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DBS Delivers A Record Q3 2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome back. Today, we're tearing open the DBS Group Holdings 3Q and 9M 2025 financial results.
• 0:15
  And we don't just want the big numbers. We really want to get into the strategic
• 0:18
  decisions that drove them.
• 0:20
  Especially how they managed to thrive when interest rates were actually falling.
• 0:24
  So our mission is to give you the shortcut to the why behind their performance
• 0:29
  and maybe most importantly, what that outlook for 2026 really looks like.
• 0:34
  And that's the crucial context, right? We're looking at a period where,
• 0:37
  frankly, persistent interest rate pressures, lower SORA and high bar,
• 0:41
  they really should have squeezed margins.
• 0:43
  They should have. But the bank's performance was just defined by resilience.
• 0:47
  So our focus has to be on how proactive management, things like hedging and
• 0:52
  discipline, balance sheet growth, how that shaped these outcomes.
• 0:54
  We're here to give you the full picture, the financial health,
• 0:58
  the story behind the records and that critical 2026 roadmap.
• 1:01
  OK, let's jump straight into the third quarter headlines then,
• 1:04
  because I mean, on the surface, they were genuinely exceptional. Oh, absolutely.
• 1:08
  Record breaking. We're talking a pre-tax profit of $3.48 billion.
• 1:12
  That's up 1% year on year. And total income also hit a new high,
• 1:17
  $5.93 billion, up 3%. And the big performance metric, the one everyone looks
• 1:22
  at, return on equity, ROE.
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  It stood at a fantastic 17.1% with return on tangible equity at 18.9%.
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  By any measure, these are just powerhouse figures. They are.
• 1:33
  They really are. But we have to immediately address what I think is the most
• 1:37
  insightful nugget of the whole quarter. And that's the caveat around the bottom line.
• 1:41
  So while pre-tax profit was a record, the 3Q net profit actually declined 2%
• 1:46
  year-on-year, landing at $2.95 billion.
• 1:49
  Ah, okay. So here's where it gets really interesting. You have a record pre-tax
• 1:53
  profit, which suggests the core engine was running hotter than ever,
• 1:56
  but then the net profit slips.
• 1:58
  Why the disconnect? This is so critical. The source material is absolutely clear
• 2:02
  on this. The decline was attributed entirely to the impact of the global minimum tax. OK, a tax issue.
• 2:07
  Exactly. It's so important for you to know that this wasn't some operational
• 2:11
  slip or credit cost blow up.
• 2:13
  It was a non-recurring tax adjustment that kind of masked the true.
• 2:19
  Underlying operational strength. So they earned the money. They absolutely earned
• 2:22
  the money. The taxman just took a larger, very specific chunk of it this quarter.
• 2:26
  That provides excellent context. So it's a structural thing,
• 2:30
  an external thing, not a sign of operational weakness.
• 2:32
  So just to give us the broader scope then, what did the first nine months of the year confirm?
• 2:38
  The nine-month results, they just confirmed that sustained high-level momentum.
• 2:43
  Total income for the 9-amp period was up 5% to a new high of $17.6 billion.
• 2:48
  Wow. And the 9M pre-tax profit rose 3% to a record $10.3 billion.
• 2:54
  So growth curve is still steep. And shareholder returns. Strong.
• 2:59
  The bank declared a total dividend of $0.75 per share for the third quarter.
• 3:03
  That's made up of a $0.60 ordinary dividend and an extra $0.15 in a capital return dividend.
• 3:08
  All right. Now for the strategic deep dive. The real question is,
• 3:11
  how did they manage to keep that total income line rising when When the environment
• 3:15
  falling SORA and Hibo rates was working against their traditional lending business,
• 3:20
  let's unpack the net interest income, the NII, and their mitigation strategies.
• 3:25
  What's fascinating here is just the sheer effectiveness of what they did.
• 3:29
  Their strategies turned what should have been a headwind into,
• 3:32
  well, a flat quarter. Which is a win in that environment. A huge win.
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  The group NII was reported as little changed year on year in 3Q,
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  a significant achievement. And this resilience came from two strategic pillars.
• 3:45
  The first was aggressive, high-quality funding.
• 3:49
  Deposits grew 9% over the nine-month period. And crucially, this was led by strong CASA inflows.
• 3:55
  Okay, wait, let's just pause on that jargon for a second. Of course.
• 3:57
  What exactly are CASA inflows and why are they so important? Great question.
• 4:01
  So CASA stands for Current Account and Savings Account.
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  For a bank, these are basically the cheapest forms of funding you can get.
• 4:07
  Right. Low-cost, sticky money.
• 4:10
  Exactly. Sticky is the word. getting those massive low-cost deposits,
• 4:14
  it just massively counters the effects of lower market rates.
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  If the cost of your input, the deposit, stays low, you can much better absorb
• 4:24
  the reduction in your output, which is your lending margins.
• 4:27
  That makes perfect sense. So low-cost funding buys them breathing room.
• 4:30
  Right. What was the second strategic pillar? Proactive balance sheet hedging.
• 4:34
  And there's a specific fact from the sources that shows the brilliance of this.
• 4:38
  Okay. Fixed-rate assets make up around a third of their commercial book. A third?
• 4:43
  That's a lot. It is. What it means is that when short-term variable rates like
• 4:47
  SORA dropped, only about two-thirds of their lending book immediately felt the pain.
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  That large fixed-rate chunk provided some serious insulation,
• 4:56
  contributing directly to that NII resilience.
• 4:59
  That's nimble management, for sure. But I have a question.
• 5:02
  When they deployed their surplus deposits into high-quality liquid assets,
• 5:05
  HQLA, doesn't that sort of signal a degree of caution? Are they maybe suggesting
• 5:11
  they see a lack of good lending opportunities, or are they just nervous about the broader economy?
• 5:15
  That's a really important critical point. And yes, they did deploy surplus deposits into HQLA.
• 5:20
  And while the sheer volume of those liquid assets did modestly reduce the overall
• 5:25
  net interest margin percentage, it fell to 1.96%. Right.
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  The move was described as accretive to both NII and ROE.
• 5:34
  So in plain English. In plain English, they traded a slight dip in the percentage
• 5:37
  profit for a high-quality, safe deployment that actually increased the absolute
• 5:42
  dollar amount of interest income and boosted their return metric. Got it.
• 5:46
  It's less about nervousness and more about optimized capital efficiency.
• 5:49
  They're prioritizing safe, growing dollar returns over chasing risky margin percentage points.
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  So if NII was effectively neutralized, the real growth story has to be in the
• 6:00
  non-interest income, the fee-based services. It absolutely was the growth powerhouse.
• 6:04
  The commercial book net fee income grew an impressive 22% year-on-year in 3Q.
• 6:09
  22%. To a record $1.36 billion.
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  And the primary engine behind this was wealth management.
• 6:16
  Those fees surged 31% to $796 million, with their assets under management hitting new highs.
• 6:23
  It just speaks to them capturing that structural growth in regional wealth flows.
• 6:28
  And it wasn't just a one-trick pony.
• 6:29
  The growth was highly diversified. It suggests they captured the early stages
• 6:33
  of a capital market revival.
• 6:35
  Precisely. We saw several other really robust growth pockets.
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  Loan-related fees grew 25% because of increased deal activity,
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  which tells you corporate clients are more willing to start projects.
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  And investment banking. Investment banking fees were particularly strong,
• 6:50
  jumping 65%. That's driven by increased debt and equity capital market activity.
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  So they're capturing huge fees from corporations going to market.
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  Even markets trading income rose 33% year on year, mainly from equity derivatives.
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  When interest income stabilizes, diversified fee income just carries the whole weight of growth.
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  That strong, profitable performance, it naturally leads us to the foundations
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  of the bank. With all this activity, how resilient were the bank's asset quality
• 7:16
  and its capital buffers?
• 7:17
  The foundation remained rock solid, which is just crucial for confidence.
• 7:22
  Asset quality was very resilient. The non-performing loan ratio,
• 7:26
  the MPL ratio, held stable at just 1.0%. That's low. Very low.
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  And the fact that non-performing asset formation within their big corporate
• 7:34
  lending portfolio, the institutional banking group, was at a multi-year low,
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  it suggests very little systemic stress out there.
• 7:42
  Despite all the global uncertainty. And provisions.
• 7:45
  Specific allowances were manageable at just 15 basis points for the quarter,
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  and allowance coverage is robust at 139%.
• 7:53
  It soars to 229% when you factor in collateral.
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  They're well covered. And their capital ratios seem equally impressive,
• 8:01
  giving them plenty of regulatory headroom. They're excellent.
• 8:03
  Capital remained healthy. The transitional CET1 ratio was at 16.9%,
• 8:08
  and the fully phased-in one, which is what regulators really care about for
• 8:12
  future stability, was at 15.1%.
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  And that's important because... Because it gives them ample headroom to manage
• 8:17
  risk and deploy capital, maybe for future growth or more share returns.
• 8:20
  Their leverage ratio stood at 6.2%, which is more than double the regulatory
• 8:24
  minimum. Quick note on expenses.
• 8:27
  The cost-income ratio remains stable, but did expenses actually rise?
• 8:31
  They did, yeah. Expenses rose 6% year on year.
• 8:34
  This is primarily due to higher staff costs linked to bonus accruals,
• 8:38
  which, you know, reflects the stronger performance we just talked about.
• 8:41
  But the key is the ratio. The key is the ratio.
• 8:44
  The cost-income ratio remains stable at 40% for 3Q, and that means that the
• 8:49
  growth in income comfortably kept pace with the necessary operational spending.
• 8:53
  So we've established the successful strategy of 2025.
• 8:56
  Now for the most important part for you, the listener.
• 9:00
  What does all this mean for the future? Let's pivot to the outlook and how they plan to navigate 2026.
• 9:05
  What are the big structural trends the bank is focused on capturing?
• 9:09
  They identified several massive macro and structural shifts.
• 9:12
  They see continued shifts in global trade and investment flows alongside the
• 9:17
  increasing internationalization of the RMB. Right.
• 9:20
  And on the technology front, they're highlighting accelerated tech adoption,
• 9:24
  specifically Gen.AI and Genic.AI and a rapidly growing interest in tokenization
• 9:29
  and stablecoins. And they are not just watching those last two trends, are they?
• 9:32
  They are proactively positioning themselves as a disruptor. Absolutely.
• 9:37
  They highlighted strengthening their digital asset capability by issuing a tokenized
• 9:41
  structured note on a public blockchain and listing a tokenized money market
• 9:45
  fund on their digital exchange, DBEX.
• 9:49
  Interesting. Yeah, complete with potential repo and collateral use cases.
• 9:53
  This is proactively positioning them to capture value in the digital asset space
• 9:58
  far earlier than many competitors.
• 10:00
  No, let's get specific on that 2026 financial outlook because this signals,
• 10:05
  well, an income normalization period after these record highs.
• 10:08
  We are talking about the triple whammy of expected headwinds,
• 10:11
  lower rates, potentially three Fed cuts and a stronger Singapore dollar.
• 10:15
  That's right. They are bracing for a tighter year. Total income is expected
• 10:19
  to be around 2025 levels, so a successful hold, but not growth.
• 10:23
  Group net interest income is projected to be slightly below 2025 levels.
• 10:28
  This projected dip in NII is the direct result of that lower interest rate environment
• 10:33
  and a stronger Singapore dollar, which eats into overseas earnings.
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  So the decline in NII is the biggest headwind they have to compensate for. Right.
• 10:42
  Where do they expect the growth to come from to keep total income steady?
• 10:47
  They are relying heavily on that fee-based business to continue its high-powered run.
• 10:51
  Commercial book non-interest income growth is projected to be in the high single
• 10:56
  digits, specifically mid-teens growth in that critical wealth management sector.
• 11:01
  And costs. They expect the cost-income ratio will settle in the low 40% range,
• 11:05
  reflecting continuous investment alongside that normalizing income.
• 11:09
  So overall, net profit is projected to be slightly below 2025 levels.
• 11:13
  And finally, on credit quality, are they expecting that robust asset quality
• 11:17
  to hold, or do they anticipate higher provisions?
• 11:20
  The projection is cautious, even though they're not currently seeing signs of stress.
• 11:24
  It assumes that specific allowances will normalize up a bit,
• 11:28
  to between 17 and 20 basis point. The built-in buffer.
• 11:31
  It's a built-in buffer for a potential future slowdown.
• 11:34
  However, they also noted the potential for general provision writebacks,
• 11:37
  which could offset some of those costs. The overall strategy remains clear.
• 11:40
  Navigate declining rates with nimble balance sheet management and just aggressively
• 11:45
  capture those structural opportunities, especially in wealth and institutional banking.
• 11:49
  So the synthesized takeaway for you is that the 3Q and 9M results,
• 11:54
  they really demonstrated that strategic asset allocation,
• 11:58
  hedging the balance sheet, optimizing HQLA deployment and just exceptional performance
• 12:03
  in fee-based income successfully counter that interest rate compression.
• 12:07
  That's it. This strategic pivot sets the stage for continued stability and strength,
• 12:12
  even though 2026, you know, presents the challenge of income normalization compared
• 12:16
  to the record highs of 2025.
• 12:18
  Fascinating. And this leads us to our final thought for you to chew on.
• 12:21
  DBS has a tangible head start in digital assets, that tokenized structured note
• 12:26
  and the money market fund.
• 12:28
  Given that they explicitly highlighted the increasing internationalization of
• 12:32
  the RMB as a key macro trend, and they positioned themselves as a dependable
• 12:36
  and neutral bank for capital flows, how might these two trends interact?
• 12:41
  Could the marriage of R&B, internationalization, and their digital asset capabilities
• 12:45
  become a major new revenue stream, solidifying their role as a disruptor in
• 12:49
  cross-border finance, especially if tokenized R&B flows become standard?
• 12:53
  That's something that could fundamentally alter the revenue mix over the years.