DBS beats expectations with 20% rise in Q4 profit to S$1 billion

Singapore

DBS Group reported better-than-expected fourth-quarter net profit of S$1 billion, up 20 per cent on higher margins for loans and broad-based non-interest income.

Singapore's biggest bank said on Monday that net profit for the three months ended Dec 31, 2015, was S$1 billion, versus S$838 million a year earlier, and above an average forecast of S$978 million from six analysts polled by Reuters.

Net profit for the 2015 full year, including one-off item of S$136 million, rose 10 per cent to a record S$4.5 billion, from 2014's S$4.05 billion, which included one-off item of S$198 million. Total income for FY2015 crossed S$10 billion for the first time to S$10.8 billion.

Return on equity rose from 10.9 per cent to 11.2 per cent.

Despite a choppy Q4, the bank's results were helped by higher loan margins, tight cost controls and good growth in non-interest income, said Piyush Gupta, DBS chief executive at the results presentation.

Asset quality was resilient. Specific allowances for loans rose slightly to 19 basis points of loans. The non-performing loan rate was unchanged at 0.9 per cent while allowance coverage of non-performing assets remained healthy at 148 per cent and at 303 per cent if collateral was considered.

DBS chief financial officer Chng Sok Hui said the allowance coverage provides strong buffer for increased in NPLs. She noted that a surplus S$600 million of general allowance can be reversed into specific provisioning without affecting DBS's capital ratios. Cumulative general allowance has risen to S$3.2 billion from S$3.1 billion in 2014.

In Q4, total income growth of 13 per cent exceeded a 10 per cent increase in expenses.

DBS is managing expenses and slowing down staff hiring, said Mr Gupta. In 2015, the bank hired more than 1,000 new staff; it'd be "much lower this year", he said.

The bank will also be moderate salary increases this year and reduce the wage bill growth, with senior staff taking the lead, he said.

General allowances of S$67 million for Q4 were taken as a prudent measure.

Net interest income increased 11 per cent to S$1.85 billion in Q4. Net interest margin improved 13 basis points to 1.84 per cent, the highest in five years, in line with the rise in interest rates, said Ms Chng. NIM averaged 1.77 per cent in 2015, up from the average of 1.68 per cent in 2014.

The key three-month Sibor (Singapore interbank offered rate) at end-2015 was 2.6 times higher than a year ago.

Ms Chng said if interest rates remain high in 2016, the NIM could go higher than the average 1.77 of 2015.

Loans grew 3 per cent to S$283 billion due to currency effects; they were little changed in constant-currency terms. Trade loans fell 25 per cent in constant-currency terms. The decline was offset by a 5 per cent constant-currency increase in non-trade loans from higher corporate borrowing and market share gains in Singapore housing loans.

DBS's housing loans market share rose to 26 per cent from 24 per cent as the bank got more refinancing deals, said Mr Gupta. New bookings last year were strong at S$10 billion.

Q4's non-interest income was 19 per cent higher at S$795 million. Net fee income rose 6 per cent to S$485 million as growth in most activities was partially offset by lower brokerage fees. Other non-interest income rose 50 per cent to S$310 million. Two-thirds of the increase was from interest income derived from funding swaps.

Compared with the preceding quarter, Q4 net profit fell 6 per cent due to lower non-interest income and higher allowances. There had been a gain of S$43 million from the sale of properties in the previous quarter too.

For the full year, net fee income rose 6 per cent with double digit increases in wealth management, card and loan related fees.

The common equity tier-1 ratio rose 0.6 per cent point during the quarter to 13.5 per cent from retained earnings and a decline in risk-weighted assets.

DBS announced a final dividend of 30 Singapore cents per share, unchanged from the previous final. This brings the full-year dividend to 60 Singapore cents per share, compared with 58 Singapore cents per share a year ago.

Based on last Friday's close, the yield is 4.4 per cent, said Ms Chng.

DBS closed on Monday down six cents at S$13.62.

READ MORE: Singapore banks not headed for Lehman reprise: Piyush