DBS Group Holdings Ltd., Southeast Asia’s biggest bank, reported a 38 percent increase in fourth-quarter profit as trading income tripled and allowances for credit losses shrank.
Net income climbed to S$678 million ($530 million) from S$493 million a year earlier, the Singapore-based bank said in a statement to the stock exchange today. That beat the S$669 million average of eight estimates compiled by Bloomberg. The stock fell in Singapore after outperforming the city’s benchmark this year.
Chief Executive Officer Piyush Gupta, who joined DBS in November 2009 after a 27-year tenure at Citigroup Inc., aims to expand operations in China and India and build businesses that cater to wealthy individuals as Asia’s economic expansion outpaces the rest of the world. That’s helping bolster earnings even as low borrowing costs in Singapore and Hong Kong crimp income from lending.
“More evidence of new initiatives bearing fruit will start to show up in the first or second quarter,” Kenneth Ng, a Singapore-based analyst at CIMB Research Pte, wrote in a Feb. 7 report. “DBS provides both low-risk exposure to interest rates creeping up at some point this year, and an equally attractive proxy for the wealth-management business building up in Singapore.”
The bank’s return on equity strengthened to 10.2 percent last year from 8.4 percent in 2009, DBS said. Net income rose 28 percent to a record S$2.7 billion in 2010, excluding a one-time goodwill impairment charge at DBS’s Hong Kong unit.
DBS fell 0.8 percent to S14.70 at 3:35 p.m. on the Singapore stock exchange, compared with a 0.6 percent decline in the benchmark Straits Times Index. DBS had gained 3.5 percent this year before today while the Straits Times slipped 2.7 percent. CIMB, which has an “outperform” rating on DBS, expects the stock to rise to S$17, Ng said in the report.
Trading income tripled to S$164 million in the quarter, with customer revenue accounting for a “substantial portion,” the bank said. Net interest income, or the difference between what DBS makes from lending and pays on deposits, fell 2 percent from the previous quarter to S$1.11 billion.
Allowances for credit and other losses shrank 59 percent from a year earlier to S$157 million.
Total loans in Singapore grew to S$322.8 billion in December from S$318.5 billion a month earlier, as lending to businesses as well as building and construction increased, according to data from the Monetary Authority of Singapore.
Gupta said today at a press conference that he expects mortgage volumes to decline after Singapore introduced measures to curb gains in property prices.
“We think there will be some slowdown but we think we have the opportunity to grow in the upper segment,” he said. “The top end is driven by cash and liquidity.”
Total loans grew 16 percent from the previous year to S$152 billion, DBS said. Growth will likely slow to the “low double digits” this year, Gupta said.
DBS’s net interest margin, a measure of loan profitability, narrowed to 1.79 percent from 2.02 percent a year earlier. Singapore’s three-month interbank lending rate, or Sibor, averaged 0.56 percent last year. The equivalent rate in Hong Kong, Hibor, averaged 0.25 percent.
“Overall, it’s pretty good,” said Christopher Wong, who helps oversee $70 billion of assets at Aberdeen Asset Management Plc in Singapore. “The net interest margin seems to have stabilized, there’s loan growth and the asset quality seems to be quite good.”
Aberdeen will consider increasing its holdings in DBS “at the right price,” Wong said.
DBS’s net fee and commission income rose 5 percent from the previous quarter to S$358 million, led by its investment banking business, the bank said. DBS was the top arranger of share sales in Singapore last year, helping underwrite 18 percent of the $8.3 billion raised by companies, according to data compiled by Bloomberg.
Costs rose 12 percent to S$2.9 billion last year as the bank increased staff and expanded its business, it said. The cost-to-income ratio, which stood at 41 percent in 2010, should “trend toward” 45 percent through this year, Gupta said.
“We see ourselves, in this couple of years at least, in investment mode,” he said. “We are adding headcount and technology.”
DBS plans to convert its branch business in Taiwan this year into a subsidiary, or a separate legal entity, allowing it to grow its business more quickly, Gupta said. The bank is also “quite hopeful” of doing the same in India, where it has 12 branches, should discussions with the regulator go well, he said.
The lender plans to hire 1,500 people through this year as it seeks to boost revenue from wealth management operations and units serving small- and mid-sized companies, Gupta said in November. He also plans to have 50 branches each in China, India and Indonesia within three years.
In private banking, which serves clients with at least S$1.5 million in disposable wealth, DBS aims for “double-digit” percentage growth in new assets annually from emerging markets over the next few years, the bank said last year. DBS plans to increase its managed assets to $50 billion from $35 billion in three years, it said.
In Hong Kong, where the bank bought Dao Heng Bank Group for $5.4 billion in 2001, profit fell 24 percent from the previous quarter to S$144 million as non-interest income declined and expenses rose, DBS said.
DBS said in December it will take over Royal Bank of Scotland Group Plc’s retail and commercial banking businesses in China. RBS will transfer close to 25,000 clients in Shanghai, Beijing and Shenzhen to DBS China, it said then. DBS didn’t spend any money on the deal, said Melvin Teo, chief executive officer of DBS China.