DBSH Group Net Profit Up 7.5%
To S$ 704.0 Million
As Group Provisions Decline
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Announces Successful Sale Of 77%, Or Baht 30.6 Billion Of
DBS Thai Danu Bank's NPLs
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Absence of Last Year's S$117 Million On Sale of
Singapore Petroleum Company, Higher Operating Expenses
Result In Lower Operating Profit
SINGAPORE, [27 July 2000] - - SINGAPORE, JULY 27 - DBS Group Holdings Ltd (DBSH) today reported a 7.5% rise in net profit to S$704.0 million for the first six months of 2000, compared with the S$655.0 million for the same period a year ago.
Driving the increase was a significant 80.9% drop in DBSH Group loan loss provisions for the first six months. DBSH reported provisions of S$64.3 million for the first six months, down S$271.5 million from the S$335.8 million in mid-1999.
Operating profit for the period declined by 10.9% as a result of higher operating expenses and the absence of the S$117.1 million exceptional gain on the sale of shares in Singapore Petroleum Company (SPC) reported for the first half of 1999.
Operating expenses increased 30.3% to S$594.0 million, primarily due to higher staff costs resulting from alignment of staff remuneration to market, higher technology-related expenses, and professional fees related to the Group's development of a leading-edge technology infrastructure and integration of operations in Thailand and Hong Kong.
Excluding the exceptional gain from the sale of SPC shares, operating profit was marginally higher by S$7.2 million or 0.8%.
DBSH officials noted that despite the increase in operating expenses for the period, the Group's cost-to-income ratio, at 39.9%, still remained lower than the average of most world-class financial services firms.
For the period, fee and commission income registered a significant 41.1% jump to S$260.4 million, primarily from higher fund management fees (S$24.2 million), trade and loan-related fees (S$20.2 million) and investment banking income (S$11.8 million). Net interest income increased 5.8% to S$1,046.4 million. On the half-year, dividend income increased by 61.2% to S$26.2 million.
DBSH Group's half-year figures were released simultaneously with DBS Thai Danu Bank (DTDB) 's announcement of an agreement to sell 77%, or Baht 30.6 billion, of its non-performing loans (NPLs) portfolio to National Finance Public Company Limited, a local Thai finance house, and Global Thai Property Fund, an affiliate of Lehman Brothers, a U.S. investment bank. On a pro forma basis, the sale brings DTDB's NPLs down from 41.5% to 14.1% of total loans based on Bank of Thailand benchmark reporting on a customer basis.
DTDB is the only bank in Thailand to have largely cleared its balance sheet of historical NPLs, and DBSH officials said they were hopeful that the DTDB NPL issue was now behind them. On July 18, DTDB reported an operating profit of Baht 7.0 million for the first six months of 2000, the first sign of recovery since the start of the Asian economic downturn in 1997.
The DTDB NPL sale has the pro forma effect of reducing Group NPLs from 12.7% to 10.6% of total loans at 30 June 2000. The NPL sale in Thailand reduces current Group NPL provisions to S$3.0 billion, a decline of 25.2% from the S$4.0 billion reported at 30 June 2000.
Comparing year on year, Group customer loans declined by 9.2%, and deposits by 3.3%. The decline in customer loans was mainly attributable to more stringent credit standards as well as the Group's strategy of shedding lower yielding assets from its balance sheet through the securitisation of loans and other means. The decline in deposits was in line with industry trends where funds move from generic deposit products to more sophisticated forms of investment products such as unit trusts, bonds etc. In this connection, the Group attracted S$840.0 million in funds under management from the first twelve-month success of the DBS "Horizon" and DBS "ei8ht" consumer investment management programs.
During the six-month period, DBSH sold a 24.9% holding in DBS Land for S$966.0 million (or S$2.98 per share). In 1999, DBSH Group adopted equity accounting for investments in associated companies. As a result, DBSH Group recorded a marginal S$2.6 million gain for the first six months of 2000.
Return on equity improved to 13.13% compared to 11.80% in the first six months of 1999. Return on total assets also registered an increase to 1.31% from 1.13%.
The Group's total capital adequacy ratio remains strong at 20.1% with 15.5% in the form of Tier I. Tier II capital (4.6%) increased by US$500 million with the successful issuance of 10-year Subordinated Debt in the international capital markets during April. The total capital adequacy ratio is more than twice the minimum BIS' requirement.
In releasing its results today, DBSH Board of Directors said it will recommend to shareholders an increase in interim preferential and ordinary dividends to 14% (gross), from 9% (gross) for the first six months of 1999.
CEO John T. Olds said the half-year results reflected an organisation fully engaged in transforming itself, as well as a changing economy.
"Overall, the first six months of 2000 have been good. Asian economies are recovering and this augurs well for DBS. Earlier this year, we took a big step towards ensuring that staff compensation is at competitive levels. And we are in the midst of major change as we work to integrate the systems and processes of our operations throughout the region.
"The impact on our operating performance, however, reflect investment as much as they do on spending. Investments in people, technology and processes are targeted at continuing the transformation of DBS into the world-class regional bank.
"We are, as planned, making major outlays in technology to bring our operations in the region together on common platforms. We also continue to invest significantly in internet-related activities, including Internet banking and a new on-line brokerage effort at DBS Securities. We are in the midst of rationalising the branch banking network in Singapore, replacing a large part of it with e-business capabilities.
"These are all signs of a company in transformation, while the very nature of our business is changing. The shift from bricks-and-mortar to clicks-and-mortar is arguably more apparent in financial services than in any other industry. And there is a sense of renewal from the challenge.
"We are now serving more than 140,000 customers through DBS' internet banking, and the site is among the most heavily used for transactions in Singapore and ranked as one of the best in Asia.
"During the summer, we will formally introduce a new on-line share trading service that has so far been very well received by customers participating in its "soft" launch.
"We are reconfiguring our physical branch network, and putting into place incentives and facilities which will allow customers to do much more of their banking electronically.
"Integration is gaining momentum, with a number of systems already in place regionally and other processes and new product capabilities expected to come on-stream over the next several months.
"The progress is encouraging, though much remains to be done and the investments are only starting to pay off.
"The sale of a large portion of NPLs at DTDB, which was announced today, while costly, is a major step forward. We will continue to focus on DBS' financial position positioning the bank for the future. We expect further improvement as loan demand recovers with stronger controls now established," Olds said.
Full details regarding DBSH interim results 2000 can be found at 2000 Interim Performance Supplement.
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