees rose 19% from a year ago to a new high of $2.08 billion. Both the first and second quarters were the highest on record. Wealth management fees in the first six months grew 27% to a new high of $945 million. While market conditions continue to be the major driver of wealth management, the business has also grown structurally due to three factors. First, we have expanded our reach to the retail segment. Secondly, our digital platforms have enabled us to capture more customer flows. Third, we have grown annuity income streams by focusing on a range of core investment products. Insurance fees were also higher as they recovered to pre-pandemic levels. Card fees rose 10% to $334 million as consumer spending recovered from a year ago with growth led by online transactions. Travel spending continued to remain low. Investment banking fees increased 81% to $114 million from a recovery in equity transactions and record fixed income fees. Transaction services fees grew 10% to $454 million from higher trade and cash management activities. Loan-related fees rose 2% to $230 million. Second quarter gross fee income grew 26% from the previous year. All activities rose by double-digit percentages as financial market activity and consumer spending recovered from the trough a year ago. The growth was led by a 31% rise in wealth management fees. a more than doubling in investment banking fees and a 26% increase in cut fees. Gross fee income was 9% lower than the previous quarter as in wealth management fees moderated from the first quarter's exceptional levels. Investment banking fees were higher, while transaction service fees and cut fees were little changed. Loan-related fees declined modestly. Expenses. First half expenses were 3% higher than a year ago at $3.13 billion. Excluding the erstwhile Lakshmini Villas Bank, underlying expenses were stable. Staff costs increased as the business environment improved but were offset by lower occupancy and computerisation costs. The cost-to-income ratio was 42%. consumer banking and wealth management performance. First half, consumer banking and wealth management income declined 12% from a year ago to $2.71 billion. Income from loans and deposits fell 35% to $1.13 billion as the impact of a lower net interest margin was moderated by higher volumes. The decline in income from loans and deposits was partially offset by a 20% rise in investment product income to $1.16 billion and an 8% increase in cut income to $378 million. Assets under management increased 13% to $285 billion. We maintained our domestic market share for savings deposits and housing loans at 52% and 31% respectively. Institutional banking. Full-year institutional banking income was stable from a year ago at 3.0 billion. Cash management fell 42% to 424 million as the impact of low interest rates was moderated by volume growth. The decline was offset by increases in other products led by double-digit growth in loans and investment banking. GTS deposits grew 12% to 177 billion. Treasury and markets. First half, Treasury markets income and Treasury customer income were both at record levels. Treasury markets income increased 31% to $934 million from strong performances in equity and credit trading. Customer income was 13% higher at $913 million, with consumer banking and institutional banking each accounting for half the amount. Second quarter Treasury markets income was $360 million. It was 28% lower than a year ago and down 37% from the previous quarter, which were the two strongest quarters on record. Customer income was 10% higher than a year ago and 13% lower than the previous record quarter. Hong Kong. Hong Kong's first half net profit rose 8% in constant currency terms to $617 million. Total income declined 5% to $1.26 billion as the impact of low interest rates was moderated by higher fee income and loan growth. Asset quality was resilient, with allowances falling 82% or $130 million to $27 million due to lower general allowances. Net interest income declined 19% to $690 million. Net interest margin fell 44 basis points to 1.30% due to lower interest rates, but was moderated by 4% loan growth. Fee income grew 28% to $395 million. All activities grew by double-digit percentages, led by investment products, bank assurance and cash management. Other non-interest income rose 12% to $171 million from Treasury customer sales. Expenses were little changed at $491 million and the cost-to-income ratio was 39%. There was a general allowance write-back of $18 million compared to the $124 million that was set aside a year ago. Specific allowances were $12 million higher at $45 million. Asset quality. Asset quality was resilient as the economic environment improved. There has been little change in loans under moratorium and delinquencies since March. First half new non-performing asset formation declined to pre-pandemic levels and was significantly offset by repayments. As a result, the NPL rate improved from 1.6% six months ago to 1.5%. Specific allowances. The resilient asset quality resulted in first-half specific allowances declining 46% from a year ago to pre-pandemic levels. Specific provision charges amounted to $363 million or 18 basis points of loans. Second-quarter specific allowances were $164 million or 14 basis points of loans. They were 18% lower than the first quarter and 43% lower... than a year ago. General allowances. General allowances reserves of $4.05 billion remain highly prudent. They included general provision overlays built up in prior periods which were maintained. The write-back in the first half for general allowances was from repayment of weaker credits as well as credit upgrades. The general provision reserves were $0.8 billion above MES's minimum requirement and $1.2 billion above Basel Tier 2 eligibility. Allowance coverage was at 109% or at 199% when collateral was considered. Capital ratios. Capital continued to be healthy. The common equity tier 1 ratio rose 0.6 percentage points from end 2020 to 14.5%. Profit accretion and the methodology refinement for market risk-weighted assets were partially offset by an increase in credit risk-weighted assets. The CET1 ratio was above the group's target operating range of between 12.5% and 13.5%. The leverage ratio of 6.8% was more than twice the regulatory requirement of 3%. dividends. The Board declared a dividend of $0.33 per share for the second quarter and the script dividend scheme has been suspended. With a full lifting of regulatory restrictions imposed a year ago, the dividend has reverted to its pre-pandemic level. Based on yesterday's closing share price and assuming that dividends are held at $0.33 per quarter, the annualised dividend yield is 4.3%. In summary, We achieved an exceptional first half, comprising the two highest quarters on record. Strong business momentum was sustained in the second quarter and the pipeline remains healthy. Asset quality has been better than expected. New MPA formation was at pre-pandemic levels and was significantly offset by repayments. Specific allowances were also at pre-pandemic levels, having almost halved from the previous year. The balance sheet remains prudently fortified, with $4 billion of general allowance reserves well in excess of requirements. Our capital and liquidity are also strong. While risks remain, we expect business momentum to be sustained in the coming quarters. We are well positioned to support customers and deliver shareholder returns. Thank you.

Thank you, Sakvi. And again, welcome everybody to our quarterly half yearly results. As usual, I think I'll take a few minutes and just touch, recap some of the things Sakvi mentioned and maybe give you some sense of the outlook going forward. So first, just to underline what Sakvi said, Our business momentum for actually the full half year has actually been extraordinarily strong. Second quarter continued to be as strong as the first quarter. Loan growth of 3% in each quarter was actually far in excess of what we anticipated. And the good news is it was very diversified. So we saw increase in the property sector. We saw increase in TMT. There were increases in the energy sector, particularly renewables and sustainability-related loans. And the loan growth was from greater China. It was from Singapore, Southeast Asia. So very diversified loan growth continues to be very robust. What was particularly pleasing, though, was the fee income, the non-interest income. The fee income has been just quite very broad-based. So wealth management is very strong. First quarter was strong, second quarter was also very strong. And I think that reflects not just the underlying growth in the business, but also some of the digitalization that we've been able to do in that range of products. Transaction banking was strong. Again, reflects some of the digitization that we've been able to do in both the trade and the API linkages we have. Cards has been picked up. At the gross level, it's about 10% where we used to be pre-pandemic. So the rest of it will come with the travel opening up, I would imagine. And investment banking was very strong, both ECM and DCM. DCM on the back of just a large amount of issues being done around the region because of the low interest rate environment. And ECM, a lot of it is still property related. But in general, strong investment banking activity as well. So very diversified fee income growth. And extraordinarily strong treasury markets growth. And as Sokhi pointed out, that was not just trading. Trading continued to be robust in both quarters. But I was very pleased that also reflects underlying customer flow activity. And by the way, for the third time, I think that also reflects the digital activity we've done. We had a lot of electronic origination from the customers today that we did not have a year or two ago. And obviously, our trading was good. First quarter was off the charts. Second quarter was slower. But as I compare our overall trading performance relative to the global majors, I think we've done pretty well through the half year. So second quarter was as strong as first quarter. Overall, first half, quite pleased. I think the other part of the story is, though, as we're looking forward, we continue to see really good business momentum all around. The pipelines are very robust. Now we've died in full loan growth to a high single digit. We grew 6% in the half of the year. We might grow about three in the second half. The reason for the slowdown really is a chunk of the growth in the first half was the trade book. We put on $6 billion of trade assets. Some of that reflected increase in commodity prices. It's unclear to me what is going to happen in the second half. And we might be able to hold that. We might have to give some of that up. So trade is an uncertainty. But the non-trade activity is as robust as it was in the first half of the year. So looking there to be good. Mortgages are also in Singapore. The is also looking decent. We grew 2 billion in the first half. I think it'll slow down. We're expecting only a billion more in the second half. even though bookings in the first and second quarter were well over $4 billion, very strong bookings. So remains to be seen how that plays out. The fee income now guiding mid-teens fee income growth, because again, across each of the product categories we spoke about, we continue to see good momentum. We got into the third quarter with continuing momentum across each of the categories, wealth management, transaction services, payments, et cetera. Everything stayed strong as we went into the third quarter. So feeling relatively okay with that. And expenses continue to be stable, as Sokhi pointed out. If you back out the Lakshmi Vilas acquisition, the rest of the expenses are quite flat. So fairly well controlled. Again, I think all the digitization that we've done over the years is helping in that regard as well. If we take a look at the credit outlook, that is the other big upside we've seen. we talked about NPA formation. It's actually gone back to pre-pandemic levels. And they're all onesies and twosies. There's no other thing. In the first half of the day, we saw A couple of names, not large, but in the auto-related sector, you know, auto components in the, you know, southern China, an auto distributor in Indonesia. We saw something in the textile garment sector which got impacted because of the lockdowns. We saw a little bit to do with building and construction in Singapore. But nothing systemic, and like I said, onesies and twosies. The good news is that for whatever NPA formation is happening, we're getting repayments. So pretty much the entire NPA formation in the first half, almost 80%, 90% of that got set up because we got repayments. Those repayments are also leading to some recoveries on the provision line as the repayments come back. So it's generally looking quite resilient. Our guidance for the rest of the year, I'm saying, you know, we were saying it's going to be short of a billion. Now we're saying it's going to be less than half a billion, pretty sure. We were less than 100 in the first half. And so you can see in the second half, we're still hedging our bets a little bit. And that's mostly because we're not sure what the impact of Delta and the moratoriums might be. Though, other than the macro unease, if you look under the hood a little bit, the portfolio is looking actually quite solid. We're not seeing any signs of weakness across the board. And even the loans and the moratorium, they're all down to about 10% of the levels they were when we started. So the mortgage book in Singapore, we had $5 billion. It's now only $500 million. The SME book in Singapore was $5 billion, and now it's down to about $400 million. The Hong Kong book is down to about a billion and change. And some of these books also, the extensions have been pushed into year end or even into next year. So it just seems to me it's unlikely you're going to see a lot of pain from that in the back end of the year. The good news is the 90% that's come off moratorium, the delinquencies are looking fairly decent. We're not seeing a big pickup in people's inability to pay once they come off moratorium. So actually, that's looking OK. The little uncertainties on the consumer book, by and large, delinquencies are OK. Taiwan's gone up a bit on the cards portfolio. It's the only country where I'm seeing a pickup in consumer delinquencies. Indonesia is holding, but I think Indonesia might weaken in the back end of the year. But net net, you know, we could see some upside. We certainly don't think we'll exceed half a billion dollars on the provision line, if you will. And finally, a last comment on this various new initiatives we've launched. As we talked about last quarter, in the middle of last year, we took a view that the interest rate environment is going to be a headwind for the next two, three years, close to zero interest rates. So in addition to dialing up a large part of the fee income and non-interest income activity that we've been doing in our core business, it would be sensible to start looking for alternate and incremental sources of revenue growth. And we'd sort of shown some of the things that we got. We got a couple of inorganic deals done. We've launched a few businesses which are digital in nature. We launched a couple of new funds activities, an investment banking franchise in China. If you ignore the BAU stuff, like the retail wealth and supply chain, but add the rest of the stuff, I think we'll probably wind up with an incremental $350, $400 million of income from these activities next year, which would be $250 million more than this year. So this should be able to start helping us cover some of the interested shortfalls that we've seen over the last 12, 18 months. Again, it's early to say, if we do continue to get meaningful traction, then we could see more upside in these numbers. But I think that will happen more in the following year than in next year. But that's it. When you look at where we are overall, we are really pleased. It was a strong first half of the year. And we go into the back end of the year with a fairly high degree of confidence. So I think we're happy to take questions.