DBS Group Holdings Ltd. (DBS) and Oversea-Chinese Banking Corp., Southeast Asia’s largest banks, climbed in Singapore stock trading after they posted higher earnings as loan margins widened for the first time since 2009.
Net income at DBS rose 30 percent to S$1.23 billion ($980 million) for the three months ended March 31, the company reported today. That beat the S$877 million average of three estimates compiled by Bloomberg. OCBC (OCBC)’s profit climbed 29 percent to S$899 million and that of United Overseas Bank Ltd. (UOB), the third-biggest lender in Singapore, rose 9.2 percent to S$788 million, the companies said in separate statements.
Signs of improved lending profitability boosted optimism Singaporean banks can overcome rising funding costs and declining credit demand amid slowing economic growth. The city’s lenders have the slimmest loan margins in Southeast Asia, data compiled by Bloomberg show.
“After that string of quarterly margin declines, the question is whether this is an inflection point or whether it’s a one-off turn,” Paul Dowling, principal analyst at bank research firm East & Partners, said by phone from Sydney. “Our pick is that it’s likely to be sustainable and will continue to improve over the rest of the year.”
Shares of DBS climbed 0.6 percent to S$16.94, the highest closing price since Jan. 22. OCBC advanced 1.9 percent, its biggest gain in more than nine months. UOB, which reported earnings after the close of trading in Singapore, gained 2.7 percent. The benchmark Straits Times Index added 0.8 percent.
DBS’s net interest income advanced 12 percent to S$1.5 billion. The net interest margin widened for the first time since the third quarter of 2009 to 1.66 percent from 1.64 percent a year earlier as funding costs fell, DBS said. UOB’s gained to 1.73 percent from 1.7 percent.
“Directionally I do believe we’ve seen the worst,” DBS Chief Executive Officer Piyush Gupta said in an interview with Bloomberg Television’s Haslinda Amin today. “Going forward, we’re likely to see a better NIM environment than we saw, certainly in the tail end of last year.”
OCBC’s net interest margin grew for the first time in 19 quarters to 1.70 percent from 1.64 percent. Net interest income surged 19 percent to S$1.1 billion.
Higher consumer- and corporate-loan spreads as well as money-market activities drove net interest margins in the quarter, CEO Samuel Tsien told reporters in Singapore today. While he couldn’t say for sure whether a 6 basis-point rate of improvement would continue, Tsien said he expects OCBC’s margin to exceed last year’s average of 1.64 percent.
Banks in Singapore had an average 12-month net interest margin of 1.81 percent, the lowest in Southeast Asia, according to data compiled by Bloomberg. Indonesia had the highest average of 5.82 percent, the data show.
DBS and OCBC have been tapping growth in overseas markets and from fee-based businesses such as wealth management to counter weak lending margins and lower credit demand. DBS agreed to acquire Societe Generale SA’s Asian private bank on March 17 for $220 million, while OCBC offered $5 billion for Hong Kong’s Wing Hang Bank Ltd. (302) on April 1.
OCBC expects to get regulatory approval for its acquisition in the “summer months,” said Tsien. The company hasn’t decided on the proportion of debt and equity funding for the purchase, he said.
Credit demand is weakening in Singapore’s economy, which grew an annualized 0.1 percent in the three months through March from the previous quarter. That was the slowest pace in six quarters, according to data compiled by Bloomberg.
DBS’s loans grew 2 percent in the first quarter from the end of December, less than its 3 percent expansion in the fourth quarter of 2013. Loans at OCBC increased 3.6 percent, slower than the 5 percent growth in the December quarter.
Non-interest income at OCBC climbed 18 percent to $800 million, bolstered by higher fees and commissions from wealth management, loan and trade-related activities. Non-interest income at DBS declined 2.7 percent to S$963 million as revenue from stock broking, investment banking and trading fell.
Fees and commissions from wealth management gained 4 percent to S$117 million, DBS said. CEO Gupta said he expects about $10 billion of Societe Generale’s $12.6 billion in assets as of Dec. 31 to move to DBS.
Per-share earnings for DBS in the first quarter rose to S$1.76 from S$1.56 a year earlier. Excluding a S$223 million gain from selling shares in Bank of the Philippine Islands and a S$25 million donation to the National Gallery Singapore, the bank’s profit rose 9 percent to S$1.03 billion.
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