| Under difficult conditions, DBS
achieved an increase in operating profit of 13.0 percent over 1997,
including the impact of newly-consolidated assets from the acquisition
of POSBank in Singapore and Thai Danu Bank (TDB) in Thailand. At S$996.4
million, provisions were significantly higher than last year, as we
added S$827.0 million to
specific provisions for non-
performing loans (NPLs) and S$157.8
million in
special general provisions for regional exposures. The result was a 49.0
percent decline in Group attributable profit to S$222.7 million.
Excluding the impact of POSBank and TDB, the decline would have been 7.6 percent.
At year end, Group NPLs amounted to S$7.1
billion, or 8.2 percent of DBS Groupās total loans globally. We
continue to monitor and manage asset quality intensively and have put in
place tighter standards and more rigorous mechanisms for dealing with
troubled credits. Cumulative provisions amounted to S$3.1 billion as we
addressed head-on the deteriorating asset quality of TDB, our newly-acquired subsidiary, following an extensive review of its exposures with
our external auditors. The Groupās accounts reflect cumulative
specific provisions of Bt25 billion against TDBās NPLs as Singapore
provisioning standards require us to provide in full the related
specific provisions once a loan becomes non-performing. With these
provisions, which as a percentage of NPLs are higher than the Thai bank
average, the full extent of the NPL position as at 31 December 1998 has
been recognised in DBSā financial statements. Efforts are under way to
recapitalise TDB to prepare for what we believe is a new banking
environment in Thailand, in which we seek to be active participants.
|
DBS continues to maintain a
strong financial position with a Group capital adequacy ratio of 15.6
percent, calculated under BIS standards. Our track record, financial
strength and the skills, experience and enthusiasm of our staff,
together with the conservative approach to bank supervision which has
always been a hallmark of the Authorities in Singapore,
position DBS as one of the strongest financial
institutions in Asia today.
Our overriding confidence in the
region encourages us to invest in locations, people and technology at
this time to bring DBS closer to customers in the future. We are
confident that DBS, and the region, will grow at high levels once the
recession ends. Windows of opportunity open and close rapidly and
this requires a dynamic rather than static approach to positioning the
Bank for the next century ö anticipating rather than reacting to opportunities
to operate more efficiently, selectively making
acquisitions and forming strategic alliances with
experienced practitioners.
Despite economic conditions, our
overriding confidence in the region encourages us to invest in
locations, people and technology that will bring DBS closer to
customers. We believe DBS, along with the region, will grow at high
levels once the recession ends.
In Singapore, we acquired the assets of POSBank in
November 1998. The addition of POSBank to our local franchise makes DBS
the largest retail bank in Singapore with more than 4.4 million
customers, the largest ATM network and the premier position in the
Singapore dollar deposit and home mortgage markets. The acquisition
presents significant growth opportunities for DBS banking services and
products.
We have provided a one-time
restructuring charge of S$60 million for POSBank. The annual cost saving
from the acquisition is estimated at S$30 million per year.
In the region, we increased our
stake in TDB to 50.3 percent. In retrospect, the timing was early in an
evolving crisis, but it is not always possible to time an acquisition at
the low point and, in any case, we take a long-term view in making
acquisitions. We also acquired the Bank of Southeast Asia in the
Philippines and prior to the end of the year agreed to take a 65 percent
stake in Kwong On Bank in Hong Kong. Each of these moves provides DBS
with a stronger platform from which to launch banking operations in the
region.
Critical to the success of these
initiatives is our ability to integrate an acquisition into the DBS
system: creating a seamless, unified, customer-focused regional
organisation is central to our strategy of delivering affordable,
value-added products and services to a growing customer base. We are
pleased to report that significant progress is being made in the
integration of our enlarged presence across Asia.
Towards the end of 1998, we also
established a strategic alliance to market a wide range of managed
investment products with The
Frank Russell Company, a 60-year old investment house with a worldwide
reputation for outstanding investment performance and customer service
that manages over US$1.3 trillion worldwide.
In Singapore, the Government
moved ahead with financial sector initiatives designed to strengthen the
nationās position as a leading global financial centre. DBS is
preparing for an era of more intensive competition as the market
liberalises. We have already begun to exploit new opportunities in
capital markets. For example, last year, we introduced the first
exchangeable bond, the first asset securitisation as well as distributed
the first covered warrant issue to retail investors.
Organisational
Effectiveness
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