DBS Wealth Fees and Markets Trading Offset NIM Squeeze in Q2
DBS Group Holdings (DBS) posted a record $3.08 billion in second-quarter net profit even as its net interest margin slipped to 1.87%, with wealth-management fees up 42% year over year filling the gap.
DBS Group Holdings (DBS), Singapore's largest bank by assets, posted second-quarter net profit of $3.08 billion, up 9% year over year and 5% from the first quarter's $2.93 billion, even as its net interest margin fell 2 basis points quarter over quarter to 1.87% from 1.89%. Group net interest income still rose 2% quarter over quarter to $3.58 billion, as loan growth offset the margin compression. Over the first half, the trend was steeper: group NII fell 3% year over year to $7.08 billion and the margin compressed 20 basis points from 2.08% a year earlier to 1.88%, as lower Sora and Hibor rates outpaced the benefit of hedging and balance-sheet growth.
The margin pressure was sharpest in DBS's commercial book, where NIM fell to 2.25% in the first half from 2.61% a year earlier, a 36-basis-point decline that has now persisted across five quarters — from 2.55% in the second quarter of 2024 to 2.29% in the first quarter of this year. DBS leaned on volume to compensate. Loans grew 5%, or $24 billion, in constant-currency terms in the first half to $469 billion, led by non-trade corporate lending and a re-acceleration from the 2% quarterly pace ($8 billion) posted in the first quarter. Deposits grew 4%, or $26 billion, to $638 billion, with more than half of the inflow in Casa accounts, continuing the 3% quarterly growth pattern seen in the first quarter.
Fee income did the heavier lifting on the revenue side. Net fee and commission income rose 20% year over year in the first half to a record $2.94 billion, driven by wealth-management fees up 33% year over year to $1.83 billion. The second quarter alone saw fee income climb 25% year over year to $1.46 billion, with wealth management up 42% year over year to $919 million, though the total slipped 1% from the first quarter's record base. Markets trading income added further momentum, rising 10% year over year in the first half to $858 million; the second quarter's $469 million was up 21% from the first quarter's $389 million and up 12% year over year, led by equity derivatives, marking a re-acceleration from the $593 million posted in the second half of 2024.
By segment, Consumer Banking and Wealth Management profit before tax rose 10% year over year to $2.64 billion, up 23% from the second half of 2024's base, reflecting the wealth fee strength. Institutional Banking profit before tax of $2.98 billion declined 4% year over year but rose 13% quarter over quarter from the second half of 2024's $2.64 billion.
DBS's capital ratio continued a steady multi-quarter decline. The CET-1 ratio fell to 16.6% in the second quarter from 16.9% in the first quarter and 17.0% a year earlier, extending a trajectory that has moved from 17.0% in the second quarter of 2024 to 16.9% in the third quarter and first quarter before this latest step down. Despite the lower ratio, DBS held its capital-return payout steady at 15 cents a share on top of a 66-cent ordinary dividend, unchanged from the first quarter's combined payout and up from the 60-cent ordinary dividend paid in the third quarter of 2024 — a 6-cent-a-share step-up in the base payout over that span.
Credit metrics stayed contained but showed early signs of normalization. First-half specific allowances were $345 million, or 15 basis points of loans, up from the 14-basis-point pace in the first quarter alone but below the 12-basis-point base from a year earlier and well under the second half of 2024's elevated $585 million run rate. General allowances were written back $42 million in the first half, reversing a $188 million charge a year earlier. The non-performing loan ratio held stable at 1.0% across the first and second quarters and the year-earlier comparison, though total allowance coverage eased to 130% (196% collateral-adjusted) from 131%/200% in the first quarter and 137%/236% a year earlier — a gradual erosion in the buffer even as headline asset quality held.
Expenses rose 4% year over year in the first half to $4.65 billion, with staff costs up 5% to $3.07 billion, though the cost-income ratio held steady at 39%; expenses actually fell 2% from the second half of 2024 on lower non-staff spending.
The quarter's arithmetic points to a bank leaning increasingly on fee and trading income to carry results while its lending margin keeps eroding. With wealth-management fees up more than 40% year over year and markets trading reaccelerating, DBS has so far offset the structural NIM decline tied to falling regional rates — but the CET-1 ratio's fourth straight quarterly step-down bears watching against a capital-return policy that has not yet flexed lower.