DBS Group Holdings Ltd. (DBS), Southeast Asia’s largest bank, said third-quarter profit rose 12 percent, beating estimates as interest and fee income climbed.
Net income advanced to S$856 million ($701 million) from S$762 million a year earlier, the company said in a stock exchange statement today. That exceeded the S$801 million average of eight analysts’ estimates compiled by Bloomberg.
DBS boosted lending and made smaller provisions for bad loans even as Singapore’s economy slowed. Chief Executive Officer Piyush Gupta is seeking to expand in faster-growing markets, which may help the bank weather waning demand from corporate borrowers and pressure on loan profitability as competition for deposits intensifies in the city-state.
“The net profit number is ahead of expectations, but the underlying drivers are probably not as exciting,” said Matthew Smith, an analyst at Macquarie Capital Securities Singapore Pte. The gain “appears to be all coming from credit costs, which are very low,” said Smith, who rates DBS shares neutral.
DBS fell 0.7 percent to S$13.81 at 3:25 p.m. in Singapore trading, compared with the benchmark Straits Times Index’s 0.3 percent loss.
The net interest margin, a measure of profitability on loans, narrowed to 1.67 percent last quarter from 1.73 percent a year earlier. That partly reflected pressures in China that outweighed a widening in Singapore and other markets, DBS said.
The worst is probably over for DBS in China after margins were squeezed by the country’s liberalization of interest rates, Gupta said at a news briefing.
Net interest income, the difference between what a bank makes from lending and what it pays on deposits, increased 10 percent to S$1.3 billion as loans grew 9 percent to S$202 billion. Operating profit before accounting for loan-loss provisions slid 2 percent from a year earlier to S$1.1 billion.
Corporate loans by banks operating in Singapore expanded 22 percent in August, the slowest pace in 17 months, according to data compiled by Bloomberg, as the weakening economy sapped demand for credit. DBS derived 61 percent of its revenue from the domestic market in the first six months.
Net fees and commissions advanced 6 percent in the quarter to S$422 million, DBS said, on gains from credit cards, wealth management and investment banking.
Gupta said he is building the investment banking business related to fixed income, while he has no plans to become a large investment bank focusing on equity capital markets or mergers and acquisitions advice.
“Any M&A activity and advisory activity in the region we can do because we know the clients, but it’s not a huge part of our business,” he said. “Fixed income I like because it matches with what we do well and we don’t need a lot of prima donna bankers to try and do that.”
DBS bolstered debt-related investment banking this year, given the company’s expertise in related areas such as derivatives, currencies and interest-rate trading, Gupta said. Much of the 58 percent gain in investment banking fees to S$60 million in the third quarter stems from fixed income, he said.
Other non-interest income declined 30 percent to S$250 million, as income from the lender’s financial investments fell. It recognized a S$47 million gain in the category a year earlier from combining DBS Asset Management with Japan’s Nikko Asset Management Co.
Provisions for credit and other losses fell 76 percent to S$55 million.
As part of Gupta’s strategy to expand abroad, DBS bid about $6.9 billion for PT Bank Danamon Indonesia in April. The Singapore lender is awaiting approval from regulators in Indonesia, Southeast Asia’s largest economy.
Banks in Singapore earn the least on loans in the region, based on their average net interest margin of 2.03 percent, according to the most recent data compiled by Bloomberg.
Singapore’s economy will grow at below-potential levels for a second year in 2013 as external demand remains “tepid and volatile,” the Monetary Authority of Singapore said this week. It expects the economy to expand 1.5 percent to 2.5 percent this year. Gross domestic product fell at an annual 1.5 percent rate last quarter, the Trade Ministry said on Oct. 12.
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