DBS Group Holdings has reported earnings of $2.41 billion for 1H2020, falling 26% y-o-y with an increase in general allowance owing to risks from the Covid-19 pandemic, in results released August 6.

For 2Q2020, the bank registered earnings of $1.25 billion, which is 22% lower than the $1.60 billion posted a year ago.

In line with calls made by the Monetary Authority of Singapore, the bank has lowered its dividend for the quarter to 18 cents from 33 cents last quarter. In addition, a scrip dividend scheme will be applied. 

The issue price for new shares to be allotted to shareholders who have elected to receive the 2Q2020 interim dividend in scrip shall be the average of the closing prices of each ordinary share on the SGX-ST on August 14 and 17, 2020.

Allowances were “conservatively set aside” to fortify the balance sheet against risks arising from the Covid-19 pandemic, says DBS. 

Total allowances rose five-fold from a year ago to $1.94 billion with general allowances making up two-thirds of the amount at $1.26 billion. The charge increased the bank's general allowance reserves by 50% to $3.8 billion, 24% above the minimum requirement set by the Monetary Authority of Singapore.

If not for the additional allowances, DBS's profit before allowances increased 12% y-o-y to a record $4.71 billion. Total income rose 7% y-o-y to $7.75 billion while expenses were stable at $3.04 billion.

Net interest income increased 1% y-o-y to $4.79 billion as higher loan and deposit volumes were offset by a lower net interest margin in the second quarter. 

Loans increased 5% in constant-currency terms as growth in non-trade corporate loans was moderated by declines in trade loans and consumer loans. Net interest margin fell 16 basis points to 1.74% from sharp cuts in interest rates as central banks globally responded to the pandemic and to the deployment of excess deposits into lower-yielding assets, says DBS.

Net fee income inched up 1% y-o-y to $1.51 billion. A 14% growth in 1Q2020 was offset by an 11% decline in 2Q2020 as regional lockdowns resulted in lower activity. 

Other non-interest income rose 42% y-o-y to $1.45 billion from a three-fold increase in net gain on investment securities. 

Non-performing assets rose 10% y-o-y from 1H2019 to $6.35 billion. Most of the increase occurred in the first quarter, which included a "significant oil trader exposure" - presumably the US$290 million ($397.2 million) exposure to Hin Leong. The non-performing loan rate was unchanged from the previous half year at 1.5%. 

The bank's Common Equity Tier-1 (CET1) ratio declined from 14.1% last quarter to 13.7% this quarter. Leverage ratio came in at 6.8% for the quarter as well. Both numbers remain “comfortably above” the regulatory requirements, says DBS. 

In his statement, DBS CEO Piyush Gupta highlights the bank’s “strong operating performance” amid severe headwinds in 1H2020.

“Our solid balance sheet was further fortified by a significant increase in allowance reserves, strong liquidity inflows and healthy earnings. Notwithstanding the uncertainties, we are in a good position to continue supporting customers and the community through the difficult months ahead of us," he says.

Shares in DBS closed 14 cents higher or up 0.7% at $19.83 on Aug 5.