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DBS sees 1-2% revenue impact in 2020 on Covid-19 outbreak

DBS Group reported a 14 per cent boost in net profit to S$1.51 billion for the fourth quarter from compared with a year ago, on the back of broad-based business momentum.

DBS Group chief executive officer Piyush Gupta said that the bank is expecting a revenue impact of around 1 to 2 per cent in 2020, with specific provisions potentially to rise by a few basis points of loans, as a result of the novel coronavirus (Covid-19) outbreak.

Its base case is that the virus may be controlled once temperatures rise in the summer, thus the bank foresees the impact to last a quarter – similar to the situation in 2003 during the severe acute respiratory syndrome (Sars) crisis, he said at DBS' FY2019 results briefing on Thursday.

Prior to the Covid-19 outbreak, South-east Asia’s largest lender had been "on track" to meet its FY2020 guidance, Mr Gupta added.

This comes as DBS Group on Thursday reported a 14 per cent boost in net profit to S$1.51 billion for the fourth quarter from a year ago on the back of broad-based business momentum, a notch higher than market expectations.

Annualised earnings per share stood at S$2.31 for the quarter, up from S$2.01 previously.

The lender recommended a final quarterly dividend of 33 Singapore cents per share, subject to shareholders' approval at the annual general meeting on March 31. The dividends will be paid on April 21.

This will bring the full-year payout to S$1.23 per share. On an annualised basis, dividends will be S$1.32 per share – an increase of 10 per cent, barring unforeseen circumstances.

The results also come one day after DBS confirmed that one employee working at the bank's main Marina Bay Financial Centre office has been infected with the novel coronavirus, resulting in all DBS employees on the affected floor – understood to be less than 200 – to vacate the premises.

Despite this turn of events, Mr Gupta said there has been "minimal disruption" in the bank’s operations and that it has been "business as usual". The bank has implemented a split-team and work-from-home system for its employees.

During the results briefing, he noted that the bank's customers might be feeling anxiety over the virus outbreak, and DBS is in the midst of finding ways to support them. To help businesses cope, he announced a six-month moratorium on principal repayment for SME property loans in Singapore and Hong Kong, and an extension of import facilities of up to 60 days to act as immediate cashflow support for businesses coping with disruptions due to be virus outbreak. These initiatives will be available upon application to customers with good repayment histories.

Similarly, affected retail customers with good repayment histories can apply for a six-month principal repayment moratorium for mortgage loans.

In its fourth quarter results, DBS’ total income increased 7 per cent on the year to S$3.46 billion from loan growth and a double-digit improvement in fee income.

Net interest income rose 4 per cent from a year ago to S$2.43 billion, while loans also grew 4 per cent in constant-currency terms. Net interest margin (NIM) was little changed from a year ago at 1.86 per cent, but fell 4 basis points (bps) from the previous quarter due to lower interest rates.

NIMs are a key gauge of profitability for banks, measuring the difference between income earned from loans and the interest paid to depositors.

Net fee income grew 17 per cent from a year ago to S$741 million, led by wealth management and investment banking fees.

Other non-interest income rose 5 per cent year on year to S$294 million due to higher gains on investment securities.

The non-performing loan (NPL) ratio was stable at 1.5 per cent. Specific allowances were S$199 million, or 21 bps of loans, which DBS said was in line with recent quarterly trends.

On a full-year basis, DBS recorded a 14 per cent jump in net profit to S$6.39 billion, while total income rose 10 per cent to reach a new high of S$14.5 billion, again from broad-based business momentum.

Full-year net interest income increased 7 per cent to S$9.63 billion. NIM was 4 bps higher at 1.89 per cent as an increasing margin in the first half was moderated by the impact of declining interest rates in the second half.

Net fee income increased 10 per cent to S$3.05 billion, buoyed by increases in wealth management fees, investment banking fees, card fees and transaction service fees.

Other non-interest income rose 29 per cent to S$1.87 billion for FY19.

DBS is the first Singapore bank to announce its FY2019 results. Next to do so will be OCBC and United Overseas Bank on Feb 21.