DBS Bank took a big hit on earnings in the third quarter as it bit the bullet on its sour energy-sector debts in a bid to clear the decks for the months ahead.
Chief executive Piyush Gupta said yesterday that all the provisions required for the oil and gas portfolio were taken in the three months to Sept 30. That step meant specific allowances for bad debts almost doubled, which in turn helped send net profit down 25 per cent.
"We have been conservative on the collateral values that we have taken," Mr Gupta said at the bank's results briefing.
"I can say with high confidence that we have cleaned the book. We are highly unlikely to take more in the book," he added, referring to provisions for the energy segment.
Mr Gupta said loan growth is likely to be 7 per cent to 8 per cent this year and next, while income is likely to expand by around 3 per cent this year and in the double digits next year.
DBS' share of the housing loan market rose to more than 30 per cent in the quarter from 27 per cent last year.
It booked $3.9 billion of new home loans in the three months and expects its mortgage book to end the year up by $4 billion to $4.5 billion.
Net profit fell 25 per cent to $802 million in the third quarter from a year earlier, as it almost doubled its specific provisions for bad debts.
Excluding one-time items such as a $21 million ANZ integration cost, net profit stood at $822 million, 23 per cent lower than the same quarter a year ago.
The extent of the weakness in the oil and gas segment can be seen by the rise in specific allowances for credit and other losses, which hit $815 million, 87 per cent up on the $436 million recorded a year earlier.
Total income in the quarter rose to $3.06 billion, up 4 per cent, while net interest income increased 9 per cent year on year to $1.98 billion. Net fee and commission income advanced 12 per cent to $685 million.
Mr Gupta said recognising residual weak oil and gas support service exposures as non-performing assets will enable investors to return their focus to the bank's operating performance and digital agenda.
"Business momentum has been strong as we continued to capture opportunities in a reflationary environment across the markets we operate in," he said in a statement.
"Broad-based loan and fee income growth propelled third-quarter and nine-month total income and profit before allowances to new highs, more than offsetting the impact of less favourable interest rates and trading income."
One surprise was the fall in net interest margin, given that the wholesale interbank rates rose in the period, which dipped to 1.73 per cent from 1.77 per cent a year earlier. Mr Gupta said it was due to the bank getting more deposits and the bank "can't lend out fast enough".
He expects the home loan market share next year to be stable, but added that the collective sale fever adds some uncertainty as home owners who have sold en bloc will be paying off their mortgage.
Some analysts welcomed DBS' operating performance. Morgan Stanley said the third-quarter results showed strong core profit with the oil and gas overhang removed.
Earnings per share fell to $1.24 from $1.67 a year ago, while net book value was $17.43 compared with $16.68 a year earlier.
DBS shares closed down 18 cents at $22.79 yesterday.