DBS Group Holdings Ltd (D05) Q4 FY2025 Earnings Call Transcript & Summary

Hi, everyone, welcome to the analyst briefing. You've heard the media all in the presentation there. So we can go straight to Q&A.

So without further ado, first question from Melissa from Goldman Sachs.

I just have a few questions. Just on the...

Can you start again. you're a bit soft?

Okay. Can you hear me now? Is it better?

Yes. Yes.

Okay. So that's the first question on the real estate. I just wanted to -- I know you can't name the company, but can we give a little bit of clarity as to the size of which was put into the NPL? And also, is there just on this quarter? Or was there a few other smaller ones maybe that you could let us know. That's the first question. Then on the second question, implementation for your NII guidance, you SORA of 1.25%. Given where SORA is today, will there be caution in terms of where your guidance is? And perhaps can you refresh us in terms of your sensitivity, I think. Some I think it's a bit more sensitive. But can we have the numbers again for the sensitivity of the Sing dollar and the U.S. dollar book? And then maybe just lastly on the share buyback that has stopped for a while now. What is the thoughts there on the share buyback program and if the money is not fully utilized when at what point were you share with us how the money is going to be returned to shareholders?

Okay, Melissa, this is Su Shan. So I guess you can infer from our disclosures the size, we can't mention any names, but I need to reiterate that it is a subjective NPL because technically, it has not defaulted and exports less than $0.5 billion. And are there other smaller exposures around vendor? China, real estate exposure left is about $10 billion. Of which, $4 billion is to SOEs. [indiscernible] foreign entities like the Singapore-based Temasek companies and $1 billion is to POEs, primarily on enterprise, of which the LTV is about 50%. So I think we're fairly comfortable. We've already taken quite a lot of GP as the Chinese market started to correct the years back. So our GP buffer has been quite strong. I said, the GP overlay is $2.4 billion in total. So I think we're very comfortable. Anything you want to add Sok Hui?

I think if you look at the disclosure, I look for Hong Kong, right. You see Hong Kong's NPL ratio has gone up. It gives you an idea of the size of the NPL, the specific provisions that we have taken for this larger name. I think in Singapore, you see a big some creep up as well, but that's a smaller name. Yes. So basically, I would say 2 big names. One is much larger in Hong Kong. Singapore is smaller name.

Okay. Then, Melissa, your second question around NII sensitivity. So we have a Sing dollar net floating asset size of about SGD 103 billion. Some sensitivity there would is [indiscernible] basis points. And then we have a net U.S. dollar floating liability of USD 40 billion. So the sensitivity back would be $4 million per basis point in the reverse. For your question was around SORA 1.25%, right? And given that SORA -- I mean, I don't know whether you've noticed, but interday volatility can be 50%, 80%. It is incredibly volatile. It isn't the best gauge of right, the real cost of money in Singapore. Another guidance you can look at is to look at some of the MAS bills which are more stable. And year-to-date, that's about 1.35% to 1.45%. Today, it's about 1.2 [ million]. Then your third question was around share buybacks.

I appreciate the question on the interest rate sensitivity. So you can make your own assumptions on where you think SORA at but in terms of the interest rate sensitivity, so we are not a $10 million per basis point with a lot more deposits coming in with some of the fixed rate assets that were menton if they are not replaced. Will increase our sensitivity. Our estimate that's probably $14 million per basis point. For the U.S. dollar NII sensitivity, it remains minus $4 million per basis point. So that's net repricing liabilities remain at $4 million per basis point, and we stand to benefit if U.S. dollar rates are cut. And if we think that we are bottom up on Sing dollar rates, then we stand to benefit when thing dollars SORA, Sing dollar rates go up.

All right. And then your third question, Melissa, was around the share buybacks. We've probably done about 12% so far. And we want to be opportunistic. I think who knows that might -- if there's a crash later this year or so, maybe we will do the -- fact is, even though we did not buy at these levels, does not mean we never will. So we just want to be more opportunistic. But we are committed to returning the $8 billion of excess capital. So we've utilized 12% of the $3 billion, so about $370 million. And we've done about $1.3 billion of the capital returns. So net-net, we've done about 21% of the $8 billion.

Okay. I think we can move on. Yong Hong, next question from Citi.

This is Yong Hong from Citi. So just three separate questions. Firstly, on the asset quality. I just wondered what drove the NPL downgrade because you mentioned that the borrowers still current. Was it driven by the rating agency downgrade? And if that was the driver, any measures you are taking to reinvent or potential borrowers who could still be paying by the risk of rating downgrade? And secondly, on margins and deposits how sustainable is that 9% deposit growth? And if we assume SORA to stabilize and U.S. rates to come up by 30 basis points, should we be thinking that margins should be quite stable from where we are? And a follow-up to that is what is the net building asset quantum and what is the repricing difference? And finally, on capital, when does the $0.24 annual dividends stop and also some update on where are we to address the concerns of from the MAS on your digital outage that resulted in mix of capital [indiscernible]. These are my two questions.

Okay, I can take some of the questions Okay. I mean I can talk about the NPL downgrade and the reasons behind it. I think we are being prudent. The signs were that there is really liquidity pressure around the company. And I do believe that I mean, if the restructuring happens then, okay, we could take a write-back. But as we said, it is subjective. Are there any other issues around asset quality and all that? I honestly don't think so. We've been pretty conservative and pretty prudent. Your second question was around deposit growth, right? One thing that you mentioned, scenario, you mentioned where U.S. rates go down and Sing dollar rates go up, I mean that for us is the best-case scenario. But we are not forecasting that best-case scenario. We are forecasting Sing dollar to remain low. to remain strong. And the U.S., we are looking at true rate cuts in the U.S. But deposit growth we think will continue to be strong as long as Singapore remains a safe haven, and Hong Kong remains a strong capital markets hub. And both look -- both structural trends look to be continuing. I don't think it will be as strong as last year because last year, we had added tailwinds of the Sing dollar treasury bills maturing, that will abate this year. It won't be as much as last year. So we don't think that the delta will be as strong as last year. But nonetheless, we still think we should see growth. But there will be seasonal. You've got growth in March, you get growth in the year-end, et cetera. So it will be seasonal. And there will be some transitional large chunks depending on deal flow, et cetera, from the large corporates. You want to take the net floating asset repricing?

Yes. So I think, Yong Hong, the deposit growth, you said 9%, I guess that's the reported currency. If we look at constant currency, we actually grew 12%. So like Su Shan says we likely to see another 12% growth this year, but we'll probably still see sort of strong inflows into Singapore but probably not at the 12% level. We don't focus so much on NIM for the year because we have been trying to guide that -- actually, net interest income is what you should focus on. So for example, notwithstanding the sort of rate and NIM pressures, you find that with deposit growth and hedging our portfolio, we can actually show net interest income growth, and that's really what you want to focus on. And I think your last question was on the guidance for dividend. I think when we gave the guidance previously, our 2023 Investor Day, we said we would start $0.06, and we've already done it for 3 years, '23, '24, '25. And that was before we came out with a plan to return excess capital. So we've got a plan to return $8 billion and that is already articulated on the return -- capital return dividend. Going forward, I think it depends on how we perform because the margin are dividend will come out of, I guess, our financial performance. We would -- we can continue to step up. We can slow down the pace, so very much will depend on the financial operating performance. And that's the guidance sort of at this point in time.

Yes. I think those were all your questions, Yong Hong. The next question from Harsh from JPMorgan.

I'll go one by one on the questions. First is, to the point on capital return, 21% is done. This is a 3-year commitment if I get it right. So is it fair to say that in 2026 and 2027, we should have a much higher pace of capital return? And if you are unable to do buyback, how do we think about the distribution of that capital that you have earmarked for buyback in '26 and '27?

Still quite a bit of time, Harsh, to end of 2027. So we have -- as far as the $5 billion of capital return dividend, you know that's already committed. So I'm talking about the share buyback. $3 billion, where we've already done 12% of the share buyback. We'll look for opportunities. And if not, we don't find the opportunities, we'll find other ways to give back the excess capital.

Right. So basically, if let's say, in quarter of 2026 slate share price stays strong, what will be your preferred entry point? If it doesn't hit that, then there will be a special dividend, a large special dividend in '27. That's how we should think about it.

That is one possible construct.

So as we said, we were committed to it. So let's be discussed with the Board and we'll arrive at a decision then. But we don't want to commit to anything right now because the markets are so volatile, Harsh, and you never know, right?

Yes, market your stock is not. So it will be good to understand a bit more granularity on it. And again, as we discussed last time, if there is more systemic buyback, it will be useful. Second question is on net new money growth. Fantastic outcome in 2025. In '26, should we expect similar net new money growth or higher? And also which markets, geographies are driving that? And I have one question after that.

Okay. So I'll kick off and then Sok Hui, our Head of Consumer Wealth can supplement. So net new money growth, we now report it for all 3 segments, starting with Private Bank, traces Private Client and then treasuries. And the reason we do this is we really believe in the continued work, right, the sort of smooth transition of wealth across the 3 segments. And we also believe in starting the wealth journey earlier rather than when they are already very wealthy. So you start with the emerging affluent and then you go through their own wealth journey with them. Then that creates cost. That creates the key relationship. I also alluded to the fact that we're very focused on long-term growth, structural growth. That means we look at the customer holistically. We look at how their business families, we look at how we bank them on the business perspective, and then we offer solutions in that family office or their own personal financing based on our knowledge of the wealth creation process through their businesses. And the continuum also means that it's stickier, right? So you have family members sitting in different parts to continuum. You have RMs also rising through the continuum as their clients also get richer. So that builds a sticky relationships. And structurally, what we do is we plan for the long term. So that means whether it's setting up estate planning, whether it's live policies, whether it's insurance, whether it's hedging, et cetera, we create long-term sticky solutions so that the customer is really quite sticky with us, and we remain one of the key banks. And in terms of the segment net new money growth, PB is very chunky. You get 1 big client in, it can move by the billions. And then when he moves up because you can't do any structures for him or whatever, then it is also chunky both ways in and out. It's steadier for the TPC segment and then it's growing for the treasury segment. I'll let Tse Koon Hui talk about -- give you more color and also about the where [indiscernible].

Thank you, Su Shan. I think Su Shan has covered actually multifaceted approach for us in driving net new money because we bring real solutions to the clients. But just to answer your question as to kind of where and where it comes from and whether I expect it to at least the same growth, now obviously, we're expecting to grow at the very least, to repeat what we have which we are quite confident about. And the reason for that is, as Su Shan alluded to, in the private banking space, they tend to be more chunky. But even within the private banking space, today, our clientele already comes from 120 -- over 120 nationalities. So it's fairly broad-based. And so even if there are customers who kind of have reasons to move some of their assets out, some of them actually do move them out because they might be acquiring a company just for discussion sake, right? And they are injecting capital, but we have a sufficiently robust engine to, I think, replace. So we have actually seen a pretty good track record of our net new money over the last few years. So there's no reason to believe or to doubt why we can repeat or even grow from that. Now the other engine that's been growing very, very strongly is actually our treasury space as well as also Su Shan has alluded to, that tends to be perhaps at an individual basis, a smaller amount, smaller value, but that tends to be spread across a much larger group of customers. Now because our wealth continuum has been growing very strongly, we have been able to continuously have our customers resegment, let's say even from Singapore's case within Singapore to have our massive retail base of customers start to put more wealth with us because there is emerging growth of wealth in Asia apart from the shift of wealth to Asia. So as Asia gets more and more affluent, actually, we are seeing that benefiting our entire wealth management franchise, not just in Singapore, but also in Hong Kong, in Taiwan, in Indonesia, et cetera, et cetera. So we're seeing quite strong growth in the treasury space as well. Over and above that because Singapore and Hong Kong are natural international centers, not just within the private banking space, we are also seeing the affluent base of customers, actually bringing their AUM into both Hong Kong and Singapore as the international centers. So not just domestically but internationally. So it's actually very, very broad-based.

Great. And for the last question, India and Taiwan both have gone through consolidation. ROAs are still low in these markets. Do you see a likelihood of step change in ROA for both India and Taiwan this year? How do we think about that?

Harsh, we certainly expect both Taiwan and India to contribute more in terms of net profit this year. They already did very well last year, rising by high double digits, right? I mean Taiwan was up some 40%, and there was some 35% or so. So for Taiwan, for example, the ROE leads the cost of equity already. India not yet. But India, we are refreshing our consumer strategy. The IBG franchise is really strong. The city is also performing well. and we are getting a lot more CASA out from the SME and retail franchise. But we're pivoting to -- on the consumer side, pivoting more to secure loan -- sorry, secured gold loans and reducing dramatically our unsecured loan book there? So I think both are moving in the right trajectory, and Taiwan is already at above cost of equity.

One data for you, actually, on the PAM basis, Taiwan grew 40% and India grew 35%. So in fact, these are strong franchises for us. There are the 2 markets that actually delivered very high NIM growth for 2025.

Thanks, Harsh. Next question is from Jayden from Macquarie.

I have two topics I'd like to ask on. The first is on the fixed rate or the hedging portfolio. Last quarter, you gave some very helpful color around the maturity of that portfolio. And it looks like it's moved a little bit higher. What are the maturities looking like for this year? Do you think that there's much impact on that sort of SGD 10 million sensitivity that you outlined before? That's my first question. I'll ask my second one in a bit.

So the maturity that will roll off this year is SGD 80 billion out of the SGD 210 million and then where we put them on depends on where rates go, as I said, rates are very volatile. But the -- I think the maturing rate is now of the SGD 81 billion, about SGD 3.4 billion. So we estimate to replace half of this at about 2.9% or 50 bps lower.

Okay. And that's already accounted for in the guidance. for this year. Is that fair to assume?

Yes, yes.

Okay. And then my next question is just on the comments you made on Indonesia during the media briefing. I think you talked quite a bit about how the current sort of changes are good for the long term and the corporate portfolio remains strong. How about the wealth portfolio? Do you have any exposure to margin financing against Indonesian securities because there's been quite a bit of volatility in that space.

No. We don't have any exposure there in terms of single stock lending. We tend not to do single stop lending. Precisely for reasons like this the guy can't sell if he needs to margin call and it's very volatile and then it can be very liquid. So we don't do that. And anyway, our loan book, although it's to only large corporates and blue chips, is actually quite small in Indonesia compared to the rest of the loans elsewhere. So the impact to us is honestly very muted.

And just to check on this topic, Su Shan, does that mean that most of your exposure to say Indonesian wealth clients is actually booked in Singapore, and you don't do much onshore just to get a better understanding?

We're growing onshore, but the offshore business is very cash based, right? So the it's more your mass affluent, the treasuries and treasuries private client, they come in with cash. They buy funds, they diversify so actually, the wealth clients, the Indonesian wealth clients have been exactly diversifying risk with us investing globally, both onshore and offshore. Tse Koon can add more color.

Yes, that's correct. So onshore, we have a wealth management franchise, predominantly really in mutual funds, in local government bonds in bancassurance, et cetera. So -- and those are all kind of cash funded, right? So no lending against that in that sense. The ultra-high net worth private banking and all that, a number of them would already have offshore wells from decades ago, now these are predominantly booked in Singapore and that will be managed just as with any other wealth portfolio at a portfolio basis, right? Meaning to say if any of them have any wealth-related credit lines, they would operate it just as with any wealth customers in a very broad portfolio.

Thanks, Jayden. And next question from Aakash from UBS you can go ahead.

Yes. Can you hear me?

Yes.

Okay. Great. So I have four questions. The first one is just on the NII guidance. So the net interest income guidance that you have for the year. I'm trying to understand this a bit better. So if you think about the sequential trajectory of the NIM from here, you Jan NIM was 1.92. Fed cuts are positive SORA given it's at 0.9, it can only go higher towards your 1.25 expectation. So I would think that it's fair to assume that NIM has probably bottomed out and it can only go up from here. And the loan growth you're expecting around mid-single digits. But despite this, the NII guidance is still down in 2026, is it mainly because of the hedging impact? Is that how we should think about it?

Okay. So yes, I mean, you rightly pointed out, SORA it's currently at 0.9%. Our expectations for the full year was 1.25%. And as I earlier alluded to the first question, it is a very it moves so much in today. So it's very hard to use as a benchmark of the real cost of money in Singapore. So we guide people to look at the MAS bills as a more steadier gauge of the cost of money here. The fixed rate asset repricing. is we are assuming that it will be down by 50 bps or so that's what I alluded to earlier to the earlier question. I don't know whether it Soh Kian, if you want to amplify anything.

Yes. So Akash, this is Phil, Corporate Treasurer. So the point about what you're saying is the drivers all seem to be fairly sideways. So why are we guiding an eye onwards? I think that's the gist of your question. So the point to note is that actually Sing rates were high for quite a while in 2025. So what you're seeing is the full year effect of the new rates. I think that's the way to think about it. The second thing is you can't really look at NIM because as deposits grow and it's put to HQLA. As we said, that's NI accretive, but NIM accretive. So that's the way to think about our book. I think the rest of the numbers we've answered also in the call, but just to emphasize that the Sing rates were high for quite a few months last year, now you're seeing the full 12-month effect of the loan.

So even if I take this into account, right, so I know your NIM, let's say, full last year was 2.01. This year is probably going to be 1.92, 2.93 if we just keep the NIM flat from here. Even then, it's very difficult to come up with NII negative. On your second point, NIM down, but NII is, again, the same question, right, how come NI is down on the guidance? So what is driving it there?

Yes. Maybe I'll just add another data point for your consideration. So deposits grew 12% in 2025. In our assumption, we think it may actually grow like half the rate, and therefore, we don't have as much benefit this year because last year, we have the benefit of treasury bills all flowing back into the Sing dollar book this year. We don't think that there's going to be so much of a flowback. So that also means that your NII from simple deposits may not be as high as this year. So that's one factor. And the factor when we give guidance on the group NII is also the market's trading. So markets trading this year had a benefit of about $0.6 million billion to NII. That comes from 2 factors. One is really the lower funding cost, which we expect to repeat in 2026. The other factor is the reduced accounting asymmetry depending on the products that they do the FX swaps, depending on what type of FX, it caused some noise. So this year, there was a benefit of about $0.3 billion. We don't know whether this will repeat in 2026. So these are the main reasons.

Okay. Understood. The second question I have is -- so Su Shan, on your on the topic of AI that you were talking about earlier. I mean, it was reported, DBS generated $1 billion in economic value. I'm just wondering where is the best place to look for this in the financials? Because when I look at the staff cost to assets or if I look at staff cost to deposits or just staff cost per employee, all these numbers have gone up quite a bit in the last, 3, 4 years. And I'm sure LVB played a role there. Taiwan played a role there. The question is, are you starting to see any reduction in these numbers as DBS gets deeper and deeper into AI investments? And over the next 2 to 3 years, how much of an impact can we expect to see on these, let's say, staff cost to assets or stock out deposits? Could they be down by 10 basis points, 5 basis points? Do you have any thoughts on that?

Okay. So you're right. I mean our staff costs went up a lot in the last 3, 5, 3 to 5 years where some costs went up by 8% in the last 3 years last 3 years. Then this year, or 2025, we brought it down to 4%, and we are exercising a lot of cost discipline to keep it at 4% or so growth. So where do you find the economic value of AI, right? So the way we have shown the $1 billion which is the economic value, that doesn't include things like the cost saves or the loss saves, which brings it up to about 1.2. is the AB testing that we do around low space machine learning, right? So that's more deterministic and kind of what I would call classic AI. It is really harder to measure for generative and agentic AI. But you will see it very clearly in things like technology and then the front end, RM productivity, new to bank. So I think there are a few levers. I mean there will be things like number of customers per segment, growth of new-to-bank customers, growth of new to product customers and then the loading of customers per headcount, whether it's fully front and mid-office or it's customer RM, its turned around time. And ultimately, it's going to lead to revenue, productivity and cost income ratio, right? But more importantly, I mean, we don't like to talk about sort of headcount big account rules, for example, but you will see from the headcount numbers for 2025 that we were certainly very measured in taking out some from the LVB and City Taiwan mergers in India and Taiwan, respectively. And so you see quite a lot of the roll-offs of the duplicate roles coming off. You see the roll-off of contract workers so we are really mining our costs like very like a fee. I mean, I'm been really tough on my teammates and they be tough on their teams as well. So in terms of the AI capacity, you'll see it, as I said, in tech and ops most obviously at first, then you will see it in the businesses, whether it's in IBG or CPG wealth in enterprise KYCs, that turnaround time. We still have a large bank block, right? Everyone complains about how long it takes to open an account these days. And it's good to have a backlog, but it's not good for turnaround time. So we are hoping that the use of AI will just come through the turnaround time. It's already released capacity for us in the middle office, whether it's in ops and tech to do growth stuff, right? So for tech, we really need to grow -- we've got 5 big programs. And even though we have 5 big programs in the past, these programs each take 18 months or so to deliver. You've got a big tag that today that can take weeks or just a couple of months or so. And so and do it so you release a lot of the lower-level product engineers and level 1 engineers to then upscale and become more like a level 2 engineer or level 3 engineer when there's a lot more built. And whether we need to build, we need to build for wealth. We need to build for GFM trading. We need to build for a stronger new core banking system. We need to build for credit automated credit memory chain. We need to build for risk management, scores, automated, et cetera, KYC. So there's a lot of build to be done, and we want to build with the same sort of capacity that we have.

Okay. Understood. The third question I have is just on the trading income. So you've said that January has gone back to a normalized sort of level. Is that roughly $800 million per quarter level that you're thinking of, which is, I think, the average over the last, let's say, to 3 years? And just on a related note, you said there was a lot of rebalancing that happened in Q4. Could you talk a little bit more about what was a rebalancing exactly? And what sort of views are you taking now? And was there any impact on the silver gold cash on your books earlier?

So yes, GFM had a good [indiscernible]. And honestly, the volatility, it's so hard to predict, what used to be weeks or months and not take hours. And Q4 is always seasonal. So when we said we use it to rebalance the portfolio, it was really to position us for a good 2026. And January, this momentum was very strong. Early Feb also not bad. So unconstructive, but it's notoriously hard to predict for trading. So I don't really want to be Shunto into giving you any guidance other than when the numbers come out, we can tell you what they were. But I mean treasury sales is good. I think investment banking fees from what I see in the pipeline looks good and decent. We've been winning market share in DCM and ECM, even in markets where we are traditionally not well known in. I mean, for example, last year, I was really pleased DCM, we went up to #7 in the Middle East where we didn't even have any presence the year before. So very strong showing that in terms of the fee growth. And ECM in Hong Kong and in Singapore, we've been really trying to beef up our equity coverage. I always tease my colleagues that we actually have a very big research equity research team, but that's kind of like the best kept secret. So we're no longer making it the best kept secret but growing it, where we're growing the coverage of the II business, the equity business. We have a strong book. We have a strong where our private clients like to shortfall. So we are long ball, and we can sell that fall out to people like you through all the fund managers and entities who want to buy ball so we can actually create more of an agency business than we've ever done so before. And that speaks well for GFM. You want to...

If I can clarify cash, just to clarify the $800 million per quarter that you mentioned that's for net trading income. When we talk about markets trading. It's the -- you look at the P&L in the front as a line for markets trading income, which is net interest income and noninterest income under it.

Okay. And any impact from the huge volatility in the commodities that we saw a couple of weeks ago?

So there was -- no, no. So I think balancing the portfolio. If you look at our performance summary, if you look at the statement of comprehensive income, you'll see that there were some losses that were crystallized on the investment portfolio, and that's good for us. We bring it to P&L and then this portfolio, which has got lower-yielding instruments will then be free up to be reinvested at higher yields. So that's what we call a rebalancing of the portfolio.

Thanks, Akash. Well, actually, we don't have any more questions. So okay. thanks, everyone.

Thank you.

Thank you. Thank you.