DBS sees annual profit exceeding $10 billion in medium term
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DBS’s first-quarter net income of $2.57 billion beat analysts’ estimates, powered by lending income.
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SINGAPORE - DBS Group Holdings expects to achieve earnings of more than $10 billion in the medium term, driven by its strong balance sheet and an ongoing digital transformation.
Return on equity is expected to be in the range of 15 per cent to 17 per cent, South-east Asia’s biggest lender said in an investor day presentation on Monday, referring to a timeframe of three to five years.
Its profit goal would be more than a 20 per cent increase from 2022’s performance, and close to that of Japan’s largest lender, Mitsubishi UFJ Financial Group.
To achieve its goals, the Singapore lender is seeking faster growth in capital-light, high-return businesses such as wealth management, global transaction services and Treasury market sales.
Led by chief executive Piyush Gupta, DBS also sees room for higher distributions to shareholders through dividends or share buybacks.
The stock was little changed on Monday, in line with the Bloomberg Asia-Pacific Banks Index.
DBS shares have lost more than 7 per cent in 2023, compared with a nearly 4 per cent gain in the index.
The lender has poured billions of dollars into investing in technology, including digitalisation of banking services which has lowered costs for client acquisitions and boosted efficiency.
Yearly net income has risen at a compounded average rate of 9 per cent since 2015, after Mr Gupta embarked on transforming the bank via technology that includes cloud and data.
But a series of digital banking disruptions over the past few years, which saw customers lose access to banking services via its mobile apps and website, have hit the bank’s reputation.
The city state’s financial regulator called the glitches this year “unacceptable” and raised the bank’s capital requirements for the second time in over a year, with DBS’ required capital rising by $1.6 billion in total.
The two incidents in 2023 happened in a matter of weeks, though the most recent one earlier in May was resolved within an hour. In 2021, the bank suffered one of its worst digital disruptions in the past decade.
It takes time to build technology capabilities, DBS said in its presentation, highlighting firms such as Alphabet’s Google and Amazon.com that have been undertaking this for about 20 years. DBS’ transformation via technology, on the other hand, was kick-started nine years ago.
“Rome was not built in a day,” Mr Jimmy Ng, who heads the bank’s technology and operations, said in the presentation, titled DBS Digital Transformation 2.0. He compared the digital journey to turning boulders into pebbles.
Going forward, DBS said it sees “high potential opportunities” in its growth markets of India, Indonesia and Taiwan. The bank is targeting areas such as transaction banking, wealth management and lending to small businesses, as well as unsecured retail lending, in those places.
In India, where DBS bought Lakshmi Vilas Bank in 2020, the firm aims to be among the top 10 private sector banks alongside IDBI Bank and Kotak Mahindra Bank. Its net profit in the country is projected to grow three times by 2026 to around $375 million. BLOOMBERG
