This is due to higher credit cost and decrease in net interest margins.
DBS Group Holdings has posted a 26% YoY decline to $4.72b in net profit for FY2020 due to higher credit cost and a 27-basis point decrease in its net interest margins (NIM) to 1.62% amidst the COVID-19 pandemic.
CGS-CIMB analysts Andrea Choong and Lim Siew Khee said that DBS’ FY2020 total income performance was still commendable given the severe economic slowdown and interest rate decline.
Total income held steady YoY as the 6% YoY dip in net interest income was completely offset by realising significant gains on its investment securities, according to Choong and Lim.
They believe the group can log stronger growth due to improvements in asset quality, due to group loans under moratorium decreasing to 1%.
Choong and Lim reiterated an "add" recommendation for DBS with a target price of $28.35.
Meanwhile, Moody’s Investor Service senior credit officer Eugene Tarzimanov expects that the group‘s credit costs will decrease in 2021.
“DBS has completed the bulk of provisioning in 2020 and we expect credit costs to decrease in 2021 as asset risks recede and macroeconomic conditions improve. This will support profitability,” Tarzimanov said.
He added that funding and liquidity will be DBS's key strengths, whilst capitalization will remain strong and stable.
Credit costs increased to 0.83% of gross loans in 2020 from 0.2% in 2019.
He also said that the improving economic conditions globally will improve DBS’s asset quality in 2021.
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