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DBS Surprises Analysts, Posts Record-high Net Profit in 1Q2012

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by Ernie B. Calucag

DBS Group Holdings, Southeast Asia’s largest bank, on Friday posted a surprise 16-per cent gain in net profit, beating analysts’ expectations as interest margins came in higher than expected.

Net profit for the first quarter this year rose to a record-high S$933.0 million compared with S$807.0 million a year earlier.

That was well above the S$771.0-million market consensus.

The record numbers were boosted by sustained loan volumes, improved net interest margins, broad-based fee income growth and higher customer flows for treasury products.

Net interest income increased four per cent from the previous quarter to a record S$1.34 billion, while loans rose three per cent to a new high of S$820.0 million.

Net interest margin during the quarter inched up to 1.77 percentage points from 1.73 points in the preceding period, although it was still below the 1.80 points earned a year ago.

Fee income jumped 19 per cent to S$406.0 million, led by the banking group’s wealth management, lending, stockbroking and trade and remittances businesses.

Trading income more than doubled to S$292.0 million from higher customer flows and more favourable market conditions.

Income from customer flows rose 71 per cent to S$256.0 million, accounting for 39 per cent of total treasury net interest and non-interest income.

“Strong business momentum, with key earnings drivers and strategic initiatives kicking in, propelled the bank’s first-quarter earnings this year to yet another record high,” Chief Executive Officer Piyush Gupta said in the statement.

“DBS’s exceptional showing was underpinned by sustained loan growth, broad-based non-interest income, as well as higher contributions from all our markets,” he added.

Going forward, the bank said it is confident of achieving loan growth in the “low teens” and that net interest margins can be sustained at current levels.

“Margins are likely to stabilise at the current range over coming quarters,” the bank’s Chief Financial Officer Chng Sok Hui said.

DBS CEO Gupta said he was confident of achieving loan growth in the low teens as the pipeline remained relatively strong.

He added that net interest margins could have been 1 to 2 basis points higher if the Singapore lender had not built its deposit gathering capabilities during the quarter.

From Villain to Hero

“The record quarterly profit will change DBS from villain to hero in the eyes of shareholders. This will take some heat off CEO Piyush Gupta who still has to convince shareholders his acquisition of Indonesian bank Danamon was value for money,” said Justin Harper of IG Markets in Singapore.

Minority shareholders of the bank have earlier voiced concerns regarding the proposed acquisition of Bank Danamon Indonesia at DBS’ annual general meeting (AGM) on Wednesday, citing the large premium DBS will have to pay as well as the drop in share price since the deal was announced.

Shares of DBS had fallen as much as 7 per cent since it announced plans to buy Bank Danamon earlier this month in a deal that valued the Indonesian lender at S$9.1 billion.

Gupta reiterated that while the Bank Danamon acquisition will lead to share price dilution for “a couple of years”, it will eventually be accretive to earnings per share.

He expects earnings per share to pull back by less than five per cent over the next two years, and return on equity to be sustained at levels around 12 per cent from 2015 onwards.

The Bank Danamon deal is expected to be completed by this year end, but Bank Indonesia (BI), the central bank, still has not given the deal the go-ahead. Instead, its officials have insisted on reciprocal access for Indonesian banks in Singapore, including the right to conduct retail banking operations and open branches.

On Friday, DBS shares closed higher at S$14.00 each from Thursday’s S$13.72.