DBS Group Holdings Ltd (SGX:D05) is the largest financial institution by asset in the Southeast Asia region. At the end of 2016, the bank has presences in 18 markets globally. It has a total asset base of about S$482 billion. The two key markets of the bank are Singapore and Greater China. The two markets contributed about 66% and 25% respectively of the group income.
DBS Group is now a well-integrated bank with a wide range of services from retail banking, institutional banking, wealth management and brokerage house.
TICKER SYMBOL: SGX:D05
MARKET CAP: SGD 48 Billion (Updated 25 Apr 2017)
DBS Group Holdings Ltd is one of the key constituent stocks in the Straits Times Index. The company has about a 12% weighing on the index. It provides a full range of financial services for its customers. In Singapore, it has the widest retail banking reach among its competitors, mainly due to its acquisition of POSB Bank in 1998.
DBS Group generated more than S$11 billion of revenue worldwide. 66% of its revenue is produced by its Singapore operation. Apart from that, the bank has a large presence in Hong Kong, its second largest market. It entered the Hong Kong market mainly through acquisitions over the past two decades. Currently, Hong Kong contributes about 18% of revenue for the group.
- Reversal of Interest Rate
The interest rate environment has been weak for close to a decade now. The low interest rate environment caused banks like DBS Group to be squeezed on their margin when making a loan. In theory, if interest rates are higher, the banks would be able to increase their prices on their loans. Thus increasing their profits as well. Although in practice, it might be slightly more complicated. For one, banks need to finance their operations as well. Raising interest rates would mean higher cost for them as well. However, in generally, we could see higher profits during rising interest rate environment for banks.
Therefore, if we are nearing the end of the low interest rate environment now, banks might be looking forward to better margins in the future.
- Going Global, Going Digital
DBS Group is placing a lot of emphasis on becoming a digital bank. In fact, it has been recognized by Euromoney as the World’s Best Digital Bank. The company launched a fully mobile-only bank in India. The DBS digibank in India is completely paperless, signatureless and branchless. It is a very innovative method of banking and DBS could expand this experiment into other markets as well.
- Wealth Management
Another area of growth for the company is its wealth management business. It has seen its revenue from this segment growing at 21% per annum from 2012 to 2016. Currently, DBS Group has the largest asset under management (S$166 billion) for its wealth business compared with its local peers.
- Banking Future of Hong Kong
Hong Kong is currently the second largest market for the company. However, Hong Kong has always been seen as the gateway to China. Yet, as China opens up to the world, there might be a lesser need for a “gateway” at all. If that is the case, the financial sector in Hong Kong might not see such a high demand for its services in the future.
Although the company is voted as the best digital bank, the real threat to the whole banking industry might not be coming from any bank. Successful technology companies are attacking the financial industry. Fintech such as Alipay, WeChat pay and Paypal are growing rapidly. They are able to gain market share in the digital payment space and even attracted depositors to their accounts.
As these services grew more global and more integrated, it might replace some of the core services of a bank like DBS Group.
DBS Group Holdings provides a dividend yield of about 3.1% and trades at a price to book of about 1.1 times (April 2017).
- Oversea-Chinese Banking Corp. Limited (SGX: O39) (O39 10.93 +0.18 +1.67%)
- United Overseas Bank Ltd (SGX: U11) (U11 23.24 +0.30 +1.31%)
- HSBC Holdings PLC (HKG:0005) (0005 71.25 +2.75 +4.01%)
Investor Relation Material:
Head of Investor Relations
Tel: +65 6878 4751
Yan Kai Yin
VP, Investor Relations
Tel: +65 6878 5751
Yeoh Hong Nam
Head of Wholesale & Structured Funding
Tel: +65 6878 1618
SVP, Corporate Treasury
Tel: +65 6878 8530
Top Shareholders ( 31st Dec 2016)
- Temasek Holdings (18.34%)
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned.