DBS Group Holdings Ltd

Okay, good morning, everyone. And thank you for joining BBS's third quarter earnings call. This morning, we announced 3Q net profit rose 32% from a year ago to a record $2.24 billion. And return on equity was a new high of 16.3%. Today, we have with us our CFO, Cheng Sok Wee, and our CEO, Piyush Gupta, who will take us through the numbers. You can also follow along with them without further ado, sorry.

Thanks, Agnes. Good morning, everyone. We start with a slight tool. On the highlights, we achieved a record performance in the third quarter. Net profit rose 23% from the previous quarter to $2.24 billion and return on equity reached 16.3%, both at new highs. Total income rose 20% to a record $4.54 billion as net interest margin recovered to pre-pandemic highs and business momentum was sustained. Net interest margin climbed 32 basis points to 1.90%, accelerating from the increases in the previous two quarters amid faster rate hikes. Loan momentum was healthy as non-trade corporate and housing loans grew faster than in the first two quarters. Fee income was maintained as increases in card and loan-related fees compensated for lower wealth management fees. On the back of the strong top-line performance, the cost-to-income ratio improved 4 percentage points to 40%. For the nine months, net profit rose 8% to $5.85 billion, also a new high. Total income rose 10% to $12.1 billion as a higher net interest margin and loan growth more than offset lower fee income. Expenses grew 7%, resulting in profit before allowances rising 12% to $6.96 billion. Asset quality continued to be resilient. Non-performing assets fell 5% from the previous quarter and the NPL ratio improved to 1.2%. Specific allowances were minimal for the quarter and 8 basis points for the 9 months. General allowances of $153 million were set aside. Capital and liquidity remain strong and well above regulatory requirements. The Board declared a third quarter dividend of $0.36 per share, bringing the dividend for the nine months to $1.08 per share. Slide 3. Compared with the previous quarter, total income rose 20% to a record $4.54 billion. Net interest income was 23% or $566 million higher as a result of a 32 basis point expansion in net interest margin and healthy loan momentum. Fee income was stable, while other non-interest income rose 32% or $183 million from higher Treasury markets' non-interest income, Treasury customer income and investment gains. Expenses were 10% or $167 million higher. The positive jaw resulted in a 27% increase in profits before allowances to $2.72 billion. Specific allowance charged for the quarter was $25 million or two basis points of loans compared with eight basis points in the previous quarter. Total allowances were higher as $153 million of general allowances were set aside during the quarter compared to a $23 million write-back in the previous quarter. Additional general allowances were set aside as a prudent measure. General allowance overlays of $350 million were added, even as baseline general allowances were reduced by $200 million due to portfolio improvements. Slide four. Nine-month total income rose 10% from a year ago to a record $12.1 billion driven by higher net interest income. Net interest income increased 22% or $1.36 billion to $7.66 billion from a 20 basis point expansion in net interest margin and loan growth of 6%. Fee income fell 10% or $279 million to $2.43 billion as global wealth management and investment banking fees more than offset growth in other activities. Other non-interest income was little changed at $1.99 billion. Expenses rose 7% or $329 million to $5.13 billion led by higher staff costs. General allowances of $18 million were taken compared with a $413 million write-back a year ago from portfolio improvements. Specific allowances fell to 8 basis points of loans from 14 basis points a year ago. Slide 5. Net interest income of $3.02 billion was 23% higher than the previous quarter. The Group's net interest margin, represented by the black line, rose 32 basis points during the third quarter to 1.90%. The increase was faster than the three basis points in the first quarter and the 12 basis points in the second quarter, as the impact of rate increases was more fully felt. The commercial book NIM, which excludes Treasury markets, represented by the red line, increased by 45 basis points during the quarter to 2.30%. This reflects the higher funding costs for the Treasury Markets book as seen in the change in NII for Treasury and Markets on the chart. Taking into account both net interest income and non-net interest income, Treasury Markets income was unchanged during the quarter, with higher funding costs offset by gains in other income. For the nine months, net interest income increased 22% to $7.66 billion as net interest margin rose 20 basis points and loans grew 6% from a year ago. Commercial book NIM rose 30 basis points. Going forward, the group's net interest income and net interest margin will benefit from the 75 basis point Fed rate hikes announced in late September, the 75 basis points announced today, and further increases in Fed funds rate. On the asset side, net interest income and net interest margin will benefit from repricing of about $180 billion of fixed rate instruments and fixed deposit rate home loans in future periods. Slide 6. Underlying loan momentum was healthy in the third quarter as non-trade corporate and housing loans grew faster than in the first two quarters. Excluding trade loans, loans increased $7 billion or 2% in constant currency terms from the previous quarter. Non-trade corporate loans rose $8 billion or 3% over the quarter from broad-based growth across the region and sectors. Housing loans increased $1 billion or 2% from higher loan disbursements and lower round-offs. These gains were moderated by a $5 billion or 10% decline in trade loans as maturing exposures were not replaced due to unattractive pricing. Loan growth for the first nine months was $16 billion or 4%. The growth was predominantly in non-trade corporate loans. Slide 7. Deposits were stable from the previous quarter at $533 billion. Over the nine months, deposits rose 24 billion, or 5%, in constant currency terms, Fixed Deposits grew $62 billion, while Casa declined $38 billion. Most of the decline in Casa was seen in the third quarter, of which SingDollar Casa declined was $11 billion. Nevertheless, SingDollar's savings deposit market share rose 0.4 percentage points in the third quarter as the industry's SingDollar savings balance declined at a faster rate. The growth in fixed deposits was predominantly in foreign currencies and was used to fund foreign currency loan growth. This enabled us to swap less from surplus SingDollar CASA deposits, which continue to earn attractive returns. The pace of decline in CASA has been in line with our expectations. Notwithstanding the decline in the third quarter, our CASA balances remain more than $100 billion higher than before the pandemic. The liquidity coverage ratio and net stable funding ratio were at 133% and 114% respectively. Slide 8. Third quarter gross fee income was stable from the previous quarter at $923 million. Wealth management fees fell 4% from the previous quarter to $323 million as market conditions remained weak, dampening sales of investment products. Investment banking fees declined 17% to $25 million as deal flows were also impacted by adverse market conditions. These declines were moderated by higher card fees which rose 10% to $223 million as travel spending continued to recover towards pre-pandemic levels. Loan-related fees rose 7% to $122 million. Transaction service fees were stable at $230 million. Gross fee income over the nine months was 8% lower than a year ago at $2.86 billion. The decline was due to lower wealth management and investment banking fees, partially offset by growth in other fee activities. Slide 9. Third quarter expenses rose 10% from the previous quarter to $1.83 billion, led by higher staff costs. With total income rising faster than expenses, the cost-to-income ratio improved from 44% to 40%. Nine-month expenses rose 7% from a year ago to $5.13 billion, led by higher staff costs. The nine-month cost-to-income ratio was 42%, an improvement of 2 percentage points from a year ago. Slide 10 on non-performing loans. Asset quality remained resilient. New non-performing asset formation in the third quarter remained low, and there were significant upgrades and repayments during the quarter. Write-offs were at a similar level to the previous quarter. As a result, non-performing assets fell 5% from the previous quarter to $5.60 billion, while the NPL ratio improved from 1.3% to 1.2%. Slide 11. The resilient asset quality resulted in third quarter specific allowances declining to $25 million or two basis points of loans. Nine-month specific allowances for credit exposures declined 40% from a year ago to $260 million or eight basis points of loans compared to 14 basis points a year ago. Slide 12. Total allowance reserves stood at $6.71 billion, with $2.81 billion in specific allowance reserves and $3.90 billion in general allowance reserves. Total general allowances increased $153 million during the quarter. Additional general allowance overlays of $350 million were taken as a prudent measure, even as baseline general allowances were reduced by $200 million due to portfolio improvements. The $6.71 billion of allowance reserves resulted in an allowance coverage of 120% and of 216% after considering collateral. Slide 13. The Group's Common Equity Tier 1 ratio declined 0.4 percentage points from the previous quarter to 13.8%. Profit accretion was partially offset by dividend distributions. Risk-weighted assets increased, led by strong growth in non-trade corporate loans. There was also a modest impact on CET1 from mark-to-market losses on fair value through OCI securities as a result of higher interest rates. CET1 of 13.8% remained above our target operating range of between 12.5% to 13.5%, while the leverage ratio of 6.1% was twice the regulatory minimum of 3%. Slide 14. The Board declared a dividend of $0.36 per share for the third quarter, bringing the dividend for the nine months to $1.08 per share. Based on yesterday's closing share price and assuming that dividends are held at $0.36 per quarter, the annualized dividend yield is 4.1%. Slide 15, the final slide. We achieved record third quarter and nine-month performance despite challenging financial market conditions, a testament to the strength of our franchise. Business momentum was sustained, asset quality was resilient, and the inherent value of our deposit franchise became more apparent with high interest rates. These positives enabled us to more than offset pressures on markets-related income. The record third quarter ROE of 16.3% underscores the significant structural improvements we have made over the past few years, including from digital transformation. Our transformed franchise, balance sheet strength and leverage to rising interest rates will enable us to continue delivering healthy shareholder returns in the coming quarters amidst external hit-links. Thank you.

All right, thank you and thanks everybody for dialing in as usual. I have a couple of slides to reemphasize some of the comments that we made and perhaps amplify on a couple of things. So the first slide too, I think it's called. Just to look back in the quarter, I think the two or three things that stand out. One is underlying business momentum has continued to be quite strong. Corporate loans grew by about $8 billion for the quarter, and that was broadly dispersed. It was in different markets in India, in Taiwan, in Australia, UK, Singapore itself. and across multiple industries. Property was one of them, but TMT, ERI, Energy, so fairly diversified broad based growth. In Singapore, interesting, our mortgage book grew as well. We've grown barely 300-400 million bucks in the first half of the year. We grew well over a billion dollars in the third quarter. Our bookings have held up despite a little bit of slowdown in the market. But what was more distinct is our refinancing in as well as our lower refinancing outs that helped our overall balances. I think part of that reflects the fact that we had competitive pricing in parts of the quarter, but nevertheless, overall loan growth was strong. The only area that didn't grow was trade, and a lot of that was deliberate. As rates have been going up, it's been hard to hold the credit spread in the trade book, and the low margin trade book doesn't make sense to us. So to a large extent, we've been letting the low margin loans run off. liquidity remains healthy uh zaki pointed out that there continues to be a conversion from uh casa to uh fixed deposit a lot part of the conversion is in the dollar book in the singh dollar book uh our casa ratio is still 93 percent uh because that is high to 94 percent is very sticky in the us dollar book there is more conversion but it's consistent with our thinking and our model the expectation for how much we should expect to move to our fixed deposits and the repricing Even after that, as we said, our CASA levels are over $100 billion higher than they were just a couple of years ago. And ICR, NSFR, etc. In fact, around the region, liquidity seems quite comfortable. On free income, quarter to quarter was flattish, but the good news is the wealth management seems to be stabilizing despite no improvement in the market conditions. Capital markets also continues to stay challenged. ECM really had no activity, though in the last few weeks you've begun to see some bond activity coming out of china nevertheless that part of the business market slave fee continues to be slow on the other hand um you know fees on cards in particular is improving and the markets continue to open up and travel activity is increasing so that's been helpful on wealth management obviously the one big silver lining was uh net new money we continue to benefit from a lot of inflows into the region in the first nine months Total inflows have been about 15 billion, double what they used to be. And a lot of that money is waiting on the sidelines to be invested. That momentum continues as we speak. So I do think there's some upside over there. And finally, last comment on the asset quality. Asset quality has been really pristine. We've seen no new NPA formation. NPA rates are down to 1.2%. We're seeing no stress in the books, really. And in fact, we continue to see upgrades and repayments. There are some questions I saw on, you know, why would you add gender provision of 350 million bucks if that's the case? And the answer to that is, frankly, there is a lot of uncertainty around next year. I don't think any of us have seen a 5% interest rate environment in a long, long time. and if rates head to plus minus five percent uh what impact that has on slowdown in asia uh and therefore potential credit is quite unclear so what happened is through the three quarters of this year our general provisions had reduced by 350 million just because of improvements in our book and we took the opportunity to add the 350 back so we've gone back to a gp level that we had at the end of last year It's not for any specific knowledge. It's just for being very prudent given the uncertainty around the interstate and the economic outlook for next year. Next slide. So, you know, we think about next year, you know, at the end of the second quarter briefing, I said our base case was that inflation starts going down and the Fed levels off at three and a half percent. But I had highlighted in my comments that there was a tail case and the tail event was inflation was more sticky and the Fed didn't level off at three and a half. Well, as you can see, that tail event was playing out. Inflation has been stickier. You know, CPI levels are still high. I do expect inflation rates to start leveling off partly from base effect in the coming quarter, but for the time being, the high. What's more important is the Fed body language and the Fed statements are quite clear. I mean, they're not leveling, not really not leveling off at 3.5%. I think they will definitely wind up at 4.5% this year and probably our current base case at 475, but they could even see through that. And therefore, you know, do you wind up with a slowdown only in the US or a recession is anybody's guess. But my current thinking is that you could wind up seeing a recession in the US if rates hit north of 5%. And therefore, you will see a sharper slowdown in Asia if that is the case. And that uncertainty of, you know, how would rates go up to and how much slowdown you see is what some of our, you know, outlook and our guidance is being predicated on that. There is a lot of uncertainty with these high interest rates. We haven't seen this environment in a long period of time. China also is an uncertainty right now. Our original everybody's base case was that after the Congress, you might start seeing an opening up and if you discount that WhatsApp floating around in reality, it doesn't seem to be the case that China will open up, you know, very rapidly. It could take them a few quarters or longer to open up. So there is some upside if they do open up quicker. But in our thinking right now, we're assuming that they wind up taking two, three more quarters before the economy starts opening up as well. Nevertheless, our low pipeline for the time being looks quite healthy. As we're looking at the prospects, you know, we think we can get mid single digit for next year. But I want to hasten to add that, you know, sometimes these pipelines disappear. So if you really see a sharp slowdown in Asia in the early part of next year, we'd have to go back and reconsider the pipeline and we would be thoughtful about that. In fact, I think we see a moderation in our loans even in the fourth quarter. And that's for a different, more idiosyncratic reason. That is that today with the dollar rates where they are and the renminbi rates where they are, it's much cheaper to borrow onshore in China than to borrow offshore in the international markets. And so several of our Chinese clients are switching over from international to local markets. And obviously, we're not that competitive in the local market. you might see a softening or a moderation of the momentum in China. But that's a, you know, idiosyncratic thing, one off because of that situation on wealth and cards. we're assuming we can get double digit growth and this partly because of a base effect this year has been down overall we're down 20 and so uh even if there is some degree of optimism in the market uh and uh uh um you know you don't see the continued negative news coming out of china then you should see some positive effects coming out of that so i think a double digit growth in a fee income should be possible On NIM, our modeling currently suggests that if the Fed fund rates get to 475, NIM, which is circa 2% today, we should be able to get to about 2.25% NIM. Now, there are a lot of moving parts in this. One, this is, as Saki pointed out, the full bank NIM. The underlying commercial bank, commercial book NIM is much higher. uh but like uh several other international banks uh the funding cost of the treasury book uh means that there is a drag on them and so this uh is actually a blended number which includes a much stronger growth in the commercial book but some drag on the on the name uh on the treasury book This also reflects the fact that the cost of funding and deposits at the margin is going up more rapidly as you go forward. I've indicated before that our modeling up to 3.5% suggested that we could do 18-20 million bucks of basis points in income. But as you go forward and get to 4-5% rates, that sensitivity does not necessarily hold. And so the payout rates increase, and that's why the 225 incorporates that. The last thing it incorporates, again, Sakrit pointed out, we do have $180 billion of assets in our fixed rate and our FHR portfolio. About a quarter of these will reprice by the end of next year. Another quarter reprice actually in 2024. So you do see some tailwind from the repricing of the fixed rate book. But when you add and blend all of that together, we think this is where we probably wind up. Our cost-income ratio continues to be good. Obviously, it's helped by the income line. Our cost growth for this last quarter was close to 10%. Our own sense is that you will see costs in the high single digits, a 9-10% growth rate next year, but the cost-income ratio should still be headed down. And finally, ROE, we think ROE, we will be comfortable about 15. We do think cost of credit might go up next year. This year, like we pointed out, it's been unusual. We were eight basis points of specific provisions in the first nine months. And like I pointed out, we're not seeing any stress and we're not seeing any pain. But 40 years of banking tells me that at 5% interest rate, you should expect to see some pain and some new cost of credit. So in our assumptions, we're assuming cost of credit goes back to a normal cost of credit, the plus minus 20 basis points on SPs that we normally assume. But even if you throw that in with the rest of the assumptions that we have, we think we will be very comfortably well above 15%. So I think we're shaped up for a solid next year as well. So why don't I stop there and we take questions.