DBS Group Holdings Ltd

Good morning, everyone, and welcome to DBS's third Q financial results briefing. This morning, we announced third quarter net profit of $1.7 billion, up 31% from a year ago. To take us through the highlights of the quarter, we have with us CEO Piyush Gupta and CFO Cheng Sokhui. Both of them will be talking through presentation materials that you can find on the DBS Investor Relations website. which you may want to refer to as they speak. After their presentations, we will open the time up for media Q&A. So without further ado, Sokhi, please.

Thanks, Agnes. Good morning, everyone, and thank you for joining us for our results briefing. Third quarter net profit was maintained at the previous quarter's level of $1.7 billion. Business momentum was sustained and asset quality continued to be resilient. Loans grew 2%. from the previous quarter which was moderated by a two basis point decline in net interest margin due to lower rates. This resulted in a one percentage increase in net interest income. Fee income rose 2% to the second highest level on record. Nine month net profit increased 46% to a new high of 5.41 billion with the first, second and third quarters the three highest on record. Business momentum was strong, with broad-based loan growth of 9% from a year ago with a fee income and treasury market income at record highs. The increased business volumes moderated the impact of a lower net interest margin and a decline in investment gains. Underlying expenses were 1% higher. The cost-to-income ratio was 44%. Asset quality continued to be resilient. Non-performing assets declined 1% from the previous quarter as new MPA formation was more than offset by repayments. Specific allowances for the quarter fell to six basis points of loans due to a write-back of a non-performing loan. Nine-month specific provisions halved to 14 basis points below pre-pandemic levels. General allowances of $138 million were written back in the third quarter as portfolio quality improved. This brought the general provisions right back for the nine months to $413 million. The general provisions overlay was maintained. General provision reserves continued to be prudent at $3.92 billion, $0.6 billion above the MES requirement. Capital was healthy with the CET1 ratio stable at 14.5%, well above the group's target operating range. Liquidity was amper, with the liquidity coverage ratio at 131%, and the net stable funding ratio at 127%. The board declared a third quarter dividend of $0.33 a share, bringing the dividend for the nine months to $0.84 a share. Slide three. Third quarter net profit was stable from the previous quarter at $1.70 billion. Total income was little changed at $3.56 billion as higher net interest income, fee income and trading income were offset by lower investment gains. Asset quality was resilient. and total allowances of $70 million were written back this quarter. There was a general provision write-back and specific provisions were lowered from a write-back for an NPL. Net interest income rose 1% of $15 million to $2.10 billion as 2% loan growth was offset by a two basis point decline in net interest margin due to lower interest rates. Fee income rose 2% or $20 million to $888 million as momentum was sustained across most fee activities. Increases in wealth management, transaction services and card fees were moderated by declines in investment banking and loan-related fees. Other income declined 10% or $63 million to $569 million as higher trading income was more than offset by lower investment gain. Expenses were 8% or $125 million higher at $1.67 billion. On an underlying basis, expenses were 6% higher due to base salary increments at mid-year and investments for future growth. Asset quality was resilient. Improved portfolio quality resulted in a general allowance right back of $138 million, while specific allowances halved to $68 million from repayment. Slide 4. Nine months net profit rose 46% to a record $5.41 billion as business volume growth and lower allowances more than offset the impact of lower interest rates. Total income declined 3% to $11 billion as record fee income was offset by decline in net interest income. Total allowances fell to $19 million as general allowance write-backs offset specific allowances. In comparison, $2.49 billion of allowances were set aside over the same period a year ago. Net interest income fell 9% or $656 million to $6.3 billion as broad-based loan growth of 9% was more than offset by a 22 basis points decline in net interest margin. Fee income rose 17% or $398 million to $2.71 billion with a growth led by wealth management, transaction services, cards and investment banking. Other non-interest income declined 3% or $67 million to $2 billion as record trading income was offset by low investment gain due to favorable market opportunities a year ago. Expenses rose 5% or $220 million to $4.80 billion. Underlying expenses were up 1%. General allowances of $413 million were written back in nine months due to improved portfolio quality. In comparison, $1.50 billion was set aside over the same period a year ago. Specific allowances halved to $432 million. Slide 5. Third quarter net interest income rose 1% from the previous quarter to $2.10 billion as loan growth was moderated by a decline in net interest margin. Net interest margin was two basis points lower at 1.43% due to lower short-term interest rate. Nine-month net interest income declined 9% from a year ago to $6.30 billion. Broad-based loan growth of 9% mitigated a 22-basis point fall in net interest margin to 1.45%. The fall in net interest margin was due to interest rates that remained low since central banks cut rates in March of 2020. Our deployment of surplus deposits is accretive to net interest income but has resulted in a six basis point headwind to net interest margin. Slide 6. Gross loans grew 2% or $6 billion in constant currency terms during the quarter to $411 billion. Slide 7. Compared to the previous quarter, non-trade corporate loans expanded at a faster pace, while housing loans and wealth management loans rose by similar amounts. The strong momentum was moderated by a reduction in trade loans. Non-trade corporate loans grew $5 billion, led by drawdowns in Singapore and Greater China. Housing loans rose $1 billion as bookings continued to be strong. Other consumer loans grew $2 billion from healthy wealth management activity. Trade loans declined $2 billion due to higher repayments. Over the nine months, loans grew 8%, or $28 billion, from broad-based growth. Slide 7. Deposits amounted to $489 billion, up 1%, or $4 billion in constant currency terms from the previous quarter. Over the nine months, deposits rose 4% or $18 billion. Current and savings accounts grew $28 billion, allowing $10 billion of fixed deposits to be released. CASA made up 75% of customer deposits. The loan-to-deposit ratio rose 1 percentage point from the previous quarter and 3 percentage points from end 2020 to 83%. The liquidity coverage ratio and net stable funding ratio were at 131% and 127% respectively. Slide 8, fee income. Third quarter gross fee income rose 4% from the previous quarter to $1.03 billion as momentum was sustained across most activities. Wealth management fees grew 8% to $461 million with higher activity across a range of investment products. Transaction service fees grew 7% to a new high of $239 million as cash management and trade finance fees increased. Card fees rose 9% to $180 million as consumer spending continued to recover towards pre-pandemic levels. These increases were moderated by declines in investment banking fees from the high base and in loan-related fees. Compared to a year ago, third quarter growth fee income increased 12%. The growth was led by a 16% increase in wealth management fees as AUM increased 13%. Transaction service fees grew 18% while card fees grew 13%. Gross fee income over the nine months rose 17% to a record $3.10 billion. The performance was broad-based with the growth led by wealth management, transaction services, cards and investment banking. Slide nine, expenses. Nine-month expenses were at $4.8 billion. Underlying expenses, which exclude the earth-wild Lakshmini Village Bank and the previous year's government grants, rose 1%. The cost-to-income ratio was 44%. Third quarter expenses were $1.67 billion. Underlying expenses rose 6% from the previous quarter due to base salary increments at mid-year and investments for future growth. Underlying expenses were 2% higher than a year ago. Slide 10. Non-performing assets. Asset quality remained resilient. Non-performing assets fell 1% from the previous quarter and 2% year-to-date to $6.57 billion as new MPA was more than offset by repayments and write-offs. The NPL rate was stable from the previous quarter at 1.5%. Slide 11, specific provision. Third quarter specific allowances halved from the previous quarter to $68 million or six basis points of loans due to a significant right back of allowances for an NPL reflecting our prudent stance on allowances. Nine month specific allowances amounted to $431 million or 14 basis points of loans. half of the previous year's level and below pre-pandemic level. Slide 12, general provision reserve. The balance sheet remains well fortified against risk with prudent general allowance reserves of 3.92 billion. The general provision overlay built up in prior periods was maintained. General provision reserves were 0.6 billion above the MES requirements and 1.1 billion above tier two eligibility. Together with specific allowance reserve, total allowance reserve amounted to $7.06 billion. Allowance coverage was at 107% or at 205% when collateral was considered. Slide 13. Capital ratio. Capital continued to be healthy. The common equity tier 1 ratio was stable from the previous quarter at 14.5% as profit accretion was offset by risk-weighted asset growth. 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%. Slide 14, dividends. The board declared a quarterly dividend of $0.33 per share for the third quarter, bringing the dividend for the nine months to $0.84 a share. Based on the previous trading day's closing share price and assuming the dividends are held at $0.33 per quarter, the annualized dividend yield is 4.1%. Slide 15, in summary. The first half's strong business momentum was sustained in the third quarter and the pipeline leading into next year is healthy. At the same time, forecast interest rate increases in the coming year will benefit earnings. Asset quality continues to be resilient and total allowances are expected to remain low. Our balance sheet is strong. CET1 at 14.5% is high and prudent general provision reserves of $3.92 billion are comfortably above the MES requirement. Liquidity remains ample and of a high quality. We are ready to put the pandemic behind us and remain well-placed to support customers and deliver shareholder returns. Thank you. Over to you, Piyush.

All right. Thanks. Thanks, Sakwee. And again, welcome everybody to our trading call. As usual, I'll go through two or three slides just to highlight some of the observations Sakwee made and maybe amplify on a couple of points. So slide one on business momentum. As Sakwee pointed out, we've had continuously very strong business momentum. Loan growth for the quarter is 2%, but that includes a $2 billion reduction in the trade book. That's a little bit driven by weakness in commodity prices, a little bit driven by action we took relative to the energy, oil business we do in some parts of the region. But 2% growth also reflected very strong underlying growth in the non-trade corporate business. In fact, the strongest for the year, much stronger than the first and second quarter loan growth. We've got 8% growth for the nine months. I think we'll see for sure another percentage point in the last quarter, maybe a little bit above that. So somewhere between 9% and 10% for the year, which is consistent with the original guidance for very high single-digit loan growth, I think we should get. One of the good things about the loan growth this year is being quite diversified. It is diversified by country and it is diversified by industry. In this quarter, we saw a little bit more on real estate of, you know, restructuring activity, acquisition activity. But overall for the year, TMT has been strong. Energy has been strong. The trading complex has been strong. The mortgage book has been strong. It's been quite diversified. And like I said, it's also diversified by country. So I'm feeling actually quite positive about that momentum as we go into the tail end of the year and into next year. The momentum we can also see in our fee income growth. Wealth management has continued to grow very, very well. It's up 16% for the third quarter year-on-year. It's up 8% quarter-on-quarter. AUMs are up 13%. That includes very good momentum in the retail wealth segment. I pointed it out in the past that we're quite pleased with how the digital retail wealth is proceeding. But whichever way you look at it, that growth is continuing to be quite strong and stellar. Transaction banking is up. Obviously, cash management does well because of all the digital cash management services we provided this year. But in this quarter, actually, trade finance was a standout, very strong numbers. So despite the marginal reduction in the trade book, the underlying activity both in supply chain financing and documentary trade was actually very strong. Our quarter-on-quarter growth for transaction banking is about 7%, so very good. Cards continues to do well as the economies are opening up. Our total spend is now up to pre-pandemic levels. The balances are about 10% short, and that I think reflects the fact that people are borrowing a little bit less, but I'm pretty optimistic that the balances are also headed the right way, so they will get up to pre-pandemic levels soon. Travel is still low. Travel used to be about 14-15% of our total spending. It's currently running at about 2%. If travel kicks in, that should give us another 10-15% lift in the spend and potentially another 20-odd billion bucks lift in the fee income pool. So as the opening up takes place in the next several months, I think there's some upside to that number. So net-net on the fee income, like on the loan, I'm actually quite optimistic that we have momentum. So markets, let's say over the record, the nine months, you know, we're 16% up for the nine months. That includes about 20% growth in the trading book and about 12% growth in the customer book. But 16% growth compared to global players is actually a top 10 percentile for the year. So extremely strong performance. Whether we can continue this next year is of course a little bit uncertain and maybe I'll circle back to the point when I talk about next year's outlook. And finally, the new platforms we set up in various growth markets. I'm actually again quite pleased that they're beginning to come in quite nicely. The integration of LVP is going smoothly. We've actually had about 15% deposit growth. The loan book is somewhat slower and that's deliberate, but we're now actually well positioned and we're in a position where we're going to start putting our foot on the pedal for the asset side as well. On the Shenzhen Commercial Bank, all the approvals have finally come in. And so that's going to be equity accounted from the fourth quarter onwards. So that's obviously a healthy uplift to our economics. The China Security Joint Venture, that kicked off nicely. In fact, we've been able to do two deals in our first quarter. And that's unusual because when I looked at most of the common pools, people take a year to start getting deal flow in. We did an equity trade, ECM trade, and we did EBS trade all in the first three months. So I'm actually quite pleased that's coming through quite nicely. So momentum across the board is actually quite positive. Next slide on business outlook. So how are we seeing next year? You know, there's obviously some uncertainty around supply chain bottlenecks. And as we're looking around our customer base, in pockets, you can see the impact of that. You know, manufacturing utilization is down in some places, but it's not material. And frankly, if you look at PMIs across the region, the PMIs are holding up quite nicely over 50. China, obviously, there is some impact in some parts of the economy. The growth rate for the third quarter was slow. I think you're going to continue to see some slowness But interestingly, what I just talked to you about the third quarter momentum, our pipeline as we go forward into next year reflects that the momentum should continue. So in a normal year, pre-pandemic, we were seeing 4-5% loan growth. This year will be 9-10%. Now next year, I don't see 9-10% repeating because we don't have the low base effect. but somewhere in between um you know the six seven percent loan growth i think is quite uh uh possible for next year as well um second on inflation you know My own view is that despite what the central bankers are saying, inflation could be a little bit more than transitory. And so I am not necessarily bought into the, you know, Yellen power camp. One of the reasons for that is that I do see wage inflation coming through. And we can see that across several of our markets. Frankly, you can even see that in the Western market. Now, I think that will increase, put some pressure on costs. We saw some of that this year. We were originally planning not to do salary hikes this year, but the market situation and the conditions compelled us to take salary actions in the middle of the year. And frankly, as I looked around, I realized we're not the only ones. So I do think there's some weight pressure coming through. But of course, there is a big positive to that. And the positive is that if there is any inflation impulse, you could see a much better, stronger interest rate outlook. The market is already pricing in two and a half hikes for next year. And as you know, many of the central banks have already started on tightening cycles. You know, maybe Bank of England as well, but certainly some of the banks in the region have already started tightening cycles. So if that happens, it's obviously very beneficial to us. If you recollect in the past, we've always guided, I mean, pre-pandemic, that our interest rate sensitivity in DBSs used to be about 14 million bucks per basis point. that is now increased to closer to 18 to 20 million bucks. And it increased obviously because the size of our CASA book has increased and our CASA ratio has increased from the high 60s to 75% CASA ratio. And therefore, if you do start seeing any intestate increases, that should be extremely helpful to us on a franchise basis. On the investment stuff, you know, you might have seen we there's some facilities a couple of days ago that we're dialing up our investments in digital and AI. And frankly, we're going to be looking at some of this across the board. And so let me give you some color on that. If you look at the last 18 months from the beginning of the pandemic to now, I think we managed our cost base extremely well. Our underlying expenses are 1% up from the 2019 level. And our headcount till the middle of the year was actually down. We're down a couple of hundred people over the last 18 months. But we used this opportunity, as you know, to create some very interesting platforms. Some of them I just talked to you about. The other thing we've done in this period is we've also built up a lot of ammunition through very conservative provisioning levels. And because we have these platforms and we do have this ammunition through our provisioning, we think it is appropriate to start investing, even though we might be a tad bit ahead of the rate cycle. If you're lucky, the rate cycle will come in. If it comes a little bit later, it might be a quarter or two ahead of it. But given where we are, given our outlook on the region, and given the platforms we've created, we think it is the smart thing to do to start putting in those investments for growth and for scaling up. at this point in time and therefore in the third quarter uh we actually added some 250 300 people and had come so where are we looking at investing uh in c4 areas in particular one as i said digital and ai a large part of that obviously singapore you know there's going to be a new set of virtual banks and competitors next year. But even outside of that, we're seeing good traction and payback on the investments we're making. Our incremental measurable revenues from our AI, the measurable revenues we're getting from our ecosystem strategies, they're coming through nicely this year. So we think it's worth putting some money in scaling that up. The other area we want to invest in is the digital exchange. After a calibrated start in the first half of the year, the last few months have really picked up. About two months ago, we took the exchange 24-7. And then, obviously, Vickers was given approval to start marketing this to institutional customers. And it's quite interesting that assets under custody in the last month alone have gone up from 200 million sink to well over 600 million sink, so over half a billion US. So we can see the traction coming through on that. Our total trading volumes in the last two months surpassed the entire trading volumes in the first eight months of the year. So we think that's an area that's worth... putting some more money and trying to scale up. I referred briefly earlier to retail wealth. I've been mentioning for the last couple of quarters that we're quite pleased with how that's coming through. And that's an area we think is worth continuing to invest in. Our AUMs and retail wealth have gone up nicely, a couple of billion dollars even in the last quarter. So we're going to put some more investment dollars against that. Outside of that, on India, I think we have the platform for growth. In fact, now that we put together our overall view on India, we think we can triple that franchise in the next five years. And that obviously requires some investment and putting some money behind it. We were spending some money in integrating Lakshmi Vilas. We're getting some saves from the rationalization of branches people. But we do need to start investing and putting some money to leverage the platform that we bought. So we will put some money behind that. And in China, our early results, I mentioned the security joint venture, but also on our consumer finance platform, the early results are very promising. We have doubled the consumer finance book in the last quarter. And so, that's another area that we think is worth making investments and putting some money behind. So, when you add all of that together, a little bit the wage inflation I spoke about, a little bit making calibrated and targeted investments in these platforms we put together. we think it's a sensible thing to do. Now, as a consequence of this, in a worst case basis, we might still have negative jaws next year. We obviously have negative jaws this year. Revenues are down, expenses are a tad bit up. Next year, we might still have negative jaws, but That assumes a couple of conservative assumptions. One is that the markets don't repeat. So this year we had fantastic markets. I'd say we're 16% up here or near. If we can repeat markets' performance, then you'd get positive jobs. If you assume markets' performance goes back to a closer to a more normalized period, then that would create some headwinds. The other thing in this negative jaws, we haven't assumed any rate uplift. So if we do get rate uplift, you know, one or two rate uplift, I already pointed out the sensitivity in our book. So that will obviously help our overall efficiency ratios if that were to come in. Even if these things don't happen and we do get some negative jaws, our overall profit before launches, we expect to be higher than this year. So I think we're still going to be headed in the right direction. One of the things that will help that is obviously outlook on credit. The credit outlook is very benign. And you can see this quarter we've obviously been helped a lot on every part of the credit thing. NPAs actually look like they've gone up a tad from last quarter, but that's just an idiosyncratic. We've had one case where it's actually a national airline. National Airlines got no problem, but on a technicality, you know, we had to move it to non-performing before the government support and restructuring came through. So, it's about one-third of the new NPLs. So, it's not an issue. Overall, NPLs are looking good. Our provisioning on our Pacific, this thing has been obviously very conservative. And so, we're beginning to see some write-backs on SPs. We saw a big one this year in this quarter in the oil and gas sector, but across the board, I think we have conservatively provided now on the bulk of our NPL books, so that should be okay. On our overall portfolio, we're seeing improvement. We're seeing improvement both in terms of upgrade, but also repayment of our exposures in some of the weaker names. And as a consequence, the $400 million reversal of general provisions that we've seen this year reflects an improving book. And I can foresee that continuing to be the case. We're not seeing any meltdown or reduction in the book anywhere. It's useful to think that our total loans under moratorium now are about half percent of our total loan book. The SME loans, the mortgage loans in Singapore are down to about 100 million bucks and there are basically no delinquencies well secured. The SME loans in Singapore are down to under 100 million bucks and we're not seeing any delinquencies on the residual fees. The ESG loans in Singapore, about 80% of them are now paying interest and principal both. And again, we're not seeing any pickup in delinquencies. And therefore, our overall book from, you know, coming out of the COVID standpoint, is actually performing much better than I had anticipated and seems to be quite robust at this stage. So I'm not anticipating big challenges from that front. We've done obviously all the test testing relative to China. The real estate, we gave advice earlier, we've got no exposure obviously to Evergrande, we have no exposure to any high yield, we've got no exposure to any real estate company in the three red lines. So we're not seeing any downside risk in that part of the portfolio. So overall, our portfolio outlook is looking good. We think we'll see some SPs, which will go back to pre-COVID levels, maybe a little bit better, given how conservative we've been. But also, as I pointed out earlier, we have a lot of ammunition in respect of the general provisions that we have built up. And so I do think we'll be in a position to make... thoughtful release of those general provisions into next year. We've actually come up with a framework for, you know, when and how we could release general provisions, and it's predicated on the opening up and travel and so on. But based on that, we're actually quite confident that our allowance level for next year will mirror the allowance level for this year. And this year, as you know, it's close to zero. We'll be, you know, maybe 100 million bucks if we're unlucky. So there is some tailwind on that front as well. All right, my last comment, next slide on innovation. I thought I'd slide in because I got a lot of questions after the Sand Commercial Bank announcements earlier in the quarter. And I just wanted to point out, if you look at the structure we have in the bank, it's actually very helpful to being able to realize value of various new businesses that we're getting into. So we already have a holding company structure. That's one of the things that SCB in Thailand is trying to do, where we've always had a holding company structure. And so the bank lies under the holding company. What we did last year is we put another company called DBS Finnovation under the bank. And all of the new activities that we're doing, whether it's a party or the blockchain-based payment business, whether it's a climate impact tech, whether it's a digital exchange, All of these are being held as individual entities under DBS Innovation. This obviously allows us to build partnerships, do joint ventures or even build our own bespoke activities and keep them at arm's length, one length removed from the bank. Like I said, today we have three businesses in this entity. In the future, the idea as I suggested the last quarter is is we could look at spinning out some other businesses from the bank also under Finnovation. And we're exploring some of these businesses that have digital characteristics and are more easy to unbundle. I would hasten to add, though, that it's not that easy to unbundle a lot of other businesses. So despite what people might think, the fact that we have a banking license and some of our businesses are integrated means everything can't get bundled up, but some things can. And so that's an opportunity for us to take and pull out. DBS Finnovation itself, we've chosen to put it under the bank just so that we have a more simplified governance of a unitary board structure. So the holding company and the bank are all managed by a common governance mechanism. If it was appropriate and suitable, we could easily move Finnovation out into the holding company or even some of the companies under Finnovation can be moved out quite easily. Whether we need to do it will oftentimes be a function of the regulatory environment. In most countries, Singapore is one case, but so is the US. regulators tend to look through so they regulate bank holding companies like they regulate banks and therefore the idea of leveraging regulatory arbitrage by moving things under a holding company is not entirely obvious they will depend on how regulators did whether it be interesting to see what bank of thailand chooses to do but in most countries in the world regulators tend to look at regulating bank holding companies like their banks However, it does give us the option of being able to take our companies entirely from within this thing and so that's the flexibility we have. Again, this is stuff that we're actually exploring right now and over the course of the next year. This and many of the other technologies, strengths and capabilities we built, we do think there's some opportunity to monetize these, to be able to create value transparency and we will look at doing that at the right time. So why don't I stop there and happy to take questions.