DBS posts record S$1.27b profit for Q1

Singapore

DBS Group's net profit for Q1 2015 rose to a record S$1.27 billion, up 3 per cent, led by higher fee income and trading gains. Its net earnings of S$1.27 billion were higher than market expectations of S$1.05 billion. Excluding one-off item of S$136 million from the sale of an investment property in Hong Kong, net profit increased 10 per cent year on year to S$1.13 billion.

Total income grew 12 per cent to S$2.74 billion as net interest income and non-interest income both reached new highs. The growth was broad-based across all business units, the bank said. Net interest income increased 14 per cent to S$1.69 billion.

Gross loans rose 11 per cent to S$281 billion; in constant-currency terms, loan growth was 6 per cent. Loans growth for the full year is expected at 6 per cent, said chief executive Piyush Gupta. "I'm quite confident of prospects for the rest of the year," he said.

Underlying loans were stable on quarter as growth in corporate and home loans was offset by a fall in trade loans. Mr Gupta said China's trade contraction is moderating. "The trade slowdown is levelling off in the last few weeks," he said.

DBS's trade loans fell 8 per cent on quarter due to slower growth in China, lower commodity prices and convergence in the offshore and onshore interest rates.

Mr Gupta said all trade-related loans fell S$7 billion in the quarter. Net interest margin (NIM) increased three basis points to 1.69 per cent on year but is down from 1.71 per cent on quarter.

DBS did not get the benefit from higher interest rates in Q1 due to a lag effect and excess liquidity which was deployed in the low-yielding interbank market. In addition, it had to bear higher cost of offshore renminbi deposits, Mr Gupta said. He expects NIM to rise by a few basis points in Q2. "In Q2, we should see the full impact from Sibor . . . all should kick in," he said.

Three-month Sibor (Singapore interbank offered rate) has risen 43 basis points year to date. The bright spot was non-interest income which crossed S$1 billion for the first time, rising 9 per cent to S$1.05 billion.

Fee income increased 10 per cent to S$560 million. Wealth management contributions rose 43 per cent from higher unit trust and insurance sales while fees from credit and debit cards increased 23 per cent, reflecting a continuing strengthening of the wealth management and consumer banking franchises, DBS said.

On DBS's newly minted Manulife bancassurance partnership, DBS expects insurance sales to reach half a billion dollars in a few years, said Mr Gupta.

This year the bank expects to sell S$250 million of bancassurance and it will also get S$106 million from Manulife. DBS gets a total of S$1.6 billion from the 15-year tie-up with Manulife. Insurance penetration in Singapore is low at 4 per cent while a country with similar per capita is 12 per cent, he said.

Other fee segments were generally maintained at the previous year's levels. Other non-interest income grew 7 per cent to S$486 million as DBS was well-positioned during a quarter marked by monetary easing by various central banks. While trading income of S$356 million was similar to first-quarter 2014, it was significantly higher than recent quarters as a result of favourable positions in foreign exchange and interest rates.

Income from investment securities tripled to S$103 million as profits were realised on government securities. Income from treasury customer flows of S$335 million was comparable to the strong year-ago levels. Total costs increased 13 per cent, in line with income growth. The cost-income ratio was at 43 per cent. Asset quality remained strong. Non-performing loan ratio was 0.9 per cent, better than one per cent a year ago, and unchanged from Q4 2014.