DBS's Winning Trifecta Makes Gupta One Lucky Bank CEO
(Bloomberg Gadfly) -- It's a trifecta of good fortune for a bank CEO when in any given year credit risk doesn't blow up; interest-rate risk pays well; and the collateral backing loans rises in value, creating fresh demand. For Piyush Gupta, 2018 is promising to be that kind of a lucky year.
In 2017, the head of DBS Group Holdings Ltd., Southeast Asia's largest lender, took a lumpy charge on bad loans to Singapore's oil and gas services industry. Now, with crude prices firming, there's no need to carry large piles of dirty dishes to the kitchen sink.
That leaves Gupta free to turn his attention to the city's housing market, which is finally turning the corner. Improving collateral values should boost demand for new mortgages as well as loans to developers as they rebuild their land banks.
Finally, DBS's net interest margins improved by 7 basis points in the fourth quarter, pushing net profit up 33 percent to S$1.22 billion ($921 million), the bank said Thursday. Overall, margins are still low. A glut of money in the city-state is holding down its interbank rate, the benchmark for customer loans, below the galloping Libor.
But if profitability, too, gets fixed this year, the only other thing worth watching in future quarters' results would be risk management. Particularly in wealth advisory. With the integration of Australia & New Zealand Banking Group Ltd.'s units in Singapore, Hong Kong, China and Taiwan, assets under management jumped 24 percent last year to S$206 billion. If this week's turmoil in equity markets becomes a regular occurrence, customers' trading losses could mean higher provisions.
Should China's property market lose its luster, or the yuan start to weaken again, DBS will have more reasons to worry.
None of that is a clear and present danger, though. Most bank CEOs are happy if in any year nothing goes horribly wrong, and at least one thing goes very right. By that measure, Gupta should be chuffed about 2018. He's got at least three things lined up in his favor -- perhaps even four, if the stressed corporate loan book in India starts breathing a little easier.
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Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.
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