DBS' Q4 profit falls 33% on higher allowances for bad loans

Higher allowances for potential bad loans amid the pandemic sent fourth-quarter earnings plunging at DBS, it reported yesterday.

That poor final quarter also played a part in the bank racking up its first fall in full-year net profit in four years but chief executive Piyush Gupta sees better times ahead.

He told a briefing yesterday that the latest economic data supports a solid rebound and that the bank's strong performance last month has given 2021 a head start.

South-east Asia's biggest lender would have been pleased to see the back of the last financial year with net profits coming in at $1.01 billion for the fourth quarter, down 33 per cent from the $1.5 billion recorded a year earlier.

Its earnings were slightly lower than the $1.06 billion average estimate of seven analysts polled by Bloomberg.

DBS has declared a final dividend of 18 cents a share, down from 33 cents in the previous year. The scrip dividend scheme will apply.

Net interest income dipped 13 per cent year on year to $2.12 billion while net interest margins fell 37 basis points to 1.49 per cent.

Net interest margins are a key profit gauge for banks, measuring the difference between income earned from loans and the interest paid to depositors.

Total allowances at $577 million were almost five times higher than in the previous year.

The bank's non-performing loan ratio weakened to 1.6 per cent from 1.5 per cent.

Earnings per share (EPS) for the fourth quarter stood at $1.54, down from $2.31 a year earlier. Full-year EPS came in at $1.81 compared with $2.46 previously.

Net profit dropped 26 per cent to $4.72 billion for the full year due to a decline in net interest margins and a quadrupling of loan allowances to $3.07 billion. It is the bank's first annual earnings decline in four years.

Net interest income fell 6 per cent to $9.08 billion with net interest margins 27 basis points lower at 1.62 per cent. Most of the decline came in the second and third quarters as central banks slashed interest rates late in the first quarter.

Lower interest rates more than offset the impact of higher loan volumes and growth in current and savings accounts, DBS said.

Loans grew 4 per cent in constant currency terms to $371 billion, including $2 billion of loans from Indian bank Lakshmi Vilas Bank (LVB).

Non-trade corporate loans expanded 9 per cent to $221 billion, led by drawdowns in Singapore and Hong Kong.

Consumer loans were stable at $114 billion. Housing loans were also largely unchanged as declines in the second and third quarters due partly to the circuit breaker were offset by a recovery in the fourth quarter.

Mr Gupta said: "Business momentum was sustained in the fourth quarter and our pipeline for loans and fee income is healthy. We have been proactive through the crisis and enter the year with new growth platforms."

The fourth-quarter results included amalgamation expenses of $33 million and general allowances of $87 million for LVB, which was amalgamated in November with provisional goodwill of $153 million.

Mr Gupta said LVB and DBS' securities joint venture in China will enhance its presence in both key markets.

"Initiatives such as the Digital Exchange, supply chain digitalisation and efforts to broaden wealth management to the mass market will reinforce our leadership in digital finance," he added.

DBS is the first local lender to report fourth-quarter earnings. OCBC will release its numbers on Feb 24, with UOB next on Feb 25.

DBS shares closed up 0.27 per cent at $26 yesterday.