By Lee Kah Whye Last week, DBS Bank, Southeast Asia's largest bank by assets, announced sterling quarter 3 profits which beat analysts average forecast on Refinitiv by SGD 130 million.
The Singapore-based lender reported a net profit of SGD 1.7 billion ($1.26 billion) for the quarter ending September on asset quality resilience and higher fee income.
During a media briefing on November 5 when commenting on the company's business momentum, DBS CEO Piyush Gupta said that he was pleased with the progress made on new platforms the bank has set up in various growth markets.
Gupta added, "The integration of LVB (Lakshmi Vilas Bank) is going smoothly. We actually had about 15 per cent deposit growth. The loan book is somewhat lower and that is deliberate, but we are now actually well-positioned. We are in a position where we are going to start putting our foot on the pedal for the asset side as well."
DBS took over the then ailing LVB in November 2020 by injecting SGD 463 million (2,500 crore rupees) into the Chennai headquartered bank and amalgamating it with its Indian subsidiary DBS Bank India Limited.
The merger with LVB enabled DBS to scale its Indian business by adding 563 branches to DBS India's 34 branches in 24 cities, and also more than two million retail accounts,over150,000 non-retail clients and about 4,400 employees.
The other growth market DBS has been developing is in China. In the same briefing, Gupta updated investors that all approvals have been received for DBS's13 percent stake in privately owned Shenzhen Rural Commercial Bank. He expects that equity will be accounted for from the fourth quarter. Separately, DBS's China securities joint venture has commenced operations and two deals were sealed in the last three months.
In the Q3 trading update, DBS reported robust earnings growth of 46 percent for the first nine months of the year. Net profits in the first, second and third quarters are the three highest in the bank's history which together added up to SGD 5.41 billion. However, total income for the first nine months was down three percent from a year ago at SGD 11.0 billion. This was on the back of lower net interest and non-interest income.
For the third quarter, net interest income rose one percent from the previous quarter to SGD 2.10 billion. Loans grew SGD 6 billion or two percent in constant-currency terms to SGD 405 billion.
For the nine months, net interest income was nine percent lower at SGD 6.30 billion as broad-based loangrowth of nine percent from a year ago was more than offset by a 22 basis points decline in net interest margin (NIM). NIM provides an indication of lending profitability. Third-quarter net interest income was lower by 3 percent asNIM decreased 10 basis points to 1.43 percent but was moderated by broad-based loan growth.
Other non-interest income declined 10 percent from the previous quarter and six percent from a year ago to SGD 569 million. Higher trading gains were more than offset by a decline in investment gains against both comparative periods.
In comments made to CNBC, CEO Gupta opined that there are signs that higher prices will become "more entrenched" and harder to reverse. This is contrary to the US Federal Reserve which as recently as last Wednesday continues to maintain that price increases in the U.S. are "transitory."
In a statement made in the Q3 trading update, Gupta predicted that the bank stands to gain from "a progressive normalisation of interestrates in the coming quarters." In the third quarter, the bank saw improved asset quality as new non-performing asset formation was more than offset by repayments, resulting in a one percent decline in non-performing assets from the previous quarter to SGD 6.57 billion.
The NPL (non-performing loan) rate was unchanged at 1.5 precent. Third-quarter specific allowances fell to SGD 68 million or six basis points of loans due to a write-back for an anon-performing loan. For the nine months, they halved to SGD 432 million or 14 basis points, below pre-pandemic levels.
A general allowance write-back of SGD 138 million was made in the third quarter, bringing the nine-month write-back to SGD 413 million. Fee income for the quarter was the second-highest on record coming in SDG 888 million, up two percent from the previous quarter.
Wealth management fees rose eight percent to SGD 461 million with higher activity across a range of investment products. Transaction service fees grew seven percent to a new high of SGD239 million from increases in cash management and trade finance. Card fees rose nine percent to SGD180 million as consumer spending continued to recover towards pre-pandemic levels.
These increases were moderated by declines in investment banking fees from a high base and in loan-related fees. Compared to a year ago, fee income increased 11 percent, with the growth led by wealth management, transaction services and cards.
"Broad-based business momentum was sustained in the third quarter and our pipelines remain healthy into next year," CEO Gupta said in a statement accompanying DBS's trading update. "Asset quality continues to be resilient and total allowances are likely to remain low. These positives will offset expected cost pressures as the economic recovery takes hold.
With a franchise recently recognised once again as the world's best bank, we are ready to put the pandemic behind us and are in a strong position to capture opportunities and deliver shareholder value."
(With inputs from ANI)
