DBS Group Holdings Ltd., Southeast Asia’s largest bank, reported second-quarter profit that beat analysts’ estimates on improved lending profitability and higher loan growth.
Net income rose 9 percent to S$969 million ($776 million) for the three months ended June 30 from S$887 million a year earlier, the Singapore-based company said in a statement to the stock exchange today. That beat the S$938 million average of six analysts’ estimates compiled by Bloomberg. The lender’s net interest margin widened to the highest in seven quarters.
DBS is bolstering its businesses outside Singapore to counter the lowest lending margins in Southeast Asia. Under Chief Executive Officer Piyush Gupta, the bank has been expanding trade finance in China, corporate lending in India, and private banking and wealth management in Southeast Asia to boost fee and interest-related income.
“There’s no padding in the results,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia, said by phone today. “The quality of earnings seems to be high because it looks like it’s more operational earnings and not accounting adjustments.”
Shares of DBS fell 0.3 percent to S$18.16 as of 1:10 p.m. Singapore time, as the benchmark Straits Times Index sank 0.9 percent. Rival lender United Overseas Bank Ltd., which reported earnings yesterday after markets closed, slumped 3.9 percent, the most since April 29, to S$23.23.
UOB, Southeast Asia’s third-largest lender, reported a 3.2 percent increase in second-quarter earnings amid gains from investments. While the S$808 million profit beat analysts’ estimates, JPMorgan Chase & Co. downgraded UOB to underweight from neutral in a report today, citing deteriorating asset quality and lack of deposit growth.
Oversea-Chinese Banking Corp., Singapore’s second-biggest bank, is due to report results on Aug. 5. Investors this week accepted OCBC’s $5 billion bid for Wing Hang Bank Ltd., the biggest takeover of a Hong Kong lender since DBS’s $5.4 billion acquisition of Dao Heng Bank Group Ltd. in 2001.
DBS boosted Hong Kong loans by 19 percent in the second quarter from a year earlier, the most among all of its regional businesses, today’s statement showed. Lending in the rest of Greater China expanded 17 percent, while Singapore increased 7.7 percent.
Loans to customers outside DBS’s home country accounted for 53 percent of total lending, which expanded 10 percent from a year earlier in the second quarter. Net interest income, the difference between what it makes from loans and pays on deposits, climbed 13 percent to a record S$1.6 billion.
DBS’s future growth is expected to come from China, India and Indonesia, Gupta said at a press briefing in Singapore today.
The bank’s net interest margin, a measure of lending profitability, widened to 1.67 percent, the highest level since the third quarter of 2012, from 1.62 percent a year earlier. The margin will “oscillate” around 1.65 percent this year, Chief Financial Officer Chng Sok Hui told reporters.
“Net interest margins came in better than what management guided and what everyone expected,” Wee Siang Ng, Singapore-based head of research at Maybank Kim Eng Research Pte, said by phone. “The results are much better than that of United Overseas Bank yesterday, which were driven largely by investment gains.”
Banks in Singapore had an average 12-month net interest margin of 1.75 percent, the lowest in Southeast Asia, according to filings compiled by Bloomberg before today. Indonesia had the highest average at 5.63 percent, the data show.
DBS’s non-interest income declined 18 percent from a year earlier to S$756 million due to weaker trading revenue. Fees and commissions gained 5 percent to S$503 million as the lender boosted revenues from investment banking and wealth management.
The company’s bankers worked on $16.6 billion of merger deals in Southeast Asia in the first half, allowing DBS to top the list of advisers in the region for the first time in its history, data compiled by Bloomberg show.
Provisions the company set aside for sour debt in the second quarter declined 48 percent from a year earlier to S$128 million. Its non-performing loan ratio dropped to 0.9 percent from 1.2 percent a year earlier.
DBS has S$50 billion of loans exposed to China, with S$36 billion of that being trade loans, Gupta said. The company had “zero exposure” to any financing in China that uses commodities as collateral, he said.
Banks and trading houses are checking their exposure to metals stored at China’s Qingdao Port, where public security officials are investigating if companies controlled by Singaporean national Chen Jihong used the same batches of commodities as collateral for loans from several lenders.