Furthermore, the Lion City’s AAA rating by all three ratings agencies, an exclusive club of just nine countries, was probably a tailwind for the SGD, and by the same token, enabled banks such as DBS to access lower funding costs versus regional and international peers.
Although DBS was not the star performer among the STI components this year — ST Engineering is up more than 80% year-to-date, and Hongkong Land has gained more than 50% — in the past 15 years, DBS is, in a word, without peer, including the S&P 500 in SGD.
In 1H2025, DBS reported near record net interest income, fees and treasury customer sales while market trading performance was the strongest in four years. A net profit of $5.72 billion for the first six months of the year (unchanged y-o-y) is likely to ensure that DBS defends its $10 billion annual net profit for the third consecutive year successfully.
Much of DBS’s outperformance started to materialise from 2017 onwards, which was the year of its first-ever investor day. But the efforts to reconfigure DBS started many years earlier.
Local banks fund their operations via deposits, with wholesale funding used sparingly. For many banks, effective asset liability management (ALM) through cycles helps banks navigate the vagaries of interest rate cycles.
DBS’s main source of funding is deposits. In 1H2025, Casa (current account savings account), including foreign currency Casa, accounted for more than 52% of deposits, with fixed deposits and others accounting for the remaining 48%. Wholesale funding, including covered bonds, comprised just $76 billion of funding compared with $574 billion in total deposits.
See also: The CFO's role as told by DBS group CFO Chng
Most banks run corporate treasury in the dealing room. The dealing room is usually tasked to deploy a bank’s surplus funds, with the funds transfer pricing set by DBS’s finance department.
“When I became CFO (on Oct 1, 2008), I felt a stewardship corporate treasury function was needed. I thought we needed to have a holistic view of the balance sheet, since DBS’s market share for SGD savings deposits was 53% with the SGD loan to deposit ratio around 55%,” Chng says.
Instead of letting the dealing room deploy the huge surplus deposits, DBS’s management, including Finance, started to think about its deposits as a core franchise and deploy them strategically within the commercial bank balance sheet.
“Within the first quarter I was appointed CFO, Euleen Goh joined the Board. She asked me what my top priority was as CFO. I said I would like to set up a stewardship corporate treasury function. Euleen was instrumental in getting the support from the Board for a stewardship corporate function to be established under the CFO,” adds Chng.
The corporate treasury function plays a critical role in balance sheet management, including setting funds transfer pricing to incentivise the right types of assets and liabilities to be garnered, managing deployment of cash capital, and taking hedging decisions to manage interest rate sensitivity. It is also responsible for capital management under the guidance of the Board. Funds transfer pricing is a financial management tool used by banks to determine the internal cost of funds for different business lines and assess the profitability of loans and deposits.
“With the funds transfer pricing, we incentivise surplus deposits to be deployed more efficiently, into longer-term products such as fixed-rate mortgages, for example,” Chng says.
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Nowcasting and forecasting interest rate sensitivity
Since the start of this year, the relationship between the Federal Funds Rate (FFR) and Sora has broken down. Particularly, in 2Q2025, the local banks had a challenging quarter. Both Sora and Hibor plunged at a time when the Singapore dollar strengthened against the US dollar. In addition, April 2 tariff announcements introduced further uncertainty and volatility. All the while, the FFR remained unchanged till September.
Yet DBS managed to report record net interest income and record total income in its first half. On Aug 8, during DBS’s 1H2025 results briefing, group CEO Tan Su Shan said: “FX rates have driven a lot of the interest rate volatility. Sora has been hard to predict. That is why I am pleased that our treasury team has done a good job mitigating these headwinds with very nimble use of interest rate swaps.”
Chng points out that DBS invested in data and analytics to manage the bank’s interest rate sensitivity. “Most banks still run on monthly MIS (management information systems) cycles, which are too slow and too high-level. We have invested heavily in building near-real-time, deal-level MIS across our markets. This means we can run a daily balance sheet, weekly net interest margin, early estimates of income, and P&L. We started to provide guidance to investors and analysts on our interest rate sensitivity,” she adds.
As a result, its locally listed peers also provided guidance on their interest rate sensitivity.
“During the Covid period, when interest rates were at a low, we positioned our book such that sensitivity was an $18 to $20 million impact for every one basis point change in the Federal funds rate,” Chng says.
During DBS’s Aug 8 results briefing, Tan had said it was better to focus on net interest income (NII), rather than just net interest margins (NIM). If volumes grow as interest rates drop, it mitigates the impact from the NIM decline, and NII can still grow.
“You want your sensitivity to be higher as rates are going up because you want to benefit. When rates are going down, the balance sheet has to be positioned differently. You want to lower your sensitivity as rates are coming down. In 2025, we changed our guidance because the relationship between the Federal funds rate and Sora had broken down. We are not guiding to the overall sensitivity in 2025. We should look at sensitivity in currency blocks and from there, the impact on net interest income,” says Chng.
CEO Tan says there is no point in trying to predict the pass-through from Fed rate movements to different currency interest rates. “In the SGD book, we have a net floating asset position of about $90 billion. Every basis point move down in rates would mean a $9 million drop in net interest income. In the non-SGD book, which is primarily USD, we have roughly $40 billion in net floating liabilities. So, every one basis point drop in rates will lead to a $4 million rise in net interest income,” she estimates, and benefits when rates come down.
Chng adds: “We also have a reasonable capability to forecast new deposit volumes and wealth management fees, which mitigate the effect of lower interest rates.”
Subtle changes since 2023
In February 2023, when DBS reported its FY2022 and 4Q2022 results, it started reporting its P&L differently from its local peers. The banking group separated its commercial book’s net interest income, fee income and non-interest income from the net interest income and non-interest income of its Treasury and Markets division.
“The profit and loss items for T&M were already previously available in the business units section of the performance summary, so the information is not new. What the format change does is to improve the transparency of the performance for institutional banking and consumer banking, and wealth,” Chng said at the time.
At the time, interest rates were rising and were seen to be unfavourable for T&M revenue due to higher funding costs for its non-interest-bearing and mark-to-market assets, where the returns are shown under the non-interest income line, as well as leading to net interest margin compression for fixed income instruments.
The disclosure includes the commercial book’s net interest margin and interest-earning assets, which are additional data to enable the market to understand the key drivers of its net interest income. The revised format is in line with global banks, which had already adopted such disclosure formats for some time.
The fruits of the corporate treasury function and active balance sheet management were evident in DBS’s 1H2025 results as its commercial net interest income was unchanged y-o-y despite the sharp decline in Sora and collapse in Hibor. Fee income rose by 17% y-o-y in 1H2025, with total income up 5% y-o-y to $11.6 billion and profit before tax up 3% y-o-y to $6.8 billion. Hence, despite a higher tax charge, net profit was unchanged. ROE was 17%, as guided by DBS’s Investor Day in 2023.
Clarity on capital management
In 2017, DBS paid a special dividend. It appeared to be a one-off. But then the bank started to step up its dividends regularly. In 2023, DBS announced it would pay six cents more per quarter, or 24 cents a year. In 2Q2025, DBS paid a core dividend of 60 cents per share per quarter, and 15 cents in a capital return dividend, taking total payout in 1H2025 to $1.50, or $3 a year. This translates into a dividend yield of around 6% based on a $50 share price. DBS last traded at $52.65 on Oct 14.
“In 2023, we anchored our second investor day on a clear message: that our superior returns were sustainable, underpinned by structural drivers. We explained that our ROE had two drivers, cyclical and structural and quantified the structural component. We communicated our structural drivers because the market asked, Why is it that your ROE is higher than peers?” Chng says.
She points out that a large part of the structural drivers has to do with high ROE businesses such as wealth management, global transaction services and Treasury customer sales that will continue to propel growth. In 1H2025, Treasury customer sales reached a new high.
“We do not just sit back and absorb the impact of falling rates — we actively manage it. That is where the Corporate Treasury team and the Global Financial Markets team step in — they protect the balance sheet and also generate profits from volatility. On the business side, when rates are low, we focus on gaining market share — in deposits, in wealth AUM, in flows. That is what I mean by mitigating the impact of lower rates or rate volatility with volume,” CEO Tan said on Aug 8.
While a stronger Sing dollar could push Sora lower, it also tends to attract more capital inflows. “As the largest bank in Singapore, we typically capture more than our fair share of those flows. If the funding comes in cheap, we can redeploy it efficiently,” Tan added.
In 2Q2025, DBS’s fee income and treasury customer sales reached their second-highest levels while markets trading income more than doubled to a 13-quarter high, all this during the quarter when Trump announced Liberation Day, upsetting the bond markets.
Basel III reforms
By DBS’s Investor Day in 2023, it was clear that the banking group was in a position to return surplus capital with the finalisation of the Basel III.5 reform rules. The Singapore banks adopted Foundation internal ratings-based (FIRB) risk weights rather than Advanced IRB (AIRB) for their non-retail portfolio under Basel II. However, European banks in particular, adopted AIRB risk weights under Basel II and will have to accrete capital as they transition to Basel III.5 reform rules.
Basel III reforms introduced the output floor as one of the regulatory requirements to reduce excessive variability in capital requirements derived from internal models. This output floor limits the benefit banks can gain from using internal models to calculate RWAs (risk-weighted assets), ensuring that these models don’t reduce the RWAs below a certain percentage of what would be required under standardised approaches.
Since none of the Singapore banks had moved to advance IRB, they are likely to benefit from Basel III reforms, including benefits to their common equity tier 1 (CET1) ratios.
“The clarity of our capital management strategy, balance sheet strategy, investor-day communications and investor guidance is supported by our nowcasting and forecasting models. We continually test our assumptions about deposit growth, pass-through rates (from the US), SGD and USD interest rate sensitivities, as well as when our loans or hedges will roll off. We explain how outcomes change under different rate scenarios. We have robust models, and therefore by guiding consistently and delivering what we say, we build credibility,” Chng adds.
While a local investor receives a 6% dividend yield based on a $50 share price for DBS, returns to an investor whose home currency is the USD are likely to be higher. The US dollar is depreciating as part of the current US administration’s policy. If US dollars are deployed into SGD, US investors get an even higher return than local investors. There has also been an influx of liquidity into Singapore, which is probably looking for assets to deploy in. These monies are likely to find a home in big-cap index stocks. Since its 2Q2025 results announcement, DBS has traded above $50.
DBS also announced a $3 billion share buyback in November last year. “There was a clear articulation of how we were thinking about our surplus capital relative to our Common Equity Tier 1 operating range of 12.5% to 13.5%. Beyond ordinary dividends, excess capital would be returned through buybacks and Capital Return dividends over three years. The markets are very clear about our trajectory for capital return. That is a big differentiator for us, because we can articulate our capital return framework clearly,” says Chng.
Despite its high price-to-book ratio of almost 2 times, DBS remains on the buy/ overweight radar of most banking analysts, with 10 buys and six holds. Only Morningstar has downgraded DBS to a sell since its 1H2025 results.
