SINGAPORE — DBS Group reported record earnings for the full year in 2023, but cut the variable compensation for its senior management to "hold them accountable" for a number of digital disruptions that year.
Chief Executive Piyush Gupta received a bigger cut and had his variable pay was slashed by 30%, which amounted to 4.14 million Singapore dollars ($3.08 million), the bank said.
For the full year, net profit jumped 26% to a record SG$10.3 billion compared to SG$8.19 billion in 2022.
Southeast Asia's largest bank reported a better-than-expected fourth quarter net profit of SG$2.39 billion — that's 2% higher than a year ago profit of SG$2.34 billion. Data from LSEG showed analysts expected a net profit of SG$2.37 billion in that quarter.
DBS was the first of three major Singapore banks to report fourth quarter earnings, and maintained its full-year net income interest forecast for 2024 at the same level as the last year.
"While interest rates are expected to soften and geopolitical tensions persist, our franchise strengths will put us in good stead to sustain our performance in the coming year," DBS Chief Executive Officer Piyush Gupta said in a statement.
China exposure
In an exclusive interview with CNBC after the earnings release, Piyush said the bank was looking at the long-term possibilities in the Chinese economy.
"For us at DBS, we take the long view, we don't make investments based on what's going to happen over the next four quarters or the next couple of years, because we're here to stay, and so we look through cycles," he said, adding that the Singapore bank's view of the Chinese economy long-term is "constructive."
On what DBS's overall exposure to China is, particularly in the property sector, Gupta said the bulk of the bank's activities were "outbound," which support activities outside of China and not so much in the mainland.
Gupta said the lender's total exposure to Chinese real estate companies, including Singapore and Hong Kong companies operating in China, was previously guided at about SG$14 billion ($10.4 billion).
"But the bulk of that is actually activity not in China, it's outside China."
Earnings breakdown
The Singapore bank benefited from higher interest rates in 2023. But bank profits could slow down in the second half of the year as central banks globally start pivoting towards cutting interest rates. A higher interest rate environment tends to boost net interest income for lenders.
Net interest margin, an important gauge for lending profitability, was 2.13% in the fourth quarter, slightly above 2.05% in the same quarter a year ago.
The U.S. Federal Reserve shifted to a more dovish stance in December, with markets now pricing in rate cuts by summer. The CME FedWatch tool suggested the first 25-basis-point rate cut in 2024 could happen as early as May.
The first Fed meeting this year in January concluded with the central bank holding its benchmark borrowing rate in a range between 5.25%-5.5%.
DBS proposed a final dividend of 54 cents per share, bringing its total dividends distributed in 2023 to SG$1.92, or 28% higher than the SG$1.50 distributed the year before.
The bank also proposed a 1-for-10 bonus share issue. The bonus shares will qualify for dividend payments from the first interim dividend of the financial year ending Dec. 31, 2024.
DBS said that going forward, the ordinary dividend will be SG$2.16 per share for the enlarged share base in 2024, representing a 24% increase over the 2023 figure.
This will translate to a 7.5% dividend yield, based on the stock's closing price on Feb. 6.
Digital disruptions
On the reduced compensation for its senior management, the bank said their variable pay was collectively cut by 21% from the previous year to account for a series of digital disruptions during the year.
Jun Rong Yeap, market strategist at online trading platform IG said the cut in compensation may be well-received by investors.
"The cuts may also help to offset some of the higher compliance costs, higher operational costs and costs set aside to enhance system resiliency and limit its overall impact on their earnings."
Shares of DBS jumped as much as 3% on the day, to hit its highest level in nearly one month.
In March 2023, DBS' digital services were disrupted for about 10 hours, and during that time, users were not able to access online banking services or make trades via its brokerage. The Monetary Authority of Singapore later said the outage was "unacceptable" and that the lender had "fallen short of expectations."
There was another outage in October.
— CNBC's Lim Hui Jie contributed to this report.
Clarification: This story has been updated to clarify that DBS cut the variable compensation for the CEO and senior management as a result of digital disruptions.