DBS' Q2 profit down 22% on higher loan provisions

$1.2b figure beats analysts' forecast; CEO says bank 'ahead of the game' in its digital offerings

DBS Bank has been increasing its digital transactions and market share over the past few months, said group chief executive Piyush Gupta yesterday.

Speaking at the release of the bank's second-quarter financial results, he added that the bank "has been ahead of the game" in terms of its digital offerings.

South-east Asia's largest bank reported a 22 per cent fall in net profit to $1.2 billion as it sets aside more money for loan provisions.

This is down from $1.6 billion a year ago, narrowly beating the $1.19 billion average estimate of eight analysts surveyed by Bloomberg.

The bank's net profit for the first half of this year was $2.4 billion, down 26 per cent from $3.3 billion a year ago. The net interest margin - a key gauge for bank profitability - between April and June was 1.62 per cent, down from 1.91 per cent a year ago.

The bank expects the full-year net interest margin to dip further, coming in at 1.6 per cent. Its net interest margin last year was 1.89 per cent.

Net interest margin measures the difference between income earned from loans and the interest paid to depositors.

Talking about the opportunities offered by digitalisation and the bank's digital offerings, Mr Gupta said: "(Digitalisation) creates an opportunity for many new income-generating businesses. We are actively working on several other things we could do in the digital space as economies and sectors are morphing to a new way of thinking."

Covid-19 has turbo-charged digitalisation processes as progress that would normally take five to 10 years has been achieved in three months, Mr Gupta said.

"The way people will consume tech... the way people produce and where they need to work from (will) change," he added.

Earlier, Mr Gupta had identified how supply chains would be changing due to tensions between the United States and China, albeit at a pace "far more glacial than what a lot of people think".

Income inequality and social issues are also going to be at the forefront of many political debates, he said.

He also expects the current low interest rate environment to last for "much, much longer".

He said the bank had delivered "a strong operating performance amidst severe macroeconomic headwinds".

This was a tough quarter due to interest rate cuts and lockdowns in most countries where the bank is operational, he said, adding that economic and consumer activities have slowed down as a result.

In March, the US Federal Reserve cut interest rates, aiming for a target range of zero per cent to 0.25 per cent in a move to shore up the world's largest economy amid the pandemic.

Companies tend to want to borrow more money when interest rates are low, but the yield on those loans is low for the banks.

"That's not an easy environment to operate in," said Mr Gupta.

The bank, however, expects deposit inflows into current and savings accounts to continue, building on strong growth in the first six months of this year.

The easing of lockdowns is also expected to improve several fee income streams, such as cards and bancassurance, wealth management investment and investment banking, Mr Gupta said.

"Market conditions remain conducive for treasury markets income and for customer flows," he said.

"Notwithstanding the uncertainties, we are in a good position to continue supporting customers and the community through the difficult months ahead of us."

A version of this article appeared in the print edition of The Straits Times on August 07, 2020, with the headline 'DBS' Q2 profit down 22% on higher loan provisions'. Print Edition | Subscribe