DBS sees slower growth in H2 amid low rates
Singapore
DBS Group is expecting its growth to shift to a lower gear in the second half of the year due to "global synchronised slowdown".
Chief executive Piyush Gupta was fielding questions from the media on Monday on the outlook for the bank when he said that H2 growth could be slower than last year's, even as the bank reported 20 per cent year-on-year higher net profit of S$1.6 billion, including one-time items for the second quarter. The bottom line performance beat the S$1.48 billion estimate by three analysts polled by Bloomberg.
He noted that in a declining interest rate environment and with the economy slowing down, "we won't be able to sustain a double-digit topline growth".
While the global economy has slowed, outlook is still positive, Mr Gupta said. "The reality is a slow Asia is still a positive Asia . . . if the economy is growing at 4.5 per cent to 5 per cent, you have to expect an overall growth in the financial system."
Presenting DBS' financial results on the eve of the United States Federal Reserve's meeting, which is poised to cut interest rates for the first time since the end of the quantitative easing used to jumpstart the economy during the Great Recession, Mr Gupta also touched on where the Singapore bank's net interest margin (NIM) - the lifeblood of lenders - would land if the dovish US central bank lowers the benchmark.
He sees the bank's NIM being shaved by one basis point (bps), or 0.01 per cent, to 1.9 per cent in the third quarter if the Fed reduces the funds rate by 25 bps. If there is a further Fed rate cut in September or October, this could compress the NIM by another one to two bps in the fourth quarter.
The funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight, and Singapore Interbank Offered Rates (Sibor) tends to move in tandem with the the US Federal Reserve funds rate.
However, given that there is a lag in repricing loans with the impact of earlier rate hikes by the Fed is still flowing through, DBS still expects a mid-single-digit basis point improvement in NIM and a mid-single-digit per cent loan growth for 2019.
The Republic's largest housing loan provider with a market share of 31 per cent continued to see a decline in the second quarter in housing loan book after posting its first decline in years in the first quarter, as a result of the cooling measures introduced by the government last July.
It saw mortgage loan book shrink by S$1 billion in the first half of the year. Despite this, there was a bright spot - home loan bookings went up by 60 per cent in the second quarter as compared to the first quarter. The effect of the S$2.5 billion worth of new bookings would only be reflected in the balance sheet in subsequent quarter(s).
Hence, Mr Gupta foresees a flattish growth in housing loans for this year. Last year's home loan book grew slightly under S$2 billion.
The first among the three local banks to report Q2 results, DBS posted a record high total income of S$3.71 billion for the three months ended June 30, up 16 per cent from S$3.2 billion in the corresponding period a year ago.
DBS enjoyed higher net interest income, which increased 9 per cent to S$2.43 billion in the second quarter as loans grew 4 per cent and net interest margin improved six basis points to 1.91 per cent.
Customer deposits were 1 per cent higher at S$391.3 billion from S$387.56 billion a year ago. Notably, there was a quarter-on-quarter decline of one per cent as the bank replaced higher-cost deposits by less expensive commercial paper, with fixed deposits leading the decrease.
Net fee income grew 9 per cent to a record high of S$767 million. Wealth management fees grew 11 per cent to S$332 million from higher investment product sales while card fees increased 16 per cent to S$198 million from higher activities across the region. Investment banking fees rose 44 per cent to S$56 million from higher debt and equity capital market income.
Other non-interest income jumped 88 per cent to S$513 million, with trading income increasing 57 per cent from a weak year-ago performance to S$357 million and gains on investment securities quadrupling from S$30 million to S$131 million.
Expenses were up 9 per cent at S$1.55 billion but cost-income ratio improved by over two-percentage-points to 41.7 per cent from 44.3 per cent. However, due to year-ago write-back of S$65 million from the sale of an oil and gas support service vessel, specific allowances doubled in the second quarter.
The bank declared a second-quarter dividend of 30 Singapore cents per share, unchanged from the previous quarter.
Annualised earnings per share for the second quarter was S$2.47, up from S$2.10 a year ago, while return on equity (ROE) for the second quarter stood at 13.4 per cent, an improvement from 11.8 per cent.
For the first half of 2019, DBS registered record net profit of S$3.25 billion, 12 per cent higher year-on-year. Total income rose 11 per cent to S$7.26 billion from corporate loan growth, a higher net interest margin, record fee income and an improved trading performance.
The bank's shares closed S$26.64, down 24 Singapore cents on Monday after the financial results were released.
