DBS Group Holdings has reported its lowest quarterly profit in two years as the bruising impact of oil and gas sector-related loans again dogged the bank.
But its shares closed 1.7 per cent higher at $18.54 after the results came out, perhaps an indication investors were reassured that the worst impact of DBS' bad loan provisions has passed.
Net profit slid 9 per cent to $913 million for the fourth quarter ended Dec 31 even as revenue rose 5 per cent to $2.78 billion. The earnings drop was worse than a 6.6 per cent dip forecast in a Reuters poll.
Net interest income fell 2 per cent year on year to $1.82 billion as net interest margin (NIM) shrank from 1.84 per cent a year ago to 1.71 per cent. Non-interest income jumped 19 per cent to $952 million.
The major drag on the bank's performance was higher total allowances, surging 87 per cent to $462 million in the quarter. For the full year, it was $1.43 billion, nearly double the $743 million in 2015.
AT A GLANCE
NET PROFIT: $913 million (-9%)
REVENUE: $2.78 billion (+5%)
FINAL DIVIDEND: 30 cents per share (unchanged)
Allowances are a sum set aside to cover non-performing loans (NPLs).
DBS' total NPLs stood at $4.42 billion as at Dec 31, with an NPL ratio of 1.4 per cent. This was a marked deterioration from 2015, when NPLs were $2.61 billion by the year end on an NPL ratio of 0.9 per cent.
But chief executive Piyush Gupta believes that the days of forking out huge allowances are behind DBS. "Our provisions last year were close to $1.5 billion, and there's no way we will get to that kind of number (this year)," he told a briefing, adding that the rate of new NPL formation will also slow down this year.
Meanwhile, a 10 per cent year-on-year increase in last year's profit before allowances showed a strong business momentum that will carry on into this year.
"Based on our assumptions on (lower) provisions, we should be able to get roughly 10 per cent bottom-line growth (in 2017)," Mr Gupta estimated. This will exclude the one-time costs to integrate the newly acquired ANZ assets.
Key growth drivers include wealth management, where income recorded compound annual growth of 21 per cent to reach a high of $1.68 billion last year. Retail customer income, from sources like loans and cards, also hit a record high of $2.6 billion last year.
The "out of the ball park" showing resulted from efforts to digitalise the business and grow market share, with mortgages' share now at about 29 per cent, Mr Gupta said.
NIM is also expected to improve to an average of 1.8 per cent this year on the back of United States rate hikes. An increase of 0.01 percentage point in local rates would translate to around $6 million of revenue for DBS.
Fourth-quarter earnings per share was $1.40, down from $1.57 a year ago. Net book value was $16.87 at the end of the year, up from $15.82 a year earlier. A final dividend of 30 cents a share was proposed, unchanged from last year.