DBS Group Holdings Ltd

Okay, good morning everyone and welcome to DBS's second quarter 2025 financial results briefing. This morning we announced second quarter profit before tax rose 5% to $3.39 billion. Net profit was up 1% at $2.82 billion. And for the first half, both total income and profit before tax were at new highs. So with us today, we have our CEO Tan Tuy Shan and our CFO Cheng Sok Huy. Without further ado, Sok Huy please.

We delivered a strong set of results this quarter, despite a very challenging environment. Uncertainty around US trade policy weighed on customer sentiment. Interest rates in Singapore and Hong Kong fell sharply. while currency fluctuations led to adverse translation effects. Amid these headwinds, pre-tax profit rose 5% from a year ago to $3.39 billion. Net profit was 1% higher at $2.82 billion, even with the impact of the global minimum tax. Total income grew 5% to $5.73 billion. the growth was broad-based. Net interest income was higher, supported by strong deposit growth and proactive balance sheet hedging. Fee income and Treasury customer sales reached their second-highest levels, while markets trading income more than doubled to a 13-quarter high. For the first half, Pre-tax profit rose 3% to a record $6.83 billion. Net profit was little change despite higher tax expenses. Return on equity was 17.0% and return on tangible equity was 18.8%. Total income rose 5% to a new high of $11.6 billion. with growth across both the commercial book and markets trading. The cost-to-income ratio was stable at 39%. Asset quality was resilient. The NPL ratio improved during the quarter from 1.1% to 1.0%. Specific allowances were 15 basis points of loans for the quarter and 12 basis points for the half. Allowance coverage was 137% and 236% after considering collateral. Capital remained strong. The CET1 ratio was 17.0% on a transitional basis and 15.1% on fully phased-in basis. the Board declared a total dividend of $0.75 per share for the second quarter, comprising a $0.60 ordinary dividend and a $0.15 capital return dividend. Compared to a year ago, second quarter net profit rose 1% to $2.82 billion. In the chart, you can see that within the commercial book, a 4% or $144 million decline in net interest income in the commercial book from sharply lower rates was offset by higher non-interest income. Fee income rose 11% or $119 million led by wealth management, while Treasury customer sales and other income increased 9% or $44 million. Markets trading income was significantly higher, rising $231 million to $418 million as funding costs fell and trading opportunities were captured. Together with stable commercial book income, total income rose 5%. Expenses increased 5% or $98 million to $2.27 billion, led by staff costs. Total allowances fell 10% to $133 million. Specific allowances remained low at $150 million, or 15 basis points of loans, while $17 million of general allowances were written back this quarter compared to a charge a year ago. Compared to the previous quarter, net profit was 3% lower. Total income declined 3% with commercial book contribution moderating from a record first quarter, partially offset by stronger markets trading income. Commercial book net interest income fell 3% or $94 million, as the impact of sharply lower interest rates were mitigated by proactive balance sheet hedging and strong deposit growth. Fee income declined 8% or $108 million, largely due to lower wealth management and loan-related fees compared to record first quarter performances. Treasury customer sales and other income were also softer, down 5% or $26 million. Markets trading income rose 15% or $55 million on lower funding costs and more conducive trading conditions. Expenses rose 3% or $56 million, driven by higher non-staff costs. Total allowances fell $192 million, reflecting the prudent general allowance of $205 million set aside last quarter to prudently strengthen reserves. For the first half, net profit fell 1% to $5.72 billion due to higher tax expenses. Profit before tax rose 3% to a new high of $6.83 billion. Total income grew 5% to a record $11.6 billion. Commercial book net interest income fell 1% or $72 million to $7.34 billion. A 19 basis point decline in net interest margin from lower rates, softened by balance sheet hedging, was mostly offset by balance sheet growth. Fee income rose 17% or $351 million to $2.44 billion as wealth management and loan-related fees were both at new highs. Treasury customer sales and other income fell 3% or $29 million due to non-recurring gains in the first half of 2024. Excluding these gains, it rose 11% from record Treasury customer sales. Markets trading income increased 80%, or $348 million, to $781 million. Expenses rose 5%, or $233 million, led by higher staff costs. Profit before allowances grew 5%, to a record $7.15 billion. Specific allowances remain low at $270 million, or 12 basis points of loans compared to 9 basis points a year ago. General allowances of $188 million were taken in the first half. Group net interest income for the second quarter was little change from the previous quarter and higher from a year ago, despite the sharp declines in interest rates. Lower interest rates impacted the commercial book where net interest income fell 3% quarter-on-quarter and 4% year-on-year to $3.63 billion, while net interest margin declined 13 basis points quarter-on-quarter and 28 basis points year-on-year to 2.55%. the impact of lower rates was mitigated by two factors. First, proactive balance sheet hedging, and second, strong deposit growth. On the first point, proactive hedging, we had been increasing the proportion of fixed rate loans in the commercial book. This significantly reduced our net interest income sensitivity and helped cushion the effects of the Fed rate cuts last year, as well as the sharp declines in SORA and HIBOR. On the second point on deposit growth, we grew deposits by $11 billion this quarter and $40 billion from a year ago in constant currency terms. The growth in deposits exceeded loan growth and the surplus was deployed into liquid assets. This deployment was accretive to net interest income and return on equity, though it modestly reduced net interest margin. For the market's trading book, net interest income turned positive for the first time in 11 quarters. The improvement was supported by lower funding costs as interest rates fell, as well as by reduced accounting asymmetry. Combining the commercial book and the markets trading, the group's net interest income fell 1%, from the previous quarter and rose 2% from a year ago to $3.65 billion. Group Net Interest Margin declined 7 basis points from the previous quarter and 9 basis points from a year ago to 2.05%. For the first half, Group Net Interest Income rose 3% to $7.33 billion. reflecting balance sheet growth and the effects of hedging. Net interest margin was 2.08%, six basis points lower than a year ago. Gross loans amounted to $439 billion. They grew 3% or $11 billion in constant currency terms over the first half, led by a broad-based increase in non-trade corporate loans, even as tariff-related uncertainty weighed on borrowing sentiment. Two percentage points, or $7 billion, of the growth occurred in the first quarter, and one percentage point, or 5%, occurred in the second. During the quarter, deposits rose 2%, or $11 billion, in constant currency terms to $574 billion. Fixed deposits rose $9 billion, boosted by inflows amid macroeconomic uncertainty. Most of the growth was raised at favourable pricing in line with interest rate declines. CASA increased $3 billion due to retail inflows as there were some transitory outflows from IBG customers near the quarter end. For the first half, deposits rose 5% or $29 billion. More than half of this increase came from CASA. Liquidity remained healthy. The group's liquidity coverage ratio was 147% and net stable funding ratio was 114%, both comfortably above regulatory requirements. Fee income. Compared to a year ago, second quarter growth fee income increased 10% to $1.40 billion. The growth was led by wealth management, which rose 25% from broad-based growth in investment products and bank assurance. For the first half, gross fee rose 14% to a record $2.90 billion. Wealth management and loan-related fees reached new highs. Wealth management fees rose 30% to $1.37 billion, and loan-related fees rose 11% to $412 million. Investment banking and transaction service fees were also higher. The next slide shows the wealth management segment. This comprised net interest income, fee income, as well as treasury customer sales income for our private banking, treasurer's private client, and treasurer's segment. Second quarter wealth management segment income grew 5% year-on-year to $1.35 billion. The growth was driven by a 19% increase in non-interest income, which more than offset a decline in net interest income from lower rates. While wealth management activity slowed in April due to Liberation Day, it was followed by recovery in May and June. For the first half, wealth management segment income grew 8% to a record $2.84 billion due to a 26% rise in non-interest income. Asset under management grew 16% year-on-year in constant currency terms to a new high of $442 billion. The percentage of AUM in investments was 56%. Net new money inflow of $9 billion in the second quarter was above our recent quarterly run rate of $5-6 billion. Commercial book non-interest income. For the second quarter, commercial book non-interest income, which is boxed up in red on this chart, rose 11% from a year ago to $1.69 billion from higher fee income and treasury customer sales to both wealth management and corporate customers. Excluding non-recurring items a year ago, commercial book non-interest income grew 13%. For the first half, commercial book non-interest income grew 10% to $3.51 billion, led by record fee income and Treasury customer sales. Excluding non-recurring items a year ago, the growth was 15%. Next slide, Hong Kong. Despite the sharp drop in HB, Hong Kong's first-half net profit rose 11% in constant currency terms to a record $871 million. Total income increased 8% to a new high of $1.78 billion, driven by higher non-interest income. Net interest income and net interest margin were resilient, despite subdued loan demand and the HB plunge. Net interest income was 1% lower at $1.01 billion, as a five-basis point decline in net interest margin to 1.75% was mostly offset by deposit growth. Deposits rose 9%, led by CASA inflows. Loans declined 5% due to subdued credit demand and repayments. Surplus deposits were deployed into non-loan assets, supporting net interest income. The lower net interest income was more than offset by double-digit growth in both net fee income and other non-interest income. Net fee income rose 25% to $505 million, led by wealth management. Other non-interest income grew 17% to $268 million from higher Treasury customer sales as well as trading gains. Expenses increased 4% to $636 million from higher staff costs. Cost-to-income ratio for Hong Kong was at 36%. Total allowances were 18% higher at $106 million with the specific provisions at 19 basis points of loans. Non-performing assets. Asset quality remained resilient. Non-performing assets declined 4% from the previous quarter to $4.69 billion as new MPA formations stayed low and was more than offset by higher repayments and write-offs. the NPL ratio improved from 1.1% to 1.0%. Specific allowances. Second quarter specific allowances amounted to $149 million or 15 basis points of loans. While IBG specific provision charges of $100 million were lower than recent quarters, write-backs of $28 million were also lower. For the first half, specific allowances remained low, at $260 million or 12 basis points of loans. General Allowances. General allowance charges were $188 million for the first half, reflecting the $205 million charge taken in the first quarter to strengthen GP reserves. As of end June, total allowance reserves stood at $6.44 billion, with $2.33 billion in specific allowance reserves and $4.11 billion in general allowance reserves. The general provision overlay was stable at $2.6 billion. Allowance coverage was at 137% and at 236% after considering collateral. The reported CET1 ratio declined 0.4 percentage points from the previous quarter to 17.0%. The movement was driven by capital return initiatives of 0.2% and an increase in risk-weighted assets. The pro forma ratio on a fully phased-in basis decreased 0.1 percentage points to 15.1%. The leverage ratio was 6.5%, more than twice the regulatory minimum of 3% dividend. The Board declared a total dividend of $0.75 per share for the quarter, comprising an ordinary dividend of $0.60 and a capital return dividend of $0.15. Based on yesterday's closing share price and assuming that total dividends are held at $0.75 per quarter, the annualised dividend yield is 6.1%. In addition, we have bought back about $370 million worth of shares under the $3 billion share buyback programme, representing around 12% of the programme. In summary, we delivered a strong set of results for the first half despite the challenging environment. Our ability to manage the balance sheet nimbly, grow deposits and capture market opportunities helped offset the external pressures. As a result, net interest income Fee and Treasury customer sales all reached new highs, while markets trading performance was the strongest in four years. Return on equity was 17% even after the impact of the global minimum tax, reflecting payoffs from our investments to deepen customer relationships across wealth management and corporate banking. While external uncertainties remain, our proactive management of the balance sheet puts us in a good position to navigate the interest rate cycle, while strong capital and liquidity ensure we are well-placed to support our customers. Thank you for your attention. I will now pass you to Sushant.

Thank you, Sok Hui. So I would like to iterate that we had a solid Q2 in spite of seeing what were really factors that would include a perfect storm, right? You had a plunge in Sora, you had a plunge in Hybor, and a strong sing, and a lot of uncertainties around Liberation Day on April 2nd, followed by Middle East tensions, and a lot of geopolitical headwinds. So Q2 was a tough quarter. but our team delivered pretty resilient financial numbers in spite of the tough quarter. And I like to think of it as when the markets hit you, whether it's rates or effects, you mitigate those hits by increasing your volume, for example. And if there are increased volatility, which there was, then you mitigate that by having a good trading income and you hedge when you can. The good news about volatility is I haven't seen interest rate volatility like we have in the last few months, but that also on the flip side allows you opportunity to put in your hedges when you need to. So the diversification of income stream, you know, buttressing of, you know, creating our fortress balance sheet to mitigate whatever the markets throw you is important. So building resiliency in your balance sheet, building resiliency in your operating income, but continuing the structural growth path of things like wealth management, GTS, digitalization, financial institutions, et cetera, means you can mitigate these market volatilities. So as Sok Hui rightly said, we delivered a solid Q2 record first half total income, record first half profit before tax. Our net profit was affected by higher tax rates. and record fees. The fees I felt were quite pleasing because it was across the board. It was also in wealth, it was also in loan fees, and it was also in treasury sales fees. So all around, I think fees were firing on all cylinders. I'm going to answer the question you're all going to ask me, so you don't have to ask me this later on, which is what is our interest rate sensitivity? And perhaps, you know, better for you to look at the interest rate sensitivity around currency blocks, but also focus, as Siok-Hee said, focus on the NII and not the NIM. Because as interest rates drop, if your volume grows, then you grow your NII income. That will mitigate whatever your NIM rates are. And in the past, people focus on pass-through rates because that's what we were used to, the Fed cuts rate. Rates in Asia go down. I think that relationship has broken down. So no point trying to predict what the pass-through rates are going to be for different currencies. Instead, focus on what part of your balance sheet is floating. So for us, for SingDollar, we have a net floating asset of about $90 billion. So you can work the sums up. So for every basis point, we will move down. We will lose $9 million in the SingDollar book. Then in the non-sink dollar book, which is primarily US dollars, we have roughly 40 plus billion in net floating liabilities. So therefore, every one basis point drop in the rates will lead to a plus four, four over million rise in our total income. So you can net that figure off. I also believe that the FX rates also drive a lot of the interest rate volatility. Just to remind everyone, SingDollar, the SingDollar is a managed SNARE, right, the SGNARE. So focusing also on the FX and the forward rates could be instructive. It is, however, volatile, so hard to predict. But that's why I'm pleased that our Treasury team has done a really good job on mitigating any of these headwinds with very nimble interest rate swaps and FX hedging, as have our Treasury and our trading teams as well. So, as a result, our group NI is little change, quarter on quarter, and I think the volume growth in both deposits and also solid, steady growth in non-trade loans have helped us. We continue our strong growth in deposits in July as well, so the momentum looks like it will continue for the full year. We talked about strong and record AUM and net new money flows. That was very pleasing. And whilst we focused a lot on the high end, so PB, TPC, PB grew by net new money by about $9 billion. That was an outstanding figure. I also want to draw your attention to the fact that wealth management is not just about the high end, it's also about the middle and retail. And there, I'm very pleased to see that the team is firing on all cylinders, whether it's onshore retail wealth, offshore connectivity, whether it's retail digital wealth or physical, whether it's banker sales or just deposit growth, all segments are firing quite well. A lot of investments have gone into making our RMs and our digital app more contextual, more timely nudges, more relevant nudges, and a turnaround time for our clients to do stuff has also shortened. So the net new money, the increase in productivity, the consistency of growth is there. Similarly for IBG, I'm very pleased to see that you will see that our loan growth, it's quite seasonal. You always have a first strong first quarter and second quarter comes down. The last quarter will be also quite quiet. But year on year, you will see the consistent growth in loan fees. And why do you see that? It's because the industry heads, the IBG heads of different sectors and our syndicated loans team are working very closely together to make sure that We keep increasing market share, we keep deepening our industry expertise, and we keep winning the lead manager role. That's important. That's structural growth as well. So time after time, we went from number four to number three in the lead tables, number three now to number two in the lead tables. This takes time to build, but it's consistent and it's structural. Markets trading also at the 13 quarter high. As I said, you know, when the markets are volatile, you do what you can and you make hay while the sun shines. And I think our markets trading team certainly did a brilliant job there. And asset quality has remained resilient. We are very kiasu in Singlish, but we've been very, you know, We've been very circumspect. We look very closely at cash flow, projected cash flow. We stress test after stress test. Whatever the tariffs are, we'll stress test it. First order, second order. We've been very cautious around the SME and consumer unsecured loans. So we didn't get hit so much. We've also been cautious around real estate in both China and Hong Kong. So that was all right. So I think the asset quality remains resilient. Next slide. What's our outlook for 2025? We continue to say the same thing, which is we expect net interest income to be slightly above 2024 levels in spite of the lower SORA and HIBOR. And that was for all the reasons I explained. We hope to see SORA stabilizing going forward. We hope to see HIBOR also rebounding going forward. And we expect about two more rate cuts in the US in line with the market. But as I reminded you, lower US dollar rates is ironically actually quite good for us. And commercial book non-interest income should continue to grow in the mid to high single digit. Again, consistent growth in wealth management, both in net new money and fee growth and new to bank growth. We're pretty steady in terms of cost management, so cost income ratio should be in the low 40s range. We're beginning to see some efficiency and productivity and capacity growth in the use of AI and GenAI. And also a reminder that all those investments we made in the past around the way we work, around our data, like around AI, generative AI, continues to bear fruit. We are now able to create models that are predictive in terms of money flows. So we try and capture more than our fair share of deposit growth in terms of net new money growth, in terms of fee growth, etc. And our GP reserves continue to be pretty high. We have GP overlay, which is stable at $2.6 billion, so pretty conservative there. As I mentioned last quarter, we were not affected by the first order impact of the US tariffs, but we did take, to be conservative, a $200 million GP there. additional GP there in the first quarter and we remain resilient there were some announcements this morning for India, I checked with Quidron, our IBG head and our India head and I think so far the first order impact is almost negligible hardly anything because the sectors that will be affected are mostly sectors that were not geared into textiles, jewellery, apparel, that kind of thing The electronics and pharma have not been announced yet. So net-net, we expect profits before tax to be okay, but our net profits will be below only because of the global minimum tax of 15%. Next slide. So this is a new slide which I thought I will draw up to just, you know, also being preemptive because I thought you might ask me, to remind all of you that we were very active and still continue to be active in the digital asset space. A lot of banks have talked about the Genius Act, and Hong Kong MA has announced stuff. So I thought, listen, I better come up with a slide to show you what we've been doing in the digital asset space since 2021, and explain where we've chosen to play. So here you can see in terms of lifecycle, we are able to issue and list digital tokens. So if anyone wants to tokenize anything, so for example in 2021 we did our first security token issuance and that was for ourselves. We are able to tokenize money market funds, you want to tokenize deposits, stablecoin, etc. So we are in the business of issuance and listing in any digital exchange. We also have our own digital exchange called DDEX, which is a venue for customers to go on-ramp and off-ramp from fiat to digital assets, digital assets back to fiat. It's the first bank-backed digital asset exchange in Asia, and our volumes have grown quite nicely. In the first half, they're up some 171% or something, so pretty solid. We also provide custody for our Our customers, we call this institutional grade custody. I think people, customers, institutions, et cetera, FIs have wanted to now deal in digital assets. They're looking for custody, solid, safe, reliable, resilient custody arrangements, and we are that trusted partner. So custody growth is sort of slow and steady. And we've also begun to do trading and structuring, whether it's structured products, structured notes, derivative, OTC, repo, reverse repo, etc. So also beginning to do that, the market is starting to be quite active there. Then in payments and settlements, this is what we call DBS token services. This is all using the blockchain, which enables you to fulfill atomic real-time settlements for your customers. So customers who have a lot of real-time payments, they need 24-7, they need you to be available on weekends, they want instant settlement. This is the answer to it. Customers who are big platform companies with multiple merchants, multiple payment needs, this is a great solution for them. So, for example, with Ant, we announced, as you know, last year, a 24x7 real-time liquidity management. We tokenized their treasury. We created treasury tokens with them, with their whale platform, and they can now use this for 24x7 multi-currency treasury liquidity management. Then we also do conditional payments, which is basically programmable money, smart contracts, so you can only use this money for certain payments. And again, this, we work with the government, Enterprise Singapore, to program payments around uh vouchers or fund disbursements so this eliminates a lot of the manual reconciliation that you need to do and then programmable rewards so payla today you can burn your credit card rewards on your payla scan at any nets merchant and and that is again programmable digital vouchers which um which is powered by tokenized deposits and smart contracts uh and and nicely embedded in the dbs payla app we just launched this this month Last month, sorry. And then tokenized deposits, you know, this is where we piloted it a few years ago, purpose-bound money, etc. You can tokenize SingDollars with smart contracts. And we also issued digital SingDollar as tokenized deposits in something called Project Orchid a few years ago. So basically interoperable, whether it's CBDCs, eHKD, ECNY, etc. We want to be a partner for any stablecoin issuer. And so we want to also be the picks and shovels in this whole ecosystem. We believe that being a trusted partner to help whether you want to issue, you want to trade, you want to customize, and you want to bank. We're banking the ecosystem, helping them to reconcile, go on and off ramp, and also provide collateral management and reserve management for anyone who's issuing stable coins. So in short, we're there. We've been playing for quite a few years. We are also really keeping our eyes out on regulations because we want to do this correctly. We're not here to... to do things that are not regulated. So we want to be a trusted, regulated bank that plays in the digital asset space. So we want to innovate, but we also want to do this responsibly. I want to build on our head start. We've had a head start since 2021. We want to continue to build on our head start, build on our experience, build on our expertise to be a trusted digital player in this ecosystem. That was my last slide. We'll now open for questions.