February 7, 2024

Safe and Stable? Confidence shaken by the small things that matter. 

Outlook Summary:

• Revenue is in line with expectations, although net income fell short of analysts’ expectations.

• With interest rates still elevated, the return on equity (ROE) could still be hovering around 15%-17% levels, similar to 2022.

• Higher for longer interest rates will bring stronger Net Interest Margin (NIM) numbers but loan growth will still be weak.

• Push for continued digital transformation adversely affected by the multiple disruptions and digital outages over the past year.

• Exposure to the recent money laundering scandal may not affect flows but could dent investors’ confidence.

Investment / Trading Factors:

With interest rates still seemingly staying higher for longer, and the US Federal Reserve not looking to cut rates anytime soon, this would bring a net benefit to earnings. Previously, DBS CEO Piyush Gupta highlighted that as long as interest rates remain elevated, NIM would continue to grow steadily. A check by Bloomberg shows that analysts are still expecting the bank’s profits to grow by 24% with much of the contribution coming from NIM gains.

Another area of growth for the bank would be the consumer banking and wealth management segment. This segment accounts for 40.32% of the bank’s buisness model. Following the complete integration of Citibank (Taiwan)’s consumer banking business, DBS is now the biggest foreign bank in Taiwan. Despite the higher inflation and slowdown in economic growth across the region, consumer spending data remains robust. Credit card spending remains a key income stream for the bank. CEO Piyush Gupta highlighted in his 3Q earnings call that fee income momentum continues to be sustained by card spending and wealth management. A report by Bloomberg showed that for the greater part of 2023, credit card spending contribution to total fee income for DBS was 28%.

With regards to the bank’s property portfolio, CEO Piyush Gupta has made it clear at a briefing that despite the bank’s exposure to the recent money laundering scandal in Singapore, he still sees new funds continue to flow into the bank and he does not expect to see flows suffer. Additionally, given the slump in the Chinese property market, at the previous earnings call, it was made clear that there was no exposure to large/mid-tier sectors. The bank’s exposure is related more to top-end names such as Swire, Jardines and Henderson. CEO Piyush still sees these companies as fundamentally strong and do not see signs of further stress.

Downside Risks:

A few headwinds that could impact the business and affect growth:

1.        Macroeconomic slowdown and unforeseen geopolitical risks/escalation.

2.        Failure  to overcome the several disruptions that comes with the further push into digital transformation

3.       Intangible hit to the bank’s reputation should further cases of money laundering come to light.

With a large part of the business having to do with loans and interest bearing products, investors would, under normal circumstances, expect revenues and profits to continue to grow. However, in 2024, these are not the normal circumstances that the bank is. facing. Given that the markets are seeing “higher for longer” interest rates, and with inflation not cooling as quickly as expected, analysts are expecting loan growth to slow as companies hold back on taking on more loans and opt to cut back on costs instead.

Further, over the course of 2023, in its aggressive push for digital transformation, DBS has had to deal with at least 5 major service disruptions – all relating to digital banking or digital services. Singapore’s regulator, the Monetary Authority of Singapore (MAS) has also gone as far as to reprimand and impose additional capital requirement totalling about $1.6 billion.. After reshuffling management and penalties imposed, it remains to be seen if DBS is able to prevent any such further disruptions. Failure to do so would definitely cause share price and earnings to take a hit in the future. In the latest earnings announcement, DBS CEO Piyush Gupta accepted a 30% reduction in his pay, following senior management committee pay cuts last year.

Finally, given the recent money laundering scandal which hit Singapore’s shores, more stringent anti-money laundering (AML) and customer due diligence (CDD) processes have been implemented not just in DBS but across the other banks as well. This would result in higher administrative costs for the bank and at the same time, the delays in approvals of accounts would adversely impact the wealth management business as well. Further, should there be further cases of money laundering, this would definitely affect the bank’s reputation as well.


From a technical perspective, DBS’s share price is drifting lower below the key long term resistance at $33.40, which price failed to surpass despite multiple tests in the past. With share price now holding below $32.36, which is also in line with the 21-day moving average, and MACD momentum indicator is signalling a slowdown in bullish momentum, we can expect an intermediate drop towards near term support at $31.00. A daily close below $31.00 will strengthen the bearish case and see price breakdown lower towards next support at $29.70.

Alternatively, should share price shape a close above near term resistance at $32.36, it is possible to see price push higher to re-test long term resistance at $33.40 once more.

Company Description:

DBS Group is a Singapore-based banking group offering a full range of services to consumers, small to midsize enterprises, and corporations and institutions. Its main presence is in Singapore and Greater China. The acquisition of Lakshmi Vilas Bank has strengthened DBS’ operations in India, and the acquisition of Citibank’s Taiwan operation should bring additional growth in Greater China. DBS’ wealth management division is one of the largest in Asia, with assets under management of SGD 320 billion as of June 2023.

NEUTRAL by Moomoo Financial Singapore. Share price closed at S$32.45