DBS Jumps After First-Quarter Profit Beats Analyst Forecasts

(Bloomberg) -- Shares in DBS Group Holdings Ltd. jumped as Southeast Asia’s largest bank reported a surprise increase in first-quarter profit, with gains in lending and trading income offsetting a decline in wealth management fees.

Net income climbed 9 percent, better than the average estimate of five analysts surveyed by Bloomberg, who had forecast an earnings decline. The shares gained as much as 2.9 percent on Monday, to the highest level in nearly 11 months.

DBS, the first of Singapore’s three major banks to report earnings, benefited from higher rates and the recovery in global financial markets in the first quarter, according to Kevin Kwek, an analyst at Sanford C Bernstein. Though fees from DBS’s wealth operations were lower, the bank saw an 11 percent jump in assets under management, thanks partly to net inflows of customer money.

UBS Group AG last week reported a similar decline in wealth income but a rise in assets for the first quarter, helped by new money from the Swiss bank’s clients in the Asia-Pacific region.

About S$1 billion ($735 million) of the rise in DBS’s wealth assets during the first quarter came from net new money, Chief Executive Officer Piyush Gupta said at a press conference after the results. The bulk of the S$10 billion increase reported for the quarter came from rising financial markets, he added.

Mortgage Weakness

The only “caveat” in an otherwise healthy performance was the net shrinkage in DBS’s mortgage book, according to Gupta. Rising interest rates and last year’s round of property curbs have put the brakes on Singapore mortgage demand, potentially adding further pressure on housing prices.

“Bookings continued to be soft and the amount of refinancing transactions in the market was very low,” Gupta said, forecasting that DBS’s Singapore residential loans will rise by a maximum S$1.5 billion this year, compared with just under S$2 billion last year.

What Bloomberg Intelligence Says

Robust margins -- its highest since 2010 -- set the tone for 1Q together with a rebound in markets-related income and lower provisions.

-- Diksha Gera, bank analyst
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The boost from rising rates may start to fade later this year following the U.S. Federal Reserve’s dovish tilt, leaving Singapore banks more reliant on fee income. However Bloomberg Intelligence analyst Diksha Gera said the benefit of rising local interest rates may last a while longer.

“We could still see another quarter or two of margin uplift coming in for the Singapore banks," Gera said.

Earnings Highlights:

  • Net income up 9 percent to S$1.65 billion, beating analyst forecast of S$1.48 billion
  • Net interest margin expanded to 1.88 percent, five basis points higher than a year ago
  • Net trading income rose 20 percent to S$443 million
  • Return on equity up at 14 percent, versus 13.1 percent
  • Wealth assets under management up 11 percent to S$230 billion from a year earlier; wealth fees drop 5 percent
  • Nonperforming loans ratio at 1.5 percent, down from 1.6 percent
  • Allowances for credit and other losses shrank 54 percent to S$76 million

United Overseas Bank Ltd. will report its numbers on May 3, followed by Oversea-Chinese Banking Corp. a week later.

©2019 Bloomberg L.P.