DBS Group Holdings, Southeast Asia's largest bank, reported record full-year results on Friday last week, driven by strong loan growth across the region, higher income from cross-selling of treasury products and an improvement in asset quality.

Chief executive Piyush Gupta announced a core net profit of S$2.65 billion ($2.07 billion) for 2010, a 28% increase compared with the previous year. But, the figure excluded a one-time goodwill impairment charge S$1.02 billion for DBS Bank (Hong Kong).

“The record performance reflects the early success of strategic initiatives implemented during the year,” said Gupta in a statement.

Return-on-equity rose to 10.2% from 8.4% and the return-on-assets improved to 0.98% from 0.80%.

Higher borrowing by large companies and small and medium-size enterprises, led to double-digit loan growth in Hong Kong, China, Taiwan, India and Indonesia. Total loans rose 16% from a year earlier to S$152.1 billion, which partially offset the impact of weaker margins caused by low interest rates and narrower credit spreads. Net interest income fell 3% to S$4.32 billion.

Meanwhile, non-interest income rose 28% to S$2.75 billion. Trading income doubled to S$895 million, mostly due to higher revenues from cross-selling of treasury products, and fee income from wealth management, stockbroking and investment banking improved in line with more favourable market conditions. However, these improvements in fee income were offset by lower margins in trade and remittances as well as lower loan-related fees.

The full-year results were given a boost by a strong performance in the fourth quarter – which was above analysts’ estimates. Net profit jumped 38% compared to the fourth quarter 2009 to S$678 million, driven by higher non-interest income and lower allowances. Trading income tripled to S$164 million, with customer revenues accounting for a large part of that figure. There were also gains from the sale of financial investments and fixed assets.

Asset quality also improved throughout the year. Bad debt charges dropped 40% as the non-performing loan rate fell to 1.9% from 2.9%. As of the end of 2010, Singapore-based DBS had a total capital adequacy ratio of 18.4%, a tier-1 capital ratio of 15.1% and core tier-1 ratio of 11.8%, buoyed by the issuance of S$2.5 billion of tier-1 preference shares in the fourth quarter.

Although total income grew by 7%, expenses rose by 12% due to spending on recruitment and infrastructure, as well as higher brand marketing costs to meet Gupta’s ambitious plans to build a regional bank and adjust the geographical proportions of its revenue base.

The cost-to-income ratio, which was 41% in 2010, should “trend towards” 45% in 2011, said Gupta.

In his February 2010 “roadmap”, Gupta pledged to reduce DBS’s reliance on its domestic market to just 40% of revenues, and earn 30% from South and Southeast Asia (excluding Singapore) and 30% from Greater China.

Gupta, who took up his position in November 2009 after a long career at Citi, aims to focus the bank’s activities on wealth management and the SME sector, and to develop DBS’s franchise in China and India.

So far, there has been little change in the balance. Singapore still dominates with a 63% share of total revenues, while Greater China accounts for 27%, and the rest of South and Southeast Asia for just 6% (down from 8% in 2009).

“While much of what we want to achieve remains work-in-progress, we believe that by continuing to single-mindedly execute [in line with] the strategy we laid out 12 months ago, DBS is in a good position to strengthen the value of our franchise in Singapore, Greater China, South and Southeast Asia and fortify our position as a leading Asian bank,” said Gupta.

DBS intends to hire a further 1,500 people this year, and Gupta has concrete plans for regional markets. In December, the bank agreed to take over Royal Bank of Scotland Group’s retail and commercial banking businesses in three major cities in China.

This year he wants to convert the bank’s Taiwanese branch business into a separate legal entity in order to hasten its growth, and might do the same in India. In any case, he has a three-year objective to have 50 branches each in China, India and Indonesia.

Gupta said last year that he wanted to increase the bank’s managed assets to $50 billion from $35 billion within three years, which would be sourced from regional emerging markets.

DBS announced a full-year dividend payout of 56 Singapore cents a share, unchanged from 2009. The bank’s share price fell 0.135% to S$14.80 on Friday, compared with a 0.8% decline in the benchmark Straits Times Index.