Nov. 6 (Bloomberg) -- DBS Group Holdings Ltd., Southeast Asia’s biggest bank, posted a bigger-than-estimated increase in third-quarter profit as a rebound in the economy boosted loans and fee income.

Net income climbed to S$563 million ($403.3 million) from S$379 million a year earlier, the Singapore-based bank said in a statement today. That beat the S$438 million median estimate of five analysts surveyed by Bloomberg.

DBS, led by Chairman Koh Boon Hwee, benefited from a revival in credit demand as the city-state’s gross domestic product expanded for a second consecutive quarter. Rivals United Overseas Bank Ltd. and Oversea-Chinese Banking Corp. posted third-quarter profits that exceeded analysts’ estimates.

“This looks like a pretty good set of results,” said Pauline Lee, a Singapore-based analyst at Kim Eng Securities Pte. “With domestic loan growth and their Hong Kong business picking up, there seems to be a better outlook.”

Profit from Hong Kong, DBS’s second-biggest market, rose to S$143 million from S$76 million a year earlier after charges on bad loans to institutional clients fell.

DBS rose 3.1 percent to S$13.38 in Singapore today, taking the gain to 59 percent this year, compared with the 37 percent at United Overseas and 57 percent at Oversea-Chinese. The Straits Times Index has climbed 51 percent in 2009.

Outlook for 2010

“We have been very disciplined in managing our costs and although 2010 may not be as buoyant as all of us might like, our outlook for the first half of 2010 is positive,” Koh said at a press meeting in Singapore. The outlook for next year is “cautious but optimistic.”

The lender will study opportunities to expand as they arise, the chairman said, adding the bank prefers to expand organically. DBS also plans to hire more private bankers, Koh said.

The bank’s non-performing loan rate has fallen and this is “likely to continue to taper off as the economy improves,” Koh said.

Piyush Gupta joins DBS as chief executive officer this month from Citigroup Inc. His appointment ended a five-month search for a new CEO after his predecessor Richard Stanley died.

Earnings from mainland China and Taiwan rose to S$21 million from S$11 million. Profit from the rest of Southeast Asia, including Vietnam and Malaysia, rose to S$70 million from S$10 million.

Economic Revival

The economic revival that buoyed DBS lifted its local rivals as well. United Overseas, Singapore’s second-largest lender, reported profit gained 5.3 percent. Earnings at Oversea- Chinese, the bank that owns Singapore’s biggest life insurer, climbed 12 percent.

Singapore on Oct. 12 raised its 2009 economic forecast to a contraction of 2 percent to 2.5 percent. An earlier estimate was for the economy to shrink 4 percent to 6 percent.

The city-state’s employers expanded payrolls for the first time in three quarters and fired fewer workers in the third quarter, the Ministry of Manpower said on Oct. 30.

DBS’s net interest income, or revenue from borrowers minus interest paid to depositors, climbed 6.4 percent to S$1.14 billion during the quarter, from S$1.07 billion a year earlier, the bank said. Loans rose to S$128 billion from S$127.5 billion.

The net interest margin, a measure of loan profitability, rose four basis points to 2.03 percent. A basis point is 0.01 percentage point. Fee and commission income climbed 14 percent to S$361 million, the lender said.

To contact the reporter on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net

Last Updated: November 6, 2009 04:58 EST