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SINGAPORE: Southeast Asia's biggest bank DBS has unexpectedly reported a loss of S$300 million for its second quarter. This was due to a goodwill impairment charge of S$1 billion on its Hong Kong unit.
DBS said competition in the deposit market in Hong Kong has intensified, resulting in higher costs of funding in the quarter.
It added there is an increased likelihood that the interest margin compression experienced by its Hong Kong operations will persist. But it sees no major impact from the charge.
DBS CEO Piyush Gupta said: "It does not affect our regulatory capital. Goodwill is excluded from our regulatory capital, so our account doesn't change.
"Our Tier 1, Tier 2 don't change. It does not impact our capital or liquidity positions. It does not impede our ability to pay dividends in any material terms, and it does not impede any of our business expansion plans."
The group said its core earnings reached a record high this quarter, reflecting the strong growth in underlying drivers. DBS's net profit, before the one-time goodwill charge, would have risen 30 per cent to S$718 million. The bottomline was also lifted by lower provisions.
Net interest income, meanwhile, dropped 4 per cent to S$1.067 billion, while non-interest income rose 10 per cent on-year to S$748 million.
Analysts said they remain upbeat about DBS' business prospects, citing strong growth in its core earnings.
Ng Kian Teck, an analyst at SIAS Research, said: "We expect the loan value for the Singapore segment to actually increase, which should help to contribute to the net interest income of DBS, which will indirectly help to boost their earnings for the second half of the year."
On its outlook, DBS said it continues to be well-positioned to participate in Asia's growth.
The lender has declared a dividend of 14 cents a share, unchanged from the previous quarter.
- CNA/al
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