Takeaways from ASEAN Investor Conference, Aug. 11-12 - Citi

Takeaways from Singapore - DBS presented at Citi's ASEAN Investor Conference on


Aug. 11-12. Below are key takeaways.

 Outlook on loan growth – After a strong 1H10 (loans +12.6%), mgmt guided loan
growth is likely to moderate, possibly in the range of low-mid single digits each
quarter, with FY10 loan growth possibly in the high teens. Healthy demand seen for
long-term fixed rate loans (both mortgages and corporate), and presents
opportunities for DBS to make better use of its excess S$, while growing its S$-
loans market share. This strategy is meant to be deployed through the interest rate
cycle, and not only at selected points in the cycle.

 Improving quality of trading income. For 2Q10, c.60% (1Q10: 50%) of trading
income was customer-driven, driven by stronger demand for FX and rates hedging
products.

 NIM drivers – Of the 9bps fall in NIM, 6bps attributed to shift in investment
securities portfolio. Remaining 3bps due to loan and deposits pressure. Loan yield
pressure due to re-pricing of housing loans (c.1ppt difference) while corporate
yields are fairly stable.

 Rolling out various initiatives. Mgmt highlighted a number of initiatives which the
bank has been working on, including 1) Regional cash management, 2) Regional
SME platform, and 3) Wealth management. Initiatives will likely take a few quarters
before earnings kick in. Similarly, expenses likely to rise progressively, which could
see cost-income ratio (1H10:40%) creeping upwards.

 Update on regional businesses. Hong Kong: As an anchor into greater China, DBS
Hong Kong remains an important part of the group. High LDR (Jun 2010: 104%)
due to tight liquidity as more Chinese banks use Hong Kong as a funding base.
Beside retail deposits, DBS could also finance additional loan growth using
interbank, or by swapping S$ into US$. .China. Now present in 8 cites, the bank
plans to add more sub-branches to deepen DBS’s presence and grow the SME &
wealth mgmt businesses. India: DBS has been successful at growing the loan book
at good margins. India now contributes c.6-8% of revenue and earning. RBI is
expected to provide more details on foreign banks’ subsidiarization later this year,
which could facilitate the opening of more branches in India. Indonesia. The bank
now operates about 40 branches across 11 cities in Indonesia. Overall contribution
to group’s bottom-line still small.