DBS Q3 profit surges 32% to record $2.24b; CEO flags risks to growth from rising rates

Singapore’s largest bank’s net profit stood at $2.24 billion, up 32 per cent from a year ago and 23 per cent from the second quarter. PHOTO: ST FILE

SINGAPORE – DBS Group Holdings posted an increase in third-quarter earnings to a new record, with its net interest margin – a key gauge of a lender’s profitability – returning to pre-pandemic levels as interest rates surged.

But DBS chief executive Piyush Gupta flagged the risks of a recession in the United States and a consequent sharper slowdown in Asia if rates keep rising.

As a precaution, the bank has set aside more allowances for potential bad debts.

“If rates (in the US) head to around 5 per cent, what impact that has on a slowdown in Asia and therefore potential credit is quite unclear... We have not seen this environment in a long time,” Mr Gupta said at a results briefing on Thursday.

China could also take a few more quarters or longer before its economy starts to open up, he added.

DBS shares fell 1.55 per cent to $34.20 on Thursday, while OCBC Bank slid 0.91 per cent to $11.95 and UOB dipped 0.18 per cent to $28.02, as markets slumped after the Fed put paid to a near-term rate hike pause.

Singapore’s largest bank’s net profit stood at $2.24 billion, up 32 per cent from a year ago and 23 per cent from the second quarter. The results easily beat the $1.87 billion forecast by analysts in a Bloomberg poll.

The board has declared a dividend of 36 cents a share for the third quarter, bringing the payout for the first nine months to $1.08 a share.

Mr Gupta said DBS’ underlying business momentum remains strong, with broad-based growth in its corporate loan book across various markets and industries, and sustained growth in its mortgage book.

“Our bookings have held up despite a bit of a slowdown in the market... the only area that did not grow was trade and a lot of that was deliberate. As rates have been going up, it has been hard to hold the credit spread in the trade book. To a large extent, we have been letting the low-margin loans run off,” he said.

Net interest income for the third quarter rose 44 per cent year on year to $3.02 billion on higher interest rates and growth in loans.

DBS’ net interest margin (NIM) soared 47 basis points year on year to 1.9 per cent.

The bank expects NIM to reach around 2.25 per cent by mid-2023, assuming that the Federal Reserve’s benchmark interest rate – the federal funds rate – peaks at 4.75 per cent. The US central bank has been on a rate hike spree in an effort to dampen red-hot inflation.

Growth in non-trade corporate loans and mortgages was faster than in the first two quarters, said Mr Gupta.

Third-quarter non-trade corporate loans grew $8 billion or 3 per cent from the previous quarter, while housing loans rose $1 billion or 2 per cent.

These gains were moderated by a decline of $5 billion or 10 per cent in trade loans. Including trade loans, overall loans rose to $429 billion.

Total loans grew 6 per cent in the third quarter from a year ago. But the bank’s gains from rising loans and interest rates were moderated by lower fee income amid weak financial market conditions.

Fee income slid 13 per cent year on year to $771 million as lower wealth management and investment banking fees more than offset increases in card and loan-related fees.

Other non-interest income rose 32 per cent to $753 million owing to treasury market, treasury customer income and investment gains.

Asset quality continued to be resilient, said DBS, which saw its non-performing loan ratio improve to 1.2 per cent from 1.5 per cent a year ago.

The bank set aside more general allowances for potential bad loans, at $153 million. In the same period in 2021, it wrote back, or restored to profit, $138 million in general allowances.

DBS’ total general provisions currently stand at $3.9 billion, around the same level as at the end of 2021, and up from $3.7 billion in June.

Peer UOB last week also turned in a record set of results for the third quarter as its lending income was boosted by higher interest rates. Its net profit for the third quarter jumped 34 per cent year on year to $1.4 billion, also topping analysts’ expectations.

Join ST's Telegram channel and get the latest breaking news delivered to you.