DBS Group’s Second-Quarter Profit Misses Estimates as Trading Income Drops
Stock Chart for DBS Group Holdings Ltd (DBS)
Net income was S$735 million ($610 million), compared with a loss of S$300 million a year earlier when it booked a goodwill impairment charge at its Hong Kong unit, the Singapore-based lender said in a statement to the stock exchange. That’s less than the S$750 million average of six analysts’ estimates compiled by Bloomberg.
DBS shares slumped as low borrowing costs weighed on income from lending and the economy shrank in the quarter. Chief Executive Officer Piyush Gupta aims to expand operations in markets including China and India to tap demand for credit and financial services in the world’s fastest-growing economies.
“There are some pockets of concern relating to fee-earning activities such as stock broking,” said Sachin Nikhare, a banking analyst at IIFL Securities Pte. Ltd. in Singapore. “The growth in fee income is less than what we were expecting.”
Shares of DBS fell 0.7 percent to S$15.22 as of 12:50 p.m. in Singapore. They have advanced 6.3 percent this year.
Non-interest income, which includes its trading business, slipped 15 percent to S$748 million from a year earlier. Trading income fell 47 percent to S$146 million, according to the statement. Income from stock broking declined 19 percent.
Net interest margin, a measure of lending profitability, narrowed to 1.8 percent from 1.84 percent, the bank said.
Gupta said that while he had hoped interest rates would rise in the second half of this year, a weakening global economy means they are unlikely to expand for at least a year.
“I don’t see rates moving up till well into 2012,” he said at a press conference in Singapore. “The potential upside from margin increases will probably come in some time later than we thought.”
DBS’s loan book grew 16 percent in the second quarter, driven primarily by corporate debt. Gupta said except for mortgages, the bank’s loan pipeline isn’t slowing. Net interest income jumped 12 percent to S$1.2 billion.
Loan growth in Singapore has accelerated this year, climbing 24 percent in May, the most since September 2008.
DBS’s total loan book rose by S$11 billion over the past quarter to S$211 billion, helped by growth in trade finance loans in China that may slow, said Gupta.
“Trade finance growth we saw in the second quarter might not repeat because of the monetary policy tightening in China,” he said.
Fee income, which includes earnings from private and investment banking operations, grew 8.1 percent to S$387 million from a year earlier.
Singapore’s gross domestic product fell an annualized 7.8 percent in the second quarter from the previous three months, when it climbed 27.2 percent, the trade ministry said on July 14. Last week, the central bank reiterated a prediction that the economy will expand 5 percent to 7 percent this year.
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