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DBS posts 20% increase in Q4 net profit, beats expectations

DBS, Singapore’s biggest bank, said its full-year net profit rose to a record S$4.45 billion in 2015.

SINGAPORE: DBS Group said on Monday (Feb 22) that its fourth-quarter net profit increased 20 per cent as its net interest margin rose to a five-year high, helping to boost the bank to a record full-year profit of S$4.45 billion. 

DBS, Singapore’s biggest bank, said its net profit for the three months ended Dec 31 was S$1 billion, versus S$838 million a year earlier, and above an average forecast of S$978 million from six analysts polled by Reuters.

Net interest income rose 11 per cent to S$1.85 billion. Net interest margin improved 13 basis points to 1.84 per cent, while loans rose by 3 per cent.

Non-interest income was 19 per cent higher at S$795 million. Net fee income rose 6 per cent to S$485 million as growth in most activities was partially offset by lower brokerage fees, DBS said.

However, the bank's charges for non-performing loans and other assets climbed 17 per cent to S$247 million from a year earlier, part of a trend for the city-state's lenders that reflects slowdowns in Asian economies and tough times for the oil and gas sector.

Full-year earnings came in at a record S$4.45 billion, DBS said. Excluding one-time items, net profit for 2015 was up 12 per cent at S$4.32 billion.

Going forward, DBS said the year ahead will be challenging, citing uncertainty over China's economic slowdown and falling commodity prices. Still, it expects domestic loan quality to stay resilient.

Mr Piyush Gupta, Group CEO of DBS, said: "Credit portfolios in Singapore continue to be very healthy ... It seems to me there's a degree of resiliency which has been built into the Singapore system, both in corporates and consumers over here.

"The bad news is it's impacting the topline. Growth is challenged. Our loan book is only growing from corporate activity, restructuring, refinancing, as opposed to growing from underlying business, because underlying business volumes and momentum have been suffering." 

“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," he added.

The bank’s board has proposed a final dividend of S$0.30 per share for approval at the forthcoming annual general meeting. This will bring the full-year dividend to S$0.60 per share, up from S$0.58 a year ago, DBS said. 

BETTER-THAN-EXPECTED EARNINGS OVERALL

Overall, all three local banks posted better-than-expected earnings for the quarter, as higher net interest margins and non-interest income offset slower loans growth. The outlook, however, is not as rosy.

On average, the three local banks reported 2.7 per cent growth in overall lending in 2015. Looking ahead, some analysts expect this to moderate over the course of the year amid a slowdown in the regional macroeconomic environment.

Said Mr Bernard Aw, a market strategist at IG: "Previously, overseas loan expansion has helped to support the weakness in domestic loan growth. But as of recent quarters, China's slowdown has weighed on economic growth in the region. So that in turn has weighed on the demand for loans from banks.

"Going forward, loan growth is going to be under pressure and it’s not just going to be weakness in the global economy. I think firms are also facing a lot of pressure. Also, the commodity slump is affecting countries such as Malaysia and Indonesia, which contribute to a significant amount of loans for some of the local banks."

Analysts said they are keeping a close watch on asset quality, amid the increase in provisions by all three banks. Non-performing loans made up 1.4 per cent of UOB's loan books at end-2015 and 0.9 per cent for both DBS and OCBC.