Low credit costs poised to stay
? DBS’s 4Q21 net profit of S$1.39bn was 4%/6% below our/consensus estimates. The miss was due to lower treasury income and wealth fees.
? Business and credit outlook resilient but DBS revised its FY22F loan growth target lower to mid-single digit amid US market sell-off and China slowdown.
? Reiterate Add. Dividend guidance raised to S$1.44 in FY22F.
4Q21 net profit was weaker qoq due to softer market-related income
? DBS recorded 4Q21 net profit of S$1.39bn. This was 4% below our and 6% below consensus estimates. FY21 made up 99% of our/consensus full-year forecasts. The miss was due to weaker gains from investment securities and trading income as well as softer-than-expected wealth management income.
? DBS declared final DPS of S$0.36 for 4Q21, bringing FY21 dividends to S$1.20 (FY20: S$0.87). According to DBS, annualised DPS will rise to S$1.44 in 2022 barring unforeseen circumstances.
? CET1: 14.4% in 4Q21 (3Q21: 14.5%). ROE: 11% in 2H21, FY21: 12.5% (3Q21: 12.1%,
FY20: 9.1%).
Softer PPOP made up for by steady cost control and 3bp credit cost
? NIM was flattish qoq at 1.43% in 4Q21 (3Q21: 1.43%). Although loan growth was weaker qoq at 1.1% in 4Q21 (3Q21: +3.5% qoq), NII growth was positive (+1.7% qoq) as S$ rates stabilised. Loan growth in 4Q21 was led by non-trade corporate loans in Singapore and Greater China. Consumer loans rose on the back of higher housing and wealth management loans. Full-year loan growth came in at c.10% in FY21, stronger than the 3.7% recorded in FY20.
? Fee income was weaker due to lower wealth management fees in 4Q21. That said, credit card fees regained its pre-Covid-19 momentum while trade and transaction fees held steady. Treasury income was below our expectations at S$338m in 4Q21 (-41% qoq/-15% yoy). Overall non-II dipped 21% in 4Q21 (+1% yoy).
? On balance, PPOP was 14% lower qoq (-4% yoy) but this was made up for by low impairment expenses and disciplined cost control. CTI was higher at 51% in 4Q21 vs. 3Q21 but this was due to weaker income. Absolute expenses were steady qoq.
? DBS recorded impairments of S$33m; this translated into 3bp credit costs in 4Q21. This was made up of 6bp in specific provisions and 3bp general provision writeback. Full-year credit costs came in at 1bp, significantly lower than the 83bp recorded in FY20 as the bank put aside precautionary buffers (management overlays).
Business and credit outlook expected to remain resilient
? DBS guides for mid-single-digit loan growth or better (from mid-to-high single-digit previously) and double-digit fee income growth in 2022. DBS highlights potential risks from US market sell-off and China slowdown.
? Its balance sheet is poised to benefit from rising interest rates, with NII sensitivity of S$18m-20m per bp movement of US$ rates. Expense growth was slightly above 2021.
? Total allowances are expected to remain similar to 2021, barring unforeseen circumstances. Any credit impact from rising interest rates is expected to be moderate. Potential risks could come from the SME portfolio but this is well stress-tested and secured.
? Share price performance could be lacklustre on the back of this set of results as DBS highlights slower growth ahead amid the market sell-off in US and China slowdown. We retain our Add call and GGM-based TP of S$39.20.