by Kelvin Chow
05:55 AM Aug 08, 2009
DESPITE enjoying record revenue of $1.79 billion in the three months ended June, DBS Group Holdings' performance was marred by a sharp increase in bad debts and provisions, giving cause for concern among several analysts.
On Friday, South-east Asia's largest lender said it made $466 million of allowances for doubtful debts in the second quarter, up a whopping eight times from $56 million a year ago.
This came as its non-performing loans (NPL) ratio, a measurement of loans close to or in default, surged to 2.8 per cent from 1.4 per cent. As a result, second quarter net profit fell 15 per cent on-year to $552 million.
To Fox-Pitt Kelton banking analyst Brian Hunsaker, the results show DBS is "still struggling a little bit with asset quality. It would suggest that they've still got some volatility to cope with before things will look better", he told Today.
Some investors sold off DBS shares after the results were released. The stock closed at $12.84, down 3.5 per cent - outpacing the Straits Times Index's decline of 2 per cent.
Among the three domestic banks, DBS recorded the biggest increase in NPL in the second quarter, UBS Investment Research banking analyst Jaj Singh said in a report on Friday, "surprised" by the spike in provisions.
DBS explained during a briefing that the NPL increase came primarily from "exceptional" exposures to shipping and Middle East corporates and institutions.
When asked if DBS had seen the peak in its NPL ratio, chief financial officer Chng Sok Hui replied: "I think there are signs that the credit pressure has already eased."
The NPL ratios of DBS' core markets, which are Singapore and Hong Kong, are also improving, she added.
Still, Ms Daphne Roth, head of Asian equity research at ABN Amro Private Bank, told Bloomberg: "Non-performing loans are still something that we're watching very closely because even though we seem to be past the worst, unemployment could still pick up."
DBS chairman Koh Boon Hwee, too, believed that for Asia, "the worst is over" - echoing views expressed earlier this week by his peers at United Overseas Bank and OCBC.
The second quarter's broad-based revenue growth - which surpassed the previous record high of $1.6 billion recorded in the first quarter - encouraged Mr Koh.
Net interest income - comprising interest earned on loans and interbank credit spreads - grew 5 per cent from a year ago to $1.11 billion.
Non-interest, which are fees earned from investments and brokerage activities, rose by about 25 per cent to $680 million.
However, Mr Koh said he remained "cautious about the continuing pace of improvement" in the economy.
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DBS results better than expected
Profits up 21% from Q1, but bad debts up $410m from Q2 2008
11:55 AM Aug 07, 2009
DBS Group Holdings, South-east Asia's biggest bank, reported a smaller-than-estimated 15-per-cent decline in second-quarter profit as income from stock broking, investment banking and wealth management rose.
Net income fell to $552 million from $652 million a year earlier, the bank said in a statement to the Singapore stock exchange this morning. The median estimate in a Bloomberg survey of analysts was for a profit of $425 million.
The net earnings represented an increase of 21 per cent from the previous quarter.
"DBS is well positioned to weather the uncertainties ahead as our balance sheet remains strong," chairman Koh Boon Hwee said in a statement.
Revenues rose 8 per cent from the previous quarter to a new high of $1.79 billion as better net interest margins, capital market activities, trading and investment income resulted in broad-based revenue growth.
Net interest income grew 3 per cent from the previous quarter and 5 per cent from a year ago to $1.11 billion.
Following several quarters of growth, loan volume was unchanged for the quarter. Including currency translation effects, loans fell 2 per cent from the previous quarter to $128 billion but remained 8 per cent above a year ago, said the bank.
Bad debt charges jumped almost nine-fold to $466 million, from $56 million a year ago.
Singapore and Hong Kong savings and current deposit volume grew during the quarter. Including currency translation effects, deposits were stable at $179.0 billion, said DBS.
Non-interest income rose 16 per cent from the previous quarter to $680 million, which was up 25.7 per cent on the $541-million figure of a year ago.
Trading income hit $172 million on the back of gains in foreign exchange and interest rate activities and better asset valuations, said DBS. Investment gains of $138 million, mainly from the sale of equity holdings this quarter, was up from the $106 million of the previous quarter.
DBS and smaller rival Oversea-Chinese Banking Corp were upgraded on July 23 to "buy" from "neutral" at Bank of America's Merrill Lynch on optimism earnings will improve as Singapore's economy recovers. The bank, which gets about a quarter of its earnings from Hong Kong, is also expanding in mainland China and Taiwan.
"DBS' earnings are most sensitive to an economic recovery," Merrill Lynch analysts Kar Weng Loo and Alistair Scarff wrote in their report, citing its low loan-deposit ratio and strong capital position. AGENCIES
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