DBS surpasses Q3 profit expectations, CEO apologizes for digital disruptions

SINGAPORE: DBS Group, Singapore’s largest bank, announced on Monday (Nov 6) an 18 per cent surge in third-quarter net profit, surpassing expectations. The increase was driven by higher interest rates, which the bank anticipates will sustain profitability throughout the next year.

Anticipating a record full-year profit for the current year, DBS, the largest lender in Southeast Asia, remains optimistic about maintaining the net profit at the 2023 level for 2024, as stated by CEO Piyush Gupta during the results presentation.

“As we enter the coming year, higher-for-longer interest rates will be a net benefit to earnings, while our solid balance sheet with ample liquidity, prudent general allowance reserves and healthy capital ratios will provide us with strong buffers against macro uncertainties,” Mr Gupta said in a press release issued on Monday.

Q3 net profit reach S$2.63 Billion, compared to S$2.24 billion in Q3 FY2022

For the July to September period, the bank’s net profit surged to S$2.63 billion (US$1.94 billion) from S$2.24 billion a year earlier, supported by a record total income driven by improved interest margins and fee income.

This notable performance outpaced the mean estimate of S$2.5 billion from a survey of four analysts conducted by LSEG.

Despite this commendable performance, specific allowances of S$197 million were higher than those of recent quarters, attributable to the bank’s decision to allocate reserves for exposures related to a suspected money laundering case in Singapore.

In the fiscal year 2022, DBS Group delivered a record-breaking performance, with net profit soaring by 20% to reach S$ 8.19 billion.

DBS, like several other banks, has been implicated in one of Singapore’s most significant suspected money laundering cases, prompting a tightening of scrutiny measures across the banking sector.

During the quarter, DBS observed a rise in its net interest margin, a crucial measure of profitability, from 1.9 per cent in the corresponding period last year to 2.19 per cent.

Furthermore, the bank declared a dividend of 48 cents per share for the third quarter, totaling S$1.38 per share for the first nine months of 2023.

Looking ahead, Mr Gupta anticipated that the bank’s net interest income for 2024 would remain on par with this year’s performance, while also projecting sustained momentum in fee income, buoyed by strong performances in wealth management and card services.

In addition, he forecasted a higher profit before allowances for the upcoming year, with total allowances expected to normalize to 17 to 20 basis points of loans, as mentioned in the statement.

DBS CEO apologises for the series of digital disruptions

Acknowledging the string of disruptions experienced by the bank throughout the year, the DBS CEO emphasized the commitment to implementing the comprehensive set of measures recently announced.

“We will also dedicate ourselves to executing the comprehensive set of measures we recently announced to address the series of digital disruptions, for which we are truly sorry. ”

“We are committed to strengthening our technology resilience and ensuring customer service reliability, ” he said.

MAS imposes 6-month freeze on DBS Bank’s IT changes due to repeated disruptions

On 1 November, The Monetary Authority of Singapore (MAS) has taken significant actions against DBS Bank Ltd (DBS Bank) in response to repeated and prolonged disruptions in its digital banking services this year, including a ban on new business acquisitions and non-essential IT changes for six months

DBS Bank Ltd (DBS Bank) Chairman Peter Seah issued an apology on the same day for the bank’s failure to meet the expected standards amidst a series of digital disruptions this year.

He emphasized that senior management would be held accountable, particularly in terms of their “compensation”.

In addition to the IT changes freeze, MAS has instructed DBS Bank not to decrease the size of its branch and ATM networks to ensure customers have alternative channels during disruptions.

In response to these regulatory measures, DBS said they initiated a comprehensive plan aimed at enhancing technology resiliency.

Minister of State for Trade and Industry Alvin Tan yesterday (6 Nov) revealed in Parliament that the disruption to DBS and Citibank’s digital services on October 14 led to an estimated 810,000 failed attempts to access the digital banking platforms of both banks between 2.54 p.m. and 4.47 a.m. the following day.

Additionally, approximately 2.5 million payments and ATM transactions were left uncompleted.

Mr Tan acknowledged that both DBS and Citibank had not met the Monetary Authority of Singapore’s (MAS) requirements to ensure the resilience of their critical IT systems against extended disruptions.

“While both banks conducted annual exercises to test the recovery of their IT systems at the back-up data centres, the specific issues that led to the delays in system recovery on 14 October did not surface during those tests.”

In terms of measures for ensuring banking service reliability, Mr Tan emphasized that the Banking Act grants MAS the power to impose fines of up to $100,000 on financial institutions found in breach of MAS’ technology risk management requirements.

Furthermore, with the implementation of the Financial Services and Markets Act in 2022, the maximum fine quantum is set to rise to $1 million progressively in the following year.

Although this fine quantum is relatively lower compared to penalties imposed by financial regulators in other countries like the UK, it aligns with existing local penalty frameworks, such as those under the Telecommunications Act and the Personal Data Protection Act, added Mr Tan.

Mr Tan emphasized that banks hold responsibility towards their customers, but matters of compensation should be resolved directly between the bank and its customers, considering the individual circumstances involved.

MAS expects banks to adhere to a fair process in handling such cases.

During the parliamentary session, Members of Parliament raised questions about the effectiveness of the restriction on new business acquisitions, particularly considering DBS’s absence of any acquisition plans initially.

In reply, Mr Tan reiterated that the regulatory actions were intended to direct the banks’ focus towards restoring the resilience of their digital banking services.

This initiative involves addressing four key areas identified in a review conducted by an independent external expert in August of the current year. The identified areas include technology risk governance and oversight, incident management, strengthening systems resilience, and change management.

“The review will take place, we will look at what the banks have put in place during this period, how they are remediating… and MAS will potentially impose more measures as necessary,” he said.