DBS, Asia’s leading bank

DBS Group (“Wide Moat”) is a Singapore-based banking group that provides a full range of banking services to individuals, small and medium-sized businesses, corporations and institutions.

Its footprint is concentrated in Singapore and Greater China.

The recent acquisition of Lakshmi Vilas Bank in India has strengthened the bank’s operations in the country.

The acquisition of Citibank Taiwan’s assets is also expected to increase the size of DBS’s operations in that country.

The bank’s wealth management business is one of the largest in Asia, with assets under management totaling SGD 291 billion at the end of 2021.

External and organic growth

The DBS Group has expanded its reach through acquisitions over the past decade, but organic growth is the main driver of earnings for the future.

We expect the bank to build on its existing infrastructure and increase its products through its distribution channels.

Small and medium-sized businesses, banking and wealth management are the main areas of interest.

All are being harnessed to increase trade in the Asian region, which benefits from the growth of the middle class and incomes as regional economies thrive. The bank has also launched digital banks in India and Indonesia.

Technological investments

The DBS Group has invested heavily in the technology of its client applications, internal platforms and back-end system. L

The bank benefits from its investments in customer experience and customer acquisition, which are made at a lower cost thanks to its online platform.

The former led to improvements in survey rankings relative to peers.

The operating ratio of its digital channel is 45% versus over 50% of its traditional channel.

Productivity has also increased, with management citing internal platforms for better customer engagement.

On the backend, processes were automated while systems moved to the cloud.

Consolidation has seen its data center footprint shrink.

In our view, investments should lead to a lower long-term cost / income ratio. The scalability of the banking platforms means that they are spread across multiple geographic areas of the bank.


The appetite for acquisitions remains and is reflected in the acquisition of Lakshmi Vilas Bank in India, Citibank’s business in Taiwan and a 13% stake in Shenzhen Rural Commercial Bank.

We view investments as strategically positive.

The bank has demonstrated strong execution in previous acquisitions, additional previous acquisitions are possible that enhance the scale of existing operations, create cross-selling opportunities and expand its product range.

The purchase of private banking business in Asia from General Company early 2014 and the retail and private wealth assets ofANZ in five regions of Asia are examples.

Interesting evaluation

Our fair value estimate is SGD 41, which represents an FY2025 price / book ratio of 1.7 times and a price / earnings ratio of 13.5 times.

As we are in the early stage of the interest rate cycle and profitability is expected to improve from there, we expect the bank to trade at a higher multiple than its long-term average. .

We expect the return on equity to reach 16% in 2023.

Increase in tariffs

As the US Federal Reserve expects to raise interest rates over the medium term, our net interest margin expects to increase from 1.45% in fiscal year 2021 to 2.06% in 2023.

The bank found an impact from SGD 18 million to SGD 20 million based on a one point increase in USD interest rates.

We expect net interest income for 2024 to decline slightly to a normalized level towards our explicit forecast period.

We also expect interest income to be supported by asset growth and assume average loan growth of 7% over five years.

With economic activity resuming after the COVID-19 pandemic in 2020, loan growth of 9.5% was strong in 2020.

We expect moderate growth of 5% in fiscal year 2022.

Loan growth of 9% in fiscal 2023 is supported by the closure of Citibank’s Taiwan operation in mid-2023.

In the longer term, loan demand is supported by economic growth in the Asian region, increased regional trade and a favorable demographics.

Wealth management

Singapore and Greater China are expected to remain key growth markets, with India as a new growth market for the bank.

We also expect the bank’s wealth management businesses to benefit from increased revenues in the region.

The bank’s wealth management platform continues to grow at a rapid pace, with assets under management reaching SGD 291 billion at the end of 2021, up from SGD 134 billion in 2014. Acquisitions also contributed to this increase .

The higher level of managed savings supports the increase in net commissions in the medium term.

We assume a five-year compound annual growth of 11% in net fee and commission income, taking into account the bank’s latest acquisition of Citibank’s Taiwanese operations.

© Morningstar, 2022 – The information contained herein is for educational purposes and provided for informational purposes ONLY. It is not intended and should not be construed as an invitation or encouragement to buy or sell listed securities. Any comment is the opinion of its author and should not be considered a personalized recommendation. The information contained in this document should not be the only source for making an investment decision. Be sure to contact a financial advisor or financial professional before making any investment decisions.

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