This year’s DBS Group annual general meeting (AGM) is the first physical meeting I attended since the pandemic. There was a large shareholder turnout when I arrived, and it took me 15 minutes of queuing to get in.
The banking industry has been recently hit by a series of crises that have impacted Silicon Valley Bank, Signature Bank, and Credit Suisse, leading to a ripple effect in the banking stocks. Unfortunately, DBS Group has also been affected by the uncertainty, with its stock price dropping by roughly 11% from its peak. This is despite DBS Group posting a strong performance in its full-year results and increasing its dividend.
Attending the meeting, I wanted to learn more about the impact of the industry’s current turmoil on DBS and the management’s strategy to handle the challenges. I was also interested in understanding the management’s perspective on interest rates and how they may influence the bank’s performance for the remaining year. Additionally, I wanted to gain insights into DBS Group’s position in the industry and its outlook for the near future.
Here are five things learned from the 2023 DBS Group AGM.
1. CEO Piyush Gupta shared a positive outlook on macroeconomic conditions, stating that he expects interest rates to remain stable throughout the rest of the year. This is in contrast to market concerns that the Federal Reserve may substantially reduce rates by year-end. Gupta believes that the Fed is unlikely to take such action, citing high inflation levels. In fact, he foresees a potential increase in interest rates, which would benefit DBS and its short-term prospects.
2. At the AGM, Gupta reaffirmed his perspective that interest rates will remain steady for the rest of the year. Nevertheless, he anticipates a decrease in rates starting in 2024, but not to the extent of zero interest rates due to inflation. Gupta anticipates that the new norm for interest rates will probably be within the range of 3-4% on average.
3. Following his recent trip to China, CEO Piyush Gupta observed a boost in the country’s activity levels, which he anticipates will generate positive spillover effects in the region. Gupta highlighted that Chinese Premier Li Qiang reported stronger economic data for March, surpassing that of January and February. As a result, Gupta expects DBS Group to benefit from China’s reopening and its renewed economic activity.
4. The Monetary Authority of Singapore (MAS) will disclose in July 2023 the implementation date of the Basel 4 framework for local banks. CEO Piyush Gupta mentioned that DBS Group is likely to gain from the transition to Basel 4, given the bank’s cautious method in calculating capital. As DBS Group already maintains a high level of capital adequacy, the adoption of Basel 4 will enable the bank to have more leeway in returning capital to its shareholders. Overall, Gupta is optimistic that the implementation of the Basel 4 standards will be advantageous for DBS Group.
5. At the meeting, a shareholder inquired about DBS’s financial strength, given that Credit Suisse had similar regulatory ratios but still encountered issues. Gupta explained that the capital adequacy ratio varies depending on the regulator in each country. For instance, if the MAS calculation approach were applied to European banks, their capital adequacy would decrease considerably due to the conservative nature of MAS’s methodology.
Gupta emphasized that trust is a critical component in the banking industry, and Credit Suisse’s downfall was not due to a lack of capital but rather a loss of trust, resulting in deposit withdrawals. He noted that Credit Suisse had reported losses for several years and encountered various scandals regarding investment losses and difficulties with U.S. regulators. On the other hand, DBS Group benefits from the MAS’s conservative approach and a strong anchor investor who owns approximately 29% of the company, which reinforces trust in the institution.
The fifth perspective
The 2023 DBS Group AGM provided valuable insights into the bank’s performance, prospects, and management’s approach to handling challenges in the industry. CEO Piyush Gupta shared a positive outlook on macroeconomic conditions, interest rates, and the impact of China’s reopening on the region’s economic activity. Despite the recent industry turmoil, DBS Group maintains a strong position in the industry, with a high level of capital adequacy and trust among its stakeholders.
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thanks for sharing this for the benefit of those who couldn’t attend.
You’re most welcome, Lee.