DBS Profit Rises on Interest Income as Bad-Loan Ratio Holds

  • Fourth-quarter earnings jump 20% to beat analyst estimates
  • CEO Gupta says `the region's economic fundamentals are sound'

DBS Group Holdings Ltd.’s fourth-quarter profit jumped on higher interest income as its net interest margin widened to a five-year high. While the bank’s nonperforming loans increased, the ratio to total lending was unchanged.

Net income rose 20 percent to S$1 billion ($713 million) for the three months ended Dec. 31 from a year earlier, Southeast Asia’s biggest bank said Monday in an exchange statement. That beat the S$965 million average estimate of eight analysts surveyed by Bloomberg.

DBS joins Oversea-Chinese Bank Corp. in reporting better-than-expected earnings, signaling two of Singapore’s biggest banks are withstanding rising bad debts amid a regional economic downturn.

“It’s another beat to wrap up the Singapore bank reporting,” Kevin Kwek, an analyst at Sanford C. Bernstein & Co. in Singapore, said in an e-mail. “The much looked-at area is credit quality, which should appease investors.”

DBS’s shares fell 0.4 percent to S$13.62 as of 3:01 p.m. in Singapore. The stock has lost 18 percent this year, compared with a 7.6 percent drop in the benchmark Straits Times index.

Technology Investments

DBS’s net interest margin, a measure of lending profitability, rose to 1.84 percent in the fourth quarter, from 1.71 percent a year earlier. That helped net interest income climb 11 percent to S$1.85 billion, the statement showed. Fee and commission income rose 6 percent to S$485 million. Expenses rose 10 percent to S$1.24 billion, led by higher investments in technology.

For 2015, profit increased 12 percent to S$4.32 billion as net interest income gained 12 percent to S$7.1 billion.

An increase in the three-month Singapore interbank offered rate last year has helped DBS’s interest margins. Sibor more than doubled as the U.S. Federal Reserve raised its benchmark rate for the first time since 2006. The rally extended by 5.6 percent this year.

Singapore’s economy grew 2.1 percent in 2015, the slowest pace in six years.

Nonperforming loans rose 8 percent to S$2.61 billion in 2015 driven by a 62 percent increase in bad debts from general commerce, the bank said. Its bad-loan ratio stayed unchanged at 0.9 percent as of Dec. 31 from a year earlier.

Oil Risk

DBS’s exposure to the oil and gas industry remained unchanged from the third quarter at S$22 billion. Of that total, S$9 billion are to those in support services where the nonperforming loans ratio stood at 1.3 percent of total loans.

DBS’s constant-currency non-trade loan growth was 5 percent in 2015, the bank said. Including its trade loans, lending fell 1 percent.

“The fourth quarter caps a strong year when total income crossed S$10 billion for the first time,” Chief Executive Officer Piyush Gupta said in the statement. “While unsettled financial markets in recent weeks have created short-term uncertainty, the region’s economic fundamentals are sound and the risks associated with slower growth are manageable.”

In 2016, loan growth may be around 2 percent to 3 percent, Gupta said Monday at a media briefing in Singapore. The bank’s nonperforming loan ratio won’t exceed 1.3 percent of total lending. Gains in income may be 7 percent to 8 percent this year, driven by non-interest businesses including selling insurance products, Gupta said. 

He said DBS will slow hiring in 2015 from last year’s pace, when the bank increased its payroll by 4 percent to 22,017.

UOB Results

United Overseas Bank Ltd., which reported earnings Feb. 16, saw bad loans rise to S$2.9 billion as of December, up 22 percent from a year earlier, representing 1.4 percent of total loans. That forced the Singapore-based bank to set aside more specific allowances as buffers. OCBC, its larger competitor, said nonperforming loans rose 54 percent to S$1.97 billion during the same period.

Asset quality of Singapore banks will be vulnerable to further deterioration, with weakness in overseas and domestic loans, Standard & Poor’s analyst Ivan Tan wrote in a Feb. 17 report. Still, the lenders have good buffers and proactive risk management to tackle the challenges, Tan said.

Before it's here, it's on the Bloomberg Terminal.