DBS Group Holdings Ltd

Good morning and welcome to DBS's fourth quarter and full-year financial results briefing. This morning we announced record full-year net profit of $6.8 billion, up 44% from the previous year. Return on equity rose to 12.5% from 9.1% a year ago. Fourth quarter net profit was $1.39 billion, a 37% increase from a year ago. And to take us through the key highlights today, we have with us our CEO, Piyush Gupta, and our CFO, Cheng Sok Wee. Without further ado, Sok Wee, please. Thank you.

Good morning, everyone, and a very happy Lunar New Year to all. Let's hope the Year of the Tiger brings with it strength and vitality. PBS full-year net profit rose 44% to a record $6.8 billion, and Return on Equity rose 3.4 percentage points to 12.5%. Strong business momentum mitigated the impact of lower interest rates and lower investment gains from the high base in 2020. Loans grew 9%, the fastest rate since 2014, and both fee income and treasury markets income rose to new highs. Fourth quarter net profit rose 37% from the previous year to $1.39 billion as business momentum was sustained over the quarter. Loans grew 1% from the previous quarter and net interest margin was stable at 1.43%. Fee income rose 9% from the previous year, led by transaction services and cards. Expenses were unchanged from the third quarter at $1.67 billion. Asset quality was resilient and the balance sheet healthy. non-performing assets declined 13% or $840 million from a year ago, with bulk of the decline occurring in the fourth quarter as two large non-performing loans were fully repaid. As a result, the NPL rate fell from 1.5% to 1.3%. General allowances of $447 million were written back during the year as weaker exposures were repaid and portfolio quality improved. General provisions overlays established in previous years were maintained. The specific allowance charge was $500 million for the year or 12 basis points of loans, well below pre-pandemic levels. As a result, total allowances amounted to $52 million. The Common Equity Tier 1 Ratio was 14.4%, well above regulatory requirements and above the Group's target operating range of between 12.5% and 13.5%. two one-time items were recorded in the fourth quarter. The first was a gain of $104 million on completion of the purchase of the 13% stake in Shenzhen Rural Commercial Bank in October 2021. This gain arose as the purchase price was fixed at book value at negotiation, but by the time the transaction was completed, the net book value has grown. Hence, the gain is recorded as income under accounting rules. The other one-time item was $100 million contribution to the DBS Foundation and other charitable causes. The Board proposed a final dividend of $0.36 per share, increasing the annualised dividend by 9% to $1.44 per share. Slide 3. Full-year net profit rose 44% to a record $6.8 billion. Total income declined 2% to $14.3 billion as record fee income and record trading income were offset by lower net interest income and lower gains on investment securities. Net interest income declined 7% or $636 million to $8.44 billion. Net interest margin fell 17 basis points due to the full period impact of lower interest rates and the decline more than offset the impact of 9% loan growth. Fees rose 15% or $466 million to a new high of $3.52 billion as most fee activities grew by double-digit percentages. Other income declined 5% or $125 million to $2.33 billion as record trading income was more than offset by lower investment gains from a high base. Expenses were 5% or $311 million higher at $6.47 billion. Excluding the full-year impact of LVB as well as the impact of government grants received, underlying expenses were well controlled, growing by 1% over the previous year. Total allowances fell to $52 million compared to $3.07 billion a year ago, comprising an SP charge of $1.35 billion and a GP charge of $1.71 billion in 2020. In 2021, specific provisions fell by two-thirds to 500 million or 12 basis points of loans. There was a right back of general provisions as weaker credits were repaid, portfolio quality improved, and some general provisions were transferred to specific provisions when loans turned non-performing. The general provision overlay was maintained. Slide 4. Fourth quarter net profit declined 18% from the previous quarter to $1.39 billion as total income declined 8% to $3.29 billion. Net interest income increased for the second consecutive quarter after several quarters of decline. It rose 2% or $36 million to $2.14 billion as net interest margins stabilised and loans grew 1%. Fee income declined 8% or $73 million to $815 million due to seasonal effects. other income declined 41% or $231 million to $338 million due to lower trading income as well as lower gains on investment securities. There was a maiden contribution of $26 million representing two months of associate income from the 13% stake in Shenzhen Rural Commercial Bank which was completed in October 2021. expenses were well managed and stable from the previous quarter at $1.67 billion. There was a general allowance right back of $34 million compared to $138 million in the previous quarter. Specific allowances were little changed at $67 million. As a result, total allowances amounted to $33 million. Slide 5. Fourth quarter net interest income increased for the second consecutive quarter after five consecutive quarters of decline. It rose 2% from the previous quarter to $2.14 billion as loans grew 1% and net interest margin stabilised at 1.43%, compared to a year ago net interest income rose 1% as loan growth of 9% was partially offset by a six basis point decline in net interest margin. Most of the decline in net interest margin occurred in the first half. Full year net interest income fell 7% to $8.44 billion. Net interest margin fell 17 basis points to 1.45% due to the full period impact of interest rate cuts in March 2020. The lower net interest margin was mitigated by broad-based loan growth. We continued to deploy surplus deposits to low-risk liquid assets. The deployment is accretive to net interest income but accounted for a 7 basis point headwind to net interest margin. Slide 6 In the fourth quarter, loans rose 1% or $6 billion in constant currency terms to $415 billion. Non-trade corporate loans grew $5 billion, led by Singapore and Hong Kong. Consumer loans grew $2 billion, with housing loans up $1 billion as new bookings in the previous quarter continued to be strong. Trade loans were stable as demand for commodities moderated with lower activity in China. Over the year, loans expanded 9% or $34 billion in constant currency terms. This was the fastest rate of growth since 2014. The broad-based growth was led by $18 billion of non-trade corporate loans and $10 billion of housing and wealth management loans. Trade loans grew $4 billion with the growth concentrated in the first half. Slide 7 Deposits grew $15 billion or 3% in constant currency terms in the fourth quarter to $502 billion. Compared to the previous year, deposits grew 7% or $32 billion. Current accounts and savings accounts or CASA grew 12% or $41 billion to $381 billion as strong inflows continued for a second year. The CASA growth allowed more expensive fixed deposits to be released, improving the quality of the deposit base. As a result, the CASA ratio rose 3 percentage points to a record 76% of total deposits. The loan-to-deposit ratio rose 1 percentage point to 81%. Liquidity was amper. The half-year liquidity coverage ratio of 133% and the net stable funding ratio of 123% were both comfortably above their respective regulatory requirements of 100%. Full-year gross fee income rose 15% to a new high of $4.06 billion, with the first three quarters the three highest on record. Wealth management fees increased 19% to a record $1.79 billion from higher sales of investment products and bank assurance. Transaction services fees rose 13% to a new high of $925 million from growth in trade finance and cash management fees. Investment banking fees grew 47% to $218 million as fixed income fees reached a new high and equity market fees grew from a low base. Card fees rose 12% to $715 million as combined credit and debit card spending reached record levels. Loan-related fees were stable at $413 million. Fourth quarter gross fee income was $954 million, 9% higher than a year ago and 7% lower than the previous quarter. Growth from the previous year was broad-based across transaction services, cards, investment banking, and wealth management. Slide 9. Full-year expenses rose 5% to $6.47 billion. Excluding costs relating to the Lakshmi Vilas Bank and the previous year's government grants, underlying expenses were well managed, rising by 1%. The cost-income ratio was 45%. Fourth quarter expenses were unchanged from the previous quarter at $1.67 billion. Compared to a year ago, expenses rose 6%, mainly due to government grants in the previous year. Slide 10 Full-year consumer banking and wealth management income declined 8% from a year ago to $5.32 billion. Loans and deposits income declined 25% to $2.26 billion as the impact of lower interest rates was moderated by higher volumes. The decline in income from loans and deposits was partially offset by a 14% rise in investment product income to $2.22 billion and a 3% increase in card income to $755 million as the combined credit and debit card spending reached record levels. Assets under management increased 10% to $291 billion. We maintain our domestic market share for savings deposits and housing loans. Full-year institutional banking income increased 4% from a year ago to $5.98 billion. Cash management income fell 17% to $1 billion due to lower interest rates. The decline more than offset strong growth in other product categories. Loan Income grew 9% to $3.30 billion Trade Income grew 5% to $757 million Treasury Product Income grew 13% to $764 million Investment Banking Income grew 33% to $161 million GTS Deposits grew 12% to $186 billion Slide 12 Full-year Treasury Markets Income and Treasury Customer Income were both at record levels, rising to $3.21 billion in 2021. Treasury Markets Income increased 5% to $1.51 billion from strong performance in equity and credit trading, surpassing the previous year's record. Treasury Customer Income increased 13% to a new high of $1.71 billion from strong performance in equity and FX sales, with consumer banking and institutional banking each accounting for half the amount. This chart shows that Treasury Markets' income has doubled from the low levels in 2017 and 2018 to $1.5 billion in 2021. Similarly, Treasury Customer Income has also grown 1.5 times from 5 years ago to $1.7 billion in 2021. The Treasury Markets business continues to benefit structurally from massive digitalisation. These improvements mean that we can expect Treasury Markets income to average $275 million a quarter or $1.1 billion a year, up from the previous guidance of $1 billion a year. We expect Treasury Customer Income to grow steadily. Slide 13. Hong Kong In constant currency terms, Hong Kong's full-year net profit increased 27% from a year ago to $1.19 billion. Total income rose 1% to $2.48 billion as fee income and other income both rose 21%, offsetting an 11% decline in net interest income. The decline in net interest income to $1.39 billion was due to a 30 basis point fall in net interest margin to 1.25%, mitigated by 11% loan growth in constant currency terms. Fee income increased 21%, mainly from investment and product sales, bank assurance and cash management. Other non-interest income increased 21% from higher treasury customer sales. Expenses rose by a modest 2% to $1.06 billion. The cost-to-income ratio increased 1 percentage point to 43%. Asset quality was resilient, with allowances falling from $332 million in 2020 to almost nil in 2021 due to lower specific allowances and a general allowance write-back. Slide 14 Asset quality improved as non-performing assets fell 13% during the year to $5.85 billion. Most of the decline occurred in the fourth quarter, mainly due to the repayment of two large MPLs. The MPL rate declined to 1.3% from 1.6% a year ago. Slide 15, full year specific allowances fell by two thirds to 498 million or 12 basis points of loans benefiting from right backs of resolved MPLs. They were well below pre-pandemic levels of around 20 basis points of loans. Fourth quarter specific provisions were 67 million or six basis points of loans. They were stable from the previous quarter and one fifth of their level a year ago. Slide 16. As at 31st December 2021, total allowance reserves stood at $6.8 billion, with $2.93 billion in specific allowance reserves and $3.88 billion in general allowance reserves. The reduction in specific provision reserves was mainly due to write-backs for MPL that were fully resolved, attesting to our prudent provision standards. During the year, there was a general allowance write-back of $447 million as weaker exposures were repaid and portfolio quality improved. General provision overlays were maintained. General allowance reserves remained prudent. The reserves exceed the regulator's minimum requirement by $0.4 billion and are $1.1 billion above Tier 2 eligibility. The surplus acts as a buffer for the total capital adequacy ratio. Allowance coverage was at 116% or at 214% when collateral was considered. Slide 17. Capital continued to be healthy. The common equity tier 1 ratio was 14.4%, little change from the third quarter and from the first half. On the conservative assumption that the operational risk charge for the digital disruption is not lifted before the consolidation of Citigroup's Taiwan consumer business and there is no further capital accretion, The Common Equity Tier 1 ratio would be 13.3%, which is at the upper end of the Group's target operating range and well above regulatory requirements. The leverage ratio of 6.7% was more than twice the regulatory requirement of 3%. Slide 18. In line with our policy of paying sustainable dividends that grow progressively with earnings, the Board recommended a final dividend of $0.36 per share for the fourth quarter, which is subject to shareholders' approval at the AGM on 31 March 2022. The $0.36 per share is an increase of 9% or $0.03 per share. The increase was moderated due to the additional operational risk capital charge. This brings the total dividend for the 2021 financial year to $1.20 per share. Barring unforeseen circumstances, the annualised dividend going forward is $1.44. Based on the previous trading day's closing share price, the new annualised dividend yield is 3.9%. Slide 19 in summary. We achieved a stellar set of results despite the low interest rate environment. Our broadly diversified franchise saw robust loan growth and record fee income amidst a recovering economic environment. Expenses have been well managed and we have reaped the benefits of prudent risk management. Our strong financial performance and capital ratios have allowed us to increase our dividend by 9% to $0.36 per share per quarter. The increase is in line with our policy of paying sustainable dividends that grow progressively with earnings. We have set aside a further $100 million for the DBS Foundation and other charitable causes. Business pipelines in 2022 remain healthy and we can expect to benefit from rising interest rates. We expanded our footprint in India, the Greater Bay Area and most recently in Taiwan. Together with our new digital platforms, these will provide additional growth engines for the future. Thank you for your attention and I'll pass you back to Piyush.

All right, thank you, Saukhui. And let me echo Saukhui's words, Gong Xi Fa Chai. I hope the Year of the Tiger is great for everybody on this call. As usual, I have a few slides to supplement what Saukhui has already covered. So why don't I just go through them very quickly. My first slide is just a quick reflection on last year. You know, as we did our own scorecard and appraisal for last year, It is quite clear that from a financial strategy and business standpoint, this is probably the best performance we've had in certainly the entire of the last decade. As Sokhi pointed out, notwithstanding the collapse in interest rates, we've lost about $3 billion of revenue because of interest rate between the summer of 2019 and now. And that notwithstanding, we've been able to deliver record profits. And if you look at the underlying texture, the profits pool has been very, very broad-based. Loan growth of 9% we spoke about. It's been fantastic, the fastest we've grown in seven, eight years. That's been broad-based. We were helped in the first year by some of the ESG-linked loans in Singapore. But if you look at 2021, it's been Singapore, Hong Kong, the property sector, continued to be TMT sector, financial institutions. and consumer mortgage, wealth-related loans, so quite a diversified balance sheet growth. Perhaps more important, the deposit growth has been spectacular. Between 2020 and 2021, our CASA growth has been $140 billion. Now, that's actually dramatic. It's changed our CASA ratio from the high 50s to now 76% CASA ratio. And as you think about the environment we're going into, a rising interest rate environment, the structural shift in our CASA ratio is going to be extremely beneficial for us in coming periods. Fee income was very strong. 15% growth in fee income is actually quite spectacular. And again, that was diversified. If you look within that, wealth management was very strong, 19 odd percent. Transaction banking grew 13%. Cards grew 12%. Investment banking grew 40%, 47%. So other than the loan book, it was actually quite diversified, very, very strong fee growth. We've seen some pickup in momentum overall. You take cards as an example. Total card spend is now higher than it was in 2019. There's debit plus credit cards altogether. In fact, the fourth quarter spend was 10% higher than the same period a couple of years ago. Now, it's true that within that, the mix is a little bit different. Travel-related spend is still down. And because travel-related spend is down, the income hasn't actually fully caught up. Travel-related income tends to be higher. So cards' income is slightly bit lower, but overall spend is actually caught up quite nicely. And wealth management reflects a fantastic growth across the board. Our net new money for the year was north of $11 billion, which is very good. Our AUM growth was about $25 billion, which is solid. And we continue to see these flows of money and the momentum in wealth management to be repeatable as we go forward. Finally, Treasury was fantastic. Treasury markets for most houses last year was a soft year for FICC, for the market business as a whole. We're one of the few houses which shows year-on-year growth. We grew 9% year-on-year in markets, which is actually quite good. That reflects not just the FICC, the equities, derivatives, etc., that came not just from trading, but that just came from customer activity as well, which again grew double digit. So no matter which dimension of the top line you look at, extremely strong performance. At the same time, because we didn't know what was coming, we managed expenses prudently, and I'm actually quite pleased that we did a fairly good job. Our nominal growth rate is 5%, that reflects the grants we took in 2020, and it reflects the add-on of Lakshmi Vilas Bank. If you back those out, our expenses grew 1%, which is actually fairly well managed. You can see that in our headcount. Our headcount for the year has actually shrunk, and that's despite cutting to our technology people. Finally, asset quality. We benefited a lot, obviously, from higher repayments. NPA formation was low. In fact, the NPA had come down to 1.3%. SPs were contained. Because the portfolio improved, general provisions got reserved, even though we've still kept our overlay positions and general provisions. Therefore, no matter how you look at it, top line, expense line, credit line, pretty solid, yeah. If you look forward to where we are in the business and where we're going, I expect overall the business outlook to be fairly consistent with the guidance that we gave at the end of the third quarter, notwithstanding some headwinds we saw in the fourth quarter and early this year. So what were the headwinds? Clearly the markets were choppy, markets tanked, and that has impact on both the treasury market business as well as some extent the wealth management business. People do less activity when the markets are choppy. Notwithstanding that, our wealth management business actually grew year on year. Treasury markets was down, but much less than global competitors. Most people saw a 20, 25% drop in the fourth quarter. We saw a 8, 9% drop in the fourth quarter. Now, there are some headwinds in markets, some headwinds on wealth management fees. There were also some headwinds on the mortgage book as the new sets of rules kicked in in Singapore in December. And so, booking slowed down a tad bit. We've wound up the year, therefore, slightly slower than we've seen the first three quarters. But as we look at our pipelines going forward through the remainder of this year, I'm pretty confident, like I said, that our guidance for the third quarter will stand up. We said, you know, mid to high single digits loan growth, I mean, we won't get the 9% we got last year, but 6%, 7% loan growth we think is quite possible from the pipelines and what we're looking at right now. What are the uncertainties? Obviously, on the one hand, if there's policy error, in the sense that if you wind up with massive increases in interest rates, which take economies into recession, we've not factored that into our outlook. At this point in time, though, we think it's unlikely. Even if there's seven or eight rate hikes, that would take rates up to about 2% levels, and 2% levels are still manageable. If the central banks find that inflation is too sticky and therefore rates get back to 3%, 3.5%, 4% of it, then that's another story. That's not our base case. The other uncertainty, of course, is China. China continues to be slower, and a big question mark is the Omicron impact in China. If China continues to keep its domestic economy controlled in terms of mobility, that might have some impact on consumption expenditure. So a little bit of uncertainty. But despite that, as I look forward, our pipelines are looking good. Wealth management businesses continue to look strong. The loan pipelines are looking good. And therefore, like I said, our guidance on the top line is still pretty much intact. Of course, the second big part of the outlook is rates. We were given guidance last quarter that we think that we have an upside in the commercial book of $18 to $20 million per basis point. That continues to be the case, and we've been quite sensible in modeling it. We recognize that there's some surplus deposits we have. We assume deposits will flow out. We assume there'll be some repricing in deposits, et cetera. But net-net, the commercial book will benefit quite substantially as rates go up. So that's a positive. Expense growth will definitely be higher than it was last year. Last year we grew 5%. This year we think 6-7% expense growth is possible and that's because we, like everybody else, have had to adjust to wages in the second half of last year so that wage growth of the second half of last year will flow through into the numbers this year. At the end of the last quarter, I'd said we probably still have mildly negative jaws for this year, which is that expense growth might be slightly higher than revenue growth. At this stage, we were looking at about a couple of rate hikes. If we get more than that rate hikes, for example, if we get a quarterly rate hike, 25 basis points through the year, it's quite possible that we might wind up with a flat or neutral jaws. If you wind up getting even more aggressive rate hikes, then, of course, we will be benefited even more. Outside of operating profit, credit outlook continues to be very good. Asset quality is resilient. Sakvi showed you the numbers on SP, GP, etc. for the year. Next day, we expect our total allowances to be at about the same level between the SP and GP, which is somewhere between zero and 100 million bucks for the year. Again, as best as we can see right now, we should be able to do that. SPs might keep up a bit, though we have no line of sight to any deterioration in our portfolio right now. But we do have the belief that the portfolio will continue to improve, and therefore we might be able to continue to release on general provisions to take care of that eventuality if that happens. I did want to make this point on franchise expansion. Again, Sakshi spoke a little bit about it, but I do believe that we did extremely well over the last couple of years to judiciously grow our franchise in meaningful and significant ways. So first, as you know, we've done three inorganic transactions over this period between the Lakshmi Vilas one, the Shenzhen Rural Commercial Bank, and now Citibank Taiwan. Our projections suggest that by 2024, when all of these are completed, Taiwan will get completed in the middle of 2023, these three transactions should add somewhere between $1.2 to $1.3 billion to our top line and close to half a billion dollars to our bottom line. So they're going to be quite material in terms of accelerating our growth trajectory as we go forward. Second, we really did extremely well to capture customer wallet share and grow the flow volumes in the last two years. And some of these numbers are actually quite dramatic. Our payment and collections business, for example, the volumes are up between 200 and 400% between 2019 and 2021. In value terms, we've grown our payment and collections from $50 billion to now $175 billion. that's almost a four fold increase. And that underlies a large part of our fee growth as well as our balances growth. So that's very strong. Similarly, you take digital effects. The total volumes of our digital effects have grown from about 20 billion to 40 billion in this period of time, 100% growth. And the transaction throughput is even stronger. So we believe that over this period of time, our digital capabilities have shown up in terms of the significant increase in volumes and share that we've been able to get. And we think this is sticky. So this should continue to help us as we go forward. And finally, we've tried to diversify the franchise by several new initiatives that we launched over this period of time. We believe that in this year, 2022, these initiatives should give us circa 80 to 100 million dollars of incremental income. The investment banking activity Security Joint Venture, that'll give us 40, 50 million bucks, hopefully. We've already had a good start. Funds businesses, the two or three that we did, some of the digital exchange, et cetera, should give us another 40, 50 million. And therefore, we believe that the capacity to have improved our franchise over this period of time has actually been quite important and will come through quite nicely in the years to come. A quick comment on the disruption we had in November. As you know, I pointed out our customers have the right to expect more from us. The disruption was 38, 39 hours. That's unacceptable. And even though the bank was functioning, people would have come to the bank, you could have got on the phone. The reality is people are used to the convenience of banking digitally. And if you can't get digital access, then that's certainly unacceptable. We've confirmed the problem was due to a malfunctioning access control server. Now, the way our topology is, we have four of these access control servers. There's redundancy built into it. There's active replication built into it. Nevertheless, one of those servers malfunctioned. We've had two sets of reviews done already from the experts at this, and they've not been able to replicate the problem of why that server actually malfunctioned. Nevertheless, we've learned a lot from the reviews, and it's principally around our incidents management and our recovery process. It took us some time to figure out what the problem was and some time to fix it, and frankly, we could have done a lot better in terms of the speed to recovery. We have another independent review going on right now that's doing an overarching view to confirm and validate our system architecture, our fault tolerance of our system makeup, overall protocols and processes. So I'm sure we'll learn from that and continue to improve and make sure our recovery processes in particular are a lot more robust than they were. So we take this seriously. As you know, I came back and we apologize to our customers. You're right to expect more from us. But hopefully we can put this behind us and be able to get back to a more robust set of performances as we go forward. Finally, we've taken the opportunity, as Sokhi pointed out, to leverage both our very strong capital ratios and our extraordinarily strong performance for the year and do that by reflecting it in an improvement in our dividend. We're growing our dividend 9%. Actually, truth be told, we think we have the capital and our profitability in the power would have allowed us to do even better because of the operation discharge imposed on us. We've had to moderate that dividend growth down and we will keep an eye on capital adequacy till such time. as the operational research gets lifted at some stage in the future. But nevertheless, we were strong enough and we not only were able to improve dividend, we were also able to contribute back to community. We've added another $100 million to our foundation and charitable activities. One of the things the pandemic has shown is that we all need to be conscious of our commitments, not just on the environment front, but also on the social front. And so hopefully this top up in our commitment to the foundation will allow us to do more for society and for community at large. Why don't I stop there and we are happy to take some questions.