SINGAPORE, July 30 — DBS Group, Southeast Asia’s biggest bank, posted a surprise quarterly loss, its first in almost five years, after it took a S$1.02 billion (RM2.39 billion) goodwill charge for its Hong Kong business.
But excluding the one-time charge, core earnings rose 30 percent, beating market expectations, and the bank said its outlook remained healthy.
Analysts said there may be more room for writedowns on its Hong Kong business, which is a legacy from 2001 when DBS tookover Dao Heng bank in an expensive US$5.8 billion deal (RM18.51 billion).
“DBS could have written down more on Dao Heng,” said Sanjay Jain, a regional banking analyst at Credit Suisse.
He estimated that the Hong Kong unit was still carrying a good will of S$4.5 billion, against a book value of S$3.8 billion on DBS’s books.
DBS said it remains bullish on North Asia’s prospects.
“Notwithstanding the goodwill impairment, we remain structurally bullish on prospects for Hong Kong and China, which are integral to the Asia growth story,” CEO Piyush Gupta said in a statement.
This is the second major writedown on the Hong Kong business since 2005. The latest charge brings down the value of its Hong Kong operation to 2.2 times from a previous 2.5 times book.
DBS said there have been “noticable and persistent strains” in wholesale funding markets, which is forcing banks to adjust their funding starategies.
Jain at Credit Suisse said the results were better-than-expected helped by strong trading income, driven by client flows instead of properietary trading. Loan growth also exceeded expectations, he said.
Singapore banks have survived the financial crisis in good shape, but are struggling to take full advantage of fast loan-growth and reduced loan-losses this year due to historically low rates.
DBS said net interest income fell almost 4 per cent to S$1.07 billion, although loans in the second quarter expanded 14 per cent from a year ago. Net interest margins declined 17 basis points from a year ago.
DBS CEO Gupta, who took charge last November, is under pressure from investors not only to deliver strong earnings, but also expand the bank’s footprint beyond its core Singapore and Hong Kong market.
But with money market rates languishing near record lows, DBS is more vulnerable than its rivals due to its dominant position in the interbank market.
DBS said today its April-June net profit was S$718 million — its best ever — if the goodwill impairment was excluded, which was an improvement of 30 per cent versus S$552 million a year ago.
Analysts had predicted a net profit of S$564 million, according to the average of eight forecasts in a Reuters survey.
DBS shares have fallen about 6 per cent so far this year while rival Oversea-Chinese Banking Corp is down 0.9 per cent and United Overseas Bank is up 0.9 per cent. The benchmark Singapore index is up about 3 per cent. — Reuters
