SINGAPORE - DBS Group Holdings posted on Monday (Feb 14) a better-than-expected increase in fourth-quarter earnings on the back of higher loan growth and fee income, as well as lower allowances set aside for bad loans.

Chief executive Piyush Gupta said widely anticipated interest rate hikes will boost the bank’s net interest margin (NIM) – a key gauge of lenders’ profitability – but cautioned that uncertainties remain. 

"We look forward to the coming year with a prudently managed balance sheet that is poised to benefit from rising interest rates," he said.

Economists expect the United States Federal Reserve to raise rates as many as seven times this year to curb rising inflation.

DBS’ net profit rose 37 per cent to $1.39 billion, topping the $1.36 billion forecast by analysts in a Bloomberg poll.

Its results were partially offset by declines in the bank’s NIM and investment gains.

DBS has declared a dividend of 36 cents a share for the fourth quarter, up from 33 cents in the third quarter, and 18 cents a year ago when dividend payouts from local banks and finance companies were capped due to the pandemic.

"Barring unforeseen circumstances, the annualised dividend will rise to $1.44 per share, an increase of 9 per cent," said DBS.

Net interest income at Singapore's largest bank stood at $2.14 billion in the fourth quarter, up 1 per cent from a year ago.

DBS said full-year loan growth of 9 per cent - the highest in seven years - helped to mitigate the impact of interest rate cuts.

The bank's fourth-quarter NIM fell six basis points to 1.43 per cent, amid central banks' interest rate cuts in 2020 in response to the pandemic.

Net fee income rose 9 per cent to $815 million amid broad-based growth led by wealth management and transaction services.

Other non-interest income fell 15 per cent from a year ago to $338 million because of lower trading income and gains from investment securities.

Meanwhile, its expenses of $1.67 billion were 6 per cent higher than a year ago, mainly due to government grants in the previous year.

Total allowances stood at $33 million compared with $577 million a year ago, signalling improved asset quality.

DBS used a one-time gain to contribute a further $100 million to the DBS Foundation and other charitable causes.

Its results kicked off earnings season for local lenders. UOB is expected to report its earnings on Wednesday, and OCBC Bank on Feb 23.

DBS' fourth-quarter profit was 18 per cent lower than the previous quarter's, reflecting seasonally lower non-interest income and a smaller general allowance write-back.

However, earnings for the full year surged 44 per cent to hit a record $6.8 billion.

The lender said this restores "a trend of consecutively higher earnings that the pandemic disrupted in the previous year".

With interest rates set to rise, Singapore banks are poised to make more money from lending this year, while the broader economic recovery and more stable credit quality have raised the industry outlook.

Mr Gupta said the robust growth in DBS' loan book and higher fee income speak to a recovering economic environment and the bank's broadly diversified franchise.

But he also pointed to headwinds from lower treasury markets and wealth management activity amid market volatility, and slowing mortgage bookings due to new property cooling measures announced here in December. 

“We’ve wound up the year slightly slower than the first three quarters... but I’m confident that our guidance of mid to high single-digit loan growth stands. We won’t get the 9 per cent we saw last year, but 6 to 7 per cent is quite possible,” Mr Gupta told a media briefing. 

He added that other uncertainties remain. Policy errors could lead to massive interest rate increases that take economies into recession – although he said this is unlikely – and China’s tight lid on the spread of the Omicron variant may dampen its consumption. 

Mr Gupta added that the bank has managed expenses and credit costs well, and made significant investments through new digital platforms and by expanding its footprint overseas. 

DBS announced last month that it will acquire Citi’s Taiwan consumer business at a premium of $956 million, making it Taiwan’s largest foreign bank by assets.

It also completed its 5.29 billion yuan (S$1.1 billion) acquisition of a 13 per cent stake in privately owned Shenzhen Rural Commercial Bank last October, following its takeover of India’s Lakshmi Vilas Bank in November 2020.

Mr Gupta expects that the three transactions will add $1.2 billion to $1.3 billion to its revenue, and nearly half a billion dollars to its net profit, by 2024. 

Maybank Kim Eng research head Thilan Wickramasinghe said DBS is in a strong position to benefit from not only rising interest rates, but also regional reopening.

“With three deals to be digested over the next few years, there is upside potential from higher dividends as DBS could de-prioritise expending capital for growth,” he added.

DBS shares closed 0.13 per cent lower at $37.20 on Monday.