DBS Bank net profit plunged 29%

Is this the beginning of the end for Singapore banks? The circuit-breaker implemented by Singapore government had caused the economy to come to a grinding halt. On 30 April 2020, DBS Bank announced business update for 1st quarter (SGX had scrapped mandatory quarterly reporting). Being the leading light of SGX, the financial performance of DBS Bank is often scrutinized. This is especially so in current climate as investors are looking for clues on the impact of COVID-19 pandemic on the banking sector.

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Initial assessment of the financial performance of DBS Bank is that the results are not as grim as many investors had feared. Total income grew 13% from a year ago to a new high of $4.03 billion but net profit had collapsed 29% to $1.17 billion. The lower profit was due to increased allowances of $0.7 billion to cater for risks due to the pandemic.

DBS Bank

Of course, it is still early days to claim that DBS Bank is out of the woods but the financial performance was resilient in light of the unprecedented damage to the economy. It was quite surprising that Net interest margin (NIM) was stable from the previous quarter at 1.86%. As US Federal Reserve had slashed interest to near zero rates in March, I was expecting DBS Bank’s NIM to drop but it didn’t. The reason given by the bank was that the current NIM does not reflect the recent interest rate cut. The effect would only be felt in 2Q.

Interestingly, net interest income increased 7% from last year to $2.48 billion. Loans grew 1% to $369 billion. Balance sheet also remained very strong with CET-1 ratio of 13.9% which was above regulatory requirements. The leverage ratio of 6.9% was more than twice the regulatory minimum of 3%. It appears that while COVID-19 pandemic has taken some shine off the financial performance, it is not doom-and-gloom for DBS Bank. At least not yet.

DBS Bank has identified eight industries affected by the COVID-19 tsunami – Oil and gas, Aviation, Hotels, Gaming/cruise ships, Tourism, Retail, Food and beverage and Shipping. In this article, I will share my review the short-term outlook for DBS Bank share price.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in DBS Bank share before. Whether DBS Bank share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

DBS Bank maintains dividend

Despite the drop in net profit, DBS Bank declared a quarterly dividend of $0.33, unchanged from the previous quarter. Investors should heave a sigh of relief as many of them must be fearing if there would be dividend cut due to the fallout from the pandemic. While that day has not arrived, the prospect is very real if the situation does not improve. Going forward, such business momentum may not be sustainable as job losses mount and Singapore economy sinks deeper into recession. So, investors should savour the moment as much as possible.

Indeed, the decline in net profit had thrashed the Return of Equity (ROE) from 14% in 1QFY2019 to 9.2% in current quarter. The ROE would have sunk further if not for the aggressive share buybacks conducted for the past two months. As of May 2020, a whopping 25.555 million of DBS Bank shares had been repurchased. This is the highest share repurchases made by the bank in recent years.

In the business update, DBS Bank also provided some important [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: May 3, 2020 — 1:32 pm

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