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SINGAPORE: Singapore's DBS Group Holdings said on Friday that net profit in the first quarter fell 28 per cent from the previous year as the bank made bigger allowances for bad debt.
Net profit in the three months to March was 433 million Singapore dollars (295 million US), down from 603 million dollars in the same period last year, DBS said in a statement.
The figure beat a Dow Jones poll of analysts which expected 347 million dollars in profit.
Net interest income in the first quarter was 1.08 billion dollars, up two per cent from 1.06 billion.
The bank said it made allowances of 414 million dollars for credit and other losses during the March quarter, up sharply from 140 million dollars last year.
Customer loans rose 14 per cent on-year to 130.6 billion dollars, while net fee income dropped 10 per cent to 317 million from a year ago.
Net interest margin, a key measure of profitability for banks, fell to 1.99 per cent from 2.04 per cent in the fourth quarter of 2008, DBS said. The lender's net fee and commission income declined 10 per cent, while its non-interest income jumped 76 per cent on-year.
The bank said its non-performing loan rate increased to 2.0 per cent in the first quarter from 1.5 per cent in the fourth quarter of 2008. The increase was led by SME loans in Hong Kong and corporate loans, in line with weaker economic conditions. The bank added that 34 per cent of its non-performing loans (NPLs) are still current in both principal and interest.
And DBS expects its bad debts to rise further.
Chairman, DBS Bank, Koh Boon Hwee, said: “We've always taken a conservative view on how we do our NPLs. We do expect during this time of the credit cycle that it will remain high, and because it is a lagging indicator. But we are comfortable with where we are given the state of the economy and the state of the credit cycle that we are in right now.”
The lender saw its new non-performing assets jump to S$3.23 billion in the first quarter, compared to S$1.46 billion in the same period last year.
As of March 31, DBS has the second highest ratio of non-performing loans, behind UOB. It also ranked second strongest in terms of Tier 1 capital adequacy, which measures a bank's financial strength.
To bolster its balance sheet against economic uncertainties, DBS set aside 182 million in general allowances during the quarter -- 49 million were for the non-asset backed securities (ABS) collateralised loan obligation (CLO) portfolio and the remaining 133 million were for the loan portfolio.
"Given continuing uncertainties over how protracted the downturn will be, we will remain vigilant in managing our balance sheet," chairman Koh Boon Hwee said.
DBS said it sees the economic downturn stabilising in its main markets of Singapore and Hong Kong.
Mr Koh said: "What we see in many of our customers is that the deterioration has stopped getting worse. So, I feel that we are at the bottom, and there are some signs that inventories have been depleted significantly over the last six months, that there is some pick-up in orders.
"Going forward, we have reason to be reasonably confident but (looking at) the economic environment, we are not out of the woods yet.”
DBS also said it is still on a global search for a new CEO, and hopes to find a replacement by the end of this year.
DBS is the last of three Singapore banks to announce earnings for the March quarter.
United Overseas Bank (UOB) and Oversea-Chinese Banking Corp (OCBC) on Wednesday both also reported net profit falls.
- AFP/CNA/so/yt
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