Chairman Koh Boon Hwee cautiously optimistic, says financial risk significantly improved from six months ago
By SIOW LI SEN
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DBS Group Holdings chairman Koh Boon Hwee is 'cautiously optimistic' about the banking industry as the bank maintains its quarterly dividend following better-than-expected net profits for the first quarter of 2009.
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| UPBEAT Mr Koh's outlook on the economy contrasted with that of United Overseas Bank chairman Wee Cho Yaw |
DBS yesterday reported that net profit was down 24 per cent at $456 million from a year ago but up 19 per cent from the previous quarter. The bank's strong performance far exceeded the $353 million mean estimate of seven analysts polled by Bloomberg.
'I think we have moved away from a systemic financial crisis,' said Mr Koh at the bank's results briefing.
'The problems are known, governments all over the world are working (on them), therefore in that sense, the financial risk is significantly improved, say over six months ago.
'Impact on the real economy - we've had dramatic two quarters of a downdraft mainly because of inventory depletion, a change in demand in the west but over this period, people have adjusted to it.'
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His outlook contrasted with that of Wee Cho Yaw, chairman of United Overseas Bank (UOB), who said last month that he remained pessimistic about the banking industry and that recovery may take another one to two years.
OCBC Bank chief executive David Conner on Wednesday warned that 'the economic outlook remains difficult and uncertain'.
'I think it's going to be a fairly long and slow climb out of the situation that we're in,' he said.
Mr Koh said that there are signs that the downturn has hit bottom.
'I don't see that the real economy is getting worse, it's just not recovering, we can't say that it's recovering aggressively but it's no longer getting worse and the companies have adjusted to a new level of production. So there's reason to be cautiously optimistic.'
He pointed out that while the bank would remain prudent in raising provisions against more bad loans, it is maintaining its quarterly dividend of 14 cents.
Non-performing loans rose to 2 per cent from 1.5 per cent at end-2008. Allowances for credit and other losses rose three-fold to $414 million from a year ago and 54 per cent from the previous quarter.
'I think it's just be prudent, but at the same time, the question that none of you asked - we maintained our dividend,' said Mr Koh.
'I don't make forecast . . . but obviously the decision to maintain is a deliberate one, right?' he said on whether it will be unchanged for the rest of the year.
Net interest income was 3 per cent lower at $1.1 billion over the previous quarter. Net interest margin fell five basis points to 1.99 per cent largely due to a fall in Singapore interbank rates. DBS, South-east Asia's largest bank, constantly struggles to deploy its mountain of deposits and has the most interbank funds of the three local banks. Its loan/deposit ratio was 72.6 per cent against 83.5 per cent for UOB and OCBC's 85.3 per cent.
Chief financial officer Chng Sok Hui said that DBS's net interest margin is credible given that interbank rates have fallen so much. Sibor (interbank) rates were at 10-15 basis points in the first quarter of this year, she said.
Mr Koh noted that DBS's net interest margin fall was only five points while Sibor rates had dropped 50 points and US rates were 100 points down.
Net fee and commission income rose 21 per cent to $317 million from a quarter ago while other non-interest income more than doubled to $269 million, led by interest rate and foreign exchange activities.
Ms Chng said that while trading income would remain volatile, 'we have a good team of traders'.
Total costs were down 7 per cent at $638 million, driving the cost-income ratio to 38.4 per cent, levels considered 'best in several years', she said.
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