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DBS Q3 profit up 76% on higher loan income, lower allowances

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DBS Group Holdings on Monday reported that third-quarter net profit rose 72 per cent to S$1.41 billion, compared to the previous quarter, when accelerated allowances had been taken for weak oil and gas support service exposures.

DBS Group Holdings on Monday reported that third-quarter net profit rose 76 per cent to S$1.41 billion, compared to S$802 million for the same period a year ago, when accelerated allowances had been taken for weak oil and gas support service exposures.

The earnings slightly missed market forecasts, coming in 2.1 per cent below the average analyst estimate of S$S$1.44 billion, according to Bloomberg. As at 10.55am, DBS shares traded down 63 Singapore cents or 2.6 per cent to S$24.03.

The last of Singapore's Big Three banks to report results said third quarter allowances for credits and other losses also fell 71 per cent to S$236 million, from S$815 million a year ago.

For the period ended September 30, 2018, net interest income rose 15 per cent to S$2.27 billion from an increase in loan volumes and net interest margin. Loans expanded 8 per cent to S$340 billion, led by consumer and non-trade corporate loans.

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Net fee and commission income was relatively flat, up 1 per cent to S$695 million, as higher card fees and wealth management fees were offset by a two-thirds decline in investment banking fees.

Other non-interest income edged up 2 per cent to S$407 million, bringing the total income to S$3.38 billion, a 10-per-cent increase from a year ago and a record figure.

Net interest margin, a measure of the difference between the interest income generated by banks and the amount of interest paid out to depositors, improved 13 basis points to 1.86, from 1.73 a year ago, in line with higher interest rates in Singapore and Hong Kong.

DBS CEO Piyush Gupta said: “Third-quarter business momentum was sustained amidst heightened geopolitical and economic headwinds. Year-to-date earnings per share is the highest in our history while return on equity is the best in more than a decade.

In a note, RHB Research analyst Leng Seng Choon maintained his "buy" rating on the stock, with its target price under review pending an analyst teleconference later on Monday. He noted that DBS earnings were "strong" and the growth trend of net interest margin is evident from the 13 basis points year-on-year widening.

"Our current TP (target price) of S$30.30 is derived from a long-term return-on-equity (ROE) assumption of 13.8 per cent, on the assumption of further rise from Q3 2018’s ROE of 12.2 per cent, versus Q2 2018's 11.8 per cent," he said.