Driving transparency
High levels of ESG disclosures, plus dividends. BUY
Under our enhanced ESG 2.0 scoring methodology, DBS emerges with a score of 78 – significantly above average. The Group has set a clear pathway to achieving Net Zero and has strong levels of transparency around its emissions and targets. Increased disclosure of Scope 3 financed emissions, improvements in Board diversity and independence compared to global banks could further improve its score going forward, in our view. Better prospects from increasing interest income and potentially higher dividends should drive earnings momentum. Maintain BUY.
Transparent targets, clear Net Zero commitment
DBS has published a clear, science-based approach to achieving Net Zero. By 2023, the Group plans to disclose decarbonisation transition pathways and set interim targets for 2030. While it publishes Scope 3 operational emissions, disclosure of financed emissions are at an early stage. However, DBS is targeting detailed reporting by 2024. Notably, under its social targets, the Group has increased sustainable investing AUM for its private banking products to 53% vs. a target of 50% by 2024. A significant portion of its financial inclusion strategy is based on digitalized banking access. Risks here from disruptions and cyber-security need to be watched.
Improvements to diversity, board independence could drive score higher
While DBS has maintained a higher proportion of women in senior management roles, the proportion of women in the overall workforce has declined to 49% in 2021 (vs. 51.9% in 2019). Similarly, the proportion of female directors in the Board has fallen to 20% (vs. 27% 2020) and sits lower compared global peers such as HSBC (5 HK, HKD40.30, NR). Also, the mix of independent directors on its board is lower compared to 5 HK. Improvements here, as well as lower waste and energy consumption could drive the Group’s overall scoring higher, in our view.
NIMs set to rise, asset quality benign. Maintain BUY
We expect improving prospects for net interest income in 2H22 as asset re-pricing accelerates supported by the Fed’s rate hikes. We believe there is significant upside risks to dividend payouts going forward as the Grouplooks to return excess capital. Asset quality is a key risk, especially from North Asia, but the Group’s strong portfolio and provisioning provides significant buffer. A potential China re-opening and a turnaround in wealth fees are near term catalysts. Maintain BUY.
