Maybank Research Pte Ltd.
May 8, 2025
DBS Group: Navigating Volatility with a Resilient Platform and Cautious Outlook
DBS Group’s first-quarter 2025 core earnings landed in line with Street expectations, showcasing the resilience of its robust platform amidst volatile operating conditions. While management maintains guidance similar to that issued pre-Liberation Day, Maybank Research adopts a more cautious stance on the near-term outlook. The bank’s strong commitment to capital returns and its perceived ‘safe haven’ status provide a significant cushion against potential downside risks on the balance sheet. However, the limited visibility in the macroeconomic environment is seen as constraining the potential for substantial earnings upgrades. Consequently, Maybank Research has raised its target price to SGD45.26 but is maintaining a HOLD recommendation on the stock.
Operational Resilience Driven by a Strong Platform
The strategic focus on high Return on Equity (ROE), low-capital segments continues to yield positive results for DBS. The wealth management business, in particular, saw a significant rise of 35% year-on-year in 1Q25. Net new money inflow into the private bank amounted to SGD3 billion during the quarter, with management reporting continued strong inflows into the second quarter. DBS’s well-established wealth platform, bolstered by ongoing technology investments and new Relationship Manager hires, is expected to remain a key magnet for inflows, especially in the current climate of global volatility.
Falling funding costs coupled with robust liquidity levels – reflected in a Current Account Savings Account (CASA) ratio improving to 52.6% in 1Q25 from 46.3% in 1Q24 – are enabling enhanced trading opportunities. Despite a decline in Net Interest Margins (NIMs), Net Interest Income (NII) remained relatively stable as excess liquidity was strategically deployed into high-quality, albeit lower-yielding, instruments and loan substitutes. Management indicates that 50% of the SGD book is hedged and one-third of the loan book is on fixed rates, strategies intended to moderate the impact of falling NIMs. Reflecting the strength in trading and fee income, Maybank Research has raised its earnings per share (EPS) estimates for 2025-2027 by 3% to 6%.
Management Confidence vs. Cautious Analyst View
Management guidance remains largely unchanged from the post-4Q24 period. Internal stress tests suggest that first-order impacts, considering vulnerable sectors with exposure to US trade dynamics, would affect only 1-2% of the loan book. Management also expressed satisfaction with the outcomes of second-order stress tests. The Group holds a substantial buffer of SGD2.6 billion in management General Provision (GP) overlays, providing significant protection.
However, Maybank Research remains cautious due to extreme US policy uncertainty and geopolitical tensions across various regions, highlighting the potential for unforeseen ‘unknown-unknowns’. Historical cycles, such as the Covid pandemic and the Oil & Marine (O&M) crisis, demonstrated how negative impacts can accelerate rapidly despite strong provisioning levels. For instance, despite a provision cover of 153% in 2015, credit charges increased from 26 basis points (bps) to 48 bps by 2016. Similarly, in 2020, credit charges surged to 83 bps from 20 bps in the preceding year.
Balance Sheet Strength and Valuation
DBS management has reiterated its commitment to capital returns in line with the original plan. This commitment is expected to support attractive dividend yields exceeding 7% through 2027E, complemented by share buybacks. The bank’s strong capital position, with a Common Equity Tier 1 (CET1) ratio of 17.4%, robust Non-Performing Asset (NPA) coverage of 137%, and the inherent ‘safe haven’ appeal derived from its ‘Singapore Inc.’ status, are expected to limit downside risks to the balance sheet. Conversely, the prevailing operating conditions are seen as limiting the potential for significant upside growth.
Maybank Research’s target price is raised to SGD45.26 from SGD38.48, based on a multi-stage Dividend Discount Model (DDM) utilizing a Cost of Equity (COE) of 8.8% and a terminal growth rate of 3%. The HOLD rating is maintained.
Key Financial Highlights (1Q25)
SGDm 1Q25 1Q24 YoY (%) 4Q24 QoQ (%) Comments
Net interest income 3,681 3,505 5.0 3,728 -1.3 Improvement YoY led by balance sheet expansion with excess liquidity parked in low-yield, high quality instruments
Non-interest income 2,224 2,052 8.4 1,777 25.2 YoY growth led by record trading income and treasury customer sales. Net fee income also hit a new high led by wealth management and loan-related fees
Total income 5,905 5,557 6.3 5,505 7.3
Total expenses (2,214) (2,079) 6.5 (2,395) -7.6 YoY increase resulting from higher staff costs, partly driven by ongoing plans to hire new RMs
Profit before allowances 3,691 3,478 6.1 3,110 18.7
Allowances (325) (135) 140.7 (209) 55.5 2.4x increase YoY due to cautionary GP of SGD205m being set aside to strengthen reserves in light of geopolitical and macro uncertainty. While SP halved…
Profit before tax 3,437 3,388 1.4 2,966 15.9
Core Net Profit 2,897 2,956 -2.0 2,622 10.5 27% of MIBG and 24% Street 2025E, YoY decline due to higher tax expense from implementation of 15% global minimum tax
Reported Net profit 2,897 2,951 -1.8 2,522 14.9
NIM (Reported) % 2.12% 2.14% (2) 2.15% (3) Decline in NIMs driven by lower interest rates with impact stabilized by balance sheet growth
Cost/income ratio 37.5% 37.4% 10 43.5% (600) QoQ improvement led by well managed opex and fall in expenses (-8% QoQ) partly due to non-recurring items in 4Q24
Net Loans 435,295 424,833 2.5 430,594 1.1 Weak growth driven by non-trade related loans, consumer loans remained flat
Deposits 575,663 547,197 5.2 561,730 2.5 CASA ratio improved to 52.6%, driven by strong SG and Foreign CASA inflows, particularly from low-cost CASA. Management expects upward trend to maintain going forward
Gross NPLs 1.1% 1.1% – 1.1% –
Source: Company Data, Maybank IBG Research
Revised Assumptions and Financial Outlook
Maybank Research has updated its financial model for DBS Group, reflecting changes primarily in non-interest income and expenses, while keeping loan and deposit growth assumptions stable. Allowances for credit losses are revised upwards for 2027E.
2025E 2026E 2027E
Net Interest Income Old: 14,796 New: 14,607 -1%
Non-interest income Old: 7,514 New: 8,058 7%
Total Income Old: 22,309 New: 22,665 2%
Total Expenses Old: (9,364) New: (9,225) -1%
PPOP Old: 12,945 New: 13,439 4%
Allowance for credit and other losses Old: (886) New: (886) 0%
PBT Old: 12,264 New: 12,758 4%
Core-Net Profit Old: 10,423 New: 10,843 4%
NIM Old: 1.91% New: 1.89% -3 bps
Gross Loans Old: 451,692 New: 451,692 0%
Deposits Old: 586,773 New: 586,773 0%
Total NPA Old: 5,904 New: 5,904 0%
Source: Maybank IBG Research
The forecast indicates a slight decline in NIMs in 2025E and 2026E before a modest recovery in 2027E. Non-interest income is expected to see robust growth, particularly in 2027E. Expenses are projected to grow at a slower pace than income, leading to improved pre-provision profit growth. Core Net Profit is forecast to decline in 2025E and 2026E before rebounding in 2027E, partly influenced by changes in tax expenses and allowances. Gross Loans and Deposits are assumed to grow steadily, while Total NPA is expected to increase in 2025E and 2026E before decreasing in 2027E.
Key Ratios and Historical Trends
Analysis of key ratios shows the bank’s performance and expected trajectory:
Profitability: Non-interest income is projected to contribute an increasing share of total income, reaching 37.4% by 2027E. Net Interest Margin is expected to compress in the near term. The Cost-to-Income ratio is forecast to increase slightly in 2025E and 2026E before improving in 2027E.
Liquidity: The Loans-to-Customer Deposits ratio is forecast to remain stable, slightly below 80%.
Asset Quality: Gross NPLs are anticipated to tick up in 2025E and 2026E, peaking at 1.5%, before easing to 1.4% in 2027E. Credit charges are expected to rise to 20 bps in 2025E, peaking at 36 bps in 2026E, reflecting geopolitical volatility concerns. Provision coverage is forecast to fluctuate but remain above 110%.
Capital Adequacy: The CET1 ratio is projected to remain strong, peaking at 17.6% in 2025E before moderating in 2026E and 2027E, well above regulatory requirements.
Returns: Return on Average Equity (ROAE) is forecast to average 14.8% between 2025E and 2027E, a structurally higher level than the past decade. Return on Average Assets (ROAA) is expected to hover around 1.1-1.3%.
Historically, DBS has shown volatility in Net Interest Income and Core-earnings growth year-on-year, influenced by market cycles and provisioning needs. NIMs have fluctuated, peaking recently and expected to decline. Gross NPLs have remained relatively low and stable, while provision coverage has generally been strong.
Value Proposition and Key Drivers
DBS stands out as Southeast Asia’s largest bank by assets, boasting strengths in large corporate loans, cash management, and wealth management. It holds over 50% market share in SGD CASA deposits, supported by its strong retail franchise and a robust USD funding base via Hong Kong operations. The bank has strategically refocused on commercial banking and is expanding its presence in South and South Asia, including India and Indonesia. Early adoption of technology and automation provides opportunities for new revenue streams and cost efficiencies.
Key financial metrics indicate that NIMs are expected to fall in 2025E as funding costs rise and potential interest rate cuts occur. High rate environment and macro uncertainty, particularly from potential US trade tensions, could modestly increase NPLs and credit charges, with the latter peaking in 2026E. Despite these pressures, Core-ROE is expected to be structurally higher.
Swing Factors
Upside Potential:
Stronger-than-expected economic recovery in China could boost loan demand and fee income.
Large wealth management inflows currently held as deposits could shift into higher-fee generating products.
Potential upside synergies from a larger footprint in Malaysia, particularly related to the JS-SEZ initiative.
Downside Risks:
Escalation of the ongoing US trade war and imposition of tariffs could trigger a “black swan” event.
Increased asset quality risks stemming from a slower recovery in China or pressure on Small and Medium Enterprises (SMEs) from elevated interest rates.
Risks associated with integration and execution challenges from potential large Merger and Acquisition (M&A) activities in regional countries.
Historical Recommendations and Target Price for DBS Group (DBS SP)
Date Recommendation Target Price (SGD)
9 May Buy 37.5
4 Aug Buy 38.3
3 Nov Buy 38.8
10 Mar Buy 35.6
2 May Buy 35.0
3 Aug Buy 35.8
6 Nov Buy 34.4
7 Feb Buy 34.2
2 May Buy 38.9
7 Aug Buy 38.8
14 Oct Buy 44.1
7 Nov Buy 46.9
10 Feb Buy 51.4
9 Apr Hold 38.5
8 May Hold 45.3
Source: Maybank IBG Research
