Maybank Research
May 8, 2025

DBS Group: Resilient Banking Platform Amid Global Uncertainty

Executive Summary

DBS Group’s 1Q25 results demonstrate operational resilience despite challenging market conditions following Liberation Day tariffs. The bank’s strong platform, commitment to capital returns, and “safe haven” status provide downside protection, though limited upside potential exists amid poor macroeconomic visibility. Maybank maintains a HOLD rating with a raised target price of SGD45.26 (from SGD38.48).

Strong Operational Performance Despite Headwinds

DBS’s 1Q25 core earnings aligned with Street expectations, showcasing the bank’s ability to weather volatile operating conditions. The strategic focus on high-ROE, low-capital segments has paid dividends, with wealth management revenue increasing by 35% year-on-year. The private banking division attracted SGD3 billion in net new money during the quarter, with management indicating that strong inflows have continued into 2Q25.

The bank’s wealth platform, bolstered by technology investments and new relationship manager hires, continues to attract significant inflows, particularly during periods of global volatility. Falling funding costs and strong liquidity—with CASA (current account and savings account) deposits rising to 52.6% from 46.3% in 1Q24—have enabled more trading opportunities.

While net interest margins (NIMs) contracted slightly, net interest income (NII) remained resilient as excess liquidity was deployed to high-quality, low-yield instruments and loan substitutes. Management disclosed that 50% of the Singapore dollar book is hedged, with approximately one-third of the loan book on fixed rates, which should help moderate NIM decline.

Management Guidance vs. Market Reality

Management’s guidance remains largely unchanged from the previous quarter, with stress tests indicating that first-order impacts from current geopolitical tensions would affect only 1-2% of the loan book. The bank maintains SGD2.6 billion in management general provision overlays, providing a significant buffer against potential headwinds.

However, Maybank analysts express caution regarding the extreme policy uncertainty in the US and geopolitical tensions across multiple regions, noting that in past cycles—such as during COVID-19 and the offshore and marine industry crisis—negative impacts progressed rapidly despite strong provisioning. For instance, despite a provision cover of 153% in 2015, credit charges increased from 26bps to 48bps by 2016, while in 2020, credit charges surged to 83bps from 20bps the year before.

Balance Sheet Strength and Capital Returns

Management has reaffirmed its commitment to capital returns according to the original plan, which should support dividend yields exceeding 7% through 2027E, along with continued share buybacks. The bank’s strong financial position—characterized by a 17.4% CET1 ratio, 137% non-performing asset coverage, and “safe haven” status derived from its “Singapore Inc.” positioning—should limit downside balance sheet risks.

However, current operating conditions constrain meaningful upside growth potential. Maybank’s multi-stage dividend discount model (with cost of equity at 8.8% and 3% terminal growth) yields a revised target price of SGD45.26, up from SGD38.48 previously.

Financial Performance Highlights

Income Statement Analysis

DBS reported total income of SGD5.9 billion for 1Q25, representing a 6.3% increase year-on-year and a 7.3% improvement quarter-on-quarter. This growth was driven by:

• Net interest income of SGD3.68 billion (+5.0% YoY, -1.3% QoQ)
• Non-interest income of SGD2.22 billion (+8.4% YoY, +25.2% QoQ), bolstered by record trading income and treasury customer sales
• Net fee income reaching new highs, led by wealth management and loan-related fees

Pre-provision operating profit (PPOP) increased by 6.1% YoY to SGD3.69 billion, while core net profit declined slightly by 2.0% YoY to SGD2.9 billion, primarily due to higher tax expenses from the implementation of the 15% global minimum tax.

Asset Quality and Provisions

The bank set aside SGD325 million in allowances for credit and other losses, representing a 140.7% increase year-on-year. This increase was primarily driven by a cautionary general provision of SGD205 million established to strengthen reserves in light of geopolitical and macroeconomic uncertainties. Specific provisions, however, halved primarily due to the write-back of a one-off case.

Gross non-performing loans remained stable at 1.1%, unchanged from both the previous quarter and the same period last year.

Balance Sheet Strength

DBS maintained a robust balance sheet position:

• Net loans increased by 2.5% YoY and 1.1% QoQ to SGD435.3 billion, with growth primarily in non-trade related loans while consumer loans remained flat
• Deposits grew by 5.2% YoY and 2.5% QoQ to SGD575.7 billion
• CASA ratio improved to 52.6%, driven by strong inflows from both Singapore and foreign accounts, particularly low-cost CASA deposits
• Management expects the upward trend in CASA ratio to continue

Forecast Revisions and Outlook

Maybank has revised its earnings forecasts for DBS, increasing 2025-27E EPS by 3-6% to reflect strong trading and fee income performance. Key changes include:

• Non-interest income projections increased by 7-10% across 2025-27E
• Total income forecasts raised by 1-3% for the same period
• Operating expenses projected to decrease by 1-2% due to improved efficiency
• Pre-provision operating profit forecasts increased by 3-7%

For 2025E, Maybank now anticipates:

• Net interest margin of 1.89% (-3 bps from previous forecast)
• Gross NPL ratio of 1.2% (unchanged)
• Credit charge of 20bps (unchanged)
• Core net profit of SGD10.84 billion (+4% from previous forecast)

Investment Thesis and Valuation

DBS Group represents Southeast Asia’s largest bank by assets, with particular strengths in large corporate loans, cash management, and wealth management. The bank commands over 50% market share of SGD CASA deposits through its strong heartland banking franchise and maintains a solid USD funding base through its Hong Kong operations.

The current strategy focuses on commercial banking following earlier attempts to transform into a universal bank pre-GFC. DBS has been expanding its presence in South and South Asia, particularly in India and Indonesia, and has positioned itself as an early adopter of technology and automation, creating opportunities for new revenue streams and cost savings.

Swing Factors

Upside potential:

• Stronger China reopening could drive better loan demand and fee income
• Large wealth management inflows currently sitting as deposits could be diverted to higher fee-generating products
• Larger footprint in Malaysia could drive JS-SEZ upside synergies

Downside risks:

• Escalation of ongoing US trade war and tariffs could lead to black swan events
• Increased asset quality risks from a slower recovery in China and pressure on SMEs from higher interest rates
• Large M&A in regional countries could introduce integration and execution risks

Conclusion

DBS Group demonstrates operational resilience amid challenging market conditions, with its strong platform providing a cushion against downside risks. However, the potential for significant earnings upgrades remains limited given poor macroeconomic visibility. The bank’s commitment to capital returns and its “safe haven” status should continue to support investor confidence, though current valuations already reflect much of this strength. Maybank maintains a HOLD rating with a target price of SGD45.26.