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SINGAPORE (Reuters) -DBS Group expects to report higher profit before allowances next year after Southeast Asia’s largest bank beat estimates with a 31% rise in third quarter net profit, aided by growth in fee income and improving asset quality.
Friday’s result rounded up a strong quarter for Singapore banks such as OCBC and United Overseas Bank (OTC:UOVEY), just as global lenders are strengthening their recovery in markets hit by the COVID-19 pandemic and amid improved economic activity.
Singapore, rebounding from last year’s record recession, is beginning to re-open its borders with 85% of its population fully vaccinated against the COVID-19 virus. The city-state’s economy is expected to grow 6%–7% this year.
DBS reported net profit of S$1.7 billion ($1.26 billion) for the July-September period versus S$1.30 billion from a year earlier and the S$1.57 billion average forecast from four analysts compiled by Refinitiv.
Krishna Guha, an analyst at Jefferies (NYSE:JEF), said strength in DBS’ asset quality continued to surprise on the upside.
“As the revenue drivers further strengthen and if credit cost stays below normal, the group looks poised to deliver steady growth next year,” he said.
Shares of DBS, trading near record highs, rose 0.2% in early trade, having gained nearly 29% so far this year versus an 18% rise in OCBC and a 20% increase in UOB’s shares.
“A progressive normalisation of interest rates in the coming quarters will be beneficial to earnings,” DBS Chief Executive Officer Piyush Gupta said in a statement. “Asset quality continues to be resilient and total allowances are likely to remain low,” he said.
The bank wrote back credit allowances of S$70 million in the quarter, helping boost profits, compared with credit charges of S$554 million booked in the year-ago period.
Profit before allowances fell 7% to S$1.89 billion in the quarter. DBS’ net interest margin, a key gauge of profitability, dipped to 1.43% from 1.53% a year earlier.
This year, Gupta spearheaded DBS’ purchase of a stake in a privately-owned Chinese bank, months after DBS acquired a distressed Indian lender. DBS has also forayed into new ventures, including a digital exchange, to boost revenue.
($1 = 1.3512 Singapore dollars)
