Broker Name: Lim & Tan Securities Pte Ltd
Date of Report: 23 September 2024
Wealth Management Strategy and Growth Plans
DBS Group Holdings aims to double its fees from wealth management by 2027, targeting affluent investors who are increasingly shifting their assets to Asia. In 2022, DBS earned over S$2 billion from servicing wealthy clients, which is double the figure from 2015. The bank anticipates this growth rate will continue over the next few years as more investors and family offices relocate to Asia to manage their wealth. According to Shee Tse Koon, DBS’ head of consumer and wealth banking, the bank aims to double its wealth management fees within the next three years.
Wealthy clients typically invest their capital to generate returns, and many also engage with DBS for trust and legacy planning services. The growth in wealth management fees has been significant for DBS and is expected to provide resilience against potential revenue declines in other segments due to changing global interest rates.
Client Assets and Market Position
DBS is currently the third-largest private bank in Asia, excluding China, trailing only behind UBS and HSBC. The total assets managed by DBS, including those from its private banking sector, reached S$396 billion by June 2024. The bank expects this number to exceed S$500 billion by 2027. Additionally, the number of clients investing and purchasing insurance products through DBS is expected to quadruple.
DBS holds a strong presence in Singapore’s financial landscape, managing about one-third of the city-state’s 1,650 single-family offices. This has been bolstered by an influx of approximately US$120 billion in financial assets moving to Singapore, particularly from China, according to a report from the Boston Consulting Group.
Compliance and Risk Management Challenges
DBS has faced challenges in ensuring compliance with anti-money laundering (AML) regulations, particularly in Hong Kong. In July 2024, the Hong Kong Monetary Authority fined DBS HK$10 million (S$1.7 million) for lapses, including failures to continuously monitor business relationships and verify the sources of wealth for high-risk customers between 2012 and 2019.
In Singapore, DBS had a S$100 million exposure to clients involved in the city-state’s largest money laundering case, which saw the seizure of over S$3 billion worth of assets in 2024. DBS continues to invest in both technology and personnel to enhance its capabilities in detecting and preventing illicit financial activities. The bank is also ramping up its surveillance and monitoring systems to counter emerging criminal trends.
Financial Overview and Market Outlook
At the time of the report, DBS was trading at S$39.00, with a market capitalization of S$111 billion. The bank’s valuation reflects a price-to-earnings (PE) ratio of 10-11x, a dividend yield of 5.5%, and a price-to-book (PB) ratio of 1.7x. While the wealth management business is expected to cushion the bank’s performance, consensus forecasts suggest that the profitability of DBS might flatten or slightly decline in the second half of 2024 due to headwinds in net interest income (NII). This pressure is attributed to the beginning of an interest rate cutting cycle, with anticipated rate cuts of 50 basis points in the fourth quarter of 2024 and 100 basis points in 2025.
Moreover, asset quality concerns are emerging, with HSBC reporting a six-fold increase in bad loans within its asset portfolio in Hong Kong. The consensus one-year target price for DBS is S$39.70, indicating a potential upside of less than 2%. Consequently, the report maintains a “Neutral/Hold” recommendation for DBS Group Holdings.
