4Q24 Financial Performance: Strong Earnings and Capital Returns

DBS Group Holdings Ltd, one of Asia’s leading banking groups, has released its financial results for the fourth quarter of 2024, showcasing an impressive net profit of S\$3,522 million. This marks an 11% year-on-year (YoY) growth, driven by an uptick in net interest margin (NIM), a surge in wealth management fees (+41% YoY), and a significant increase in markets trading income (+40% YoY).

The bank’s robust performance is further highlighted by the announcement of a S\$3 billion share buyback program and a capital return dividend of 15 Singapore cents per quarter, planned for 2025. Management anticipates maintaining similar payouts in 2026 and 2027, emphasizing their commitment to returning excess capital to shareholders.

Stock Recommendation: Downgrade to HOLD

Despite the strong financial results, UOB Kay Hian has downgraded DBS from “Buy” to “Hold,” with a revised target price of S\$49.80, reflecting a 9.7% upside from the current share price of S\$45.38. The downgrade considers the bank’s valuation and the expected modest growth in 2025 amidst global economic uncertainties.

Key Financial Highlights

Net Interest Margin and Interest Income

DBS achieved a NIM of 2.15% in 4Q24, up 2 basis points YoY and 4 basis points quarter-on-quarter (QoQ). This growth was attributed to the repricing of fixed-rate assets and a CASA inflow of S\$13 billion in the second half of 2024. However, NIM retraced to 2.12% in January 2025 due to three rate cuts by the Federal Reserve, reducing the Fed Funds Rate to 4.25%.

Net interest income rose by 8.6% YoY, supported by a 3% YoY loan growth on a constant-currency basis, driven by trade loans and non-trade corporate loans.

Fees and Commissions

Fees and commissions grew 12% YoY in 4Q24. Wealth management fees saw a remarkable 41% increase, fueled by strong sales of investment and bancassurance products. DBS also attracted net new money of S\$6 billion in 4Q24 and S\$21 billion for the full year, expanding assets under management (AUM) by 17% YoY to S\$426 billion. Additionally, card fees and transaction service fees rose by 4% and 7% YoY, respectively.

Non-Interest Income

Other non-interest income increased by 15% YoY to S\$809 million in 4Q24, driven by treasury customer sales and markets trading income, which surged by 40% YoY. Gains from property disposals also contributed to the robust performance.

Operating Expenses

Operating expenses grew 9% YoY to S\$2,395 million, with the acquisition of Citi Taiwan accounting for 3 percentage points of the increase. Staff costs rose by 8% YoY, and DBS allocated S\$100 million for its Corporate Social Responsibility (CSR) commitments. The cost-to-income ratio (CIR) was 43.5% for 4Q24, slightly higher than the full-year CIR of 39.9% for 2024.

Asset Quality and Provisions

Non-performing loans (NPLs) increased by 4% QoQ, with the NPL ratio inching up by 0.1 percentage points to 1.1%. Specific provisions were 20 basis points, compared to 14 basis points in 3Q24. DBS wrote back S\$20 million in general allowances, maintaining a management overlay for general provisions at S\$2.4 billion.

Capital Adequacy and Return on Equity

DBS reported a Common Equity Tier-1 (CET-1) capital adequacy ratio of 17.0% as of December 2024, with a fully phased-in ratio of 15.1%. The return on equity (ROE) was an impressive 18.0% for 2024, underscoring the bank’s strong capital position and operational efficiency.

Guidance for 2025

Management has provided cautious guidance for 2025, expecting net interest income to remain slightly above 2024 levels. Despite anticipated NIM compression to around 2.10% (from 2.13% in 2024) due to two projected rate cuts, mid-single-digit loan growth is expected to offset this impact.

Non-interest income is projected to grow at a high single-digit rate, driven by wealth management and treasury customer sales. CIR is expected to remain in the low-40% range, and specific provisions are forecasted to be between 17-20 basis points. However, net profit could be slightly lower than 2024 levels due to the global minimum tax rate of 15%, which is expected to have a negative impact of S\$400 million.

Leadership and Strategic Initiatives

New CEO Tan Su Shan aims to position DBS as a “humble, hungry, and agile” organization. The bank plans to leverage generative AI to reduce operating expenses and expand high-ROE businesses, including wealth management.

DBS is also exploring potential expansion into Malaysia, considering options to support growth in Johor and the Johor-Singapore Special Economic Zone.

Valuation and Key Assumptions

The revised target price of S\$49.80 is based on a price-to-book (P/B) multiple of 2.07x for 2025, derived using the Gordon Growth Model, with assumptions of a 15.7% ROE, an 8.5% cost of equity (COE), and a 1.8% growth rate. The bank offers an attractive dividend yield of 6.6% for 2025, making it a compelling choice for income-focused investors.