DBS Group Holdings Ltd

Good morning and welcome to DGS's first quarter financial results media briefing. On the call today are DGS CEO Piyush Gupta and CFO Chung Suk-Hwee. Suk-Hwee will first take us through DGS's performance in the first quarter, followed by Piyush who will provide additional observations on the operating environment and the business outlook. So without further ado, Suk-Hwee please. Thanks Ayram. Good morning everyone. We start with slide 2, highlights. We achieved strong third quarter net profits of $1.80 billion. It was the second highest on the report and was exceeded only by the exceptional first quarter last year. ROE was 13.1%. Business momentum was healthy and broad-based. Loans grew 2% from the previous quarter and fee income streams other than wealth management and investment banking were higher than a year ago. Next, interest margins benefited from higher market rates, rising three basis points from the previous quarter. This was the first increase in three years. The performance was moderated by lower wealth management fees and treasury market income from exceptional levels a year ago. As a result, total income fell 3% to $3.75 billion. Expenses rose 4% from a year ago due to the mid-2021 salary adjustment. The cost-income ratio was 44%. Asset quality was stable, with the NPR ratio unchanged from the previous quarter at 1.3%. Specific allowances of 15 basis points were partially offset by a red flag of general surveillance. capital remains strong and liquidity is ample. CEP1 was 14.0% above the group target operating wage. The liquidity coverage ratio and net stable funding ratio were 138% and 132% respectively. The board declared a first quarter dividend of $0.36 per share unchanged from the previous quarter. First quarter net profit of $1.80 billion was 10% lower than the record quarter a year ago. Total income was 3% lower at $3.75 billion as higher net interest income was more than offset by decline in fee income and other non-interest income from their respective record levels a year ago. Net interest income rose 4% or $18 million to $2.19 billion. Higher loan volumes more than offset the impact of lower net interest margins. Fees fell 7% or 62 million from the record a year ago to 891 million. Lower wealth management fees and lower investment banking fees more than offset higher loan-related card and transaction service fees. Other incomes fell 16%. or $125 million from their high base a year ago to $669 million as investment gains and trading income both declined. Expenses were 4% or $57 million higher at $1.64 billion due to base salary increments carried out in mid-2021. Credit upgrades and transfers to non-performing assets resulted in a TP right-to-back of $112 million compared to a yearly write-back of $192 million a year ago. Specific allowances were $33 million lower at $167 million. Slide 4, quarter-on-quarter performance. Compared to the previous quarter, net profit rose 30% from higher total income and lower expenses. Net interest income increased 2%, of $47 million as loan grew 2% and net interest margin rose 3 basis points. On a day-adjusted basis, net interest income was 4% higher. Fee income rose 9% or $76 million from higher loan-related fees. Other income increased 98% or $331 million from higher trading income and customer treasury activity. Expenses fell 2% for $27 million as higher staff costs were more than offset by declines and other operating expenses. Total allowances increased by $22 million to $55 million as a $100 million increase in specific allowance was partly offset by a $78 million increase in general allowance right then. Slide 5, net interest income. Net interest income was $2.19 billion, 4% higher than the previous quarter after adjusting for the shorter day count. Lows rose 2% in constant currency terms and net interest margin was up 3 basis points at 1.46% as interest rates began to rise. The higher net interest margin was the first quarterly increase in three years. Compared to a year ago, net interest income rose 4%. Lows rose up 8%. more than offset the impact of a three-basis point decline in net interest margins. Net interest income will continue to benefit as interest rates rise in subsequent quarters, lifting the net interest margin. Slide 6. Gross loans increased 2% or $8 billion in constant currency terms over the quarter to $432 billion. Non-trade corporate loans rose 2% or $6 billion, faster than in recent quarters. The growth was led by Singapore and Hong Kong across a range of industries. Trade loans grew for the first time since mid-2021, rising 5% or $2 billion amidst rising commodity prices. Housing loans were a little changed as booking fell due to the additional cooling measures in December. Growth management loans were also a little changed. Compared to a year ago, loans grew 8%. That's by non-trade corporate loans. Slide 7. Deposits. Deposits increased 4% or $18 billion in constant currency terms over the quarter to $520 billion. Current and savings accounts of Casa grew 3% or $11 billion to $392 billion. This takes the growth in CAFA since the onset of the pandemic to $152 billion. The CAFA ratio of 75% was similar to the previous quarter and 16 percentage points higher than before the pandemic. The higher CAFA ratio has increased the interest rate sensitivity of our net interest income. We estimate there are 100 basis points increased in the U.S. flat fund rates, increases net interest income by between $1.8 billion and $2 billion. The loan-to-deposit ratio defined one percentage point to 80%. Several deposits continued to be deployed to high-quality liquid assets. Liquidity was ample with a liquidity coverage ratio at 138% and a net stable funding ratio at 132%. Slide 8 on C, Income. Gross key income fell 6% from the record a year ago to $1.02 billion. Wealth management fees fell 21% to $408 million from the exceptional levels a year ago due to weaker market sentiment. Lower investment product sales were moderated by an increase in bank insurance sales. Investment banking fees were also lower by 12% to $43 million as fixed income activity fell. Other three income activities were higher. Loan-related fees grew 31% to $144 million. Cut fees rose 11% to $187 million as debit and credit card spending exceeded pre-pandemic levels and trouble picked up. Transaction-studded fees grew 4% to a new high of $240 million led by cash management fees. Compared to the previous quarter, gross fee income rose 7%, due mainly to higher fees for loan-related activities. Slide 9 on expenses. Expenses rose 4% from a year ago to $1.64 billion. The increase was due to base salary increments carried out in the middle of last year. Compared to the previous quarter, expenses were 2% lower, and higher staff costs were more than offset by lower non-staff expenses. The cost-to-income ratio was 44% for the quarter. Slide 10 on non-performing assets. Credit quality remains healthy. Non-performing assets rose 2% to $5.98 billion. New non-performing asset formation, which included a significant exposure this quarter, were offset by repayment. The MCR ratio was unchanged at 1.3%. Slide 11, specific provisions. Specific allowances amounted to $167 million of 15 basis points of loans similar to recent quarters and to fiscal repayments were excluded. Slide 12 for general provisions. Total allowance reserve stood at $6.81 billion with $3.06 billion in specific allowance reserve and $3.75 billion in general allowance reserve. During the quarter, there was a general allowance right back of $112 million on credit upgrades and transfers to non-performing assets. General provisions overlays were maintained. General allowance reserves remained prudent. The reserves exceeded the MES requirements by $102 billion and were $1 billion above Tier 2 eligibility. Allowance coverage was at 114% and at 193% when collateral was considered. Slide 13 on capital. Capital remains strong. The common equity K-1 ratio declined 0.4 percentage points from the previous quarter to 14.0%. The C-K-1 ratio included a temporary 0.4 percentage point impact from the digital disruption in November 2021 that had been announced previously. The C-K-1 ratio was above the group's target operating rate The leverage ratio of 6.3% was more than twice the regulatory requirement of 3%. Slide 14 on dividends. The Board declared a dividend of $0.36 per share for the first quarter unchanged from the previous quarter. Based on yesterday's closing share price and assuming that dividends are held at $0.36 per quarter, the annualized dividend yield is 4.4%. Slide 15 in summary. In summary, we had a strong start to the year. This was underpinned by strong and broad-based business growth, cost discipline, and robust asset quality. Our capital and liquidity positions remained strong, and the general allowance overlays we had built up in prior periods were maintained. Looking ahead, geopolitical developments in recent weeks have created macroeconomic hits and financial market volatility. We have stress-tested our portfolio, and we expect asset quality to remain resilient For their revenue risk to certain activities such as wealth management, our overall business pipeline continues to be healthy and will provide sufficient opportunities for growth. We'll also benefit significantly from interest rate increases in the coming quarters. Thank you for your attention. I will now ask you to finish.

The world has changed dramatically in the last few months. The issues in Ukraine have caused a massive slowdown. I think both World Bank and IMF growth rate forecast a downgrade close to a percent. Inflation is coming through, particularly in the entire commodity complex, metals, food, Most of the world is opening up. But as you know, lockdowns in China and still urgent fund issues in Hong Kong continue to persist. So that's a little bit of a mixed story. And I think about the world, the macro at large. Here I think about the Ukraine situation in particular. You know, the first-order impact for most of East Asia, and certainly for us, is de minimis. We really don't do too much in Ukraine and Russia, etc., There is a second-order impact, and that comes principally through the commodity complex. You know, gas prices are up, oil prices are up, metals are up, like I said, food is up. And that obviously is likely to create interesting categories in banking. You know, you have customers who deal in all parts of the spectrum, so you never know, you know, who might stub their toes. But it's very the third-order risks which are likely to flow through, which are very hard to understand and model right now. The second question, what happens to margins? So far we're finding that in many sectors, companies are being able to push prices, particularly in food and agri and industries with inelastic demand. But I don't think that's going to be the case everywhere. So you'll probably see margin space in some industries. If this goes up on the back of inflation, debt servicing is going to start creating its own set of headwinds. And as I mentioned before, it's likely to be more for small and medium enterprises than for large companies. So, when you put all of these together, it's quite clear that the outlook over the next year or so is going to be difficult to vocal, something that you've got to keep a careful eye on. Fortunately for us, our whole portfolio of companies will remain quite resilient. and IP, methods and mining, all of the usual industries expect to get impacted by Ukraine. We have been test testing our property portfolio, the consumer side, FFGC in the context of China, etc. And we are actually seeing no imminent areas of concern or stress in our portfolio. As I said, SME is likely to face more pain, but again, if a risk tested and risk tested portfolio in the last few years, because it's been challenged for the last three years. So our portfolio is largely secured. Retail portfolio is also very secure. Our non-secure book is quite small. The rest of it is mortgaged. We really see no material impact from the China lockdown. Again, given specifically the nature of our export, it's very high-end. Our target markets are high quality. And we really have very little in the FMCG complex, which is downstream. So we're not seeing too much of that. That understanding, we will continue to be somewhat conscious about releasing general provisions. We've built up a good buffer of general provisions over the last couple of years. And given all the surgeries in the environment, we will continue to be thoughtful about when we start releasing those general provisions that would be appropriate. Now, obviously, because we're going to be benefited by the tailwind that comes from interchange, we can afford to take a more cautious view on GP reviews without really impacting the bottom line of the review. Next slide on outlook, this is on the business. If you look at the business, as I pointed out, a very strong first quarter. And so despite all the doom and gloom around the world, underlying business for us continues to hold up quite well. Loan growth was a couple of percentage points, very broad based across countries, across industries, it was in property, it was in CMT, it was in energy. I think we are in good shape to do 3-4% growth in the first half of the year. The second half of the year will remain to be seen how much growth they come through. One of the periods that we are not seeing the growth that you anticipated obviously was the mortgage book, the tightening measures in Singapore in December. is obviously a slowdown handful. And so we think we get some growth in the book this year, but nowhere near what we originally thought we would. The fee outflow is next. Some parts of our premiums that seem to do really well. Cards is benefiting. Again, as Hauke pointed out, the card spend on credit and debit is up over 2019 levels. The spend on travel is coming back, though it is still much smaller than the 2019 levels. But as the border cut people open up, that should, the decreased travel should give us another boost on our free income. The 2019 free income is doing well. Our cash management and payment volume is up over 15 odd percent last year. As we are going into the second quarter, I think we are tracking flows at the last year's level. But, you know, relative overall to last year, that could prove to be a little bit of a 10-win. The other is investment banking. Debt capital markets, fixed income was slow in the first quarter. In the last two weeks of March, we got a study of these and we did quite a few. But for the first quarter, they were slow. ECF was also slow. Issues out of Singapore and Hong Kong was down some 35%. We led 10 deals in the first quarter including a couple of SPACs. But overall the environment for investment banking continues to be somewhat challenging. Unless the markets don't open up, that could create some small tensions. The thing that really outperformed the 10-year markets, we continue to have a very robust quarter. all this considered it was fantastic and we benefited really from market volatility across most of the debts the interest rates in particular but also credit and effects we a lot of big moves as you know and i think we're able to capture most of these big moves uh quite well i think as i mentioned the last quarter in part we've benefited from to customers, we see a lot more of the customer flow and I think that's allowing us to position our books much better. Obviously the big upside for us as we go forward is the sensibility to invest rates. We continue to model our book and it seems to us that 18 to 20 million bucks of basis points is something that is quite robust, which means that's what we say, let's go up 100 Look at that report, the rate went down, the 8 rate cuts between late 2019 and early 2020. And we said before the 8 rate cuts cost us about $2.8 billion in interest income. So it's not logical to assume that if you get those kinds of rate increases back, you should be able to grow a lot of that income back. So that's the positive. If rates go up faster or sharper, then obviously that benefits. I find our expenses continue to be quite thoughtful. There is an intensive measure, as we mentioned before, wage inflation in particular is coming through. But we're being thoughtful about how we manage our expenses to make sure we're investing sensibly for the future while keeping an eye on what we need to go in the short term. So I'll stop there and I'm happy to take any questions.

Okay. Thanks, Piyush. We will now open a timeout for media Q&A. Before you ask your question, please state your name as well as the media house you were present. Diana, can you say whether there are any questions from the media, please?