SINGAPORE: DBS Group Holdings Ltd, Southeast Asia's biggest lender, reported a 20 per cent jump in net profit on Thursday (Aug 2), missing market expectations as the impact of business volume growth was moderated by lower trading income.
DBS's profit increase was also supported by improved net interest income and fee income. The net interest income, which refers to interest it earns from loans, rose 18 per cent to S$2.2 billion, with loans growing 12 per cent.
Singaporean banks reported record profits last year but the outlook for the sector has been clouded by curbs on property investment imposed last month and a slowdown in economic growth due to international trade tensions, analysts said.
DBS's net profit came in at S$1.37 billion in the three months ending June versus S$1.14 billion a year earlier, and an average estimate of S$1.47 billion from three analysts, according to Thomson Reuters I/B/E/S.
DBS's net interest margin, which is the difference banks make from the interest it earns through giving out loans and the interest it pays out to customer deposits, and also a key gauge of profitability, increased 11 basis points to 1.85 per cent from 1.74 per cent a year earlier.
DBS CEO Piyush Gupta said in a statement on Thursday that he expects a 1 to 2 basis points increase in net interest margin for the full year, on the back of two expected rate hikes by the US Federal Reserve.
Despite the positive second-quarter results, DBS’s outlook remains cautious as it moves into the second half of the year, largely thanks to “heightened macroeconomic uncertainty”.
“Amidst heightened uncertainty and market volatility, business momentum was sustained in the second quarter. While there are gathering clouds, the region’s prospects remain intact, enabling us to continue capturing growth opportunities and generating stronger shareholder returns in the coming quarters,” he said.
These uncertainties include the mounting trade tensions between US and China which could potentially disrupt global trade flows and supply chains. It has led the bank to reduce its loan growth outlook from 8 per cent to between 6 and 7 per cent.
Another downside to loan growth in the second half of the year includes the impact of the recently announced property cooling measures, but analysts say they do not expect DBS to hit as significantly as its peers United Overseas Bank (UOB) and Oversea-Chinese Banking Corp (OCBC). That is because among the trio, DBS is the least exposed to housing loans while UOB has the largest exposure to housing loans at 28 per cent.
SLOWDOWN EXPECTED IN CONSUMER MORTGAGE BOOK
However Mr Gupta told reporters that the bank expects a slowdown in its consumer mortgage book.
"Given what happened with the last set of property cooling measures, I anticipate we’d probably give up about S$500 million worth of new loan bookings in the second half of this year, so loan bookings will come in at S$3.5 billion instead of S$4 billion initially anticipated,” he said during the lender's results briefing.
He added that the “biggest problem” with trade tensions between the US and China was the spillover effect that stems from the spat.
“It’s really a confidence issue, it’s a market psychology issue rather than what happens to the underlying trade flow," he said. "That starts impacting what happens to the equity market, the yield curve and credit spreads in the region.
"And for us, therefore it’s not the fundamental core business that gets impacted but it is the treasury market business that will see some impact.”
The latest quarter's net profit was 10 per cent below the first-quarter's record due to the weaker trading performance and the absence of a property disposal gain, the bank said.
On the dividends front, the bank has declared its first-half dividends at S$0.60 per share, up from S$0.33 per share a year earlier.
The bank, about 29 per cent-owned by Singaporean state investor Temasek Holdings, kicks off the quarterly results reporting season for lenders in the regional financial hub.
UOB reports results on Friday, followed by OCBC next week.
Additional reporting by Brandon Tanoto.