DBS sees pressure on margins as Q2 profit beats forecasts
UPDATED @ 02:41:44 PM 03-08-2012
SINGAPORE, Aug 3 — Singapore bank DBS warned of pressure on interest margins, especially in China, and flagged risks to loan growth, even as it beat forecasts with a 10 per cent rise in its second-quarter profit.
The warning mirrored comments by rival Oversea-Chinese Chinese Banking Corp as Singapore lenders brace for an Asian slowdown amid concerns that Europe’s debt crisis could dampen business and trade activities in the region.
DBS Chief Executive Piyush Gupta also said Southeast Asia’s biggest lender was talking to Indonesia’s central bank about its planned US$7.2 billion (RM18 billion) acquisition of Bank Danamon after Indonesia announced new rules to restrict bank ownership.
“We are working very closely with Bank Indonesia to make sure we have a good understanding of the rules and we will be guided by them on submitting a formal application,” he said.
The deal, first announced in April, has been in a limbo since Indonesia said it plans to restrict single ownership of domestic banks to 40 per cent, although some exemptions will be allowed.
DBS posted a net profit of S$810 million for April-June against S$735 million a year earlier.
The result was ahead of an average forecast of S$795 million, according to six analysts surveyed by Reuters, but below the first quarter’s record S$933 million profit.
Singapore state investor Temasek owns about 29 per cent of DBS, but its stake would rise to 40 per cent if the DBS-Bank Danamon deal goes ahead as Temasek holds a controlling stake in Danamon.
The results came after OCBC, Singapore’s second-biggest bank, warned yesterday that loan growth will slow and margins remain under pressure after it posted a better-than-expected rise in quarterly profit.
United Overseas Bank, the smallest of Singapore’s top three lenders, will report earnings on Tuesday.
Gupta said although the bank’s loan pipeline was healthy and the bank was not seeing stress on its loan book, there would be “headwinds” due to an expected slowdown in trade finance business.
DBS’s net interest income, or income from the core lending business, rose 10 per cent to S$1.3 billion from a year earlier, as loans expanded by 22 per cent although interest margin dropped eight basis from a year earlier.
“We believe headwinds from the Hong Kong and Greater China business will intensify in the second half of 2012, as deposit competition intensifies and the recent cut in China’s interest rates negatively impacts earnings and margin,” Barclays analysts said in a note.
DBS shares edged up 0.7 per cent today. The stock is up about 28 per cent so far this year, slightly below UOB’s near 30 per cent rise, but higher than OCBC’s 21 per cent jump. The benchmark Straits Times Index is up about 15 per cent in 2012. — Reuters