DBS is seeing encouraging signs on overall asset quality in 2021 as moratoriums gradually taper off, with extensions on debt holidays contained and delinquencies kept low.

 

At a media briefing on Wednesday, DBS chief Piyush Gupta projected for total allowances over 2020-2021 to come in at the middle of the S$3-5 billion range as loans under moratorium have come down significantly from their respective peaks. 

 

&ldquo If you look at the totality of our corporate loan book, we&rsquo re not seeing a lot of more weakness in our corporate names. There&rsquo s a good chance that allowances will come in at the lower end of the S$3-5 billion range, certainly S$4 billion or south of that, I think it&rsquo s quite possible,&rdquo he told reporters. 

 

&ldquo Our guesses are that we&rsquo re not going to need as much credit provision as originally anticipated. I&rsquo m certainly feeling more optimistic about the overall quality of the portfolio and asset conditions now than I was able to tell you three months or six months ago,&rdquo he added. 

 

OCBC Investment Research on Wednesday raised its fair value on DBS to S$29.50, reflecting a firmer recovery outlook ahead, with its " buy" call intact. " Double-digit fee income growth (is) expected, while the bulk of NIM pressure looks largely played out." The brokerage' s fair value on DBS as at Nov 5, 2020 was S$24.50. 

 

Eugene Tarzimanov, vice-president, senior credit officer at Moody&rsquo s Investors Service, said: &ldquo DBS wrapped up a turbulent 2020 with a very strong balance sheet, supported by good asset quality, high capital and excess liquidity. We expect credit costs to decrease in 2021 as DBS has already completed the bulk of provisioning, with asset risks receding and economic conditions improving.&rdquo

 

Singapore&rsquo s largest lender kicked off the banks&rsquo fourth-quarter results season on Wednesday, reporting a net profit of S$1.01 billion for the fourth quarter ended Dec 31, 2020, down 33 per cent from a year ago due to lower net interest margin (NIM) and higher allowances.

 

A final dividend payout of S$0.18 per share will be paid around May 24 to which a scrip dividend scheme will be applied, compared with S$0.33 a year ago. This is in line with the regulator&rsquo s guidance to cap dividends in 2020. It remains unclear if the cap will be lifted this year, said Mr Gupta.

 

DBS&rsquo s annualised earnings per share stood at S$1.54 for the quarter, down from S$2.31 a year ago. 

 

Total allowances in Q4 came in almost five times higher than the year-ago period at S$577 million. 

 

For the full year ended Dec 31, 2020, total allowances stood at S$3.07 billion, of which over 50 per cent, or S$1.71 billion, were parked under general provisions. Taking the bank&rsquo s 2020-2021 guidance into consideration, this implies about S$1 billion of total allowances in 2021. 

 

As the bulk of moratoriums expire in end-2020, the majority, or 90 per cent, of DBS&rsquo s housing loans under moratorium were not extended. 

 

About 25 per cent of the bank&rsquo s Singapore small and medium-sized enterprise (SME) loan book is under extended moratorium, through which they still have to start making partial payments. 

 

Moratorium extension numbers are highest in the bank&rsquo s Hong Kong loan book. At its peak, loans under moratorium stood at around S$6.5 billion. About half are currently under extension, said Mr Gupta. 

 

&ldquo A chunk of that is from large corporates and large corporates are generally okay. I think they&rsquo ve taken a moratorium only because it gives them cheaper money,&rdquo he said. 

 

Overall, he noted that extended moratorium schemes are being contained, while delinquencies arising from customers who started repaying their loans are also low. 

 

That said, he flagged that some delinquency in the consumer space is still shrouded by government relief measures. The bank will get a more definitive sense of moratorium impact when extended helplines expire by mid-2021.

 

DBS&rsquo s non-performing loan ratio in 2020 was stable at 1.6 per cent, even after adding S$212 million of new net non-performing assets from its Lakshmi Vilas Bank deal in India last November. 

 

Despite improved macro conditions, there were no plans to write back provisions in Q4. Its total allowance coverage stands at 110 per cent.

 

Mr Gupta said: &ldquo If you look at some of the banks, especially US banks, they chose to take the improved conditions in the fourth quarter to start writing bank reserves. We opted not to do that, our view is that we can use the fourth quarter to continue to fortify our balance sheet so that any potential vulnerabilities for 2021 are proactively dealt with in 2020.&rdquo  

 

From a topline standpoint, the bank&rsquo s &ldquo biggest challenge&rdquo is its Hong Kong market. This comes as the market still relies heavily on cross-border traffic flows with China, which has not been reopened, said Mr Gupta. DBS&rsquo s full-year net profit in Hong Kong was down about 34 per cent year on year. 

 

The group&rsquo s net interest income in the fourth quarter declined 13 per cent to S$2.12 billion as NIM came in at 1.49 per cent, down 37 basis points from a year ago but only four basis points lower than Q3 as interest rates stabilised.

 

DBS guided for 2021 NIMs to remain in the range of 1.45 to 1.5 per cent, offsetting a guided mid-single digit loan growth.

 

Net fee income was S$747 million or 1 per cent higher than a year ago, with higher wealth management fees offset by lower contributions from other activities.

 

The bank noted that even as card spending from travel remained subdued, cards fees for the fourth quarter fell 12 per cent, moderating from the year-on-year declines of 21 per cent and 34 per cent in Q3 and Q2 respectively.

 

Other non-interest income rose 35 per cent from a year ago as a result of higher trading income, though this was 35 per cent lower compared to the previous quarter due to seasonal factors. Expenses for the quarter were a marginal 1 per cent drop from a year ago at S$1.58 billion compared to S$1.6 billion previously.

 

Over the quarter, DBS recorded amalgamation expenses of S$33 million and general allowances of S$87 million for Lakshmi Vilas Bank (LVB), which was amalgamated on Nov 27, 2020 with provisional goodwill of S$153 million.

 

The bank&rsquo s Q4 results brings its net profit for H2 and the full year to S$2.31 billion and S$4.72 billion respectively, both representing a 26 per cent decline from a year ago.

 

Over the year, NIM declined 27 basis points to 1.62 per cent. 

LVB amalgamated with DBS Bank India to accelerate group' s digital banking push in South India: DBS chief

 

DBS' recent takeover of India' s Lakshmi Vilas Bank (LVB) is expected to turn a profit in the next 12 to 24 months, now that asset quality concerns have been accounted for in the fourth quarter of 2020.

 

The cash-starved LVB was amalgamated with DBS Bank India last November to accelerate the group' s digital banking push in South India, said DBS chief Piyush Gupta at a media briefing on Wednesday.

 

The bank took an " aggressive view" on LVB' s asset quality, with 76 per cent coverage of gross non-performing loan assets (NPAs), said Citi analyst Robert Kong in a note.

 

This means net NPA transferred to DBS after the merger stood at just S$212 million, fully secured, with general provisions conservatively built up to 9.5 per cent of performing loans or S$183 million.

 

The LVB deal added two million retail and 125,000 corporate customers to scale up DBS India' s deposit base. Notably, about 23 per cent of its customer base pre-merger were retail customers. This has been bumped up to nearly 50 per cent.

 

Overall, total deposits grew 59 per cent to S$9 billion as the franchise also expanded to 600 branches and 1,000 ATMs in India.

 

" That' s a very good customer base to be able to take and build on. It allows us to overlay what we' ve build digitally with LVB' s customer base," said Mr Gupta.

 

" I' m confident that the expansion of our digital strategy to LVB will allow us to take our digital capability and grow it faster than we' ve been able to so far. We' re fairly confident that this will be profitable within 12 to 24 months and ROE-accretive well within our normal time frame of two to three years," he further said.

 

Notably, LVB is a dominant South Indian bank. About 88 per cent of its branches and ATM networks are located in the South.

 

" That' s good news because South Indian states have higher GDP per capita (relative to the national average). By and large, they are better managed and have large amounts of corporate activities... large corporate businesses in this space," said Mr Gupta.

 

Against this backdrop, DBS is looking to grow retail presence through CASA (current account and savings account) scale-up in selected urban clusters and cross-sell personal loans to LVB' s customer base.

 

It will also extend its DBS Treasures programme to LVB' s affluent segment, and leverage LVB' s pan-Indian presence in top 20 urban centres to scale up asset-backed lending to small and medium-sized enterprises.

 

The bank aims to capture the niche non-resident Indian segment by leveraging its Singapore and global South Indian diaspora network.

 

Before the LVB deal, DBS India saw total income up 40 per cent to a record S$376 million and pre-tax profit quadrupling to S$89 million in 2020.

 

The International Monetary Fund has projected for India' s growth rate to come in at 11.5 per cent in 2021, which would make it the fastest-growing economy in the world. This reflects a strong rebound in its economy, which is estimated to have contracted by 8 per cent in 2020.

 

" We' re seeing a high degree of vibrancy. In conversations with some of our large corporate clients, people are beginning to invest back in productive capacity," said Mr Gupta.

 

Over Q4 2020, DBS recorded amalgamation expenses of S$33 million and general allowances of S$87 million for LVB, with provisional goodwill of S$153 million. There was minimal impact of 0.3 percentage points to group CET1 ratio.

 

In the larger scheme of things, the deal with LVB is still a small-scale takeover at this point. LVB assets make up less than one per cent of DBS' group assets, while India makes up one per cent of group loan and profit.

DBS is seeing encouraging signs on overall asset quality in 2021 as moratoriums gradually taper off, with extensions on debt holidays contained and delinquencies kept low.

 

At a media briefing on Wednesday, DBS chief Piyush Gupta projected for total allowances over 2020-2021 to come in at the middle of the S$3-5 billion range as loans under moratorium have come down significantly from their respective peaks.

 

" If you look at the totality of our corporate loan book, we' re not seeing a lot of more weakness in our corporate names. There' s a good chance that allowances will come in at the lower end of the S$3-5 billion range, certainly S$4 billion or south of that, I think it' s quite possible," he told reporters. " Our guesses are that we' re not going to need as much credit provision as originally anticipated. I' m certainly feeling more optimistic about the overall quality of the portfolio and asset conditions now than I was able to tell you three months or six months ago," he added.

 

OCBC Investment Research on Wednesday raised its fair value on DBS to S$29.50, reflecting a firmer recovery outlook ahead, with its " buy" call intact. " Double-digit fee income growth (is) expected, while the bulk of NIM pressure looks largely played out." The brokerage' s fair value on DBS as at Nov 5, 2020, was S$24.50.

 

Eugene Tarzimanov, vice-president, senior credit officer at Moody' s Investors Service, said: " DBS wrapped up a turbulent 2020 with a very strong balance sheet, supported by good asset quality, high capital and excess liquidity."

 

" We expect credit costs to decrease in 2021 as DBS has already completed the bulk of provisioning, with asset risks receding and economic conditions improving," he added.

 

Singapore' s largest lender kicked off the banks' fourth-quarter results season on Wednesday, reporting a net profit of S$1.01 billion for the fourth quarter ended Dec 31, 2020, down 33 per cent from a year ago due to lower net interest margin (NIM) and higher allowances.

 

A final dividend payout of S$0.18 per share will be paid around May 24, to which a scrip dividend scheme will be applied, compared with S$0.33 a year ago. This is in line with the regulator' s guidance to cap dividends in 2020. It remains unclear if the cap will be lifted this year, said Mr Gupta.

 

DBS' annualised earnings per share stood at S$1.54 for the quarter, down from S$2.31 a year ago.

 

Total allowances in Q4 came in almost five times higher than the year-ago period at S$577 million.

 

For the full year ended Dec 31, 2020, total allowances stood at S$3.07 billion, of which over 50 per cent, or S$1.71 billion, were parked under general provisions. Taking the bank' s 2020-2021 guidance into consideration, this implies about S$1 billion of total allowances in 2021.

 

As the bulk of moratoriums expire in end-2020, the majority, or 90 per cent, of DBS' housing loans under moratorium were not extended.

 

About 25 per cent of the bank' s Singapore small and medium-sized enterprise (SME) loan book is under extended moratorium, through which they still have to start making partial payments.

 

Moratorium extension numbers are highest in the bank' s Hong Kong loan book. At its peak, loans under moratorium stood at around S$6.5 billion. About half are currently under extension, said Mr Gupta.

 

" A chunk of that is from large corporates, and large corporates are generally okay. I think they' ve taken a moratorium only because it gives them cheaper money," he said.

 

Overall, he noted that extended moratorium schemes are being contained, while delinquencies arising from customers who have started repaying their loans are also low.

 

That said, he flagged that some delinquency in the consumer space is still shrouded by government relief measures. The bank will get a more definitive sense of moratorium impact when extended helplines expire by mid-2021.

 

DBS' non-performing loan ratio in 2020 was stable at 1.6 per cent, even after adding S$212 million of new net non-performing assets from its Lakshmi Vilas Bank deal in India last November.

 

Despite improved macro conditions, there were no plans to write back provisions in Q4. Its total allowance coverage stands at 110 per cent.

 

Mr Gupta said: " If you look at some of the banks, especially US banks, they chose to take the improved conditions in the fourth quarter to start writing bank reserves. We opted not to do that, our view is that we can use the fourth quarter to continue to fortify our balance sheet so that any potential vulnerabilities for 2021 are proactively dealt with in 2020."

 

From a topline standpoint, the bank' s " biggest challenge" is its Hong Kong market. This comes as the market still relies heavily on cross-border traffic flows with China, which has not been reopened, said Mr Gupta. DBS' full-year net profit in Hong Kong was down about 34 per cent year on year.

 

The group' s net interest income in the fourth quarter declined 13 per cent to S$2.12 billion as NIM came in at 1.49 per cent, down 37 basis points from a year ago but only four basis points lower than Q3 as interest rates stabilised.

 

DBS guided for 2021 NIMs to remain in the range of 1.45 to 1.5 per cent, offsetting a guided mid-single digit loan growth.

 

Net fee income was S$747 million or 1 per cent higher than a year ago, with higher wealth management fees offset by lower contributions from other activities. Even as card spending from travel remained subdued, cards fees in Q4 fell 12 per cent, moderating from the year-on-year declines of 21 per cent and 34 per cent in Q3 and Q2 respectively.

 

Other non-interest income rose 35 per cent from a year ago as a result of higher trading income, though this was 35 per cent lower compared to the previous quarter due to seasonal factors.

 

The lender' s Q4 results brings its net profit for H2 and the full year to S$2.31 billion and S$4.72 billion respectively, both representing a 26 per cent decline from a year ago. Over the year, NIM declined 27 basis points to 1.62 per cent.