completing the regional and wealth management platform july 23, 2001 first half 2001 results...
TRANSCRIPT
Completing the regional and
wealth management platform
July 23, 2001
First Half 2001 Results Briefing
2
Top line earnings impacted by weaker economic conditions and adverse competitive environment
Focus on other non-interest income bolsters results
Expenses peaked amidst repositioning activities
Improved asset quality and strong capital position
Completing the regional and wealth management platform
Completing the regional and wealth management platform
3
Top line earnings impacted by weaker economic conditions and adverse competitive environment
Focus on other non-interest income bolsters results
Expenses peaked amidst repositioning activities
Improved asset quality and strong capital position
Completing the regional and wealth management platform
Completing the regional and wealth management platform
4
Net interest margin 2.07% 1.97% 1.78%
Cost-to-income ratio 39.9% 45.4% 49.0%
Return on assets 1.31% 1.25% 1.08%
Return on equity 13.1% 12.7% 11.4%
Net interest margin 2.07% 1.97% 1.78%
Cost-to-income ratio 39.9% 45.4% 49.0%
Return on assets 1.31% 1.25% 1.08%
Return on equity 13.1% 12.7% 11.4%
Net interest income 1,046 993 962 (8.1) (3.1)
Fees & commissions 260 249 251 (3.7) 0.8
Dividend & rental income 42 73 40 (3.7) (45.2)
Other income 139 129 275 97.6 113.2
Income before
operating expenses 1,488 1,443 1,528 2.7 5.9
Staff costs 281 332 389 38.5 17.2
Other operating expenses 313 320 360 14.9 12.4
Operating expenses 594 652 749 26.1 14.9
Operating profit 894 791 779 (12.9) (1.5)
Specific provisions 81 30 110 36.3 266.7
General provisions (17) (40) (64) 284.5 60.0
Net profit attributable to
shareholders 704 685 629 (10.6) (8.2)
Net interest income 1,046 993 962 (8.1) (3.1)
Fees & commissions 260 249 251 (3.7) 0.8
Dividend & rental income 42 73 40 (3.7) (45.2)
Other income 139 129 275 97.6 113.2
Income before
operating expenses 1,488 1,443 1,528 2.7 5.9
Staff costs 281 332 389 38.5 17.2
Other operating expenses 313 320 360 14.9 12.4
Operating expenses 594 652 749 26.1 14.9
Operating profit 894 791 779 (12.9) (1.5)
Specific provisions 81 30 110 36.3 266.7
General provisions (17) (40) (64) 284.5 60.0
Net profit attributable to
shareholders 704 685 629 (10.6) (8.2)
(S$ million)(S$ million) 1H00 2H00 1H01 1H01 / 1H00(%)
1H01 / 2H00(%)
Net revenue increased by 2.7%, net profit down 10.6%
5
400
800
1200
1.5
2
2.5
(S$ million)
Modest decline in net interest income despite sharp fall in net interest margins
Net interest income
Net interest margin(gross basis)
2.00%2.04%
9891,046 1,046
2.07%
1.97%
993
1H99 2H99 1H00 2H00 1H01
962
1.78%
6
Excess liquidity dampens margins, but strengthens ability to fund lending growth
23.720.2
17.8
8.1
(7.2)
3.2
(10)
(5)
0
5
10
15
20
25
30
63.464.466.173.3
115.9
97.5
0
20
40
60
80
100
120
140
19961996 19971997 19981998 19991999 20002000 1H011H01
(%)(%)
Net Interbank Placement / AssetNet Interbank Placement / Asset
19961996 19971997 19981998 19991999 20002000 1H011H01
(%)(%)
Loan / DepositLoan / Deposit
7
(S$ million) Change in Gross Loans
56,083
54,16656,21958,43861,40459,195
45,404
16,420
0
30000
60000
90000
-3000
0
3000
6000
9000
12000
15000
18000
-10
-5
0
5
10
15
20
25
30
35
10.7%
30.4%
4,373
13,791
3.7%2,209
-4.8%(2,966)
-3.8%(2,219)
-3.7%(2,053) 3.5%
1,917
Jun 98Jun 98 Dec 98Dec 98 Jun 99Jun 99 Dec 99Dec 99 Jun 00 Jun 00 Dec 00Dec 00 Jun 01Jun 01
Dao HengDao Heng
Jun 98Jun 98 Dec 98Dec 98 Jun 99Jun 99 Dec 99Dec 99 Jun 00 Jun 00 Dec 00Dec 00 Jun 01Jun 01
Outstanding Gross Loans
72,503
Loan growth has turned around
8
Top line earnings impacted by weaker economic conditions and adverse competitive environment
Focus on other non-interest income bolsters results
Expenses peaked amidst repositioning activities
Improved asset quality and strong capital position
Completing the regional and wealth management platform
Completing the regional and wealth management platform
9
Strong fee income despite stockbroking liberalisation and weak markets
(S$ million)(S$ million)
Investment banking 42 56 39 (7.1) (30.2)
Stockbroking 47 31 24 (48.9) (22.6)
Trade-related 38 37 40 5.3 7.8
Fund management 37 25 35 (5.4) 40.0
Deposit-related 23 37 43 87.0 15.3
Loan-related 24 27 28 16.7 4.5
Others 49 36 42 (14.3) 16.3
Total fee income 260 249 251 (3.7) 0.8
Fee to income ratio (%) 17.5 17.3 16.4
1998 – 2000Fee Income CAGR: 36.2%
1H00 2H00 1H01 1H01 / 1H00(%)
1H01 / 2H00(%)
10
Other income : FX & securities trading doubled
(S$ million)
Foreign exchange 52 67 112 115.4 67.2
Gains on securities & derivatives trading 55 - 102 85.5 -
Gains on investment securities 8 33 16 100.0 -
Gains on fixed assets 4 5 26 550.0 420.0
Other income 20 24 19 (5.0) (20.8)
Total 139 129 275 97.6 113.2
1H00 2H00 1H01 1H01 / 1H00(%)
1H01 / 2H00(%)
11
Emphasis on non-interest income yields strong returns
Dec 98Dec 98 Dec 99Dec 99 Dec 00Dec 00 Jun 00Jun 00
(%)(%) Non-interest income to Operating Income *Non-interest income to Operating Income *
* Excluding gains on disposal of non-core assets* Excluding gains on disposal of non-core assets
37.1
29.730.428.7
23.8
Jun 01Jun 01
12
(S$ million) Sales Volume
0
100
200
300
400
500
600
700
800
900
314
558
322
2H99 1H00 2H00
Investment products include Horizon, Ei8ht, Up and other DBSAM programs
Investment products
Record growth in wealth management products
1H01
611
Insurance
15
222
180573573 544544
791791
13
(S$ b)
S$ Current accounts 5.6 5.8 6.00.5
S$ Autosave deposits 5.5 5.4 5.70.2
S$ Savings deposits 30.5 31.0 31.10.6
S$ Fixed deposits 14.3 13.2 12.3(2.0)
ACU Fixed deposits 9.4 11.1 12.02.6
DBS Kwong On 5.1 5.7 6.31.2
DBS Thai Danu 3.3 2.9 3.1(0.2)
Others* 6.7 5.6 13.77.0
Sub-total 80.4 80.7 90.39.9
Dao Heng - - 24.624.6
Total 80.4 80.7 114.934.5
Market share of S$ deposits 31.8% 32.3% 32.8%
Dec2000
Jun 2000
Jun2001
YoY Difference
90.3
80.780.424.6
0
50
100
150
Jun 00 Dec 00 Jun 01
Customer Deposits
Deposit base provides platform for cross selling wealth management products
**
* Include a once off short-term deposit of $5.0b * Include a once off short-term deposit of $5.0b
114.9
14
Top line earnings impacted by weaker economic conditions and adverse competitive environment
Focus on other non-interest income bolsters results
Expenses peaked amidst repositioning activities
Improved asset quality and strong capital position
Completing the regional and wealth management platform
Completing the regional and wealth management platform
15
(S$ million)(S$ million)
Staff costs 281 332 389 38.5 17.2
Occupancy expenses 73 75 77 5.5 2.7
Technology-related expenses 63 69 87 38.1 26.1
Professional & consultancy fees 38 35 33 (13.2) (5.7)
Others 139 141 163 17.3 15.6
Total 594 652 749 26.1 14.9
1H00 2H00 1H01 1H01 / 1H00(%)
1H01 / 2H00(%)
Operating costs increased 26% due to timing and non-recurring items
16
594
749+10+13+24+108
(S$ million)
1H2000 1H2001
Co
mp
uterisatio
n
Oth
ersStaff co
sts
Ad
vertising
(+26.1%)
Cost-to-Income Ratio: 39.90% 49.01%
Cost-to-AssetRatio(a): 1.10% 1.30%
Focused investment in people, technology and products
(a) Annualized without Dao Heng Bank
17
Phone Banking
Technology Procurement
Most significant investments completed between January 1, 2000 and June 30, 2001 Consultants now limited to implementation of specific, technical projects
Use of consultants winding down
DBS Securities’ Projects Customer Relationship Mgt Treasury & Mkts System E-Commerce/Payments Risk Mgt System Datawarehouse Call Centre Automation
1998 1999 2000 20011H99 9M00 1H01
Branch ReconfigurationCustomer Service
POSBank, DTDB & DKOBIntegration
Strategy Development Retail Strategy Improving Profitability (DTDB NPL,
Recapitalisation of DTDB, Sale of DBSL shares, acquisition of BPI)
Institutional Banking Group ReorganisationRe-engineering Processing & Services
Process Improvement Procurement
E-banking initiative
Cost & Profitability Mgt SystemMeasurement
18
Cost management
measures initiated to
contain increase to 2000 growth
rate
Improve processes for greater efficiency Improve processes for greater efficiency
Reduce focus on non-performing businesses Reduce focus on non-performing businesses
Defer low revenue yielding projects Defer low revenue yielding projects
Performance enhancement program to optimise efficiency
19
Low cost/income ratio by international standards
6.7
58.4 57.4 56.3 55.353.5
51.0
42.5
Stanchart NAB CBA HSBC Westpac ANZ DBS
(a) Based on Dec 2000 cost/income ratios
1H20011H2001
Cost/Income for International Peers (a)Cost/Income for International Peers (a)(%)(%)
49.249.2
20
Top line earnings impacted by weaker economic conditions and adverse competitive environment
Focus on other non-interest income bolsters results
Expenses peaked amidst repositioning activities
Improved asset quality and strong capital position
Completing the regional and wealth management platform
Completing the regional and wealth management platform
21
2,705 2,8242,425 2,452
1,735 1,610
642772
1,239
1,408 1,365 1,144
624
1,735
2,874
3,018 3,2073,000
1,2381,143
1,249649
770
10701152871
267
151
97366
667
815
Dec 97 Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01
7.6%
12.7%
8.5%
13.0%13.1%
11.8%
2.7%
Dao Heng Bank
DBS Thai Danu Bank
5 Regional CountriesOthers
Singapore
NBk NPL/NBk Loans (%)
(S$ million)
1,112
3,907
7,085
8,121 8,1497,666
4,4114,834
6.2%
Asset quality continues to improve
22
73% of NPLs are graded “Substandard”
3,554
1,369
844
292
450
353
244
193
943
170
8
111
7
125
14
435
5
60
232
63
193
0 1,000 2,000 3,000 4,000 5,000
DTDB
Dao Heng
DKOB
Others
5RC
S'pore 1,610
624
323
4,834
85%
72%
73%
1,143
815
82% Total
9% 18%
17%
(S$’M )
1%
318
Substandard
Doubtful
Loss
23
948
1,463801
946
1,115
1,294
1,191
1,174
1,049
1,180
179
1,237
3,095
2,032
2,8042,558
Dec 97 Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01
146.5%
164.6%
119.6% 102.7%110.6% 118.4% 114.8%
129.9%
54.7%51.8%51.9%52.6%47.4%44.4%48.5%
88.1%
59.9%55.3% 63.0% 60.8% 61.4%
General Provisions (GP)
Specific Provisions (SP)
SP+GP/NPLs (SEC) (%)
SP+GP/Unsec NPLs (%)
SP+GP/NPLS (%)
980
1,894
3,147
3,852
4,2863,978
2,286
(S$ million)
Cumulative provisions covered 146.5% of unsecured NPLs and 54.7% of total NPLs
2,643
24
Further diversification post acquisition of Dao Heng Bank
55%Singapore
9%Others
36% Hong Kong
Total Assets: S$156 bn
DBS + Dao Heng
75%Singapore
12%Others
13% Hong Kong
Total Assets: S$116 bn
DBS
(June 2001)
25
Efficient capital management
(a) Includes goodwill, minority interest and capital required against asset base.
DBS Group Holdings Consolidated Capital Adequacy
(a) (b)
(%)(%)
Dec2000 Dec
2000 HybridTier 1
HybridTier 1
PreferenceShares
PreferenceShares
Tier 2Sub-debt
Tier 2Sub-debt
1H01Net
Income
1H01Net
Income
Adjustmentsfor
Dao Heng/Others
Adjustmentsfor
Dao Heng/Others
Jun2001Jun2001
5.5%
17.5%
12.0%Tier 114.4%
18.9%
0.7%1.7%1.2%
1.5%Tier II4.5%
0
5
10
15
20
25
30
35
6.5%6.5%
26
10.09.2
8.47.7 7.5 7.3 7.2 7.0
6.0
0
4
8
12
DBS will maintain a healthy buffer above the regulatory Tier I requirement of 8%
DBS capital position post Dao Heng
* Source : Annual reports of respective banks* Source : Annual reports of respective banks
DBS
(%)(%)
HSBC
CitiGroup
StanChartBNP
ANZ
WestpacFortis
Dresdner
27
Top line earnings impacted by weaker economic conditions and adverse competitive environment
Focus on other non-interest income bolsters results
Expenses peaked amidst repositioning activities
Improved asset quality and strong capital position
Completing the regional and wealth management platform
Completing the regional and wealth management platform
28
Putting the strategy together – positioning for the future
Optimal Organisation
Business units reorganised
Built seasoned management team
Enhanced training
Redesigned incentive systems
Wholesale Banking: Capital Markets, Advisory, Treasury, FX and Trade Financing
Wholesale Banking: Capital Markets, Advisory, Treasury, FX and Trade Financing
Management
ManagementWealthWealth
Brokerage Services
Brokerage Services BancassuranceBancassurance
Consumer Banking
Consumer Banking
DBS / OUB
Vickers Ballas Frank Russell TD Waterhouse
CGNU
Dao Heng Kwong OnThai Danu
BPI
Aligned internal practices to global standards
Strengthened risk management and credit approval policies
Prudent management of off-balance sheet exposures and liquidity, forex, interest rate and investment risks
Leading IT Capabilities
On-line, real-time systems
Data warehouse application with data mining capabilities (CRM)
E-commerce infrastructure
E-payment gateway
Comprehensive, complementary channel mix
Reconfigured branches
Integrated on-line services
Usage of sophisticated capital instruments
Maximise non-dilutive capital
Sale of non-core assets
Scale / Scope Regionalisation /
diversification Growth / market
share Pricing flexibility
Policies, Processes and SystemsPolicies, Processes and Systems
Balanced Channel MixBalanced Channel Mix
Efficient Capital StructureEfficient Capital Structure
Infrastructure building and reorganisation substantially completed
Focused areas
29
InfrastrucInfrastructureture
Infrastructure
Geography
ProductsSignificant
infrastructure
investment to create
world class back office
and STP initiatives
Vickers Ballas
TD Waterhouse
Frank Russell
CGNU
Dao Heng / Kwong On
OUB
Strategic roadmap
30
Establish critical mass, presence and scale in twin pillars (Singapore, Hong Kong)
Selectively strengthen presence in certain markets(e.g. Thailand, Malaysia after OUB)
Monitor increased Greater China presence post WTO liberalization
No plans for Australia, North Asia (Korea and Japan), but carefully watching opportunities
InfrInfrastrastructuctureure
Infrastructure
Geography
Products
Strategic roadmap: Geography
31
As of first close on July 20, DBS’ effective ownership in Dao Heng Bank is 71%
98% of Dao Heng shareholders have tendered their shares
Dao Heng Bank governance and management in place
Harmonization objectives and implementation plan defined
Harmonization infrastructure up and running
Key milestones defined with good progress to date
Dao Heng Bank became a DBS subsidiary on June 29, 2001
Dao Heng harmonization ahead of schedule
(a) Assumes 100% of outstanding options exercised(a) Assumes 100% of outstanding options exercised
32
Leverage infrastructure across business units
Create Regional Processing Centres for appropriate processes
Centralize remaining branch back-office processes
Pursue selected out-sourcing, in-sourcing and co-sourcing
Focus on quality (ISO certification of process factories, 6 sigma initiative)
Continue trend of significant unit cost reductions and increase of straight-through processing rates
InfrInfrastrastructuctureure
Infrastructure
Geography
Products
Strategic roadmap: Infrastructure
33
Retail brokerage – Vickers Ballas, TD Waterhouse
Wealth management – leverage distribution for best-in-breed products, capitalize on MPF / CPF deregulation and excess liquidity
Bancassurance – provide insurance related savings products. Life and general insurance partnership with CGNU
Unsecured consumer lending
Credit cards
SME lending
Treasury / FX
Trade finance
Corporate finance
Leveraged finance
Asset Asset AccumulationAccumulation
Enterprise Enterprise and and
Consumer Consumer LendingLending
InfrInfrastrastructuctureure
Infrastructure
Geography
Products
Corporate & Corporate & Investment Investment
BankingBanking
Strategic roadmap: Products
34
Bancassurance alliance accelerates wealth management business
Sale of 100% of ICS to CGNU 10-year exclusive bancassurance
strategic alliance for life and general insurance
Total proceeds to DBS of S$446 million of which: S$395 million as payment for
ICS and the bancassurance alliance
S$51 million special dividend from ICS
DBS to receive additional payments of up to S$20 million on meeting performance targets
DBS will record a net initial gain of S$139 million
Transaction Highlights
Accelerates revenue growth in DBS’ wealth management business
Expands DBS’ sales channels with the establishment of a specialist sales force dedicated to insurance, wealth management products
Provides DBS with a dedicated bancassurance product provider without equity investment
DBS retains ownership of customers, concentrates on distribution, leaving product manufacturing to CGNU
Allows DBS to rationalize ownership in ICS and continue policy of monetizing assets
Allows DBS to strengthen capital position by $139 million
Strategic Rationale
DBS has concluded a bancassurance alliance with CGNU
35
Only bank whose non-core asset disposals largely completed
Singapore Petroleum Company
DBS Land
DBS Tampines Centre
POSBank Centre
DBS Securities Building
Insurance Corporation of Singapore (ICS)
What we have done
4 listed companies (Keppel Capital, NatSteel, Intraco, CWT)
What needs to be done
Insignificant
Focusing on core banking and financial businesses
Divested non-core assets ahead of MAS guidelines
36
Significant Events Affecting Results and Outlook
Jan 29 Assets and liabilities of DBS Finance transferred to DBS Bank
Feb 13 Announced proposed acquisition of approximately 60% of Vickers Ballas
Mar 25 Issued US$725 million 7.657% Non-cumulative Guaranteed Preference Shares
(NGPS) and S$100 million 5.35% NGPS
Announced intention to make a voluntary conditional offer for Dao Heng.Acquired an effective 56.9% of Dao Heng Bank on June 29
Apr 11 Consolidated with negligible P&L impact
Goodwill of S$4.9 billion to be amortised over 20 years from July 2001
May 10 Issued US$850 million 7.125% Upper Tier II Subordinated Notes due in 2011
May 25 Issued S$1.1 billion 6% Tier I Non-cumulative Preference Shares
Jun 20 Entered into a joint-venture with TD Waterhouse to form a regional online
financial services company
Jun 22 Announced intention to make a voluntary conditional offer for OUB
37
Top line earnings impacted by weaker economic conditions and adverse competitive environment
Focus on other non-interest income bolsters results
Expenses peaked amidst repositioning activities
Improved asset quality and strong capital position
Completing the regional and wealth management platform
Completing the regional and wealth management platform
Completing the regional and
wealth management platform
July 23, 2001
First Half 2001 Results Briefing