DBS Group Holdings Ltd

Good morning, everyone, and welcome to DBS's third quarter financial results briefing. On today's call, our CEO, Piyush Gupta, Deputy CEO, Tan Tzu-Shan, and CFO, Chung Seok-Hui. As per our norm, Piyush and Seok-Hui will start by sharing more about our third quarter, and both will be speaking to presentation slides, which we will also share on WebEx. And thereafter, we will take media questions. So without further ado, Sophi, please. Thanks, Agnes.

Good morning, everyone. We delivered a record performance for the third quarter with profit surpassing $3 billion for the first time. Net profit increased 15% from a year ago to $3.03 billion. as total income rose 11% to $5.75 billion. The growth was broad-based. Commercial book net interest income rose from balance sheet growth and a stable net interest margin. Net fee income increased to a new high, led by wealth management, while treasury customer sales also grew. Markets trading income rose to the highest level in 10 quarters. Expenses increased 10%. with City Taiwan accounting for 3 percentage points of the increase. The cost-to-income ratio was 39%. For the first 9 months, net profit rose 11% to a record $8.79 billion, with ROE at 18.8%. Total income rose 11% to a new high of $16.8 billion from growth in both the commercial book and markets trading. The broad-based increase in the commercial book was from higher net interest margin, balance sheet growth, as well as record fee income and treasury customer sales. Asset quality was resilient. Non-performing assets declined 8% from the previous quarter as repayments, upgrades and write-offs more than offset new MPA formation. The MPL ratio fell from 1.1% to 1.0%. Specific allowances remained below the cycle average at 14 basis points of loans for the third quarter and 11 basis points for the nine months. Capital was healthy. Based on the final Basel III reforms, the transitional CET1 ratio was 17.2%, with a fully phased-in ratio at 15.2%. the board announced a new $3 billion share buyback program. The program is underpinned by a strong capital position and is another affirmation of our commitment to capital management. The third quarter dividend was maintained at $0.54 per share. Next. Today we announced the establishment of a new $3 billion share buyback programme. Under the programme, shares will be purchased in the open market and cancelled for the first time. The buybacks will be carried out at management's discretion and subject to market conditions. These purchases will be over and above the periodic buybacks we already carried out for employee share plans. The program will reduce our fully phased-in CET1 ratio by around 0.8 percentage points when completed. At the same time, it will provide a permanent lift to earnings per share in addition to raising returns on equity. The programme is the latest in a series of capital management initiatives undertaken by the board, which included a doubling of the ordinary dividend over the last five years, occasional special dividends and the recent bonus issue that effectively raised dividends. Our dividend policy remains unchanged. We'll continue paying ordinary dividends that are sustainable and rise progressively with earnings. Dividends continue to be the primary means of returning capital to shareholders. Since 2019, we have doubled ordinary dividends to an annualised $6 billion, reflecting the significant structural improvements our franchise has achieved. The current dividend of $0.54 per quarter represents an annualised dividend yield of 5.5% based on yesterday's closing price. The buyback program is another affirmation of our commitment to capital management. It is underpinned by our strong capital position and ongoing capital generation. Third quarter compared to third quarter last year. Compared to a year ago, net profit rose 15% and crossed $3 billion for the first time. Commercial book total income increased 8% or $396 million to $5.42 billion. The growth was broad-based. Net interest income rose 3% or $112 million to $3.80 billion, driven by balance sheet growth and a stable net interest margin of 2.83%. Net fee income rose 32% or $266 million to a record $1.11 billion, led by wealth management, which grew 55%. Commercial book other non-interest income was 4% or $18 million higher at $515 million, with the increase driven by wealth management treasury customer sales. markets trading income doubled to $331 billion, the highest in 10 quarters, as FX interest rate and equity derivative activities benefited from market volatility. Expenses rose 10% or $211 million to $2.25 billion, with City Taiwan accounting for 3 percentage points of the increase. Profit before allowances grew 11%, to 3.50 billion. Specific allowances were 77 million lower at 120 million or 14 basis points of loans. General allowances of 10 million were taken. Third quarter compared to second quarter. Compared to the second quarter, net profit grew 8% as total income rose 5%. Commercial book total income increased 2%. Net interest income was 1% or $27 million higher as net interest margin was stable. Fee income grew 6% or $61 million largely due to wealth management fees. Commercial book or the non-interest income increased 8% or $39 million contributed by higher treasury customer saves. Markets trading income rose 77% or $144 million. Expenses increased 4% or $77 million from higher staff and computerization costs. Profit before allowances grew 6%. Total allowances were 12% or $18 million lower. 9 months performance. For the 9 months, net profit rose 11% to a new high of $8.79 billion. with ROE at 18.8%. Commercial book total income grew 10%. Net interest income increased 5% of $563 million to $11.2 billion from a four basis point expansion in net interest margin to 2.81% as well as balance sheet growth. Peer income rose 27% or $683 million to a record $3.20 billion led by higher wealth management, card and loan related fees. Commercial book other non-interest income was 16% or $221 million higher with increase led by record treasury customer sales. Markets trading income grew 25% or $152 million to $764 million, with all of the increase occurring in the third quarter. Expenses rose 11% or $649 million to $6.50 billion, with City Taiwan accounting for 4 percentage points of the increase. The cost-to-income ratio was stable at 39%. Profit before allowances was 10% higher at $10.3 billion. Specific allowances remained low at $330 million and were stable compared to a year ago at 11 basis points. General allowances of $83 million were taken. Commercial book net interest income. Compared to the previous quarter, commercial book net interest income increased 1% to $3.80 billion. net interest margin was stable at 2.83%, helped by the repricing of fixed-rate assets. Compared to a year ago, commercial book net interest income rose 3%, driven by balance sheet growth. Combining the commercial book and markets trading, the group's net interest income was little changed from the previous quarter at $3.60 billion, while net interest margin declined three basis points to 2.11%. The lower net interest margin was due to market trading's deployment into products with inherent accounting asymmetry. Compared to a year ago, group net interest income rose 3%, driven by balance sheet growth. For the nine months, commercial book net interest income increased 5% from a four basis point expansion in net interest margin and balance sheet growth. Group net interest income was also 5% higher. Loans. During the quarter, gross loans rose $3 billion or 1% in constant currency terms to $424 billion. led by a $2 billion increase in trade loans. Non-trade corporate loans and consumer loans were also slightly higher. Over the nine months, loans grew $8 billion, or 2%, led by trade loans and non-trade corporate loans. Deposits. During the quarter, total deposits grew $10 billion, or 2%, in constant currency terms, to $545 billion, from foreign currency CASA inflows, some of which were transitory. Sing dollar-CASA movements stabilised during the quarter, and over the nine months, in contrast to a $19 billion outflow in the previous year. For the nine months, total deposits rose 19 billion, or 4%, with all of the increase due to fixed deposits. Liquidity was ample. with LCR of 144% and net stable funding ratio at 115%, well above regulatory requirements. Fee income. Third quarter gross fee income rose 4% from the previous quarter to a record $1.32 billion, driven by wealth management. Wealth management fees rose 18% to $609 million from broad-based growth in investment products and bank assurance, underpinned by strong investor sentiment. Investment banking fees were also higher, rising 63%, to $31 million from increased debt capital market income. Transaction service fees were stable at $227 million, while card fees and loan-related fees were lower than their previous quarter records at $302 million and $146 million, respectively. Compared to a year ago, third-quarter gross fee income increased 25%, led by a 55% increase in wealth management. Card fees, investment banking fees, and loan-related fees also contributed to the growth. Excluding city Taiwan, gross fee income rose 20%, led by a 46% increase in wealth management. For the nine months, gross fee income grew 26% to 3.85 billion, driven by increases in wealth management cards and loan-related fees. Excluding City Taiwan, gross fee income rose 18%. Commercial book non-interest income. For the third quarter, commercial book non-interest income, which is boxed up in red on this chart, rose 21% from a year ago and 7% from the previous quarter to $1.63 billion, benefiting from strong wealth management momentum. Fee income was at a record while Treasury customer sales were higher than both comparative periods. For the 9 months, commercial book non-interest income rose 23% from a year ago to $4.82 billion. The growth was led by record fee income and Treasury customer sales. Combining commercial book and markets trading, total non-interest income For the third quarter grew 28% from a year ago and 14% from the previous quarter to 2.16 billion. For the nine months, it was 23% higher than a year ago at 6.10 billion. Wealth management. The strong wealth management performance was a highlight this quarter. Over the previous few quarters, Wealth management segment income had been growing at a rate of around 20% year-on-year, driven by accelerating growth in non-interest income, which rose to 52% this quarter. The momentum was sustained by record fees from investment products and bank assurance, as well as higher wealth management treasury customer sales. Assets under management reached a new high of $401 billion. growing 15% in constant currency terms, with net new money inflows from high net worth individuals of $6 billion during the quarter. The strong investor sentiment contributed to fuel the conversion of deposits to investments, and the proportion of assets under management in investments reached 56%, cost-to-income ratio. Third quarter expenses were 4% higher at $2.25 billion than the previous quarter from higher staff and computerization costs. Compared to the previous year, expenses grew 10%, with City Taiwan accounting for 3 percentage points of the increase. For the 9 months, expenses rose 11% to $6.50 billion, with City Taiwan accounting for 4 percentage points of the increase. Both the third quarter and nine-month cost-to-income ratios were stable at 39%. Non-performing assets. Non-performing assets declined 8%, or $397 million from the previous quarter to $4.68 billion, contributed by the repayment of a few new MPAs recognised in the first quarter. Higher repayments, upgrades, and write-offs more than offset new MPA formation, which included two lumpy cases. The NPR ratio fell from 1.1% to 1.0%. Specific allowances. Third-quarter specific allowances amounted to 120 million or 14 basis points of loans. Allowances for new MPLs were mostly offset by write-backs for supplements and recoveries, reflecting the MPA movements in the previous slide. For the nine months, specific allowances remained low at 332 million or 11 basis points of loans. Allowance coverage. Total allowance coverage stood at $6.32 billion with $2.37 billion in specific allowance reserves and 3.96 billion in general allowance reserves. GP overlays were little changed at 2.3 billion. Allowance coverage stood at 135% and at 242% after considering collateral. Capital ratios. Final Basel III reforms took effect in Singapore on 1 July 2024. Under transitional arrangements, our CET1 ratio was 17.2%. The transitional rules benefited from our CET1 ratio by two percentage points, primarily due to lower corporate LGD, loss given default, removal of the IRB scaler, and a reduction in operational risk RWA. The pro forma CET1 ratio on a fully phased-in basis was 15.2%. There was an increase from the previous quarter due to profit accretion and heavy OCI gains. As mentioned in my earlier slide, the share buyback program we announced this morning will reduce our fully phased-in CET1 by 0.8 percentage points. In other words, upon completion of the buyback programme, fully paid CET1 will be reduced from 15.2% to 14.4%, which is above our management operating range. Dividends. The Board declared a quarterly dividend of 54 cents per share for the third quarter, bringing the dividend for the nine months to 1.62 per share. In summary, we achieved another record performance in the third quarter and nine months. Commercial book net interest margin was supported by the reduced interest rate sensitivity of our balance sheet, while wealth management drove fee income to a new high. The new buyback program we announced today is underpinned by a strong capital position and ongoing earnings generation. It is another affirmation of our commitment to capital management. With our reduced sensitivity to interest rates, our high general allowance reserves and our strong capital position, we remain well positioned to continue delivering healthy shareholder returns. I will now pass you to our CEO, Pish.

All right. Thank you, Sokwi. And again, welcome everybody to the media conference. I will need two slides, and as usual, slide one, I will reflect on a few of the comments that Sakweez just made. Slide two, maybe a little bit of thinking on 2025. On slide one, I start first with net interest income. Net interest income for the quarter was stable, reflecting balance sheet growth, even though total NIM is down a little bit. Actually, the underlying commercial book NIM quarter on quarter has been flat, 2.83. This, therefore, does not reflect the drop in interest rates, the interest rate cuts. In truth, the commercial book NIM will slowly start reducing. But on the other hand, the NIM drag in the Treasury portfolio, the GFM portfolio, uh will reverse as well the new group name and the quarter was actually just because of that the market uh trading deployment and products uh where there is accounting asymmetry we make money on the non-interest income line and uh the funding cost goes in the interest line uh and therefore that results in anomaly in the total name the total name for um the quarter therefore came off by three basis points Interesting to point out, though, that the exit NIM in September was around 2.15. So we saw a pop-up. October NIM is also around those levels. And that reflects the fact that the accounting anomalies in the later part of the quarter and starting this year are reducing as the market interest rates are coming down. So I think the key point to reflect is that the thing to focus on is the commercial book NIM. There is some noise in the total name, and you should take that into account. The second point, fee income. Sokhi pointed out the record fee income. The underlying big news is obviously wealth management. This continues to be very, very strong. The flows have been very diversified. They are not just North Asia, they continue to reflect Southeast Asia, Middle East, Europe. And the clients continue to also put more money to work and therefore the percentage of investments of total AUM is up to 56% for the quarter. Clients are also doing activities which give us better yield. So that's quite helpful for the fee income category. Trading was a Fantastic quarter. If you remember a few years ago, our guidance on trading was 250 to 270 million bucks a quarter. And then with the rising interest rates in the last couple of years, we've guided it down to as low as 225 million bucks in the quarter. But this quarter was 330 and that's very strong. It's the highest we've had. in 10 quarters. We benefited across every asset class. So equity derivatives, interest rate, FX, there's a lot of movement and we benefited from all of that. So strong trading number. Cost-income ratio is stable at 39%. Our nine-month expense growth is 11%. If you X out the city, Taiwan is about 7%. We earlier guided for fully expense growth in the 9% to 10% range. I think we will still hit the 9% to 10% range because fourth quarter last year was particularly high. So we're on track with both focused on expense growth as well as cost income ratio. Asset quality continue to be resilient. NPR ratios come down to 1%. I want to point out two things. One, obviously, we saw an increase in new NPA formation. As Sokwi said, there were two lumpy cases. Both were in China. One reflected auto sector client where there was some misstatement of audited financials, so idiosyncratic. We've pretty much written that one off. The other reflected prudential moving of a particular case into NPL. It hasn't defaulted. We just think that there might be stresses and repayment coming in the next couple of quarters. So we've been very prudential about recognizing it. But the loan-to-value is low, so we didn't have to take any provisions around it. At the same time, I want to point out that we are seeing very strong recoveries, repayments, recoveries, some write-offs. And they're coming in three different categories in this quarter. The first reflect recoveries from the oil and gas provisions that we made some years ago. Substantial amount of recoveries from that, and that reflects that we were very prudent in the NPLs we took and the SPs we took in that portfolio. The second is recovery is related to the money laundering case in Singapore. Again, as I indicated last quarter, we've been able to sell most of the properties that we finance. So the recovery is coming in from that, again, reflecting the fact that we were prudent. And the third actually most interesting, we took a couple of property cases into NPL in Hong Kong, China in the beginning of the year. We have been able to actually monetize, sell those assets or refinance those assets. And so I've been able to reverse the NPL within the year. Again, reflecting the fact that our loan to values are generally quite low and so We've been able to actually recover even where we do have to move things into NPL. So overall, actually quite happy with the asset quality that we are 1% overall NPL ratio is a good place to be. And finally, the last comment in the share buyback program. We haven't got a specific time frame. It might take a couple of years to execute it because we're going to be quite thoughtful and make sure that we use the right opportunities in which to execute the program. I'm sure there's some questions on whether, given the stock price is so high, whether it's a good time to do share buybacks. In reality, if you want to actually buy back and cancel shares, and if you have a strong belief in the fundamentals of the business, any time is a good time. I'm struck by the fact that Companies like JP Morgan and Apple continue to do share buyback, even at a relatively high price to book. Nevertheless, we will, of course, be thoughtful and prudent about when is the right time at which to actually exercise this buyback. The important thing, though, is that it reflects our continued commitment to capital management. We recognize that we do have, continue to still have a lot of capital, and therefore we need to continue to use every opportunity and tool that we have to be able to return capital back to shareholders. It's like, Quick comment on looking into 25. We think notwithstanding the interest rate reduction, we should be able to hold net interest income at around 2024 levels. By the way, the slides were made before yesterday's election results and before the market pricing on interest rate cuts changed. So our assumptions are based on a total of two percentage point reduction by the end of next year. We assume 1%. This year, the 50 basis points that have already been done, we assumed another couple of cuts this year and then four more cuts next year. The market is now obviously pricing in less cards, and so that might have some bearing on our assessment for next year. Interest income might be slightly better than we think, but Even with the interest rate cuts or 2% rate cuts, we think that we might be able to hold net interest income. Group NIM will probably tend down a bit, a couple of basis points. Like I said, commercial book NIM will be down, but we will recover it from the trading market side where we will benefit from lower funding costs. The non-interest income we expect to be high single digit growth again powered by wealth management as well as treasury customer sales. Both those business continue to be quite robust. So if you add those two together we think total income will be up in the low single digits and that's actually a good outcome even after losing five six hundred million dollars on interest rate deduction. Our cost income ratio we expect to be the low 40s range. We think cost growth might be mid single digits, but low 40s cost income ratio is still very efficient. On SPs, we are still modeling our long-term through-cycle assumption of 17 to 20 basis points, even though we're still not seeing any meaningful signs of stress in the portfolio. There's small increases in delinquencies in consumer and SME, like I talked about. Many of them are actually already beginning to stabilize, so we don't see that to be a big concern. But we have been prudent when targeting 17 to 20 basis points. And as Sokhi pointed out, we do have well over $2 billion in GP overlays. So we do have the potential for GP write-backs if the SP environment turns out to be worse. So when you put all of that together, we think next year's pre-tax profits will be around this year's level. There could be some upside to this based on a couple of factors. One, if rates don't come off as much as we forecasted, that would be an upside. And second, we are already beginning to see some of the two positive factors. One, the CASA outflow the last couple of years has stabilized, and we're beginning to see some reversal of the outgoing CASA, especially from the outflows to T-bills and so on. So if we wind up getting substantially more CASA back, it obviously helps our NII. So that could be a further upside. And finally, on the fixed asset repricing, we have about $55 billion of fixed asset repricing next year. Already the way the yield curves are moving in the last 24, 48 hours, we might be able to actually replace that at better conditions than we originally assumed. So when I say the pre-tax profit should be around this year's level, there might be a little bit offside in that number. The net profit, though, after that is likely to be slightly lower. And that's because of the implementation of the global minimum tax of 15%. I think the impact of that to DBS is about $400 million. And so if we factor that in, we might see a little bit of a drag on the bottom line. I'm going to stop there, Edna, and throw it open for questions.