The Positives
+ NII rises from loan and deposit growth. Despite NIM dipping 2bps YoY to 2.14%, NII rose 5% YoY to S$3.6bn due to loan and deposit growth of 3% and 6% respectively. Commercial book NIM was 2bps higher YoY mainly from fixed-rate asset repricing, but Group NIM dipped slightly due to deployment into lower yielding high-quality assets which are accretive to earnings but diluted NIM slightly. Management said that loan growth was broad-based but was seen more in Singapore and India, offset by Hong Kong loans shifting to mainland China.
+ WM leads fee income growth. Wealth management fees (+37% YoY) led fee income growth as there was a continued shift from deposits into investments and bancassurance as well as an expansion in assets under management (AUM). As a result, fee income rose 27% YoY to S$1,048mn. Card fees rose 32% YoY from higher spending, while loan-related fees grew 40% YoY. The consolidation of Citi Taiwan benefitted both WM and card fees. 2Q24 AUM grew 24% YoY to S$396bn while interest earning assets rose 20% YoY to S$447bn.
+ Credit cost and SPs improve YoY. SPs dipped 15% YoY to S$97mn, while new NPAs formation was more than offset by higher upgrades, settlements and recoveries. As a result, credit costs improved by 2bps YoY to 8bps. DBS said that the NPA formation was
idiosyncratic, and it did not see particular stress in any sector. However, 2Q24 total allowances rose to S$148mn (2Q23: S$114mn) as the lower SP was more than offset by higher GP of S$51mn (2Q23: write-back of S$42mn). The NPL ratio was flat at 1.1% (1Q24:
1.1%), while GP reserves grew 5% YoY to S$3.98bn. DBS has ~S$2bn of management overlay, which could be released if SP comes in higher than expected
The Negatives
– Expenses climb up. Higher staff costs due to salary increments and higher bonus accruals, as well as headcount growth including the addition of staff from Citi Taiwan resulted in expenses climbing 12% YoY to S$2,172mn. Notably, Citi Taiwan accounted for 5% points of the YoY increase. Non-staff costs were also higher from higher revenue-related expenses. As a result, the cost-to-income ratio (CIR) rose 2% points YoY to 40%. Nonetheless, this is still within DBS’ guidance of around 40%.
– CASA ratio decline continues. The Current Account Savings Accounts (CASA) ratio fell 6% points YoY to 50%, mainly due to the high-interest rate environment and a continued move towards fixed deposits (FDs). The declining CASA ratio could further increase funding cost and there could be an increased dependence on FDs, which usually comes at a higher interest rate. Nonetheless, total customer deposits grew 6% YoY to S$551bn as the growth in FDs more than offset the decline in CASA deposits.
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Glenn covers the Banking and Finance sector. He has had 3 years of experience as a Credit Analyst in a Bank, where he prepared credit proposals by conducting consistent critical analysis on the business, market, country and financial information. Glenn graduated with a Bachelor of Business Management from the University of Queensland with a double major in International Business and Human Resources.
