DBS Q4 profit falls 9% to two-year low as bad debt charges surge 87%

Singapore's biggest bank DBS Group Holdings reported a 9 per cent per cent fall in net profit for its fourth quarter.
Singapore's biggest bank DBS Group Holdings reported a 9 per cent per cent fall in net profit for its fourth quarter. PHOTO: BLOOMBERG

SINGAPORE - DBS Group Holdings, Singapore's biggest bank, reported its lowest quarterly profit in two years as provisions for soured loans almost doubled.

Net profit dropped 9 per cent to S$913 million for the fourth quarter ended Dec 31, 2016, compared to S$1.0 billion a year earlier, even as revenue gained 5 per cent to S$2.78 billion.

DBS, Southeast Asia's largest lender, was expected to show a 6.6 per cent profit decline to S$936 million, according to analysts polled by Reuters, or S$1.014 billion according to those polled by Bloomberg.

DBS' earnings were eroded by total allowances - set aside by banks to cover for potentially soured loans - which surged 87 per cent to S$462 million, compared with S$247 million in the same period last year.

Its non-performing loan (NPL) ratio hit 1.4 per cent in the fourth quarter, much higher than the 0.9 per cent a year ago.

 
 

For the full year, total allowances also shot up 93 per cent, from S$743 million in 2015 to S$1.43 billion in 2016. As a result, full year net profit was down 5 per cent to S$4.24 billion.

DBS is the second of Singapore's Big Three banks to report earnings this week. OCBC posted on Tuesday an 18 per cent drop in fourth quarter earnings to S$789 million as bad-loan provisions surged 57 per cent to S$305 million. CEO Samuel Tsien signaled more pain to come from the stressed oil and gas sector.

Charges for energy loans have added to pressure on banks from a weakening domestic economy and slower lending growth. Reduced demand for oil and gas services has led at least four companies into default, the highest profile of which was Swiber Holdings, which sought court protection in July. In the latest sign of the industry's struggles, Ezra Holdings on Feb 3 flagged that it faces a US$170 million writedown on a joint venture.

DBS has been under the spotlight for its exposure to the oil and gas services sector, particularly after Swiber's implosion caught DBS off guard in the second quarter last year.

In an update to its loan portfolio on Thursday, the bank revealed that its total exposure to sectors including oil and gas support services stood at around S$7 billion at the end of last year.

Within that amount, S$1.8 billion was linked to state-owned or government linked shipyards. But the remaining S$5.5 billion showed more stress, with three names moved under the category of non-performing assets in the fourth quarter.

DBS believes that new NPA formation and provision charges for loans will be lower in 2017.

Meanwhile, DBS' fourth quarter net interest income was down 2 per cent year on year to S$1.82 billion, after net interest margin tightened from 1.84 per cent a year ago to 1.71 per cent and offset the 6 per cent loans growth.  

Non-interest income however grew 19 per cent to S$952 million in the same period, on the back of a 6 per cent increase in net fee income to S$515 million.

The board proposed a final dividend of 30 cents, unchanged from a year ago.