DBS CEO Sanguine on 2020 Outlook as Profit Beats Estimates
DBS Upbeat on 2020 Outlook as Profit Growth Beats Estimates
(Bloomberg) -- DBS Group Holdings Ltd. expects profit will keep growing next year despite mounting headwinds, after Southeast Asia’s biggest bank posted better-than-estimated results in the third quarter.
Net income increased 15% from a year earlier, buoyed by higher income from loans, wealth and trading, the results showed Monday. Chief Executive Officer Piyush Gupta said he sees “low single-digit growth” for revenue and profit in 2020 as falling interest rates crimp loan profitability.
Singapore’s lenders are contending with an economic slowdown that is putting a strain on credit demand and loan quality. But the nation’s biggest banks are still benefiting from their wealth businesses, which they have been expanding in recent years as the number of rich Asians increases.
“Overall, a decent set of results,” Goldman Sachs Group Inc. analysts including Melissa Kuang wrote in a note. Non-interest income was “robust” and net interest margins “held up better than expectations despite lower interest rates.”
Shares of DBS fell 0.5% in morning trading as the benchmark Straits Times Index declined 0.7%. The stock has gained about 12% this year, outperforming local rivals Oversea-Chinese Banking Corp. and United Overseas Bank Ltd.
DBS’s net interest margin will slide about seven basis points next year given the effect of central bank rate cuts, Gupta said. The measure of loan profitability dropped one basis point last quarter from three months earlier, to 1.9%.
What Bloomberg Intelligence Says
DBS’s surprise 15% 3Q profit jump may belie a weak earnings outlook for the next quarter and 2020, with headwinds to margins and loan growth as the economy weighs on revenue.
--Banking analyst Diksha Gera
Click here for the research
“Our transformed franchise, nimble execution and balance sheet strength will put us in good stead to deliver healthy shareholder returns despite the prevailing macroeconomic and geopolitical headwinds,” the CEO said in a statement.
Next year’s earnings will be driven by fee income and stable loan growth, he said at a news briefing.
Gupta was also positive about prospects for DBS’s business in Hong Kong despite the lingering unrest there, saying the bank will continue to benefit from China’s capital markets activity. Still, while third-quarter results there were “remarkably resilient,” an uncertain outlook prompted the lender to double provisions in the city, he said.
“Given the environment, you don’t know what’s coming down the pipe and we said we’ll put some money aside just in case,” he said.
Read about DBS’s ambitions in Hong Kong and China
Gupta said that the bank is open to acquisitions of a scale around 5% of its market value, though that is “not a budget.” Deals of that size would amount to about S$3.4 billion ($2.5 billion), given DBS’s capitalization of S$68 billion, data compiled by Bloomberg show.
DBS is working with an adviser on the possibility of bidding for Indonesia’s PT Bank Permata, which has a market value of about $2.4 billion, Bloomberg reported in October. At Monday’s news briefing, Gupta declined to comment on any specific deals.
Result Highlights
- Net income totaled S$1.63 billion, beating the S$1.55 billion average estimate of five analysts surveyed.
- Interest income rose 8% from a year earlier.
- Net trading income climbed 22%, and gains from investment securities more than doubled.
- Wealth management fees increased 22%; assets under management grew 9% to S$241 billion.
- Provisions including for soured loans rose 8%.
- Return on equity rose to 13.4% from 12.2%.
To contact the reporters on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net;Ishika Mookerjee in Singapore at imookerjee@bloomberg.net
To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward, Peter Vercoe
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