That said, the bank’s shift to non-interest income-led income growth from net interest income (NII) should free up capital and support capital return initiatives, the team writes in a March 26 report.
“Growth of its assets under management (AUM) has been healthy and improved market sentiment should allow for better wealth management opportunities and help drive the double-digit fee income growth guided for 2024,” it adds.
On its operating expenses (opex), the bank’s $80 million commitment for its tech uplift programme should be largely done by March. That said, the main opex pressure for this year would be from the full-year consolidation of Citi Taiwan, continues the team.
“While opex growth was guided to be at a high single digit, DBS was confident that the full contribution from Citi Taiwan at the topline level plus non-interest income growth should help cap the cost-to-income ratio (CIR) at a low 40% level. Also, with no red flags on asset quality, management was comfortable with its specific provisions charge off guidance of 17 - 20 basis points (bps),” it says.
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In the 1QFY2024 ending March, the team sees no surprises to DBS’s earnings. Loan growth during the quarter should still be muted, meeting DBS’s guidance of low single-digit growth amid the ongoing trade-off between net interest margin (NIM) and increase in loans.
“The trend of higher repayments has persisted, and the softer growth environment has led to competitive pricing pressure in the mortgage segment – which, so far, DBS has avoided competing aggressively in aggressively in,” says the team.
DBS’s NIM guidance will also remain unchanged even though the market now expects the US Federal Funds Rate (FFR) to cut rates three times, down from the expectation of six to seven cuts earlier. DBS expects that there will be five cuts in its NIM guidance. According to the bank, the difference will not be meaningful enough to impact its NIM guidance as the additional cuts it expects would have been towards the tail-end of 2024.
With DBS reiterating its commitment to increase its absolute dividend per share (DPS) by 24 cents after including its 1-for-10 bonus issue, the RHB team has raised its dividend estimate for FY2024 to FY2026 by 6 cents per annum (p.a.) as it brings forward the uplift in DPS by a quarter.
“We now expect FY2024’s absolute DPS to rise by 30 cents, followed by 24 cents p.a. in FY2025 – FY2026. These figures exclude further initiatives down the road to return excess capital, since its common equity tier one (CET-1) ratio will move up by 2 percentage points (transitional basis) when the Basel IV regime kicks in later this year,” says the team.
As at 3.02pm, shares in DBS are trading 49 cents higher or 1.38% up at $35.99.
