DBS cost-to-income ratio to ease to 43% in 2019

It rose 1.9 ppts in 2018 due to weak trading income and ANZ integration.

The cost-to-income ratio (CIR) of DBS is expected to moderate to 43% in 2019 from 46.3% in the previous year as the bank reaps savings from the heightened IT spending it has embarked in the past nine years, according to RHB Research.

The bank has long been absorbing higher costs related to IT spending which is tipped to double to a compound annual growth rate (CAGR) of 6% from 2010 to 2020, data from Maybank Kim Eng show. Compared to outsourcing around 85% of its IT needs in 2009, DBS now runs a majority of its IT infrastructure with 85% of its technology insourced in 2017.

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In 2018, the bank’s CIR rose by 1.9 ppts as lower trading income and ANZ integration took its toll. The trend of higher costs is only set to extend into 2019 as the bank expands its network in India.

“Higher costs surprised us and this pressure is likely to remain from regional expansion and integration efforts,” Thilan Wickramasinghe, analyst at Maybank Kim Eng said in a report. “Investments in automation may mitigate some of the pressure, but this needs to be closely watched.”

Overall, however, intensified IT spending will soften the blow from higher costs, as the bank could expect its core net profit to rise 4% in FY19/20. “We believe the digitisation initiatives will contribute to lower CIR not only in 2019 but also beyond,” Leng Seng Choon, analyst at RHB said.