Swiber drags DBS' Q2 net profit down 6%

DBS chief financial officer Chng Sok Hui and CEO Piyush Gupta at the briefing yesterday. Mr Gupta said Swiber's woes were just a one-off in DBS' oil and gas portfolio, adding that it has otherwise stayed on track for another year of growth. DBS' tota
DBS chief financial officer Chng Sok Hui and CEO Piyush Gupta at the briefing yesterday. Mr Gupta said Swiber's woes were just a one-off in DBS' oil and gas portfolio, adding that it has otherwise stayed on track for another year of growth. DBS' total exposure to Swiber was $721 million, and the bank still expects to recover about half of that.ST PHOTO: MARCUS TAN

DBS Group Holdings' second-quarter showing was dented as it set aside a huge sum to cover exposure to Swiber Holdings - with net profit falling 6 per cent to $1.05 billion.

But chief executive Piyush Gupta said Swiber's woes were just a one- off in its oil and gas portfolio, adding that DBS has otherwise stayed on track for another year of growth.

In the three months ended June 30, DBS set aside $336 million in specific allowances for loans - an amount banks reserve to cover potentially soured loans.

  • AT A GLANCE

    REVENUE: $2.92 billion (+8%)

    NET PROFIT: $1.05 billion (-6%)

    INTERIM DIVIDEND: 30 cents a share (unchanged)

This was a dramatic rise from $132 million a year earlier. Of the $336 million, an allowance charge of $150 million was to account for Swiber's bad debt.

DBS' total exposure to Swiber was $721 million, and the bank still expects to recover about half of that.

The Swiber exposure is part of DBS' total $7 billion exposure to the offshore support services segment in the second quarter. The total oil and gas portfolio is $23 billion.

The sector will remain under stress, Mr Gupta said, with some $1 billion worth of the offshore support portfolio showing signs of weakness.

But the loans are mostly secured, and DBS should not have to write off much more than the previously forecast $200 million sum.

Mr Gupta said the fall of Swiber is not representative of the oil and gas industry here.

"The bulk of the industry are people who own vessels for chartering, which means the bulk of bank financing is secured," he said at a results briefing yesterday.

"Swiber is one of a handful in Singapore that only do contracting business... This exposure is unusual because it is working capital financing, not vessel and security financing."

Swiber was a blot on an otherwise solid quarter.

Total revenue rose 8 per cent to $2.92 billion, on a 5 per cent growth gain in net interest income to $1.83 billion. Loans grew 1.6 per cent to $288.34 billion.

Net interest margin, which is the difference between the interest income generated by banks and the amount of interest paid out to lenders, rose for a fifth straight quarter to 1.87 per cent, the best of the local banks.

Non-interest income, which includes fee-earning business lines in the bank such as wealth management, also improved.

It rose 13 per cent to $1.09 billion, as net fee income rose 8 per cent to $628 million.

The broad-based growth reflects a good business momentum that will be sustained, Mr Gupta said.

"Even recognising the weakness in our portfolio, we will probably show a growth over last year in the second half. We will not have a down year."

Net book value was $16.48 a share, up from $15.29 a year ago; earnings per share were $1.67, down from $1.78 a year earlier.

An interim dividend of 30 cents a share was declared.

"We are well prepared to meet the challenges ahead," said Mr Gupta.

DBS shares closed 1.42 per cent or 21 cents higher at $15.04, following the results briefing.

A version of this article appeared in the print edition of The Straits Times on August 09, 2016, with the headline 'Swiber drags DBS' Q2 net profit down 6%'. Print Edition | Subscribe