DBS Group Holdings Ltd

Okay, good morning and welcome. to DBS's first quarter 2023 financial results media briefing. Joining us on the line today, we have our CEO, Piyush Gupta, and CFO, Cheng Sokhui. To start, Sokhui will take us through the first quarter highlights, followed by Piyush, who will give additional color on the quarter and outlook going ahead. They will be speaking to presentation slides that can be found on our DBS investor relations website, so you might want to follow along. Following that, we will open the time up for Q&A.

So without further ado, Sokhi, please. Thanks, Agnes. Good morning, everyone. We start with a slight tool for those who have the deck in front of you. We achieved another record performance in the first quarter. Net profit rose 43% from a year ago to $2.57 billion. Return on equity reached a new high of 18.6%, more than a percentage point above the previous record of 17.2% in the previous quarter. Total income increased 34% to $4.94 billion from a 66 basis point improvement in net interest margin as well as healthy business momentum. Loans grew 3% while fee income trends improved. Commercial book total income rose 44% to $4.67 billion, while Treasury market's trading income normalized to $269 million, in line with our guidance of about $1.1 billion of trading income per year. The cost-to-income ratio improved 7 percentage points from a year ago to 38%. Asset quality was healthy. Specific allowances went six basis points of loans. General allowances of $99 million were taken as a prudent measure to strengthen general provision reserves. Compared to the previous quarter, net profit rose 10% as total income was 8% higher. Commercial book total income rose 6% from loan growth of 1%, unnamed increase of eight basis points as well as fee income growth of 29%. The balance sheet remained solid. Deposits were boosted by flight to safety inflows in March, including from wealth management net new money. Non-performing assets fell 3% from the previous quarter as new NPA formation remained low and was more than offset by repayments and write-offs. The CET1 ratio was at 14.4%. The Board declared a dividend of $0.42 for the first quarter. Slide 3. Compared to a year ago, commercial book total income rose 44% to $4.67 billion. Net interest income grew 69% or $1.38 billion to $3.38 billion from loan growth and a net interest margin increase of 104 basis points. Net fee income fell 4% or $40 million to $851 million as higher card and investment banking fees were offset by declines in other activities. Other non-interest income increased 22% or $78 million to $432 million from higher treasury customer income. Note that Treasury customer income is reflected in other income of the commercial book, while the Treasury market's trading income is featured separately under Treasury market's income. Treasury market's trading income normalised to $269 million in line with guidance. Expenses rose 14%, or $238 million, to $1.88 billion, led by higher staff costs. The positive draw of 20 percentage points resulted in a 7 percentage point improvement in the cost-to-income ratio to 38%. Specific allowances fell $105 million to $62 million, or from 15 basis points of loans a year ago to 6 basis points, as asset quality remained resilient. General allowances of $99 million were taken as a prudent measure to strengthen general provision reserve. There had been a write-back of $112 million a year ago. Slide 4. Compared to the previous quarter, commercial book total income increased 6%. Net interest income fell 1% in nominal terms and rose 2% on the day-adjusted basis. Loans grew 1% while net interest margin increased 8 basis points. Net fee income was 29% or $190 million higher with a growth led by wealth management, investment banking and loan-related fees. Other non-interest income rose 35% or $112 million from higher Treasury customer income. Treasury markets trading income was 32% or $65 million higher from the seasonally lower fourth quarter. Expenses fell 4% or $81 million due to non-recurring items in the previous quarter. Expenses were stable on an underlying basis. General allowances of $99 million were taken compared to a write-back in the previous quarter. Specific allowances were unchanged at six basis points of loans. Slide five, commercial book net interest income rose 2% on a day adjusted basis from the previous quarter and 69% from a year ago to 3.38 billion. Net interest margin rose eight basis points from the previous quarter and 104 basis points from a year ago to 2.69% as assets repriced with higher interest rates, partially offset by higher deposit costs. Treasury markets' net interest income was a negative $113 million. As explained in the previous quarter, this is due to net interest margin compression for its fixed income instruments as well as higher funding costs for its non-interest-bearing and mark-to-market assets, which are generally offset in non-interest income. Therefore, the Treasury market's total net interest income plus non-interest income is a more accurate reflection of its performance. This quarter's $269 million was in line with our guidance of $275 million per quarter. Combining the commercial book and treasury markets, the group's net interest income grew 50% from a year ago to $3.27 billion, while net interest margin rose 66 basis points to 2.12%. Compared to the previous quarter, the group net interest income grew 2% on the day-adjusted basis, while net interest margin was 7 basis points higher. Slide 6. Loans grew 1% or $4 billion in constant currency terms during the quarter. Non-trade corporate loans rose $4 billion led by Singapore Real Estate Acquisition Financing. Trade loans increased $1 billion. Consumer loans fell $1 billion due mainly to wealth management loans. Slide 7. Deposits rose 1% of $5 billion in constant currency terms during the quarter. As in the past year, CASA deposits declined during the quarter as customers switched to higher-yielding instruments such as T-bills and fixed deposits. We saw a flight to safety in flows of deposits and wealth management net new money in March as a result of market events. Net new market flows almost doubled to $3.6 billion in March compared to a monthly average of $2 billion in 2022. For the first quarter, net new money inflows totalled $6.2 billion. Our liquidity remains strong, with the LCR of 147% and NSFR of 118%, well above regulatory requirements. Slide 8, fee income. Gross fee income of $1.01 billion was slightly below a year ago. Wealth management fees fell 11% to $365 million. Transaction service fees of $230 million were 4% below the record a year ago, but were in line with recent quarters. These declines were offset by a 21% increase in cut fees to $227 million. Fees from non-trade activities and investment banking were stable. Compared to the previous quarter, gross fee income was one-fifth higher, due partly to seasonal effects. Fees from wealth management, investment banking and loan-related activities were higher. Cut fees declined due to higher year-end spending in the fourth quarter. Slide 9. This chart, which we have introduced, shows the year-on-year percentage changes for total net fee income, as well as for the two major drivers of fee income over the past year, which are cuts and wealth management. Total net income shown on the baseline fell 20% in January, continuing a trend of year-on-year declines in the first half and second half of 2022, when it fell 9% and 16% respectively. The declines reversed in February and March, when total net fee income rose 9% and 1% respectively. As a result, total net fee income in the first quarter was 4% lower compared to a year ago at $851 million, as shown in the earlier slide. Cards continued to grow strongly in the three months of the first quarter, sustaining the double-digit growth in the first half and second half of 2022. As shown in the previous slide, cut fees for the first quarter rose 21% from a year ago to $227 million. Wealth management, which is the largest component of fee income, shown in the grey stack, fell 29% in January in line with the declines in the first half and second half of 2022. The declines were due to base effect from the war in Ukraine and the subsequent concerns over inflation and the pace of interest rate increases, which affected wealth management activity. Wealth management fees were flat in February and March versus a year ago. As shown in the previous slide, wealth management fees for the first quarter fell 11% from a year ago to $365 million. Slide 10. The first quarter cost-to-income ratio, which had been higher than 40% in recent years, improved to 38%. Compared to a year ago, expenses were 14% higher at $1.88 billion. The increase was led by higher staff costs. Compared to the previous quarter, expenses fell 4%. We had taken non-recurring items in the fourth quarter, including an accelerated depreciation for some fixed assets and a special award to staff. Expenses were stable on an underlying basis. Slide 11. Asset quality remained resilient. Non-performing assets fell 3% from the previous quarter to $4.95 billion. New non-performing asset formation was offset by repayments and write-offs. The NPL ratio was unchanged at 1.1%. Slide 12. Specific allowances remain low in the first quarter at $62 million or six basis points of loans. They were stable from the previous quarter and two-fifths the level a year ago. Slide 13, total allowance reserves stood at $6.27 billion, with $2.44 billion in specific allowance reserves and $3.83 billion in general allowance reserves. During the quarter, general allowances of $99 million were taken as a prudent measure to strengthen reserves. Allowance coverage rose to 127% and to 229% after considering collateral. Slide 14. Other comprehensive income was positive in the first quarter, partially reversing the losses for full year 2022. With the changes due to cash flow hedges and fair value through other comprehensive income debt instruments as interest rates eased. Other comprehensive income from cash flow hedges was $445 million. Cash flow hedges of $33 million or 6% of the commercial book and are used to transform floating rate loans to fixed rate via interest rate swaps to stabilise net interest income. The swaps are marked to market while the loans are not. This accounting asymmetry creates artificial volatility to other comprehensive income, which reverses over the life of the swaps. Cash flow hedge reserves do not affect capital adequacy computations. Other comprehensive income from FVOCI debt securities was $292 million as bond prices improved. The remaining other comprehensive income items recorded a loss of $223 million. They mainly reflect the impact of foreign exchange translation from investments in overseas branches and subsidiaries. Slide 15. Our fixed income investment portfolios amounted to $104 billion, divided almost equally between fair value through OCI and help to collect, which are accounted for at amortised cost. Government securities accounted for $51 billion, or half of the portfolio. Singapore and US government securities amounted to $28 billion, with the remainder spread among the other major markets we operate in, as well as Japan. Supranational and other bank securities accounted for $16 billion of the investment portfolio. The remaining $37 billion is in the bonds of our corporate customers, which we are familiar with. These bonds are supplementary exposures to our loans to them. The waited duration of the investment portfolio is short. It was under two years for the fair value through OCI portfolio and 3.6 years for the help to collect portfolio. Of the total portfolio of $104 billion, $87 billion are high-quality liquid assets as defined under Basel rule. Slide 16, the group's CET1 ratio declined 0.2 percentage point from the previous quarter to 14.4%. Profit accretion was offset by fourth quarter ordinary and special dividends of 92 cents per share, as well as higher risk-weighted assets. The CET1 ratio of 14.4% remained above our operating target range of between 12.5% to 13.5%, while the leverage ratio of 6.4% was more than twice the regulatory minimum of 3%. Slide 17. The Board declared a dividend of $0.42 per share for the first quarter unchanged from the previous quarter. Barring unforeseen circumstances, the annualised ordinary dividend is $1.68 per share. Slide 18. In summary, our record performance, including achieving an ROE of 18.6%, reflects the structural improvements we have made from our ongoing digital transformation, as well as the benefit of higher interest rates. Our ability to sustain business momentum, as well as customers' trust during a quarter marked by market stress, are the result of our solid capital position, prudent risk management, diversified business lines, and nimble execution. underpinned by an ongoing digital transformation. Our business pipelines are healthy and asset quality resilient. Our multifaceted franchise strengths will enable us to continue supporting our customers and delivering shareholder return. Thank you for your attention. I'll now hand you to Pish.

All right, thank you, Sakhi. So I have three slides. One, some brief comments on the quarter and then a couple on the outlook. So the first slide is number two. As Sakhi pointed out, our return on equity hit 18.6%. I just reflect on the fact that, as you know, we took a gender provisions increase of about 100 million. Actually, our underlying models would have required us to reverse out 100 million. So we actually put in an overlay of close to 200 million. in general provisions. And I'll just talk about it in a minute, why we did that. But if you assume that we hadn't taken that discretionary provisioning, our ROE would have been close to 19% actually. Our business momentum for the quarter was actually very healthy. I mean, notwithstanding all the stress and strain in the global financial markets. The corporate loan portfolio has done well. Sokwe said we grew by $4 billion. That's pretty solid. It was in real estate transaction in Singapore was noteworthy. But beyond that, we grew in commodities. We grew in TMT, fairly well diversified corporate loan growth. We also saw some loan growth in trade, but trade, as you know, is episodic, so it depends on the pricing. The free income was what was really pleasing to me. January was obviously, on a year-on-year basis, still soft, and that's because of base year. January last year was before the Ukraine war, so the numbers were high. But February and March, for the first time in a year, our numbers came up too flat to last year's level, so we're not seeing the decline in free income. And it was broad-based. We saw the growth in wealth management. We saw the growth in cards. We saw the growth in loans. So fairly solid progress with free income. And net new money inflows continue to be strong. Last year, we averaged about $24 billion for the year. This year, first quarter, we continue to see that. We had a tad bit more than $6 billion of inflows in the first quarter. Our expenses were well managed, quarter in quarter at the stable. The high number is really, again, base year effect. As you remember, we did some salary actions in the middle of the year. So for the first half of the year, the number will optically look higher, but the second half of the year will allow us to catch up. So we still believe the full year should be okay. And asset quality remains quite resilient. Our specific provisions are only six basis points. NPAs actually came down. The 1.1% number doesn't show it, but they came down by $200-300 million of NPAs. And that's actually partly because of low new NPA formation and also we're getting repayments on some of our old NPAs. I guess you could ask if that's the case, why are we adding up a couple of hundred million in management overlay? And the short answer to that is this high interest rate environment is not precedented. And therefore, we're just being abundantly prudent and cautious in case there is some stress that comes out of the system in the later part of the year. There's nothing that we're seeing right now. In fact, I can talk about that a little bit more as I take you to the next couple of slides. So we move to slide three, which is the outlook. The overall business momentum for the balance of the year is still looking relatively healthy. It's quite interesting. While we're seeing a slowdown in the US and Europe, even in the West, I think there's a 50-50 chance that the economy, certainly the US, escapes a recession. It might have some really slow growth, but it might escape a recession. If you remember a couple of quarters ago, a recession seemed to be a certainty. Closer to home, we think China, 4.5%, 5% growth this year is quite likely. Hong Kong is seeing the positive impacts of a rebound. We think 3.5%, 4% growth you'll see over there. Even the other countries, the larger countries, India, 5.5%, Indonesia, 5%. By and large, this part of the world, Asia, might be relatively resilient. Singapore is looking soft, but Singapore, even Singapore, the leadership pointed out that we'd like to escape a recession through the year. So the large corporate loan book, I think, is going to be relatively okay. Pipelines are looking healthy. We think we're going to get growth. As I pointed out, trade is episodic. It goes up and down. And so it's difficult to forecast where that might wind up. Our moderation that I referred to is really two things. One, in the consumer space, the mortgage book in Singapore, I was hoping we'd get about $2 billion of growth this year. And on the back of the latest tightening measures, we might not be able to get to that number. It's still very early to call. Our bookings in the first quarter were beginning to turn around, you know, a couple of quarters after the tightening measures. In fact, our bookings got back to a billion dollars a month. So it was actually quite optimistic. But we'll have to watch and see what the impact of the new measures are. I do think it won't be draconian in the sense that 88% of our book is first-time buyers, and the first-time buyers are not impacted by all of these new measures. So hopefully it won't be a huge difference, but I do think we can see some headwinds in that space. The other space where we see some headwinds is in the wealth management margin financing, the term loans we give for wealth management products. And the reason for that is people are quite well cashed up. And at these high interest rates, they'd rather put their own money to work than borrow from the bank. In fact, in the first quarter of this year, as wealth management fees started going up, we started seeing people draw down from their deposit account into the investment account without actually borrowing. So we might see some challenges in trying to grow that particular part of the book. And therefore, our loan guidance, I've said 3% to 5%. Earlier, I said mid-single digits. It's still kind of hard to say. We could be at the top end of that. We could be a tad bit lower. The fee income growth also, as some analysts have pointed out, we've narrowed a little bit. I was hoping we'd be able to get double-digit growth. I now think we might miss that by a little bit. And that's principally because of the turmoil in March and the after effect of that. I think the wealth management while it's stabilizing, the rapidity of change, the growth rates might not come through at the level at which we'd expect it. Also, investment banking, you know, on a quarter-on-quarter, in fact, here in India, the investment banking was good, but some of that was early in the quarter. So January started off quite strong, both of fixed income and we did some BCM stuff. In March, April, that slowed down a bit because of the market conditions and market turmoil. We've done activity, but it's mostly been private placement activity on the fixed income side and more secondaries and rights on ECM. So the uncertainty around the investment banking business is a function of what the markets are going to wind up doing over the next few months. Nevertheless, some pockets are strong. Cards is quite strong and continues to be. Our spend is up some 30% over the pre-COVID levels. And so overall fee income in cards is growing nicely at 20% plus. I think that will continue to do so. Travel is beginning to continue to pick up. As I pointed out before, travel used to be about 15% of our card spend. It's still only at about the 12% level. So there is still some upside in the growth in the travel category, and that obviously is very attractive for fees. Next slide. NIM, the area where we actually are a little bit short of what we're expecting is the NIM line. One of the things we showed a number 212 for the quarter. And one of the big challenges we saw was in Hong Kong. Hibor normally tracks the Fed rates, LIBOR and the Fed rates very closely because of the fixed exchange rate between the U.S. dollar and the Hong Kong dollar. This time around for this quarter, Hibor is running some 50, 60 basis points below the U.S. rates. And that's just because of a lot of liquidity in the Hong Kong market. Some of it, I think, is because people have switched their borrowing to China onshore because it's cheaper to borrow China onshore. But the drag of 50, 60 basis points in HIBOR is causing a nim drag of between three and four basis points for us in our total book. What that means is that if it wasn't for the HIBOR break, the 212 would have been closer to 215 or 216 basis points. Now, the outlook for HIBOR in the coming months, later part of the year, is still uncertain. The HKMA seems to be trying to reduce the aggregate balance in its accounts, but the HIBOR pickup is still very gradual and slow. So it's difficult to say whether we get any lift from there. Overall, deposit repricing continues, though it is slowing down. You know, the bulk, about 75, 80% of the deposit repricing is done, but we still have another 20% odd to go, which will happen slowly through the rest of this year. So there will be some impact from that. On the other side, we've obviously benefited from the fact that about 22% of our commercial book is yet, of the interest rate-bearing assets, is yet to reprice. And we expect that to reprice a large chunk of that in the rest of this year and next year. And so we will get some cushioning of our NIM from the repricing of that commercial book. We put all of that together, I do think NIM probably peaked, but I do think NIM decline will be very gradual. The last three months, February, March, April, NIM has been pretty flat. It's in the 2.11, 2.12 range. And so while I do see NIM beginning to creep down, it will be gradual. So overall for the year, we probably average somewhere between 2.05 and 2.10. Our expense, we are maintaining guidance between 9% and 10%, and therefore cost-income ratio should be nicely below 40%. Asset quality, we maintain the SP guidance between 10 and 15 basis points. As you know, the first quarter is only six. So, you know, we'd have to see a pickup in SPs in the second half of the year to get to the 10 to 15 range. And right now, we're not seeing any signs of stress. Delinquencies are not up except in very small pockets in Hong Kong and China unsecured. And therefore, if I just look at the data, I don't see that SP coming through. The problem is because of the high interest rates and the slowing economies, this SP number might pick up in the second half, and so we're just being cautious as we come up with our forecast. And finally, when you put all of that together, we do think we'll get a full year return on equity, which is likely to be over 17%. And so overall, I'm hopeful that this will continue to be a solid year for the bank. So why don't I stop there and we're happy to take questions.