DBS Group Holdings Ltd. expects the implementation of a 15% global minimum tax (GMT) in Singapore to drag its net profit in 2025 to below this year's levels, executives said, even as it posted consensus-beating results for the quarter ended Sept. 30.
Singapore's largest bank by assets expects the GMT's implementation to boost its tax payments in 2025 by about S$400 million, CFO Sok Hui Lim said during a Nov. 7 earnings call, adding that the group is currently paying less than 15% in the city-state.
The GMT is an internationally agreed-upon minimum rate of taxes that would be paid by large corporations. The new GMT sets a proposed rate of 15% on profits. The Organization for Economic Co-operation and Development (OECD) proposal has received the support of 137 countries and was approved in October 2021 with an effective date of 2024.
While 2025 net profit is likely to be below 2024 levels, the group expects its commercial book noninterest income to grow by high-single digits and its group net interest income to be around this year's levels despite a slight decline in net interest margin (NIM).
"Group NIM will probably trend down a couple of basis points, commercial book NIM will be down, but we will recover it from the trading market side, where we benefit from lower funding cost," Piyush Gupta, the group's outgoing CEO, said during the call.
Gupta said the group expects growth in noninterest income to be in the high single digits, driven by wealth management and Treasury customer sales. "If you add those two together, we think total income will be up in the low single digits," Gupta said.
The executive's comments came as DBS on Nov. 7 reported net profit of S$3.03 billion for the third quarter, up 15% year over year from S$2.63 billion. The quarterly net profit beat analysts' consensus estimate of S$2.80 billion, according to data from Visible Alpha, a part of S&P Global Market Intelligence. DBS said the increase was driven by record fee income led by wealth management, higher treasury customer sales, and the strongest markets trading income in 10 quarters.
The group is also likely to benefit from improvements in China, hedging and potential delays in Fed rate cuts, analysts said.
"Improvements in China could provide an additional tailwind in 2025," said Thilan Wickramasinghe, head of research at Maybank Securities Singapore. "We expect NIM declines to be measured going forward given hedging and potential delays in Fed rate cuts under new Trump Administration in the US."
Share buyback plan
DBS also announced the establishment of a S$3 billion share buyback program, where shares will be purchased in the open market and canceled. The program is expected to reduce the bank's fully phased-in common equity Tier 1 ratio by around 0.8 percentage point when completed.
On executing the program, Gupta said the bank does not have a specific time frame, and it might take a couple of years to execute it.
"We recognize that we do continue to still have a lot of capital, and therefore we need to continue every opportunity and tool that we have to be able to return capital back to shareholders," Gupta said.