DBS Group Holdings’ incoming CEO Tan Su Shan is stepping into the role at a time of strength rather than adversity, says Morningstar’s senior equity analyst Michael Makdad. Her challenge, writes Makdad in a March 26 commentary, will be to navigate the bank through “potentially more difficult times” while striving to maintain its high levels of profitability.
Tan will take on the top job after DBS’s annual general meeting on March 28, replacing Piyush Gupta after his 15 years as CEO.
“Gupta took the helm of DBS during a challenging period for the bank and successfully elevated its return on equity from to double digits and eventually into the high teens, while also overseeing a fourfold increase in the bank’s share price,” says Makdad.
Makdad says it is “difficult to find fault” with Gupta’s leadership, though one area that faced “occasional challenges” was a series of disruptions to its digital offerings.
This even attracted scrutiny from regulators. In 2023, the Monetary Authority of Singapore (MAS) ordered DBS to set aside additional regulatory capital by applying a multiplier of 1.8 times to its risk-weighted assets for operational risk.
MAS also imposed a six-month pause on non-essential activities on DBS from Nov 1, 2023 to Apr 30, 2024. During this period, the bank was not allowed to acquire new business ventures or make any non-essential IT changes.
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For FY2023, Gupta took a pay cut of around 27% y-o-y to $11.23 million due to the series of digital disruptions during the year. Gupta’s pay package returned to $17.58 million in FY2024 after delivering another record set of earnings of the bank during the year.
Tan has the opportunity to excel in this area by ensuring seamless operations while driving continued growth, adds the analyst. “By building on the solid foundation laid by Gupta, Tan has the potential to further expand DBS and ensure that its current high levels of profitability remain sustainable.”
Besides technology stability, Makdad thinks DBS can do more to grow outside Singapore in a “geographically-balanced fashion”. “It has strong Greater China operations, which fit well with its Singapore base, but it has less of a footprint across Asean than its local banking rivals, which could be a source of growth as Asean has synergies not only with Singapore but also with Greater China.”
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Over the past two years, DBS has achieved a return on equity of approximately 17%, which is around 4 percentage points (ppts) higher than its Singaporean banking peers — all of which are also benefitting from the current favourable interest rate environment — and more than 5 ppts above its own historical average.
“While the bank has performed exceptionally well during this period, such favourable conditions probably will not persist indefinitely, and we think that these are some of the challenges that await Tan when she finally takes up the mantle of DBS CEO,” says Makdad.
He adds: “There’s a lot of uncertainty in the macro and geopolitical environment right now, so the role will require flexibility and an ability to adjust strategy quickly if needed.”
At 4.29pm, shares in DBS are trading 39 cents higher, or 0.83% up, at $46.43.
