DBS' Q3 profit stable amid energy slump

Bright spot for local banks from commission, fee income; no growth seen in interest income

DBS Group Holdings eked out flat earnings in the third quarter, thanks to more resilient parts of the business offsetting the hit being taken by the energy sector.

Net profit was stable at $1.07 billion from the same period a year ago and beat the average forecast of $1.04 billion by analysts polled by Bloomberg.

Total income rose 8 per cent to a new quarterly high of $2.93 billion.

DBS chief executive Piyush Gupta told a briefing yesterday: "The oil and gas situation in Singapore's offshore support sector has been challenging and Singapore's interest rates have been tapering off. In that environment, we're pleased our overall operating performance has been extraordinarily resilient.

"We've some growth in the loan book but more important, non-interest income has been very stable and robust across multiple lines of business, not only in the wealth business but also in the cash management business, and some elements of investment banking."

  • AT A GLANCE

  • TOTAL INCOME:

    $2.93 billion (+8%)

    NET PROFIT:

    $1.07 billion (unchanged)

Net interest income was stable at $1.82 billion, while net interest margin - the difference between interest income generated and the amount of interest paid to lenders - was 1.77 per cent, down from 1.78.

By contrast, net interest income at OCBC was squeezed by shrinking net interest margins, which tightened to 1.62 per cent - the lowest since the first quarter last year.

And at United Overseas Bank (UOB), the fall in net interest margins by eight basis points to 1.68 per cent was offset by year-on-year loan growth of 7 per cent.

Loans at DBS rose 5 per cent to $290 billion in constant currency terms.

Non-interest income, which includes fee-earning business lines such as wealth management, did exceptionally well, growing 24 per cent to $1.11 billion.

This was true for OCBC Bank as well, the best performer here with non-interest income surging 25 per cent $970 million for the third quarter.

Despite low interest rates, the three banks were still able to grow income for fees, a bright spot for all in the third quarter.

Net fee and commission income at DBS rose 19 per cent to $614 million from "broad-based growth", while fee and commission income inched up 1.6 per cent to $492 million at UOB, thanks to higher fund management and credit card fees.

Fees and commissions were up 5 per cent to $428 million at OCBC.

UOB's third-quarter non-performing loan ratio was 1.6 per cent, OCBC's was 1.19 per cent and DBS 1.3 per cent, which all rose due to the oil and gas sectors.

Mr Gupta said in reference to the beleaguered energy services firm Swiber Holdings: "One of the changes we're making, not just in oil and gas but also across our portfolio, is how we think about contractor companies.

"We've taken a refreshed look at our contractor exposure across our entire portfolio. We've already created new lending guidelines."

He added that the bank is looking at improving early warning signals in the oil and gas sector.

In the commodities part of the portfolio, he said the bank recognised an extra non-performing asset in the steel sector, where weaknesses had been flagged before.

Mr Gupta is more optimistic with regard to support services for oil production facilities.

"Their job is to move equipment and ferry people up and down... that part of the business is holding up a lot better because people aren't shutting down the wells," he noted.

"In some cases, there's more servicing required. We're fortunate that about 90 per cent of our business in these weak names tend to be in the production support side, not exploration... There is still cash flow generation."

DBS' quarterly earnings per share was $1.67, unchanged from the same period a year ago, while net book value was $16.68 a share, from $15.42 a year ago.

DBS shares closed 10 cents higher at $15 yesterday, following the results briefing.

A version of this article appeared in the print edition of The Straits Times on November 01, 2016, with the headline 'DBS' Q3 profit stable amid energy slump'. Print Edition | Subscribe