3 Big Charts From DBS Group’s Latest Earnings Report

November 4, 2022

All the news in stock markets has been focused on the US Federal Reserve (Fed) and rising interest rates.

While a lot of stocks have suffered from the higher interest rate environment, one sector which benefits is banks.

That’s been particularly true of Singapore’s big banks, which have been reporting their earnings over the past week or so.

Earlier this week, it was the turn of Singapore’s biggest bank – DBS Group Holdings Ltd (SGX: D05) – to report its Q3 2022 and 9M 2022 numbers.

Unsurprisingly, it was another solid quarter for DBS as the bank continued to illustrate why Singapore bank stocks are so popular with investors.

So, here are three key charts that highlight to investors should take note of from DBS Group’s latest results.

1. NII and NIM surge


Source: DBS Group’s Q3 2022 and 9M 2022 earnings slides

One common theme among all the big Singapore banks’ earnings has been a rise in net interest income (NII) and, subsequently, a higher net interest margin (NIM).

In reporting its Q3 numbers, DBS highlighted how that positive trend continues unabated. During the quarter, DBS recorded NII of S$3.0 billion and saw its NIM soar by 32 basis points (bps) quarter-on-quarter to 1.90%.

Investors should remember that these numbers came before the latest interest rate hike by the Fed of 75 bps, which was announced at the beginning of November.

Given DBS has the biggest current and savings account (CASA) deposit base in Singapore, the bank should continue to see an uplift in both NII and NIM in the quarters to come.

In fact, CEO Piyush Gupta expects NIM to reach around 2.25% by the middle of 2023, assuming a Fed Funds rate that peaks at 4.75%.

2. Cost-income ratio falls to 40%

DBS cost income ratio Q3 2022

Source: DBS Group’s Q3 2022 and 9M 2022 earnings slides

For banks, one metric that isn’t commonly-watched by investors is the cost-income ratio. But it should be.

That’s because if a bank can control costs, then an improvement in earnings and income will naturally. Investors only have to look so far as HSBC Holdings plc (SEHK: 5) to see how costs can weigh down a bank’s profitability.

Thankfully for DBS shareholders, the bank has seen its cost-income ratio fall in the latest quarter to 40%, down 4 bps from Q2 2022.

As for the outlook, Mr Gupta commented that the bank is looking at achieving a cost-income ratio below 40%.

He also stated that the bank would be looking at a projected Return on Equity (RoE) that would be comfortably above 15%.

3. Fee income stabilises but watch recession risk

DBS fee income Q3 2022

Source: DBS Group’s Q3 2022 and 9M 2022 earnings slides

As for fee income, DBS saw a stabilisation during the quarter (although it was still down on a year-on-year basis).

Wealth management saw lower income but this was partially offset by higher income from credit cards – which was growing on the back of the resumption in travel.

As for the 2023 outlook, Mr Gupta projected that there would be double-digit fee income growth. That growth would be led by wealth management and cards.

However, it’s important for investors to remember that the risk of a US recession, and potential slowdown in Asia, is also rising.

That could negatively impact the bank’s business via slower loan growth and an uptick in non-performing loans (NPLs).

On the flip side, there is some upside potential from any possible reopening in China given DBS’s strong North Asian presence.

Solid quarter for Singapore’s leading bank

Overall, it was another solid quarter for Singapore’s largest bank as it turned in an impressive set of results, particularly on the NII and NIM fronts.

Investors will also be encouraged by the bank’s disciplined approach to costs amid an uncertain macroeconomic environment.

For dividend investors, the bank maintained its 36 Singapore cents dividend per share payout. At its current price, DBS shares are yielding 4.2%.


Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of DBS Group Holdings Ltd.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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