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Fundamental View
AS OF 22 Aug 2024DBS Group’s Aa2/NR/AA- ratings reflect the group’s sound standalone fundamentals, as well as the strengths that come from its AAA-rated home country. Support may be stronger than peers thanks to its longstanding relationship with the government and Temasek’s ~29% stake.
DBS is a major player in Asian corporate banking, and also has strengths in mass market and private banking. It is also one of Asia’s leading digital banks. Acquisitions have been skillfully handled in the past decade or so.
DBS has performed well in recent years, with a high RoE, and its asset quality has been more resilient than that at UOB and OCBC.
Business Description
AS OF 22 Aug 2024- DBS was established in 1968 as a development bank but was subsequently privatised and is now commercially run. The Singapore government retains an indirect stake through its investment vehicle, Temasek (~29%).
- In 1998, DBS moved beyond its wholesale bank origins with the acquisition of POSB that brought along a large mass market customer and deposit base. In 2001, it acquired the former Dao Heng Bank in Hong Kong and in 2008, it acquired a part of the failed Bowa Bank in Taiwan, to supplement its Greater China operations. It also regularly acquired wealth management businesses, such as SocGen's Asian private banking business in 2014 and ANZ's Asian retail and wealth management businesses in Singapore, Hong Kong, China, Taiwan and Indonesia in 2018. Recent acquisitions include Lakshmi Vilas Bank in India, a 16.69% stake in China's Shenzhen Rural Commercial Bank, and Citi's consumer business in Taiwan.
- As of 1H24, Singapore accounted for 44% of its loan book, with HK (15%), Rest of Greater China (14%), South & Southeast Asia (8%) and Rest of the World (18%) accounting for the rest.
- The bank is well regarded as a digital leader in the banking space, and has steadily built capabilities in private banking and markets businesses.
Risk & Catalysts
AS OF 22 Aug 2024Loan growth has been a recent challenge, partly due to Greater China corporate clients refinancing in the much cheaper CNY market, and PB clients lowering their leverage in a high-interest rate environment.
Asset quality has outperformed the other two Singapore majors. Management does not see asset quality risk across any particular segment and lowered its specific provisions guidance by 5-7 bp.
The MAS on 30 April 2024 removed its restriction on non-essential activities by DBS, which had been put in place in Nov-23 following IT failures, as it judged that the group made substantive progress in addressing its IT shortcomings. Its 0.8x operational risk overlay remains though till further notice, and its retail payments system had another outage on 2 May 2024.
FY24 total income guidance has been lifted marginally since 1Q24, with fee income growth now expected in the mid-high teens.
Key Metric
AS OF 22 Aug 2024| SGD mn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| PPP ROA | 1.37% | 1.14% | 1.32% | 1.60% | 1.76% |
| ROA | 0.8% | 1.0% | 1.1% | 1.4% | 1.5% |
| ROE | 9.1% | 12.5% | 15.0% | 18.0% | 18.8% |
| Equity/Assets | 8.40% | 8.38% | 7.65% | 8.40% | 8.26% |
| CET1 Ratio | 13.9% | 14.4% | 14.6% | 14.6% | 14.8% |
| NPL Ratio | 1.60% | 1.27% | 1.13% | 1.11% | 1.10% |
| Provisions / Loans | 0.83% | 0.01% | 0.06% | 0.14% | 0.13% |
| Liquidity Coverage Ratio | 139% | 135% | 146% | 144% | 148% |
| Net Stable Funding Ratio | 125% | 123% | 117% | 118% | 116% |
CreditSight View Comment
AS OF 11 Nov 2024DBS has performed well for several years under CEO Piyush Gupta who will be succeeded by Ms. Tan Su Shan from Mar-25. Its balance sheet remains strong, it has comfortable capital and well managed liquidity. Temasek is the main shareholder. DBS has grown its various businesses sensibly and has been a leading bank for adopting digital technology, recent technology outages notwithstanding. It has also steadily grown its fee income and its regional businesses. WM and transaction banking have been focuses, with bolt-on acquisitions/stakes in private banking and Asian retail banking, more recently in India (Lakshmi Vilas Bank), China (SZRCB) and Taiwan (Citi consumer business). Digital banking failures in 2023 led to increased operational risk overlays. Its 9M24 performance was strong.
Recommendation Reviewed: November 11, 2024
Recommendation Changed: June 03, 2016
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