DBS Group, Southeast Asia’s largest bank, reported record earnings for the full year in 2023. However, the bank made a bold move by cutting the variable compensation for its senior management. This decision was prompted by a series of digital disruptions that occurred during the year, aimed at holding the management accountable for the issues faced. Chief Executive Piyush Gupta experienced a significant cut in his variable pay, with a reduction of 30%, totaling 4.14 million Singapore dollars ($3.08 million).
Despite the challenges, DBS Group witnessed a remarkable 26% jump in net profit for the full year, reaching a record SG$10.3 billion compared to SG$8.19 billion in 2022. The bank’s fourth quarter net profit of SG$2.39 billion exceeded expectations, marking a 2% increase compared to the previous year. Analysts had predicted a net profit of SG$2.37 billion for that quarter, according to data from LSEG.
DBS Group faced digital disruptions in March 2023 when its digital services were disrupted for approximately 10 hours. Users were unable to access online banking services or make trades via its brokerage platform. The Monetary Authority of Singapore expressed its dissatisfaction, deeming the outage “unacceptable” and stating that the bank had “fallen short of expectations.” This incident became a significant factor in the subsequent reduction of senior management compensation.
The bank’s profits benefited from higher interest rates in 2023, which led to increased net interest income. However, DBS Group anticipates a potential slowdown in profits during the second half of the year. This projection aligns with the global trend of central banks moving towards interest rate cuts. A higher interest rate environment tends to boost lending profitability, as indicated by the bank’s net interest margin of 2.13% in the fourth quarter, slightly higher than the 2.05% in the same quarter the previous year.
The U.S. Federal Reserve shifted to a more dovish stance in December, with market expectations pointing towards rate cuts by summer. The CME FedWatch tool suggests that the first 25-basis-point rate cut in 2024 could occur as early as May. The first Fed meeting of the year established a borrowing rate range between 5.25%-5.5%. These global central bank actions pose potential challenges for DBS Group’s profit outlook for 2024.
DBS Group proposed a final dividend of 54 cents per share, resulting in a total dividends distributed in 2023 of SG$1.92. This amount reflects a 28% increase compared to the SG$1.50 distributed the previous year. Additionally, the bank proposed a 1-for-10 bonus share issue, whereby bonus shares will qualify for dividend payments starting from the first interim dividend of the financial year ending December 31, 2024.
Looking ahead, DBS Group revealed that the ordinary dividend for the enlarged share base in 2024 will be SG$2.16 per share, representing a 24% increase over the 2023 figure. With the stock’s closing price on February 6, this translates to a 7.5% dividend yield. The bank remains optimistic about sustaining its performance in the coming year, despite anticipated softening interest rates and ongoing geopolitical tensions.
DBS Group’s record earnings for 2023 were accompanied by proactive measures to ensure accountability. The bank’s decision to reduce senior management compensation aimed to address digital disruptions and hold key individuals responsible. While the profit growth was impressive, challenges lie ahead as global central banks shift towards interest rate cuts. Nonetheless, DBS Group remains committed to providing substantial dividends and bonus share opportunities to its shareholders, illustrating its long-term strategic outlook.
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