Singapore banks' Q3 profits beat expectations

DBS Bank and OCBC Bank have joined fellow lender United Overseas Bank in posting better-than-expected third-quarter earnings while setting aside more allowances for potential bad loans amid the coronavirus pandemic.

The local banks also struck a cautiously optimistic tone as regional economies pick up pace, and said that they have ample provisions to tide over uncertainties ahead.

DBS Group Holdings reported yesterday that third-quarter net profit fell 20 per cent to $1.3 billion from $1.63 billion a year earlier, but well ahead of the $1.12 billion average estimate of analysts in a Bloomberg poll.

The bank noted that it recorded lower net interest income and allocated higher allowances for potential bad loans.

It has declared an interim dividend of 18 cents a share, down from 30 cents last year. The bank's scrip dividend scheme will be applied.

DBS, South-east Asia's largest bank, set aside allowances of $554 million in the third quarter. Together with $1.94 billion in the first half of the year, total allowances in the first nine months quadrupled to $2.49 billion from a year earlier. Around $1.5 billion of this were general allowances set aside to fortify the balance sheet against macroeconomic risks.

Net interest income fell 12 per cent year on year to $2.17 billion - and was 6 per cent down on the second quarter - as loan growth was offset by a lower net interest margin. Net interest margin - a key gauge of profitability for banks - fell nine basis points to 1.53 per cent as the impact of global interest rate cuts in March and April was more fully felt.

Annualised earnings per share stood at $1.98 for the quarter, down from $2.50 a year ago.

Compared with the second quarter, net profit rose 4 per cent as fee income rebounded 17 per cent to pre-pandemic levels.

DBS chief executive Piyush Gupta said the third-quarter results reflect a recovery in business momentum as regional economies emerge from lockdowns. "The rebound in fee income to pre-Covid levels has enabled us to cushion the full impact of lower interest rates.

"At the same time, the accelerated build-up of allowances has strengthened our ability to meet the challenges of an uneven economic recovery in the coming year," he said.

Net profit for the first nine months fell 24 per cent to $3.71 billion due to the higher allowances.

Meanwhile, OCBC's net profit dipped 12 per cent to $1.03 billion from $1.17 billion a year earlier on the back of lower net interest income and more allowances set aside for loans. Its earnings topped the $850 million average estimate of analysts surveyed by Bloomberg.

Net interest income fell 11 per cent year on year to $1.42 billion, amid low interest rates. Total allowances increased 8 per cent year on year to $350 million, but fell from $750 million in the previous quarter. Net profit rose 41 per cent from the previous quarter on the back of the lower allowances.

OCBC chief executive Samuel Tsien said the economic outlook is still uncertain and it is important for the bank to continue strengthening its capital and balance sheet.

UOB posted its third-quarter results on Wednesday, with net profit down 40 per cent to $668 million from $1.12 billion a year earlier. It set aside an additional $339 million in credit allowances for non-impaired assets to strengthen provision coverage.

Its earnings topped the $641 million average forecast in a Bloomberg poll.

DBS shares climbed 88 cents, or 4.08 per cent, to $22.43, OCBC rose 3.48 per cent to $8.93, while UOB gained 3.23 per cent to $20.44. The Straits Times Index was up 2.89 per cent.