By CONRAD TAN
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DBS Group's fourth-quarter net profit fell 40 per cent to $295 million compared to a year earlier, missing analysts' estimates as the bank suffered from a sharp fall in fee income and higher charges for bad loans.
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| OPTIMISTIC DBS chairman Koh Boon Hwee and CFO Chng Sok Hui at the announcement of DBS's full-year results yesterday. Mr Koh said the bank is well-positioned to weather the storms ahead |
But the bank's senior management said yesterday that it expects to remain profitable and plans to take advantage of the fallout from the financial crisis to increase its market share in Singapore-dollar loans.
The decline in profit was much steeper than analysts expected. Analysts surveyed by Reuters had forecast an average of $324 million in net profit, while those polled by Bloomberg had expected $310 million. Compared to the previous quarter, DBS's net profit for the three months to end-December slid 22 per cent.
Still, 'it's a relief that we didn't see any nasty surprises', said David Lum, an analyst at the Daiwa Institute of Research. 'It was in line with the guidance that they had given.'
DBS's share price ended 3.2 per cent higher at $8.39, after climbing as much as 3.6 per cent earlier.
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Allowances for bad loans and other losses jumped 48 per cent to $269 million from a year earlier, due to higher charges for loans to small and medium enterprises (SMEs) in Hong Kong and mainland China and private-banking clients in Singapore and Hong Kong.
But 'the rest of the portfolio looks like it's holding up', said Mr Lum. 'At least that's positive news, that we didn't get another disastrous quarter.'
The proportion of non-performing loans on DBS's books rose slightly to 1.5 per cent from 1.1 per cent a year earlier and 1.3 per cent in Q3.
Its earnings were also hit by one-time charges including $45 million for compensation paid to the 900 staff that it fired in November, as well as a $47 million charge for impairment in the value of its stake in Thailand's TMB Bank.
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DBS's investment in TMB is now worth just $76 million, compared to more than $470 million in early 2007.
Brandon Ng, an analyst at Phillip Securities, said the results were 'below expectations'.
Annualised earnings per share - or what the group would have earned for the whole year if its earnings continued at the same pace - fell to 80 cents, from 88 cents in the third quarter and $1.21 a year earlier, after adjusting for the increase in the number of shares following DBS's recent $4 billion rights issue.
For the full year, the group's net profit fell 15 per cent to $1.93 billion.
Chairman Koh Boon Hwee, who is overseeing management of the group, said that DBS is 'well-positioned to weather the storms ahead' and would focus on organic growth and growing its market share in key markets, especially Singapore and Hong Kong.
'While other banks may be distracted by head-office issues, or are curtailed in their ability to lend due to capital constraints, we aren't similarly hampered,' he added.
DBS's net customer loans grew by $18 billion or 16.6 per cent over the year to $126.5 billion at the end of December. More than half the growth was from Sing-dollar lending, which boosted DBS's market share of Singapore-currency loans to 20 per cent at the end of 2008, from 18 per cent a year earlier, said Mr Koh.
Over the quarter, Sing-dollar loans grew about 4 per cent, although DBS chief financial officer Chng Sok Hui said that the increase 'reflects primarily loans that were booked in the third quarter and were drawn down in the fourth quarter' rather than loans to new customers. Overall customer loans fell one per cent as corporate loans in other currencies shrank.
'It's interesting that they're pulling their loans everywhere except Singapore, where they're still growing,' said Mr Lum.
'I think it's the first time that they mentioned that they want to try to take market share in Singapore - I've never heard them adopt that type of position before.'
Net interest income in the fourth quarter from the group's main lending business grew 5 per cent to $1.12 billion compared to a year earlier, supported by the rapid expansion in its loans book. But DBS's net interest margin - which measures how profitable its loans are after deducting funding costs - fell to 2.04 per cent from 2.11 per cent a year earlier.
That margin is likely to be squeezed further as interest rates fall, reducing the rates that the bank can charge on loans, said Phillips Securities' Mr Ng. 'With interest rates so low, it's quite challenging for bank to keep up their margins.'
Non-interest income slumped 24 per cent to $360 million as fees and commissions from wealth management, investment banking and stockbroking services collapsed amid the violent financial-market turmoil in the final months of last year.
The group declared a final dividend of 14 cents a share for the quarter, to be paid on April 29. The dividend is roughly equivalent to the 17 cents a share paid a year earlier, after adjusting for the recent rights issue.
'We have remained and we expect to remain profitable,' said Mrs Chng.
Mr Koh said that DBS will still pay bonuses to its staff for 2008, though the payouts will be reduced to reflect the lower profits of the group compared to 2007.
He also dismissed suggestions that there would be major changes at DBS while its chief executive, Richard Stanley, is being treated for cancer.
'There will be no significant change during his period of absence. He is sick, but he is coming back,' said Mr Koh.
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