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DBS shares shoot past S$30 on 21% surge in Q1 earnings

DBS shares crossed S$30 for the first time after it sparked a surge in bank stocks on Monday with sparkling Q1 results.


DBS shares crossed S$30 for the first time after it sparked a surge in bank stocks on Monday with sparkling Q1 results. South-east Asia's biggest bank group announced before market hours that earnings for the first quarter rose 21 per cent to S$1.5 billion as it benefited from higher interest rates and loans growth as well as a property sale gain in Hong Kong.

The first of the three local banks to report Q1 results, DBS exceeded expectations. Analysts polled by Bloomberg had forecast S$1.4 billion in net profit for the three months ended March 31. The stock surged 2.8 per cent to close at S$30.84.

Chief executive Piyush Gupta, speaking at the bank's results briefing, said he expects "a fairly strong year for DBS" as the global growth momentum is still robust and "the opportunities that we see are continuing to stay for us."

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Total income in Q1 rose 16 per cent to S$3.36 billion, led by broad-based loan and non-interest income growth, as well as a higher net interest margin.

Net interest income increased by 16 per cent to S$2.13 billion from higher loan volumes and net interest margin.

Loans expanded 13 per cent, or S$39 billion in constant-currency terms to S$328 billion from growth across trade, corporate and consumer loans, including S$9 billion from the consolidation of the retail and wealth management business of ANZ.

Income and loans growth from small and medium enterprises (SME) has been strong but it was slow for the bank's large corporate customers, he said.

Corporate income in Q1 was flat while SME income rose 9 per cent.

Full-year loan growth guidance maintained at 8 per cent, said Mr Gupta.

Net interest margin (NIM) - defined as difference between interest income generated and the amount of interest paid to its lenders including depositors - rose nine basis points from a year ago to 1.83 per cent from higher Singapore dollar as well as US and Hong Kong dollar interest rates.

DBS is on track for full year NIM of at least 1.85 per cent and may even exceed that by one to 2 basis points if there are three more US Federal Reserve rate hikes and there is pass through to local Sibor/SOR rates, said Mr Gupta. The 3-month Sibor or Singapore interbank offered rate which is the benchmark for housing loans has risen to 1.5 per cent from 1 per cent last June. Three-month SOR or swap offer rate - used to price commercial loans is even higher, at 1.6 per cent from last June's low of 0.6 per cent.

Mr Gupta said he wouldn't be surprised if there are even four rate hikes by the US Fed this year.

Net fee and commission income rose 12 per cent to S$744 million, led by higher bancassurance and unit trust sales. Card fees rose from higher credit card and debit card transactions as well as the consolidation of the retail and wealth management business acquired from ANZ.

Consumer and wealth management income rose 17 per cent to S$1.4 billion. Wealth management income went up a strong 28 per cent while retail was up 8 per cent. Assets under management gained 22 per cent to S$208 billion, with S$22 billion from ANZ.

Home loan market share remains at 31 per cent and SGD savings market share is 52 per cent. New home loan sales was S$2.5 billion in Q1.

Other non-interest income swelled 25 per cent to S$488 million. There was a S$86 million gain from the sale of a Hong Kong property. Net trading income was also higher, partially offset by a fall in net income from investment securities.

Expenses increased 12 per cent to S$1.4 billion. Excluding the consolidation of ANZ and a non-recurring item, underlying expenses were 6 per cent higher. Non performing assets (NPA) fell 4 per cent from the previous quarter while the non performing loan (NPL) rate eased to 1.6 per cent from 1.7 per cent. NPL ratio was 1.4 per cent in Q1 2017.

Mr Gupta said asset quality is "looking very good" with new NPA formation of S$195 million at 4-year low. Return on equity (ROE) was 13.1 per cent, the highest in a decade. ROE was 11.1 per cent a year ago. Mr Gupta said he expects full year ROE to be at 12.5 per cent.

Along with DBS, UOB, which is announcing its results on Thursday, rose S$0.70, or 2.38 per cent, to S$30.14, while OCBC went up S$0.15, or 1.1 per cent to S$13.80.

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