DBS Profit Beats Estimates, Climbs 7.8% on Lending Growth

DBS Group Holdings Ltd., Southeast Asia’s largest bank, posted fourth-quarter profit that beat analysts’ estimates as loan demand climbed.

Net income rose 7.8 percent from a year earlier to S$731 million ($585 million) in the three months ended Dec. 31, the Singapore-based lender said in a statement to the stock exchange today. That beat the S$693.1 million average of seven analysts’ estimates compiled by Bloomberg.

Loan books of banks in Singapore grew more than 30 percent in the last two months of 2011, fueling earnings growth. Lending may weaken in coming months after Singapore adopted measures to curb mortgage lending in December and as the country’s economic expansion cools.

“Loan growth remained quite strong over the quarter,” said Anand Pathmakanthan, an analyst at Nomura Singapore Ltd. “Going into the next quarter, higher credit costs stemming from more loans turning sour in the face of slower economic growth, and lower loan growth, will be the big issues the bank may have to deal with.”

Shares of DBS climbed 0.5 percent to S$13.62 at 11:07 a.m. in Singapore. The Straits Times Index gained 0.3 percent.

DBS’s net interest income, the difference between what a bank makes from lending and what it pays on deposits, grew 17 percent last quarter from a year earlier to S$1.29 billion.

Fee Income Drops

Net fees and commissions declined 4 percent to S$342 million as earnings from stock broking, investment banking and treasury products fell.

For the full year, net income climbed 15 percent to a record S$3.04 billion, led by an increase in loans to businesses across the region, with trade finance accounting for half of the growth in lending, the bank said. DBS also proposed a dividend of 28 cents a share, bringing the full-year payout to 56 cents a share, the same as 2010.

“Over the year, our entire regional franchise performed well, and many of our strategic initiatives kicked in,” Chief Executive Officer Piyush Gupta said in a statement. “Nevertheless, there is much more to be done as we remain steadfast in our ambition to become a leading Asian bank.”

Mortgage Tightening

Lending income may face pressure after the government on Dec. 7 imposed extra taxes on residential property purchases by foreigners and existing homeowners.

Profitability on loans fell last quarter. DBS’s net interest margin narrowed to 1.73 percent from 1.79 percent a year earlier, the report showed.

The margin, already at a six-year low, may contract further to 1.71 percent, Chin Seng Tay, an analyst at Bank of America Corp.’s Merrill Lynch unit, wrote in a note on Feb. 2.

The ratio of U.S. dollar loans to deposits in the currency fell to 1.51 at the end of the fourth quarter from 1.7 three months earlier, DBS said.

A drop in that ratio, along with stable net interest margins, “would be positive for the bank,” Pathmakanthan said.

Singapore’s gross domestic product shrank at an annual 4.9 percent rate in the fourth quarter of last year as manufacturing cooled. Growth in the city-state will slow to 3.6 percent this year from 5 percent in 2011, according to the median estimate of analysts surveyed by Bloomberg.

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