Singapore's DBS Group Holdings Ltd. expects to maintain its strong profit performance in 2024 despite interest rate challenges.
The bank, Southeast Asia's largest by assets, said its 2023 net profit rose 26% to S$10.29 billion from S$8.19 billion in 2022, beating S&P Capital IQ's consensus GAAP net income estimate of S$10.18 billion, with 14 analysts reporting. Its fourth-quarter 2023 pretax net profit was S$2.70 billion, slightly lower than S$2.71 billion a year ago.
DBS CEO Piyush Gupta said the economic environment improved more than he expected three months ago, and the bank should sustain its underlying profits around S$10 billion in 2024. "We think we should be able to sustain that, notwithstanding some headwinds on interest rates," Gupta said during the Feb. 7 earnings call.
Gupta cited the International Monetary Fund and the Organisation for Economic Co-operation and Development raising their global growth forecasts for 2024, reflecting upgrades for China, the US and other large emerging markets.
DBS also expects its net interest income in 2024 to benefit from the full-year impact of acquiring Citigroup's consumer banking business in Taiwan in 2022.
But analysts think DBS' earnings growth has peaked as net interest margin (NIM) and loan growth have limited upside.
"DBS full-year earnings were marginally ahead of expectations. With peaking NIMs and limited loan growth, we think earnings growth has peaked," said Thilan Wickramasinghe, head of research for Singapore at Maybank Securities. "At the same time, focus markets such as India as well as the group’s exposure to North Asia should drive medium-term growth."
Stepped-up capital returns
DBS announced a 1-for-10 bonus issue, with bonus shares qualifying for dividends from the first quarter. The move reflects the bank's strong capital position, according to a press release.
Gupta said there is sufficient excess capital for growth and the "capacity to do [M&A] without constraining growth." While the bank is not actively seeking M&A deals, it remains open to possibilities, Gupta noted.
DBS also said it increased accountability for digital disruptions, reducing variable compensation for the CEO and management team. Gupta's bonus was cut by 30%, which amounted to S$4.14 million, while the management team took a cut of 21%.
The Monetary Authority of Singapore on Nov. 1, 2023, imposed a six-month pause on nonessential IT changes and prohibited new business ventures and reductions in the bank's branch and ATM networks due to repeated disruptions in 2023.
Gupta said he and his team are taking responsibility for the disruptions. "You can establish accountability and figure you know that people take responsibility for making fixes."
The bank allocated S$80 million to implement a technology uplift and resilience road map to prevent future disruptions.
