DBS upbeat on topline growth as it posts 6% rise in Q3 profit

Singapore

DBS Group Holdings expects topline growth of up to 8 per cent next year, driven by loans linked to Singapore mortgages and trade.

"Our core business should be able to deliver 7, 8 per cent topline growth," said Piyush Gupta, chief executive of DBS, at a results briefing on Monday.

This comes as the bank saw new mortgage bookings of over S$3 billion in the last quarter - a level last seen two or three years ago - with total new bookings for the full year to at least double from a year ago. Eight out of 10 new loans at DBS are priced off its fixed deposit home rate. Its market share is now at 26 per cent.

And unlike its competitors, DBS showed no clear deterioration in loans linked to both China and the oil-and-gas sector, from a year ago.

DBS powered through the three months with its net interest margin (NIM) - which measures loan profitability - at a four-year high, thanks to its large deposit base in Singapore. DBS expects NIM ahead to be stable too.

Singapore's biggest bank said net profit for the quarter ended Sept rose 6 per cent to S$1.07 billion. This beat an average forecast of S$994 million from six analysts polled by Reuters.

The profit translated to an annualised earnings per share of S$1.67, up six cents from S$1.61 a year ago.

Shares of DBS closed 0.12 per cent lower on Monday at S$17.25 amid a broad market fall.

The results also reflect a S$50 million charge for its first funding valuation adjustment (FVA) to the fair value of over-the-counter (OTC) derivatives. Meant to be a one-time charge, the FVA accounts for a bank's funding cost in the price of OTC derivatives. DBS is the first in Asia to adopt this, said its chief financial officer Chng Sok Hui, at the briefing.

Stripping this out, the bank's third-quarter profit would have jumped 10 per cent from a year ago.

Its NIM in the third quarter rose 10 basis points from a year ago to 1.78 per cent. Singapore-dollar loans were repriced higher in line with an increase in interbank and swap offer rates, the bank said. It has also reduced fixed deposit offerings, which are costlier than money parked in pure saving accounts.

About 80 per cent of loans at DBS are tied to floating rates, namely the Singapore interbank offered rate and the swap offer rate. DBS also has the lion's share of Singapore-dollar deposits, at just over half. Banks make money by pricing their loans higher to reflect higher rates, before raising rates on deposits.

The bank also grew its loans by 9 per cent to S$285 billion, though this reflected mainly translation gains. DBS has a large operation in Hong Kong, where the dollar is pegged to the rising greenback. In constant-currency terms, loans rose by a smaller 3 per cent, with gains in consumer and corporate loans partially offset by a decline in trade loans.

Overall, net interest income rose 13 per cent to a record S$1.81 billion.

Non-interest income fell one per cent to S$899 million, with fee income falling due to a high base for investment banking from a year ago.

Mr Gupta expects growth to pick up in trade loans, as the market adjusts from the "aberration" from the engineered fall in yuan in August against the US dollar.

This yuan movement also prompted market volatility that spooked wealth management clients, but they are returning to the markets, he said.

Its non-performing loan (NPL) ratio was unchanged at 0.9 per cent, and has been constant for six consecutive quarters.

DBS has a total oil-and-gas exposure of S$22 billion. It does not see real signs of stress among its trader-clients, with large part of its exposure to global traders, or "the ABCDs of the world", said Mr Gupta. The producers DBS lends to are state-owned or backed by larger international companies. DBS is also watching the smaller services firms closely.

As for China, DBS has been selective with its small-and-medium sized clients, and remain comfortable with their exposure, overall, said Mr Gupta.

READ MORE: DBS glides ahead of peers on sounder oil-and-gas exposure