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DBS posts record first-half net profit of S$2b

Higher net interest margin, loan volumes and annuity fee income streams more than offset a decline in market-related income, the bank says.

SINGAPORE: DBS Group said on Friday (Aug 1) its net profit for the first six months of 2014 rose 9 per cent from a year ago, crossing the S$2 billion mark for the first time. Including one-time items, net profit was S$2.2 billion, the bank said in a statement.

The performance was underpinned by a 3 per cent increase in total income to S$4.76 billion as higher net interest margin, loan volumes and annuity fee income streams more than offset a decline in market-related income. Allowance charges were lower, declining 40 per cent to S$279 million, as the non-performing loan rate improved to 0.9 per cent and the allowance coverage of non-performing assets increased to 162 per cent.

For the second quarter, net profit rose 9 per cent from a year ago to S$969 million. Higher loan volumes and net interest margins boosted the bottom line. Net interest margin for the six months ended June improved to 1.66 per cent, compared to 1.63 per cent a year ago.For the half-year, net interest income rose 12 per cent to S$3.05 billion, partially offset by the decline in non-interest income of 24 per cent to S$706 million.

Earlier this week, its smaller rival UOB reported an increase in non-performing loans of 7.3 per cent for the quarter, compared to last year, largely due to a group of home loan borrowers. However, DBS said its property portfolio remains sound in the face of softening home prices.

“Eighty-five per cent of our loans are owner-occupied loans; we think that's much higher than the average in the market (in terms of loans to owner-occupied property),” said Piyush Gupta, CEO, DBS. “I think that explains why our portfolio quality and profile is better than the market.

“We've stress-tested our portfolio with a 30 per cent property price decline, and we see no problem. Therefore, we don't see or anticipate a major issue now. You'll see some pick up, if rates go up you'll find some marginal borrowers who can't pay, but I don't think it'll be material."

For the six-month period, DBS says loans grew by 10 per cent year-on-year to S$257 billion. Analysts however note that the rate of growth has been slowing in recent quarters, as reflected in the latest earnings by DBS and UOB.

"Singapore system loans growth year-to-date was only about 4 per cent, which puts it in line to a high single digit growth - and we saw for the two banks, loan growth is slower than this time last year,” said Kenneth Ng, Head of Singapore Research, CIMB. With pressure on loans growth, market watchers have said that banks are looking into other areas such as SME financing and wealth management to grow their business. 

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