DBS eyes prime brokerage business as Q3 profit falls 5% on weaker trading income - The Business Times

The earnings miss S$2.95 billion consensus forecast; bank expects mid-single-digit total income growth for 2027

[SINGAPORE] DBS is considering setting up a prime brokerage business as it looks to expand its institutional equities franchise and tap growth opportunities in Asian financial markets, even as its markets trading income plunged in the third quarter of 2026.

The potential move comes as equities trading emerged as a bright spot for Wall Street banks in the recent quarter, which benefited from their sizeable prime brokerage businesses.

While DBS does not currently have a traditional prime brokerage business, it already has key elements in place, including stock custody, market access and trading capabilities, said chief executive Tan Su Shan at a briefing on the bank’s Q3 results on Thursday (Nov 5).

“So I think in Asia we have all the building blocks and we may put it together. But right now we’re still considering what the options are,” she said.

Prime brokerage services typically cater to hedge funds and other institutional investors, including asset managers. Beyond trade execution, they provide a range of integrated services such as margin financing, securities lending, custody and trade clearing.

Tan said DBS remains focused on the “financialisation” of Asian markets and the continued growth of its foreign institutional investor (FII) and financial institutions group (FIG) franchises.

Her comments came after the bank reported a 5 per cent fall in net profit for Q3 due to lower markets trading income.

She attributed the weaker trading performance to softer Asian asset markets, dislocated equity market volatility, and a sharp rise in interest rates towards the end of the quarter.

Tan said DBS was already seeing stronger activity in institutional equities, complementing its wealth management business in equities, derivatives and structured products.

“I think promising is maybe the word I will use,” she said of the bank’s prospects in the segment.

Net profit for the three months ended Sep 30, 2026, stood at S$2.81 billion, down 5 per cent from S$2.95 billion a year earlier. Earnings per share came in at S$3.93, down from S$4.12 previously.

The earnings missed the S$2.95 billion consensus forecast in a Bloomberg survey of eight analysts.

The decline was largely due to a 65 per cent decline in markets trading income to S$152 million, amid unfavourable market conditions, said DBS.

Tan noted that trading is “just 6 per cent of our total income”, but stressed that its underlying structural growth momentum remains robust.

“We will take what comes with the market... but the overarching message we want to share is that the structural growth momentum that we are building for our franchise, be it number of clients, be it volumes, be it the momentum around fees – that underlying growth is still good,” she said.

In particular, the CEO said she is “optimistic” that the bank’s investment into artificial intelligence, including agentic AI, and preparations for an AI world is coming to fruition.

While Tan expects financial markets to remain volatile, she sees opportunities for the bank to prove its resilience.

“We think the markets will remain choppy, and that’s actually not a bad thing because choppiness gives us a lot more opportunities to do what we need to do to strengthen our balance sheet,” she added.

Meanwhile, group net interest income in Q3 2026 rose 4 per cent to S$3.71 billion, as hedging and strong balance-sheet growth more than offset the impact of lower Singapore Overnight Rate Average (Sora) rates.

Group net interest margin (NIM) was down nine basis points (bps) at 1.87 per cent for the quarter, from 1.96 per cent in the previous corresponding period.

Tan said the bank’s net interest income had passed its trough, with its exit NIM reaching 1.9 per cent at the end of Q3 2026, and expects it will continue to grow going into 2027.

For the commercial book, net fee and commission income was up 6 per cent at S$1.43 billion, while treasury customer sales and other income rose 19 per cent to S$685 million.

For Q3, the lender declared a dividend of S$0.81 per share, comprising an ordinary dividend of S$0.66 and a capital return dividend of S$0.15.

This is up from the S$0.75 per share paid out in the year-ago period, comprising an ordinary dividend of S$0.60 and a capital return dividend of S$0.15.

DBS expects total income growth to be in the mid-single-digit range in 2027.

The bank assumes that there will be two more rate hikes in the US from now until end-2027, with Sora averaging at around 1.6 per cent and the Singapore dollar further strengthening.

Contributing to total income growth is a mid-single-digit growth in net interest income, supported by loan and deposit growth.

Deposit growth will likely normalise to the mid-single digits next year, although Tan said she remains watchful on whether higher Treasury bill rates will absorb some deposit growth.

For non-interest income, growth could be in the double-digits or high-single-digits, depending on market performance, she said.

The lender also expects continued expansion in wealth management, as well as prudent growth in its coverage of companies in the financial institutions group, and technology, media and telecommunications sectors.

Tan said DBS has taken a “highly conservative and structured” approach to data centre investments despite strong growth in the sector, as it does not want to finance speculative wealth.

The bank focuses on high-quality investment-grade hyperscalers, with around S$14.6 billion in exposures to data centres and outstanding loans of around S$8.98 billion, she said.

Meanwhile, 2027 cost-income ratio is targeted to be in the low-40 per cent range with mid-single-digit expense growth, and specific provisions to be within 17 to 20 bps.

Tan noted that the outlook has become more uncertain amid elevated energy prices, tighter financial conditions and geopolitical risks, even as the global economy has remained resilient.

“As we enter 2027, we will stay nimble to capture opportunities while prudently managing risks,” she said.

For Q3, the bank’s non-performing loans ratio was 0.9 per cent, down from 1 per cent in the same period a year earlier.

The Common Equity Tier-1 ratio was 15.9 per cent based on transitional arrangements, while the pro forma ratio on a fully phased-in basis was 14 per cent.

On Wednesday, the Monetary Authority of Singapore reduced the operational risk multiplier imposed in relation to past digital disruptions to 1.5 times from 1.8 times, following “significant progress” by DBS to strengthen its technology and operational risk controls and improve service reliability and disruption response.

Adjusting for this, the ratios at Sep 30 would have been 16.1 per cent under transitional arrangements and 14.1 per cent on a fully phased-in basis.

In a separate filing on the Singapore Exchange, the bank also announced that Peter Seah will retire from his role as chairman of DBS’ board after 16 years in the role. He will be succeeded by current board member Anthony Lim on Jan 1, 2027.

Shares of DBS were down 0.3 per cent or S$0.19 at S$70.59 as at the midday break on Thursday.

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