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DBS Group Holdings 1Q 2025 Results and Outlook · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome to the Deep Dive. We know you're busy, but you want those key financial
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  insights fast. Absolutely.
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  No wading through dense reports. Exactly.
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  Today, we're diving straight into DBS Group Holdings' first quarter 2025 results.
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  We've gone through the official CEO and CFO presentations, the trading updates.
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  Think of this as your essential briefing. Right.
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  Our mission, not just the numbers, but the why behind them, what drove DBS's
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  performance, and crucially, what does it suggest for the rest of the year?
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  Let's get into it. So the big picture for Q1 2025.
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  Pretty strong, actually. Strong how? Well, they hit record total income SGD
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  $5.91 billion, and profit before tax was also a record SGD $3.44 billion.
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  Okay, record income, record pre-tax profit, and return on equity.
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  Also looking very healthy, came in at 17.3%. Solid numbers. But I noticed the
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  net profit, the bottom line, was actually slightly down compared to last year. Ah, yes. Good point.
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  While pre-tax profit was up, the net profit landed at SGD 2.90 billion,
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  which is 2% lower year on year. Why the difference?
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  The main factor there was the new 15% global minimum tax.
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  That's really started to bite into the final net profit figure for companies
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  like DBS. Right. That new tax landscape. Exactly.
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  But it's worth noting, compared to the previous quarter, Q4 2024.
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  Net profit was actually up a solid 10%. So there's definitely momentum quarter on quarter.
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  Okay, so underlying momentum seems decent despite the tax hit.
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  What were the main engines firing up this performance then?
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  It's pretty broad-based, you know, but a key driver was net interest income NII.
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  That's the money they make from lending, basically. And that was up.
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  Group NII was up year on year, yeah. primarily because they managed to grow
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  both their loan volumes and their deposit volumes quite significantly.
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  Interesting. Especially with interest rates moving around, how did their margins
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  hold up? The net interest margin or NI?
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  Good question. So the NIM for their commercial book did dip slightly.
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  It was down nine basis points compared to the last quarter, landing at 2.68%.
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  Nine basis points. Remind us.
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  Oh, right. Just one hundredth of a percent. So a small squeeze on the margin,
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  likely due to, well, low prevailing interest rates. Okay.
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  And this is the key part. The sheer growth in the amount they were lending and
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  the deposits they took in more than made up for that slightly thinner margin.
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  Ah, volume over margin in a sense. Exactly.
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  Which meant their commercial book NII still grew 2% year on year. Makes sense.
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  What else contributed to that reckoned top line? Fee income was another really big story.
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  Hit record levels. Driven by what specifically? Two main things.
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  Really strong momentum in their wealth management business, and also a big jump
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  in loan-related fees. Both areas hit new highs.
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  Can you give us a sense of the scale? Sure. Wealth management fees,
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  they jumped 35% compared to Q1 last year, and 39% just from the previous quarter.
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  That's SGD $724 million.
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  Wow. Yeah, and loan-related fees. Up 23% year-on-year, and a massive 79% quarter-on-quarter,
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  hitting a record SGD $227 million.
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  Really shows where the activity was. That wealth management growth is particularly impressive.
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  Seems like that strategy is really clicking. It certainly looks that way.
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  And we also saw strong performance from their markets trading income. How strong?
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  Highest in 12 quarters, actually. Yeah. It was up 48% year on year and more
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  than doubled quarter on quarter to SGD, $363 million. What drove that?
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  Market volatility. Yeah. Market volatility definitely played a part,
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  creating more trading opportunities.
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  And they also benefited from lower funding costs. Plus, one more thing.
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  Treasury customer sales also hit a record, up 11% year on year.
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  So a lot of positive drivers stacking up, but it wasn't all smooth sailing,
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  right? We mentioned the tax.
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  Any other headwinds? Well, yes. Beyond the global minimum tax,
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  we already touched on that slight dip in the commercial book NIM. Right.
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  And importantly, DBS also made a conscious decision to beef up their general allowance reserves.
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  They set aside an extra SGD $205 million. Why now?
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  It's basically a prudent move. They cited, you know, heightened macroeconomic
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  risk and market volatility globally.
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  So while it does reduce the pre-tax profit number for the quarter.
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  It strengthens their buffer for potential future issues.
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  Exactly. Seen as responsible management. There was also a small dip year on
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  year in their commercial books, Other Non-Interest Income.
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  But they put that down to some non-recurring items from last year.
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  OK, so it sounds like they're balancing strong performance with a healthy dose
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  of caution given the global backdrop. up, how is the actual quality of their
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  loans looking? Pretty resilient, actually.
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  The non-performing loan ratio, NPL ratio, held steady at a low 1.1%. That seems quite good.
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  It is. And specific allowances money set aside for loans already looking shaky
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  were also low, just 10 basis points of the total loan book. Any improvement there?
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  Yeah, actually, the total amount of non-performing assets went down by 3% compared
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  to the previous quarter. How interesting. Why was that?
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  Fewer new loans turning bad and more existing problem loans getting upgraded, essentially.
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  So as a result, their allowance coverage ratio improved. It's now 137 percent.
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  Meaning they have reserves covering 137 percent of their bad loans? Precisely.
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  And if you include the collateral they hold against those loans,
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  the coverage jumps to 230%. So they look well-cushioned. Good position to be in.
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  And what about their overall capital strengths and shareholder returns?
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  Capital looks very strong.
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  Their key measure, the CET1 ratio, is at 17.4% on a transitional basis and 15.2% fully phased in.
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  Well above requirements. Liquidity, too. Yep. Liquidity coverage ratio at 145%,
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  net stable funding ratio at 115%. Both very healthy. And for the shareholders.
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  Dividends. Yes, they declared a total dividend of $0.75 per share for Q1.
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  That breaks down into a $0.60 ordinary dividend and a special $0.15 capital
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  return dividend. When do investors need to know about dates?
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  The shares go ex-dividend on May 16th, and the payment should be around May
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  27th. Good news for investors then.
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  Okay, let's shift focus to the outlook. What's the view from DBS management
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  now looking ahead? Well, the CEO called it a strong start, but he immediately flagged concerns.
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  Specifically about heightened macroeconomic risks and market volatility. Driven by.
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  Primarily the recent flare-ups in global trade tensions. They mentioned seeing
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  a bit of a pause in client activity amid tariff uncertainty.
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  So clients are getting nervous.
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  Seems like it. And they also talked about this ongoing reconfiguration of trade,
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  payment, and tech links as global supply chains and relationships shift.
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  So those wider geopolitical issues are casting a shadow. Definitely.
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  DBS themselves acknowledge that these tariffs and the general uncertainty are
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  clouding the outlook. What kind of risks are they seeing?
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  Potential trade disruption, maybe a slowdown in global growth.
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  Continued uncertainty about where interest rates are heading,
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  and just generally weaker market sentiment.
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  Sounds like a cautious note. It is. Although they did add that their actual
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  business momentum felt resilient through April, despite these worries.
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  Okay, so a mix of strong current business but rising external risks.
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  Do they have any specific forecasts for the rest of 2025?
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  They do have some guidance. For net interest income for the full year,
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  they expect to be slightly above 2024 levels. Even with potential rate cuts? Yes.
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  Their base case seems to assume three U.S. rate cuts.
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  They figure that while this would likely lower their overall group NIM,
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  continued balance sheet growth, more loans, more deposits should offset that.
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  Okay. What about non-interest income?
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  For the commercial book, they're forecasting growth in the mid to high single digits.
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  And costs. The cost-to-income ratio is expected to land in the low 40% range.
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  That's a bit higher than the 37% they managed in Q1. And provisions for bad loans.
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  They expect specific provisions to sort of normalize maybe around 17 to 20 basis
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  points for the rest of the year.
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  And they pointed to those general reserves they built up as a buffer. Right.
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  So putting it all together, what's the outlook for the bottom line,
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  the net profit for the full year? Here's the key takeaway.
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  Largely because of that global minimum tax, they currently expect net profit
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  for the full year 2025 to come in below 2024 levels.
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  Ah, OK. So even with decent underlying performance, that tax impact is significant
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  for the final number. It really is.
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  But, you know, DBS emphasized they plan to remain nimble, grab opportunities,
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  but manage risks prudently.
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  They see their strong capital and liquidity as key advantages in this uncertain environment. Got it.
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  So wrapping up, DBS had a record first quarter in terms of income and pre-tax profit.
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  Really strong underlying growth, especially wealth management and fee income.
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  But the outlook is definitely more cautious.
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  Global economic uncertainty, trade tensions are real headwinds,
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  and that global minimum tax is clearly going to weigh on the net profit result
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  for the full year. That sums it up well.
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  Hopefully this deep dive gives you, our listener, a clear picture of DBS's financial
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  health and the challenges and indeed opportunities ahead.
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  And here's something to chew on. DBS mentioned that client activity paused amid tariff uncertainty.
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  Thinking about their business mix across Asia, what specific sectors or types
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  of client behavior do you think might be most affected if these trade tensions persist or worsen?
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  It really brings home how global politics flows right through to bank earnings.
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  Thanks for joining us for this deep dive.
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  Music.