DBS profit driven by loans as turmoil hurts wealth, trading

DBS Chief Executive Officer Piyush Gupta said in a presentation that he expects mid-single-digit loan growth and continued progress on net interest margins this year.

SINGAPORE: DBS Group Holdings Ltd. relied on lending to boost fourth-quarter profit as financial-market turbulence hit its trading, wealth and investment banking operations.

Net income rose 10 percent to S$1.32 billion ($972 million) in the three months ended Dec. 31, missing the S$1.34 billion average estimate of six analysts surveyed by Bloomberg. 

Its Treasury Markets unit posted a pretax loss, while wealth management fees fell to a two-year low, the results showed Monday.

The stock rose as investors bet that DBS will continue to benefit from loan growth and higher interest rates even as risks linger from the U.S.-China trade dispute. Southeast Asia’s biggest bank wasn’t shielded from a tumble in stock markets from the U.S. to Asia that hit global financial firms including UBS Group AG and Credit Suisse Group AG.

“Margin picked up, loan growth wasn’t badly affected by trade wars, credit quality remained stable,’’ said Kevin Kwek, an analyst at Sanford C. Bernstein. “That being said, trade war challenges remain so until that is resolved in some fashion, markets won’t be pricing in a full recovery.’’

Chief Executive Officer Piyush Gupta said in a presentation that he expects mid-single-digit loan growth and continued progress on net interest margins this year.

DBS rose as much as 2 percent in Singapore morning trading, making it one of the biggest gainers on the Straits Times Index. The stock is up more than 6 percent this year after losing 4.7 percent in 2018.

Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. also rose. The two Singapore-based lenders are scheduled to report earnings on Friday.

“We believe the result reads well for peers, for which street expectations are a lot lower,” Krishna Guha, an analyst at Jefferies in Singapore, said in a report.

Still, Treasury Markets, which also took a hit in the second quarter, saw a pretax loss of S$54 million because of “lower contributions from equity and credit activities,” DBS said. Its operations primarily include structuring, market making and trading across a broad range of treasury products, according to the bank.

The pretax loss in the unit was bigger than the S$50 million posted in the second quarter, which Gupta described at the time as the worst since he joined the bank a decade ago.

Wealth management income shrank 4 percent to S$218 million, the lowest in two years. The decline came from “financial market uncertainty,” DBS said.

Tumbling stock markets in the fourth quarter reduced investment appetite among Singapore banks’ clients. The MSCI World Index fell almost 14 percent in the period, the worst quarterly decline since 2011.

Earnings Highlights

Net interest margin gained nine basis points from a year earlier to 1.87 percent, but only one basis point from the previous quarterLoans expanded 7 percent to S$345 billionWealth management fees fell 4 percent to S$218 million.

Return on equity climbed to 11.3 percent from 10.5 percent a year agoNonperforming loan ratio fell to 1.5 percent from 1.7 percent.

Net trading income was flat at S$229 millionNet income from investment securities slumped 71 percent to S$31 millionCost-to-income ratio increased to 46.3 percentAllowances for loans fell 9 percent to S$205 million from a year ago. - Bloomberg