DBS looks to volume growth to mitigate falling interest rates; stock soars to record high

[SINGAPORE] DBS expects deposits volume growth will continue to support net interest income for 2025, even as its net interest margin (NIM) declines due to falling interest rates, said chief executive Tan Su Shan.

Speaking at the lender’s second-quarter results briefing on Thursday (Aug 7), Tan flagged changes in interest rates and foreign exchange (forex) as the biggest risks to performance; she said, however, that this could be mitigated by volume growth.

“Don’t focus on NIMs, because the NIM will go down with the markets, but the net interest income can go up with volumes, and that’s how you mitigate that, and also how you hedge your net interest income risk nimbly.”

Tan expects the bank’s ability to manage balance sheets, grow deposits and capture market share will help tide it through uncertainty and hit its 2025 target of having group net interest income slightly above 2024 levels.

Meanwhile, DBS continues to boost structural growth in wealth management, global transaction services, digitalisation, financial institutions.

Q2 results

DBS on Thursday posted a year-on-year rise of 1 per cent in net profit to S$2.82 billion for Q2, beating the S$2.79 billion consensus forecast in a Bloomberg survey of six analysts.

After the results were released, DBS shares hit as high as S$50, reaching an all-time high.

Commercial book net interest income fell 4 per cent to S$3.63 billion; NIM fell 28 basis points (bps) year on year to 2.55 per cent due to US Federal Reserve rate cuts, as well as lower Singapore Overnight Rate Average and Hong Kong Interbank Offered Rate.

This was mitigated by balance sheet hedging and partly offset by strong deposit growth.

Tan said that because forex rates drive interest rate volatility, there is a need for the bank to be nimble with interest rate swaps and forex hedging.

Deposits in Q2 rose 7 per cent on year in constant-currency terms to S$574 billion, from increases in both fixed deposits and current and savings accounts.

Having seen sustained momentum in July, Tan expects deposits growth will continue for the rest of the year.

The growth in deposits exceeded loan growth, and the surplus was deployed into liquid assets, which was accretive to net interest income and return on equity, though it modestly reduced NIM.

Return on equity for Q2 stood at 16.7 per cent, down from 18.2 per cent a year earlier.

Meanwhile, Q2 loans rose 4 per cent in constant-currency terms to S$433 billion, led by non-trade corporate loans from broad-based growth across industries.

Tan said the lender has seen structural growth in its loans; it has been increasing market share by deepening its industry expertise, and winning lead manager roles.

She still sees opportunities for strong growth in non-trade corporate loans in segments including tech, as well as in logistics and transportation.

Commercial book net fee and commission income was up 11 per cent at S$1.17 billion, largely due to higher wealth management fees, while investment banking fees were higher from increased debt and equity capital market activity.

Tan said the lender’s fee income was “quite pleasing”, given that growth was across the board in wealth fees, loan fees and treasury sales fees.

Commercial book other non-interest income increased 9 per cent to S$522 million, driven by strong treasury customer sales to wealth management and corporate customers.

Markets trading income, meanwhile, more than doubled to S$418 million from higher contributions across a range of activities, benefiting from lower funding costs and a more conducive trading environment.

The bank’s non-performing loans ratio fell to 1 per cent, from 1.1 per cent the same period a year earlier, as new non-performing asset formation stayed low and was more than offset by higher repayments and write-offs.

DBS declared an ordinary dividend of S$0.60 per share and a capital return dividend of S$0.15 per share for the period.

This brings the quarter’s total dividend payout to S$0.75 per share, compared with the S$0.54 in the year-ago period.

DBS kept its 2025 guidance. It expects commercial book non-interest income growth to be mid- to high-single digits, supported by a double-digit growth in wealth management; cost-income ratio to be in the low-40 per cent range; and specific provisions will normalise to 17 to 20 bps in the second half.

Overall, it is guiding for net profit to be below 2024 levels mainly due to global minimum tax of 15 per cent.