DBS' second-quarter growth solid, but asset quality pressures remain

A file picture of people queuing at the DBS ATMs in Chinatown. PHOTO: SPH
A file picture of people queuing at the DBS ATMs in Chinatown. PHOTO: SPH

SINGAPORE - DBS Group is enjoying strong growth momentum in its key businesses, but asset quality pressures will continue in its oil and gas loanbook, chief executive Piyush Gupta said on Friday (Aug 4).

The oil and gas sector, particularly companies doing support services, has led to higher non-performing loans in recent quarters as weak oil prices have hit industry players hard.

"The sector continues to stay challenged," Mr Gupta said.

Even for firms servicing oil producers, "contracts are picking up somewhat but the oil and gas service players don't have pricing power", he said.

"So they've been able to get short-term contracts but they've not been able to price up and the prices that they're getting on the contracts right now are barely able to cover operation expenditure. So it's hard for them to cover interest payments."

The non-performing loan rate rose to 1.5 per cent in the second quarter from 1.1 per cent in the same period a year ago.

The amount of non-performing assets (NPA) stood at $4.83 billion, up from $3.05 billion a year before.

Specific allowances amounted to $304 million for the second quarter.

Mr Gupta noted that DBS may have to make more specific allowances on the ships that are currently non-performing.

"It would be no more than another $300 million, and a lot of that could happen next year but it depends on negotiations and when we actually sell the ships," he said.

Mr Gupta was speaking at a briefing on the bank's second-quarter results. Singapore's biggest lender reported that second-quarter net profit rose 8 per cent from the same period a year ago to $1.14 billion.

Total income was barely changed at $2.92 billion, as higher net interest income was offset by the impact of lower trading, investment and fixed asset gains.

Business momentum is strong, Mr Gupta said, with new bookings of mortgage loans rising in the second quarter to the highest level in five years and asset under management (AUM) in its wealth business increasing 16 per cent from a year ago to $175 billion.

Once the acquired business from ANZ is integrated with DBS, another $20 billion of AUM will be added to the pool, he said.