DBS Profit Unexpectedly Increases as Trading Income Gains

DBS Group Holdings Ltd., Southeast Asia’s largest bank, unexpectedly posted an 11th straight increase in quarterly profit as fees and trading income rose, sending its shares to a five-year high.

Net income advanced 2 percent to S$950 million ($770 million) in the three months ended March 31 from S$933 million a year earlier, the Singapore-based lender said in a statement to the stock exchange today. That exceeded the S$824 million average of six analysts’ estimates compiled by Bloomberg. United Overseas Bank Ltd., Southeast Asia’s third-largest, posted a 4.9 percent increase, also exceeding estimates.

DBS Chief Executive Officer Piyush Gupta is betting on fee-generating businesses such as wealth management and growth overseas through his proposed acquisition of PT Bank Danamon Indonesia as near-zero interest rates crimp loan margins at home. Oversea-Chinese Banking Corp., Singapore’s second-largest lender, this week also posted profit that beat estimates.

“No matter what business you’re in, that DBS is growing its revenues without apparently taking on a huge amount of asset risk is a positive for shareholders,” said Matthew Smith, an analyst at Macquarie Capital Securities Singapore Pte. “If they can continue to do this, it’s fantastic.”

Shares of DBS rose 4.5 percent to S$17.52, their highest in almost five years. UOB advanced 3 percent to S$22 before its announcement, as the benchmark Straits Times Index gained 1 percent.

Fees, Commissions

UOB’s first-quarter net income increased to S$722 million from S$688 million a year earlier as income from fees and commissions, for operations such as fund management and investment services, climbed 25 percent. Profit beat the S$664 million average of seven analysts’ estimates compiled by Bloomberg.

At DBS, net fees and commissions climbed 25 percent from a year earlier to S$507 million, led by investment banking, wealth management and loan-related fees, it said today. Trading income rose 26 percent to S$410 million.

DBS’s net interest income, or the difference between what it makes from lending and pays on deposits, was little changed at S$1.3 billion. Its net interest margin narrowed to 1.64 percent in the quarter from 1.77 percent a year earlier.

Net interest income at UOB declined 3.5 percent to S$964 million, as the margin narrowed to 1.7 percent from 1.98 percent a year earlier.

Smallest Margins

Singapore’s banks have the smallest margins in Southeast Asia, averaging 1.94 percent at the end of last year, according to data compiled by Bloomberg. At OCBC, Southeast Asia’s second-largest lender, net interest margin contracted to 1.64 percent in the quarter from 1.86 percent a year earlier.

OCBC on April 30 reported a smaller decline in first-quarter profit than analysts had estimated as an increase in fees and commissions outweighed the narrowing loan margins. Its net income declined 16 percent to S$696 million.

DBS’s Gupta is awaiting approval on his $6.8 billion bid last year for Bank Danamon to tap earnings in Indonesia, where the average net interest margin for lenders is about 6.3 percent, the highest in Southeast Asia. Bank Indonesia will probably have a decision by early May on the proposed acquisition, Governor Darmin Nasution said on April 15.

Indonesia’s economy is expected to grow 6.25 percent this year, the fastest among Southeast Asian countries, according to the median estimate from a Bloomberg survey of economists. Singapore’s gross domestic product shrank an annualized 1.4 percent in the three months through March 31 from the previous quarter, when it rose 3.3 percent.

DBS’s loan book expanded 13 percent from a year earlier to S$223.7 billion in the three months. Provisions for credit and other losses increased 55 percent to S$223 million.

Singapore’s average monthly credit growth slowed to about 19 percent in the quarter from 27 percent a year earlier, according to Bloomberg calculations based on Monetary Authority of Singapore data.

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