DBS cuts executive salaries due to banking outage; Announces record profits in 2023

For the full year, net profit jumped 26% to a record S$10.3 billion from S$8.19 billion in 2022.

Southeast Asia's largest bank reported better-than-expected fourth-quarter net profit of S$2.39 billion – that's 2% higher than last year's profit of S$2.34 billion. Analysts expected a net profit of S$2.37 billion in that quarter, data from LSEG showed.

DBS was the first of three major banks in Singapore to report fourth-quarter earnings, and maintained its full-year net interest income forecast for 2024 at the same level as last year.

“While interest rates are expected to decline and geopolitical tensions persist, the strengths of our franchise will put us in a good position to sustain our performance in the coming year,” Piyush Gupta, CEO of DBS, said in a statement.

In an exclusive interview with CNBC after the earnings announcement, Piyush said the bank is looking at the long-term prospects in the Chinese economy.

“For us at DBS, we take a long-term view, we don't make investments based on what will happen over the next four quarters or the next two years, because we are here to stay, and so we look across cycles,” he added. “Constructive.”

On DBS's overall exposure to China, particularly in the real estate sector, Gupta said the bulk of the bank's activities were “offshore”, which supports activities outside China and not so much on the mainland.

The lender's total exposure to Chinese real estate companies, including Singapore and Hong Kong companies operating in China, was previously directed at about S$14 billion ($10.4 billion), Gupta said.

“But the bulk of that is actually activity not in China, but outside of China.”

The Bank of Singapore benefited from higher interest rates in 2023. But bank profits may slow in the second half of the year as central banks around the world begin to shift toward lowering interest rates. A higher interest rate environment tends to boost net interest income for lenders.

Net interest margin, an important measure of lending profitability, was 2.13% in the fourth quarter, slightly higher than 2.05% in the same quarter last year.

The US Federal Reserve shifted to a more dovish stance in December, with markets now pricing in interest rate cuts by the summer. the CME FedWatch tool He suggested that the first 25 basis point rate cut in 2024 could happen as early as May.

The Fed concluded its first meeting of the year in January by keeping its benchmark borrowing rate in a range of 5.25% to 5.5%.

DBS proposed a final dividend of 54 cents per share, bringing its total dividend in 2023 to S$1.92, or 28% higher than the S$1.50 paid out in the previous year.

The bank also proposed issuing bonus shares in the ratio of 1 for 10. The bonus shares will be eligible for the payment of dividends from the first interim dividend for the financial year ending December 31, 2024.

Going forward, the ordinary dividend will be S$2.16 per share for the enlarged share base in 2024, representing a 24% increase from the 2023 figure, DBS said.

This would translate into a dividend yield of 7.5%, based on the stock's closing price on February 6.

Regarding the compensation cut for its senior management, the bank said that their variable salaries were collectively reduced by 21% from the previous year due to a series of digital disruptions during the year.

John Rong Yip, a market strategist at online trading platform IG, said the compensation cut may be well received by investors.

“Reductions may also help offset some of the higher compliance costs, higher operational costs and costs allocated to enhancing system resiliency and reducing its overall impact on their bottom line.”

DBS shares jumped as much as 3% on the day, hitting their highest level in nearly a month.

In March 2023, DBS's digital services were down for approximately 10 hours, and during that period, users were unable to access online banking or place trades through its brokerage. The Monetary Authority of Singapore later said The outage was “unacceptable” and the lender “did not live up to expectations”.

There was another Outage in October.

— CNBC's Lim Hui Jie contributed to this report.

Clarification: This story has been updated to clarify that DBS has reduced variable compensation for the CEO and senior management as a result of digital disruption.