DBS bets on rebounding economy, profit jumps on lower credit costs

DBS shares rose as much as 1.2% to a record S$30.95 in a flat market. The stock is up 23% so far this year.

SINGAPORE: Singapore's DBS Group Holdings flagged strong loan growth and weaker credit costs after posting a 37% jump in quarterly net profit, as Southeast Asia's largest lender benefited from a rebound in its mainstay home market.

The bank joined local peers OCBC and United Overseas Bank in beating market estimates but the sector's sequential performance slowed sharply, underscoring challenges to maintaining growth.

"Overall numbers were ok considering net interest margins have fallen over 40 basis points from pre-COVID levels as rates fell, with the fee side largely expected," said Kevin Kwek, a senior analyst at Stanford C. Bernstein, commenting on DBS.

DBS shares rose as much as 1.2% to a record S$30.95 in a flat market. The stock is up 23% so far this year.

Global banks HSBC and Standard Chartered have also reduced credit losses in a global economic recovery after booking huge provisions last year in the face of the coronavirus pandemic.

"Business momentum and asset quality have both been better than expected as the economic recovery from the pandemic takes hold," DBS CEO Piyush Gupta said in a statement. He expected business momentum to be sustained in coming quarters.

As Singapore's economy rebounds from its worst-ever recession, demand for home mortgages and loans has improved, while booming markets have bolstered banks' wealth management businesses. This has helped cushion the impact of weak net interest margins in a low interest rate environment.

DBS reported profit for April-June rose to S$1.7 billion from S$1.25 billion a year earlier and beat an average estimate of S$1.42 billion from five analysts, according to Refinitiv data. Profit fell 15% from a record first quarter.

This was the 10th consecutive quarter that DBS has reported profit above market estimates.

The bank increased its dividend payout after Singapore's central bank last week removed caps on bank dividends, citing the improving global economic outlook.

Provisions for potential loan losses declined to S$79 million from S$849 million a year earlier. Gupta said the bank's asset quality was better than expected.

Moody's Investors Service expects DBS to maintain its very strong credit metrics this year. ($1 = 1.3512 Singapore dollars) - Reuters

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