DBS profit skids 22pc but pandemic-hit business steadying

DBS Group's quarterly profit slumped by a fifth as it boosted loan-loss provisions in pandemic-hit markets, but Southeast Asia's top lender said bad loans were steady and fee income was rising as economies bounced back from lockdowns.

The profit beat market estimates and rose from the preceding quarter, sending its shares up 2% on Thursday. Singapore's bank shares have been pummelled recently following a capping of their dividends last week by the central bank. "DBS did better with help on treasury income and surprisingly was again able to contain costs like Q1," said Kevin Kwek, a senior analyst at Sanford C. Bernstein.

Given the circumstances, DBS' ability to maintain a 10% return on equity would be seen positively, especially in light of the recent stock price drop, he added.

Investors are keen to see if the June quarter marked the trough for banks' net interest margins, a key measure of profitability, and whether lenders can effectively tackle loan losses in recession-hit economies. DBS' net interest margin slumped to 1.62% in the second quarter from 1.91% a year earlier as interest rates fell. The bank expects fullyear margin at around 1.6%.

DBS said profit for the June quarter fell to S$1.25 billion ($913m) from S$1.6b a year earlier, and versus an average estimate of S$1.19 billion from five analysts, according to Refinitiv data.

The profit was above the first-quarter's S$1.16 billion, while loan loss allowances declined quarter on quarter. Smaller rival United Overseas Bank (UOBH.SI) missed analysts' estimates with a 40% fall in quarterly net profit due to lower margins and higher credit costs. DBS CEO Piyush Gupta said the bank performed in line with its expectations and several fee income streams were improving from troughs in April. "Overall, we are not seeing anything in the outlook which causes us to re-think the assessments we made three months ago," he told reporters.

Singapore's tradedependent economy plunged into recession in the second quarter after contracting by a record 41.2%. DBS estimated total allowances at S$3 billion-S$5 billion over two years, with S$1.9 billion already booked in the first half. It expects 5% growth in full year loans, led by nontrade corporate loans. It cut its dividend to 18 Singapore cents per share from 33 cents/share, in line with the regulator's restrictions.