DBS Profit Misses Estimates as Lending Profitability Narrows

DBS Group Holdings Ltd., Southeast Asia’s largest bank, said fourth-quarter profit rose 4 percent, excluding a gain from the sale of a Philippine bank, missing analysts’ estimates as loan margin narrowed.

Earnings before the S$450 million ($364 million) gain increased to S$760 million from S$731 million a year earlier, the lender said in a statement to the Singapore stock exchange today. That fell short of the S$795 million average of eight analysts’ estimates adjusted by Bloomberg. Net income jumped 66 percent to S$1.2 billion, including the one-time item.

The shares slumped after DBS reported thinner interest margins, led by a decline in corporate lending profitability. Chief Executive Officer Piyush Gupta has delivered 10 quarters of earnings growth as he moves into faster-expanding markets amid slowing credit demand in the bank’s home market.

“The biggest disappointment in the quarter came from interest margins as management had indicated this would remain stable,” said Ken Ang, a Singapore-based analyst at Phillip Securities Pte. “It’s an area of concern and we’ll be looking to hear more from management on this and what would be the guidance moving forward.”

DBS shares fell 1.6 percent to S$14.96 at the close in Singapore, the biggest decline in three weeks and the worst performer on the city’s benchmark Straits Times Index. Rival Oversea-Chinese Banking Corp., which reports earnings next week, slid 0.5 percent.

Margin Narrows

Net interest margin narrowed to 1.62 percent in the quarter from 1.73 percent a year earlier as corporate loan spreads and yields on investment securities declined, DBS said.

Banks in Singapore earn the least on loans in Southeast Asia, based on their average net interest margin of 1.99 percent, according to the most recent data compiled by Bloomberg. Net interest margin at OCBC was 1.75 percent at the end of the third quarter, while United Overseas Bank Ltd.’s stood at 1.84 percent.

In search of more profitable lending, Gupta in April bid about $6.8 billion for Bank Danamon Indonesia and is now awaiting approval from regulators in Indonesia, where average net interest margins for banks with a market value of at least $5 billion is 6.9 percent.

Gupta told reporters in Singapore today that he’s positive about the approval coming through, based on signals coming from Bank Indonesia. He declined to comment on timing or details.

‘Slightly Softer’

The bank’s net interest income, the difference between what it makes from lending and pays on deposits, was little changed last quarter from a year earlier at S$1.29 billion. The lender’s loan book grew 8 percent to S$210 billion.

“We came in slightly softer in the quarter than I had anticipated,” Gupta said. “We expected the China business to start picking up in September-October, but we saw it in our numbers only in December.”

The lender reported a fourth-quarter loss of S$23 million from China, compared with a profit of S$36 million a year earlier.

In October, DBS cut its stake in Bank of the Philippine Islands in half to boost capital. Ayala Corp. bought the 10.4 percent stake in the Philippine lender for S$757.3 million.

For the full year, profit excluding the gain from the stake sale rose 11 percent to a record S$3.36 billion, DBS said.

Fees, Commissions

Net fees and commissions climbed 9 percent in the quarter to S$372 million, led by wealth management, DBS said. Investment banking fees fell 18 percent to S$27 million. Other non-interest income advanced 4 percent to S$294 million as the bank booked gains on fixed assets.

Provisions for credit and other losses declined 50 percent from a year earlier to S$114 million, the bank said in the statement.

Loan growth in Singapore slowed to 10.4 percent in 2012 from 24 percent a year earlier, according to a Jan. 31 note to clients from Daiwa Capital Markets Singapore Ltd. The city’s economy rose at the slowest pace in three years in 2012 and the government predicts economic growth of 1 percent to 3 percent this year.

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