• DBS’s 4Q20 net profit of S$1.01bn was 4% above our expected S$969m, helped by lower tax and credit cost. Profit in line with consensus’s ~S$1.0bn.
• Asset quality is improving with lower loans under moratorium in Singapore and Hong Kong. Implied credit cost for FY21F is likely to be about S$1bn.
• Final dividend of S$0.18 (scrip) was declared in 4Q20 as bound by MAS’s cap, bringing FY20 dividend to S$0.87.
• Reiterate ADD, GGM-based target price of S$28.35.

DBS 4Q20 Results Highlights

• DBS (SGX:D05)'s 4Q20 NIM fell to 1.48% (-5bp q-o-q), in line with our 1.49% expectation (3Q20: 1.53%). As a result, full-year FY20 NIM dipped 27bp to 1.62%.
• Loans contracted 0.1% q-o-q in 4Q20 (3Q20: -0.9% q-o-q). FY20 loan growth came up to +4% y-o-y, flattish y-o-y. NII slipped by 2% q-o-q. The NPL ratio held steady at 1.6% (3Q20: 1.6%).
• LDR dipped further to 80% on the back of robust deposit growth (+4% q-o-q) amid weak loan expansion.
• Although opex was well contained (+3% q-o-q/-1% y-o-y), CTI was weaker at 48% in 4Q20 due to the seasonally weaker income (-9% q-o-q/-6% y-o-y). On a full-year basis, CTI ratio held steady at 42% (FY19: 43%).
• 4Q20 ROE: 7.7% (3Q20: 10%). FY20: 9.1% (FY19: 13.2%).
• 4Q20 CET-1: 13.9% (3Q20: 13.9%), including -0.3% pt impact from amalgamation of Lakshmi Vilas Bank.

Fee Income Seasonally Weaker

• DBS's fee income fell 6% q-o-q but rose 1% y-o-y on the back of seasonally weaker levels of market activity. The q-o-q dip came on the back of softer wealth fees of S$345m (-9% q-o-q/ +21% y-o-y) but this was offset slightly by better credit card fees (+11% q-o-q/ -12% y-o-y).
• Meanwhile, treasury income slipped 35% q-o-q (+35% y-o-y) due to lower capital market activities and treasury customer flows.
• On balance, non-II of S$1.68bn (-19% q-o-q/ +10% y-o-y) missed our S$1.79bn expectations.

Credit Cost Lower and Outlook

• Credit costs of 61bp were slightly lower than our expected 65bp (3Q20: 58bp). These comprised 34bp in loan SPs, 23bp in GP and 4bp of SPs for other exposures. Full-year credit costs came up to SG (housing down to 10%, SME down to 25%) while that in HK retreated to 50%. Credit costs for 2020-21 were guided for the middle of the S$3bn-5bn range.
• We see muted impact to DBS Share Price as earnings were largely within market expectations and a low quality beat vs our forecast.
• Downside risk: NPL accretion.

Source: CGS-CIMB Research - 10 Feb 2021