DBS (DBSM.SI), Southeast Asia’s biggest lender, posted a record quarterly profit on Thursday and joined rivals in beating expectations as falling bad debts and strong trading income helped it overcome low interest rates.

But weak margins on loans at Singapore banks due to low US rates and an expected economic slowdown in the months ahead could slow the pace of earnings recovery this year.

“This year we have been able to leverage the strength of our customer franchise to expand our loan book and increase cross-sell, thus mitigating the effects of headwinds in a low rate market,” CEO Piyush Gupta said in a statement. 

“Going forward, we will continue to focus single-mindedly on execution so as to consistently deliver quality earnings.

DBS posted a net profit of $722 million in July-September against $563 million a year earlier, up 28%.

That compared with an average forecast of $645 million, according to seven analysts surveyed by Reuters.

Bad debts declined 26% to $195 million from a year earlier.

DBS’s smaller rivals Oversea-Chinese Banking Corp (OCBC.SI) and United Overseas Bank (UOBH.SI) have both announced better-than-expected quarterly earnings.

Asian banks have benefited from the region’s strong economic recovery which has helped reduce bad debts and boosted loan growth.

DBS said loans grew 15% in the third quarter from a year earlier, faster than UOB’s 8.7% expansion, but slower than OCBC’s 29% growth.

Net interest income, however, dropped 5% to $1.08 billion as net interest margins declined by 23 basis points, compared with an 18-basis-point decline for OCBC and 32 basis points for UOB.

Fee and commission income for DBS fell 6% to $340 million, while trading income more than doubled to $235 million.

The revival of Singapore’s IPO market this year is expected to help DBS earn more investment bank fees as it advised on the share sale of Global Logistic Properties’ (GLPL.SI) US$3 billion ($3.9 billion) and Mapletree Industrial Trust’s (MAPI.SI) US$720 million listing.

Singapore bank shares have underperformed the broader market this year as investors are concerned about weak margins as well as an economic slowdown in the next few quarters after a strong first half.

DBS shares are down 8.4% so far this year, underperforming both its rivals. UOB shares are down about 6% while OCBC, which has been bolstered by its private bank, is the only Singapore bank in the black this year, up 2.2%.

The overall Singapore index <.FTSTI> has climbed about 11% since the start of the year.

The following companies may have unusual price movements in trading today, say Thomson Reuters and Bloomberg. Share prices are from the previous close. Singapore’s Straits Times Index rose 0.6% to 3,224.97.

Bulk-shipping companies: The Baltic Dry Index, which measures the cost of shipping commodities, fell 2.2% in London yesterday, taking its five-day decline to 8.7%.Mercator Lines (Singapore) (MRLN SP), an Indian bulk carrier, slid 1.8% to 27.5 cents. STX Pan Ocean Co. (STX SP), South Korea’s biggest bulk carrier, climbed 3.9% to $14.76.

Cosco Corp. Singapore (COS SP), a China-based shipbuilder that also operates bulk carriers, gained 2.7% to $1.94. The company its third-quarter net profit more than doubled to $55.1 million from $22.3 million a year earlier.

CH Offshore (CHO SP): The operator of offshore support vessels used in the oil and gas industry said first-quarter net income declined 20% to US$8.2 million ($10.5 million) from a year earlier. The stock was unchanged at 53.5 cents.

DBS Group Holdings (DBS SP), Southeast Asia’s biggest bank, said third-quarter net income increased 28% to $722 million from a year earlier. Analysts had expected profit of $655.9 million, based on the average of eight analyst estimates compiled by Bloomberg. DBS rose 0.7% to $14.10.

Total Access Communication Pcl (DTAC SP): Thailand’s second-largest mobile-phone company expects its revenue will grow between 7% and 9% this year, driven by data and non-voice businesses, Chief Executive Officer Tore Johnsen said. Its shares gained 2.2% to US$1.39 ($1.8) when it last traded on Nov 1.

Singapore-listed real estate investment trust Lippo-Mapletree (LMRT.SI) said on Wednesday its third-quarter distributable income fell 10.3% to $11.7 million from a year ago mainly due to the effect of foreign exchange rates used for translating revenues in Indonesian Rupiah to Singapore Dollars.

Singapore oil and gas infrastructure services provider Rotary Engineering (ROTE.SI) said on Thursday its third-quarter net profit fell 4% to $10.2 million from a year ago mainly on higher operating expenses and foreign exchange loss.

DBS Group Holdings, Southeast Asia’s biggest bank, reported third-quarter profit that beat analysts’ estimates as loan growth outweighed narrowing interest margins.

Net income climbed 28% to a record $722 million in the three months ended Sept. 30, from $563 million a year earlier, the Singapore-based company said in a statement today. That beat the $655.3 million average of nine estimates compiled by Bloomberg.

DBS, led by Chief Executive Officer Piyush Gupta, is benefiting from a revival in credit growth as Asia’s economic expansion outpaces the rest of the world. That has spurred profit even as income from lending is crimped by low borrowing costs in Singapore and Hong Kong.

“Stronger loan momentum, and evidence that some fee-related initiatives are beginning to bear fruit” makes DBS a preferred pick, Robert Kong, a Singapore-based analyst at Citigroup Inc., wrote in a report on Oct 22.

Net interest income, or the difference between what the bank makes from lending and pays on deposits, rose 1% from the previous quarter to $1.1 billion. Loans rose 1%, spurred by corporate borrowing across Asia as well as home loans in Singapore. The net interest margin, a measure of loan profitability, declined four basis points to 1.8%.

Total loans in Singapore rose 12.1% from a year earlier to $309.4 billion in September, data from the Monetary Authority of Singapore show.

Non-interest income fell 2% from the previous quarter to $730 million, dragged down by a drop in loan-related fees, DBS said. Investment banking revenue rose, while trading income growth slowed, the statement said.

The Federal Reserve will buy an additional US$600 billion ($771 billion) of Treasuries through June, expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert deflation.

Policy makers, setting a pace of about US$75 billion of purchases a month, “will adjust the program as needed,” the Fed’s Open Market Committee said today in a statement in Washington. The central bank left unchanged its pledge to keep interest rates low for an “extended period” after Chairman Ben S. Bernanke said it could be modified in some way.

While Bernanke’s near-zero rates and US$1.7 trillion in asset purchases helped end the recession, the Fed said progress has been “disappointingly slow” in bringing down joblessness close to a 26-year high. The risk is that the move doesn’t work or fuels inflation and asset bubbles, said Paul Ballew, a former Fed economist and a senior vice president at Nationwide Mutual Insurance Co. in Columbus, Ohio.

“The Fed has been dissatisfied with the pace of recovery,” former Richmond Fed President J. Alfred Broaddus said. “The long-term mandate is to conduct monetary policy consistent with full employment and stable prices. We are a long way from that.”

The FOMC kept its benchmark interest rate target for overnight interbank loans at zero to 0.25%, where it has been since December 2008. New York Fed President William Dudley, who serves as FOMC vice chairman, said Oct. 1 that purchases of US$500 billion would be about equivalent to reducing the rate by 0.5 to 0.75%age point.

Boost Growth
Bernanke, in an opinion article for the Washington Post released late today, said the purchases should boost economic growth through lower borrowing costs and higher stock prices and that concerns about the strategy are “overstated.”

“This approach eased financial conditions in the past and, so far, looks to be effective again,” he said.

The Standard & Poor’s 500 index rose 0.4% to 1,197.96 at the 4 p.m. close of trading in New York. The dollar weakened 0.7% against the euro to US$1.4139 after touching a nine-month low of US$1.4179.

Central bankers acted a day after Americans voted in midterm elections to hand control of the House to Republicans and slim down Democrats’ Senate majority, intensifying political gridlock on fiscal issues and putting more of the burden for sustaining growth on the Fed. The FOMC’s schedule of eight meetings in 2010 was announced in June 2009.

Asset Purchases
Fifty-three of 56 economists surveyed by Bloomberg News last week predicted the central bank would announce asset purchases today, with 29 forecasting a pledge to buy US$500 billion or more.

“They did a little bit more -- that suggests they want to add an exclamation point to what they’re doing,” Broaddus said in a Bloomberg Television interview.

Including Treasury purchases from reinvesting proceeds of mortgage payments, the Fed will buy a total of US$850 billion to US$900 billion of securities through June, or about US$110 billion per month, the New York Fed said in an accompanying statement.

The Treasury 30-year bond fell the most in almost two months after the New York Fed said in a separate statement that 86% of its purchases will target bonds coming due in 2 ½ to 10 years.

“Only a small fraction of the buying will be beyond the 10-year note,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees US$550 billion.