Singapore

DBS Group Holdings announced better-than-expected second-quarter earnings due to improved margins, broad-based fee income growth and sales of more loans.

For the second quarter, South-east Asia's largest bank posted net profit of S$1.12 billion, up 15 per cent as net interest margin and fee income reached new quarterly highs, it said on Monday. The earnings were above an average forecast of S$1.06 billion from seven analysts polled by Reuters.

The strong Q2, similar to the record first quarter, propelled first-half 2015 net profit to a new high of S$2.39 billion, up 8 per cent. Excluding one-time gains, H1 net profit rose 12 per cent to S$2.25 billion.

DBS increased the interim dividend to 30 cents per share, up from 28 cents, "reflecting our confidence in the sustainability of our earnings". Based on last Friday's close of S$21.40, the annualised yield is 2.8 per cent. DBS ended Monday down 1.5 per cent or 32 cents at S$21.08 as Asian markets tumbled, weighed down by concerns over China's economic slowdown.

DBS chief executive Piyush Gupta DBS said that the bank's record performance came from broad-based growth despite a regional economic slowdown.

He was confident that while the second-half outlook has some uncertainty, loan and business pipelines remain healthy.

"Depending on what the Fed does, it can be choppy," he said, adding that there may even be a "taper tantrum" in this quarter. The US Federal Reserve is having its Open Market Committee meeting this week and will be closely watched for any signals on when it will raise interest rates.

He also expects choppiness from China's slowdown. Weak factory activity in China is already hitting the stockmarket. Last Friday's release of flash Caixin/Markit China manufacturing PMI in July showed it dropped to 48.2, from 49.3 in June, the lowest reading since April last year and the fifth straight month under 50. A reading below 50 denotes contraction. According to government data, industrial output is still rising.

Mr Gupta said he has seen some "green shots" in China but is uncertain if that's sustainable. DBS's trade loans in Q2 rose to S$2 billion, but they were down a massive S$9 billion in Q1.

For Q2, DBS enjoyed a strong rise in total income, up 16 per cent at S$2.69 billion from a year ago.

Net interest income rose 12 per cent to S$1.74 billion from an eight basis point increase in net interest margin (NIM) to 1.75 per cent.

Mr Gupta said that the impact of the rise in interest rates is coming through. The impact was not fully felt in Q1 because the "trade book had collapsed faster than expected".

DBS is the strongest beneficiary of highest interest rates among the local banks. The key Sibor or Singapore interbank offered rate began rising last December to a year high of 1.03 per cent in early April. It is now at 0.83 per cent, more than doubled from a year ago.

DBS also benefited as it let S$14-15 billion of expensive fixed deposits run off, mostly in US dollars and Hong Kong dollars, he said. Total deposits fell to S$306 billion, down 6 per cent from S$324.5 billion from Q1.

DBS maintains 52 per cent market share in current accounts/savings accounts, he said, but has been reducing its fixed deposits market share.

Our FD market share is coming down, from 12 per cent at its peak to now 6-7 per cent, he said.

"We don't want to pay 1.5 per cent, we have SGD surplus," he said. Rival banks have been paying 1.5 to 1.7 per cent for 12-month FDs, he noted.

He expects the NIM of 1.75 per cent to remain for the rest of the year.

Loans grew 9 per cent, partly due to currency effects, as higher corporate and housing loans were offset by lower trade loans. Loans rose one per cent in constant currency terms.

Q2 non-interest income increased 25 per cent to S$947 million. Net fee income rose 16 per cent to S$582 million as contributions from most activities recorded double-digit percentage growth. Stronger trading income resulted in a 44 per cent increase in other non-interest income to S$365 million. Costs rose 16 per cent to S$1.22 billion. Asset quality remained healthy with the non-performing loan ratio unchanged from recent quarters at 0.9 per cent.

READ MORE: DBS's mortgage and insurance sales hit new highs in Q2