Published August 8, 2009

DBS net drops 15% to $552m, less than feared

Non-performing loans up, but NPL trend in core markets improving, says chairman

By CONRAD TAN

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DBS Group's net profit fell 15 per cent to $552 million in the second quarter from a year earlier, outperforming analysts' estimates, as it benefited from trading and investment gains and improving business conditions in its core markets.

CAUTIOUSLY OPTIMISTIC For most of the countries in Asia, the worst may be over, says DBS chairman Koh Boon Hwee

'We're cautious about the continuing pace' of economic recovery, 'but for most of the countries in Asia, the worst may be over', DBS chairman Koh Boon Hwee, who is overseeing management of the group, said.

Asked about the progress of DBS' hunt for a new chief executive, Mr Koh said only that the search, which began in April and is expected to take three to six months, is 'very much on track'.

The group's Q2 net profit of $552 million was 27 per cent higher than the $433 million it earned in Q1 despite setting aside higher provisions for bad loans, as the group's income from its main lending activities as well as other businesses rose.

Allowances for bad loans and other losses rose to $466 million in Q2, compared with $437 million in the previous quarter and just $90 million in Q2 last year, which included a writeback of $31 million.

But Mr Koh said the higher charges did not signal a deterioration in DBS' overall loan portfolio. In fact, 'we are seeing an improving NPL trend in our core markets', he said, referring to non-performing loans held by the group.

Analysts surveyed by Reuters had forecast an average of $455 million in Q2 net profit for DBS, while those polled by Bloomberg had expected $425 million.

DBS' annualised earnings per share for Q2 - or what the group would earn for a whole year if its earnings continued at the same pace - was 96 cents, up from 84 cents in the preceding quarter, but less than the $1.48 earned in Q2 last year.

For the first six months of the year, net profit fell 22 per cent to $985 million, compared with a year earlier. DBS said that it would pay an interim one-tier dividend of 14 cents a share for the quarter, unchanged from the preceding first quarter and compared with 17 cents a year earlier. Its share price ended 3.5 per cent lower at $12.84 yesterday.

The group's non-interest income for the three months to end-June grew to $680 million, up 22 per cent from a year earlier and 16 per cent higher than in Q1. The increase was due to higher fees and commissions from activities such as stockbroking and loan syndication, as well as gains on trading and investment securities.

Net interest income from the bank's main lending business rose 5 per cent from a year earlier to $1.11 billion as its loan book expanded, despite narrower net interest margins which made the bank's lending activity less profitable.

Compared with the first quarter, net interest income rose 3 per cent, though the drivers were reversed - loan volume shrank but net interest margins widened, making the loans more profitable.

Net customer loans after deducting allowances for bad loans fell 2 per cent over the quarter to $128 billion at the end of June, reversing a 3.2 per cent increase in the first three months of the year. Over the year to end-June, loans grew 7.9 per cent.

The quarterly decline was mainly due to currency translation effects, DBS said. Underlying loan volumes were stable and growth in Singapore-dollar loans - which made up 43 per cent or $56.4 billion of its gross loans at June 30 - was flat after growing for 12 straight quarters since Q2 2006.

Loans in Hong Kong, DBS' biggest overseas market, rose 2 per cent in local currency terms from Q1 as consumer loans increased, it said.

'We keep trying to grow our loan books. We are becoming a lot more aggressive in consumer banking,' Mr Koh said. 'Our loan pipeline is healthy and the momentum remains strong.'

The proportion of NPLs held by DBS rose to 2.8 per cent as at end-June, from 2 per cent at end-March and 1.4 per cent a year earlier.

Total NPLs rose by 36 per cent or $971 million over the quarter to $3.69 billion at June 30. Most of the increase was due to exposures to the shipping industry, and large corporate and institutional borrowers in the Middle East.