Higher allowances offset stronger operating performance.
According to a release, DBS Group reported net profit of SGD 4.24 billion (US$ 3b) for 2016, 2% below a year ago as a stronger operating performance was offset by higher allowances. Total income rose 6% to a record SGD 11.5 billion from higher loan volumes, improved net interest margin and broad-based non-interest income growth.
Productivity gains from digitalisation and cost management initiatives contained expense growth to 1%. As a result, profit before allowances increased 10% to a new high of SGD 6.52 billion.
The strong operating performance provided headroom for higher specific allowances to be taken as the non-performing loan rate rose from 0.9% to 1.4% due largely to stresses in the oil and gas support services sector. Capital and liquidity continued to be strong and well above regulatory requirements.
Return on equity was 10.1%. The strong operating performance that DBS achieved in challenging conditions during the year underscored the resilience of a franchise built on multiple business lines and financial discipline.
On 10 February 2017, DBS announced that it had sold its equity interest in DBS China Square Limited, whose main asset is PWC Building in Singapore. The divestment gains of SGD 350 million, which will be recorded in the first quarter 2017 results, will be set aside as general allowances, raising general allowance reserves to SGD 3.52 billion and allowance coverage to 104%.
Broad-based growth underpins 6% increase in full-year total income growth
Net interest income rose 3% to SGD 7.31 billion. Net interest margin increased three basis points to 1.80% from Singapore-dollar loans. Overall loans rose 6% or SGD 18 billion to SGD 302 billion. Non-trade loans increased 8% or SGD 21 billion from regional corporate loan growth and market share gains in Singapore housing loans, partially offset by a 5% or SGD 2 billion decline in trade loans.
Non-interest income increased 13% to SGD 4.18 billion. Net fee income rose 9% to SGD 2.33 billion from broad-based growth. Wealth management fees climbed 19% to a new high of SGD 714 million from stronger bancassurance income. Cards fees grew 11% to SGD 483 million from higher credit and debit card transactions in Singapore. Investment banking fees increased 15% to SGD 189 million from higher advisory and equity underwriting fees. Higher fees from cash management resulted in a 5% increase in transaction services fees to SGD 585 million.
Other non-interest income rose 19% to SGD 1.85 billion from higher trading income and gains on investment securities. Income from treasury customer sales was little changed at SGD 1.19 billion as higher wealth management treasury sales were offset by a decline in corporate treasury sales of RMB hedging products.
By business unit, Consumer Banking / Wealth Management income rose 21% to SGD 4.28 billion. The growth was broad-based across loans, deposits, bancassurance and cards. Wealth Management customer segment income increased 19% to SGD 1.68 billion with assets under management growing 14% during the year to SGD 166 billion. Institutional Banking income was stable at SGD 5.22 billion. Growth in cash management and capital market activities was offset by declines in China-related trade finance and treasury sales of RMB hedging products. Treasury segment income was also stable at SGD 1.13 billion.
Past investments to digitalise the bank together with cost management initiatives yielded faster productivity gains during the year. These concerted efforts enabled expenses to be contained at SGD 4.97 billion, little changed from the previous year. Underlying headcount fell 1% as the productivity gains enabled higher business volumes to be supported by fewer resources. The positive jaw resulted in an improvement in the cost-income ratio from 45% to 43% and contributed to a 10% increase in profit before allowances to SGD 6.52 billion.
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