Daily Management Review

Profits For Singapore's DBS Grows By Two-Thirds, And The CEO Anticipates A Slower Pace Of Rate Increases


Profits For Singapore's DBS Grows By Two-Thirds, And The CEO Anticipates A Slower Pace Of Rate Increases
The DBS Group, the largest bank by assets in Southeast Asia, reported a higher-than-anticipated 68% increase in quarterly profit as rising interest rates increased its net interest margins. The group also maintained its full-year forecast of mid-single-digit loan growth.
Due to rising interest rates, Singapore lenders are expected to report their highest quarterly net interest margins in more than a decade. However, analysts predicted that profit growth would be constrained as the cycle peaks and the economy begins to slow.
In the bank's results statement, DBS Chief Executive Piyush Gupta stated that while interest rate increases are likely to moderate, he does not anticipate rate cuts this year.
The Singapore-based bank issued a warning that the group's peak net interest margin guidance of 2.25% was subject to a downside risk of 5 to 7 basis points because of things like outflows to treasury bills and a strengthening Singapore dollar.
In a weaker overall market, DBS shares declined 0.6% in early trade on Monday.
"Our business pipelines are healthy and asset quality robust. We expect confidence to return to markets in the coming year as interest rate increases ease and China reopens," Gupta said.
DBS, the first Singaporean bank to report this quarter, said its October-December net profit increased to a record S$2.34 billion ($1.76 billion), topping the S$2.16 billion average estimate from three analysts and the S$1.39 billion recorded in the same period last year, according to Refinitiv data.
The lender announced a special dividend of 50 Singapore cents per share, citing its strong earnings and capital position. The lender, which derives the majority of its profit from Singapore and Hong Kong, does so.
While the market is likely to welcome the special dividend, Citi analysts warned in a note that softer guidance on net interest margins could be a focus during a management conference call later on Monday.
A crucial indicator of profitability, total net interest margin, was 2.05% for the most recent quarter, up from 1.43% in the same period a year earlier, according to DBS.
An early recovery in the city-pandemic-damaged state's economy last year helped Singapore banks, which are among the best capitalized in the world, set records for the full year.
The DBS annual profit reached a record high of S$8.2 billion, up 20%. A significant increase in annual profits is also anticipated from smaller competitors OCBC and UOB, which report results the following week. However, quarter-over-quarter earnings are anticipated to be flat to slightly lower.
Since the end of October, when Singapore's main market index fell to 20-month lows, the banks' shares have increased by 10% to 15%. Since then, the gauge has increased by 12%.