DBS posts 20% gain in second-quarter profit

SINGAPORE — DBS Group Holdings, South-east Asia’s biggest lender, posted second-quarter profit that missed analysts’ estimates due to a drop in income from trading in financial markets.

Net income rose 20 per cent to S$1.37 billion in the three months to June, the Singapore-based bank said Thursday, falling short of the S$1.44 billion average forecast in a Bloomberg survey of six analysts.

DBS, the first of the three large Singapore banks to report second-quarter results, said it benefited from rising local interest rates and fee income from its expanding wealth management operations.

But that was overshadowed by the effect of market volatility on income from trading and investment securities, which caused a 32 per cent drop in the bank’s other non-interest income.

DBS blamed a flatter yield curve and wider credit spreads for the lower trading income, saying they “created trading headwinds.”

Chief executive officer Piyush Gupta also cautioned about heightened macroeconomic uncertainty resulting from rising US-China trade tensions. And the bank expects “some impact” on loan growth due to the recent property cooling measures imposed by the Singapore government, Mr Gupta said.

Loan growth this year is now forecast at between six per cent and seven per cent, down from the earlier eight per cent projection, “due mostly to trade loans,” the bank said.

Earnings Highlights:

• Net interest margin gained 11 basis points from a year earlier to 1.85 per cent
• Loans expanded 12 per cent to S$338.1 billion
• Wealth management fees increased 22 per cent to S$300 million; nine per cent lower than previous quarter
• Return on equity at 11.8 per cent from 10.1 per cent a year ago
• Nonperforming loan ratio rose to 1.6 per cent from 1.5 per cent
• Net trading income down 23 per cent at S$227 million
• Net income from investment securities slumped 68 per cent to S$30 million
• Cost-to-income ratio increased to 44.3 per cent
• First half dividend of 60 Singapore cents, up from 33 cents a year ago

DBS’s net interest margin for the year is likely to be one to two basis points above the previous guidance of 1.85 percent, due to higher US rates, Mr Gupta said.

“Overall results were decent, although not everything was shiny," said Mr Kevin Kwek, an analyst at Sanford C. Bernstein in Singapore. “On the positive side, on-year loan growth was strong at 12 per cent, allaying fears around the impact of trade wars and Singapore property measures, with business momentum that the bank described as strong, including in wealth management."

DBS shares have risen 8.4 per cent this year, compared with a 2.2 per cent decline in the benchmark Straits Times Index. The Bloomberg Asia Pacific Banks Index has fallen eight per cent over the same period. BLOOMBERG