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DBS <DBSM.SI>, Southeast Asia’s biggest lender, posted a record quartely profit, joining rivals in beating expectations but faces pressure from a low-interest rate environment and rival OCBC, which has delivered better quality earnings.
Strong economic growth has boosted Singapore bank profits this year, helping cut bad debts and lift loan growth.
Strong economic growth has boosted Singapore bank profits this year, helping cut bad debts and lift loan growth.
But weak margins on loans, due to low U.S. interest rates, remain the Achilles’ heel for Singapore’s big three lenders and a test for DBS CEO Piyush Gupta, hired from Citigroup a year ago, as he tries to boost earnings outside Sinapore and Hong Kong.
“Everyone expects Singapore’s GDP growth to moderate after a very strong first half of the year, while pressure on margins continues in the low-interest rate environment and we are also seeing costs start to pickup due to wage inflation,” said CLSA banking analyst Derek Ovington.
DBS earnings, bolstered by strong trading income and falling debt charges, could also struggle against peers such Singapore’s No. 2 bank Oversea-Chinese Banking Corp (OCBC) <OCBC.SI>, which has delivered more quality earnings growth, analysts said.
“Clearly OCBC has produced the best results of the three,” said Ovington. “All three beat expectations, but OCBC had best broad-based quality.”
DBS loan growth rose 15% in the third quarter from a year earlier, slower than OCBC’s 29% expansion, but faster than smaller rival United Overseas Bank’s <UOBH.SI> 8.7% growth.
OCBC expects loan growth of 8-12% in 2011.
Fee and commission income unexpectedly declined for DBS compared with OCBC, which saw a 37% jump in the segment, fueled by contributions from its private bank which was formed following the acquisition of ING’s Asian private bank in January.
