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Completing the regional and wealth management platform

First Half 2001 Results Briefing. July 23, 2001. Completing the regional and wealth management platform. Completing the regional and wealth management platform. Top line earnings impacted by weaker economic conditions and adverse competitive environment

anthony-hopkins
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Completing the regional and wealth management platform

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  1. First Half 2001 Results Briefing July 23, 2001 Completing the regional and wealth management platform

  2. Completing the regional and wealth management platform • Top line earnings impacted by weaker economic conditions and adverse competitive environment • Focus on other non-interest income bolsters results • Expenses peaked amidst repositioning activities • Improved asset quality and strong capital position • Completing the regional and wealth management platform

  3. Completing the regional and wealth management platform • Top line earnings impacted by weaker economic conditions and adverse competitive environment • Focus on other non-interest income bolsters results • Expenses peaked amidst repositioning activities • Improved asset quality and strong capital position • Completing the regional and wealth management platform

  4. Net revenue increased by 2.7%, net profit down 10.6% 1H00 2H00 1H01 1H01 / 1H00(%) 1H01 / 2H00(%) (S$ million) Net interest income 1,046 993 962 (8.1) (3.1) Fees & commissions 260 249 251 (3.7) 0.8 Dividend & rental income 42 73 40 (3.7) (45.2) Other income 139 129 275 97.6 113.2 Income before operating expenses 1,488 1,443 1,528 2.7 5.9 Staff costs 281 332 389 38.5 17.2 Other operating expenses 313 320 360 14.9 12.4 Operating expenses 594 652 749 26.1 14.9 Operating profit 894 791 779 (12.9) (1.5) Specific provisions 81 30 110 36.3 266.7 General provisions (17) (40) (64) 284.5 60.0 Net profit attributable to shareholders 704 685 629 (10.6) (8.2) Net interest margin 2.07% 1.97% 1.78% Cost-to-income ratio 39.9% 45.4% 49.0% Return on assets 1.31% 1.25% 1.08% Return on equity 13.1% 12.7% 11.4%

  5. Modest decline in net interest income despite sharp fall in net interest margins (S$ million) Net interest income Net interest margin (gross basis) 1,046 1,046 989 993 962 2.07% 2.04% 2.00% 1.97% 1.78% 2H00 2H99 1H00 1H99 1H01

  6. Excess liquidity dampens margins, but strengthens ability to fund lending growth Loan / Deposit Net Interbank Placement / Asset (%) (%) 1998 2000 1999 1H01 1996 1998 1997 1999 2000 1H01 1997 1996

  7. Loan growth has turned around (S$ million) Change in Gross Loans 13,791 30.4% 4,373 2,209 1,917 10.7% 3.7% 3.5% (2,053) (2,219) (2,966) -3.7% -3.8% -4.8% Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01 Outstanding Gross Loans 72,503 Dao Heng Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01

  8. Completing the regional and wealth management platform • Top line earnings impacted by weaker economic conditions and adverse competitive environment • Focus on other non-interest income bolsters results • Expenses peaked amidst repositioning activities • Improved asset quality and strong capital position • Completing the regional and wealth management platform

  9. Strong fee income despite stockbroking liberalisation and weak markets 1H00 2H00 1H01 1H01 / 1H00(%) 1H01 / 2H00(%) (S$ million) Investment banking 42 56 39 (7.1) (30.2) Stockbroking 47 31 24 (48.9) (22.6) Trade-related 38 37 40 5.3 7.8 Fund management 37 25 35 (5.4) 40.0 Deposit-related 23 37 43 87.0 15.3 Loan-related 24 27 28 16.7 4.5 Others 49 36 42 (14.3) 16.3 Total fee income 260 249 251 (3.7) 0.8 Fee to income ratio (%) 17.5 17.3 16.4 1998 – 2000 Fee Income CAGR: 36.2%

  10. Other income : FX & securities trading doubled 1H00 2H00 1H01 1H01 / 1H00(%) 1H01 / 2H00(%) (S$ million) Foreign exchange 52 67 112 115.4 67.2 Gains on securities& derivatives trading 55 - 102 85.5 - Gains on investment securities 8 33 16 100.0 - Gains on fixed assets 4 5 26 550.0 420.0 Other income 20 24 19 (5.0) (20.8) Total 139 129 275 97.6 113.2

  11. Emphasis on non-interest income yields strong returns (%) Non-interest income to Operating Income * Jun 01 Dec 98 Jun 00 Dec 99 Dec 00 * Excluding gains on disposal of non-core assets

  12. Record growth in wealth management products Sales Volume (S$ million) Insurance 791 Investment products 180 573 544 15 222 611 558 322 314 1H01 2H99 1H00 2H00 • Investment products include Horizon, Ei8ht, Up and other DBSAM programs

  13. Deposit base provides platform for cross selling wealth management products Customer Deposits Jun 2000 Dec 2000 Jun 2001 YoY Difference (S$ b) S$ Current accounts 5.6 5.8 6.0 0.5 S$ Autosave deposits 5.5 5.4 5.7 0.2 S$ Savings deposits 30.5 31.0 31.1 0.6 S$ Fixed deposits 14.3 13.2 12.3 (2.0) ACU Fixed deposits 9.4 11.1 12.0 2.6 DBS Kwong On 5.1 5.7 6.3 1.2 DBS Thai Danu 3.3 2.9 3.1 (0.2) Others* 6.7 5.6 13.7 7.0 Sub-total 80.4 80.7 90.3 9.9 Dao Heng - - 24.6 24.6 Total 80.4 80.7 114.9 34.5 Market share of S$ deposits 31.8% 32.3% 32.8% 114.9 * * Include a once off short-term deposit of $5.0b

  14. Completing the regional and wealth management platform • Top line earnings impacted by weaker economic conditions and adverse competitive environment • Focus on other non-interest income bolsters results • Expenses peaked amidst repositioning activities • Improved asset quality and strong capital position • Completing the regional and wealth management platform

  15. 1H00 2H00 1H01 1H01 / 1H00(%) 1H01 / 2H00(%) (S$ million) Staff costs 281 332 389 38.5 17.2 Occupancy expenses 73 75 77 5.5 2.7 Technology-related expenses 63 69 87 38.1 26.1 Professional & consultancy fees 38 35 33 (13.2) (5.7) Others 139 141 163 17.3 15.6 Total 594 652 749 26.1 14.9 Operating costs increased 26% due to timing and non-recurring items

  16. Focused investment in people, technology and products (S$ million) (+26.1%) Others Advertising Computerisation Staff costs 1H2001 1H2000 Cost-to-IncomeRatio: 39.90% 49.01% Cost-to-AssetRatio(a): 1.10% 1.30% (a) Annualized without Dao Heng Bank

  17. Procurement Use of consultants winding down Most significant investments completed between January 1, 2000 and June 30, 2001 Consultants now limited to implementation of specific, technical projects Technology Procurement • Phone Banking • DBS Securities’ Projects • Customer Relationship Mgt • Treasury & Mkts System • E-Commerce/Payments • Risk Mgt System • Datawarehouse • Call Centre Automation • E-banking initiative Measurement • Cost & Profitability Mgt System Re-engineering Processing & Services • Institutional Banking Group Reorganisation • Process Improvement Customer Service • Branch Reconfiguration Integration • POSBank, DTDB & DKOB Strategy Development • Retail Strategy • Improving Profitability (DTDB NPL, Recapitalisation of DTDB, Sale of DBSL shares, acquisition of BPI) 1998 1H99 1999 2000 1H01 2001 9M00

  18. Improve processes for greater efficiency Cost management measures initiated to contain increase to 2000 growth rate Reduce focus on non-performing businesses Defer low revenue yielding projects Performance enhancement program to optimise efficiency

  19. Low cost/income ratio by international standards Cost/Income for International Peers (a) (%) 49.2 1H2001 (a) Based on Dec 2000 cost/income ratios

  20. Completing the regional and wealth management platform • Top line earnings impacted by weaker economic conditions and adverse competitive environment • Focus on other non-interest income bolsters results • Expenses peaked amidst repositioning activities • Improved asset quality and strong capital position • Completing the regional and wealth management platform

  21. Asset quality continues to improve Dao Heng Bank DBS Thai Danu Bank (S$ million) 5 Regional Countries Others Singapore 8,149 8,121 7,666 NBk NPL/NBk Loans (%) 7,085 4,834 4,411 6.2% 3,907 1,112

  22. Substandard Doubtful Loss 73% of NPLs are graded “Substandard” 1,610 85% 624 72% 318 323 815 1,143 82% 1% 17% Total 4,834 73% 9% 18% (S$’M )

  23. Cumulative provisions covered 146.5% of unsecured NPLs and 54.7% of total NPLs General Provisions (GP) (S$ million) Specific Provisions (SP) 4,286 SP+GP/Unsec NPLs (%) 3,978 SP+GP/NPLs (SEC) (%) 3,852 SP+GP/NPLS (%) 3,147 2,643 2,286 1,894 980

  24. Further diversification post acquisition of Dao Heng Bank DBS + Dao Heng DBS 36% Hong Kong 13% Hong Kong 12%Others 9%Others 75% Singapore 55% Singapore Total Assets: S$116 bn Total Assets: S$156 bn (June 2001)

  25. 6.5% Efficient capital management DBS Group Holdings Consolidated Capital Adequacy (%) (a) (b) Dec 2000 Adjustments for Dao Heng/ Others Tier 2 Sub-debt Jun 2001 Hybrid Tier 1 1H01 Net Income Preference Shares (a) Includes goodwill, minority interest and capital required against asset base.

  26. DBS capital position post Dao Heng DBS will maintain a healthy buffer above the regulatory Tier I requirement of 8% (%) DBS BNP HSBC Fortis ANZ Westpac StanChart CitiGroup Dresdner * Source : Annual reports of respective banks

  27. Completing the regional and wealth management platform • Top line earnings impacted by weaker economic conditions and adverse competitive environment • Focus on other non-interest income bolsters results • Expenses peaked amidst repositioning activities • Improved asset quality and strong capital position • Completing the regional and wealth management platform

  28. Putting the strategy together – positioning for the future Consumer Banking Wealth Management • Focused areas Brokerage Services Bancassurance Wholesale Banking: Capital Markets, Advisory, Treasury, FX and Trade Financing • Scale / Scope • Regionalisation / diversification • Growth / market share • Pricing flexibility DBS / OUB Vickers Ballas Frank Russell TD WaterhouseCGNU Dao Heng Kwong On Thai Danu BPI Balanced Channel Mix Policies, Processes and Systems Efficient Capital Structure Optimal Organisation • Business units reorganised • Built seasoned management team • Enhanced training • Redesigned incentive systems Leading IT Capabilities • On-line, real-time systems • Data warehouse application with data mining capabilities (CRM) • E-commerce infrastructure • E-payment gateway • Usage of sophisticated capital instruments • Maximise non-dilutive capital • Sale of non-core assets • Comprehensive, complementary channel mix • Reconfigured branches • Integrated on-line services • Aligned internal practices to global standards • Strengthened risk management and credit approval policies • Prudent management of off-balance sheet exposures and liquidity, forex, interest rate and investment risks • Infrastructure building and reorganisation substantially completed

  29. Strategic roadmap Significant infrastructure investment to create world class back office and STP initiatives Infrastructure Infrastructure • Vickers Ballas • TD Waterhouse • Frank Russell • CGNU Products Geography • Dao Heng / Kwong On • OUB

  30. Strategic roadmap: Geography • Establish critical mass, presence and scale in twin pillars (Singapore, Hong Kong) • Selectively strengthen presence in certain markets(e.g. Thailand, Malaysia after OUB) • Monitor increased Greater China presence post WTO liberalization • No plans for Australia, North Asia (Korea and Japan), but carefully watching opportunities Infrastructure Infrastructure Products Geography

  31. Dao Heng harmonization ahead of schedule Dao Heng Bank became a DBS subsidiary on June 29, 2001 • As of first close on July 20, DBS’ effective ownership in Dao Heng Bank is 71% • 98% of Dao Heng shareholders have tendered their shares • Dao Heng Bank governance and management in place • Harmonization objectives and implementation plan defined • Harmonization infrastructure up and running • Key milestones defined with good progress to date (a) Assumes 100% of outstanding options exercised

  32. Strategic roadmap: Infrastructure • Leverage infrastructure across business units • Create Regional Processing Centres for appropriate processes • Centralize remaining branch back-office processes • Pursue selected out-sourcing, in-sourcing and co-sourcing • Focus on quality (ISO certification of process factories, 6 sigma initiative) Infrastructure Infrastructure Products Geography Continue trend of significant unit cost reductions and increase of straight-through processing rates

  33. Strategic roadmap: Products Asset Accumulation • Retail brokerage – Vickers Ballas, TD Waterhouse • Wealth management – leverage distribution for best-in-breed products, capitalize on MPF / CPF deregulation and excess liquidity • Bancassurance – provide insurance related savings products. Life and general insurance partnership with CGNU • Unsecured consumer lending • Credit cards • SME lending • Treasury / FX • Trade finance • Corporate finance • Leveraged finance Infrastructure Infrastructure Products Geography Enterprise and Consumer Lending Corporate & Investment Banking

  34. Bancassurance alliance accelerates wealth management business DBS has concluded a bancassurance alliance with CGNU Transaction Highlights Strategic Rationale • Sale of 100% of ICS to CGNU • 10-year exclusive bancassurance strategic alliance for life and general insurance • Total proceeds to DBS of S$446 million of which: • S$395 million as payment for ICS and the bancassurance alliance • S$51 million special dividend from ICS • DBS to receive additional payments of up to S$20 million on meeting performance targets • DBS will record a net initial gain of S$139 million • Accelerates revenue growth in DBS’ wealth management business • Expands DBS’ sales channels with the establishment of a specialist sales force dedicated to insurance, wealth management products • Provides DBS with a dedicated bancassurance product provider without equity investment • DBS retains ownership of customers, concentrates on distribution, leaving product manufacturing to CGNU • Allows DBS to rationalize ownership in ICS and continue policy of monetizing assets • Allows DBS to strengthen capital position by $139 million

  35. Only bank whose non-core asset disposals largely completed • Focusing on core banking and financial businesses • Divested non-core assets ahead of MAS guidelines What needs to be done What we have done • 4 listed companies (Keppel Capital, NatSteel, Intraco, CWT) • Singapore Petroleum Company • DBS Land • DBS Tampines Centre • POSBank Centre • DBS Securities Building • Insurance Corporation of Singapore (ICS) Insignificant

  36. Significant Events Affecting Results and Outlook

  37. Completing the regional and wealth management platform • Top line earnings impacted by weaker economic conditions and adverse competitive environment • Focus on other non-interest income bolsters results • Expenses peaked amidst repositioning activities • Improved asset quality and strong capital position • Completing the regional and wealth management platform

  38. First Half 2001 Results Briefing July 23, 2001 Completing the regional and wealth management platform

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