DBS Quarterly Profit Misses Estimates as Lending Margin Narrows

Feb. 6 (Bloomberg) -- DBS Group Holdings Ltd., Southeast Asia’s largest bank, said fourth-quarter profit rose 4 percent, excluding a gain from the sale of a Philippine bank, missing analysts’ estimates as loan margin narrowed.

Earnings before the S$450 million ($364 million) gain increased to S$760 million from S$731 million a year earlier, the lender said in a statement to the Singapore stock exchange today. That fell short of the S$795 million average of eight analysts’ estimates adjusted by Bloomberg. Net income jumped 66 percent to to S$1.2 billion including the one-time item.

Chief Executive Officer Piyush Gupta has delivered 10 quarters of earnings growth as he expands into faster-growing markets amid slowing credit demand and shrinking loan profitability. Net interest margin narrowed to 1.62 percent in the quarter from 1.73 percent a year earlier as corporate loan spreads and yields on investment securities declined, DBS said.

“The biggest disappointment in the quarter came from interest margins as management had indicated this would remain stable,” said Ken Ang, a Singapore-based analyst at Phillip Securities Pte. “It’s an area of concern and we’ll be looking to hear more from management on this and what would be the guidance moving forward.”

DBS shares have gained 2.4 percent this year in Singapore trading, compared with the benchmark Straits Times Index’s 3.3 percent advance.

Margin Narrows

Banks in Singapore earn the least on loans in Southeast Asia, based on their average net interest margin of 1.99 percent, according to the most recent data compiled by Bloomberg. Net interest margin at rival Oversea-Chinese Banking Corp. was 1.75 percent at the end of the third quarter, while United Overseas Bank Ltd.’s stood at 1.84 percent.

In search of more profitable lending, Gupta in April bid about $6.8 billion for Bank Danamon Indonesia and is now awaiting approval from regulators in Indonesia, where average net interest margins for banks with a market value of at least $5 billion is 6.9 percent.

The bank’s net interest income, the difference between what it makes from lending and pays on deposits, was little changed last quarter from a year earlier at S$1.29 billion, hurt by pressures on loan margin.

Stake Sale

In October, DBS cut its stake in Bank of the Philippine Islands in half to boost its capital. Ayala Corp. bought the 10.4 percent stake in the Philippine lender for S$757.3 million.

Net fees and commissions rose 9 percent in the quarter to S$372 million, DBS said, led by wealth management.

Other non-interest income advanced 4 percent to S$294 million as the bank booked gains on fixed assets. Net trading income declined, it said.

Provisions for credit and other losses fell 50 percent from a year earlier to S$114 million, the bank said in the statement.

Loan growth in Singapore slowed to 10.4 percent in 2012 from 24 percent a year earlier, according to a Jan. 31 note to clients from Daiwa Capital Markets Singapore Ltd. The city’s economy rose at the slowest pace in three years in 2012 and the government predicts economic growth of 1 percent to 3 percent this year.

The lender’s loan book grew 8 percent to S$210 billion at the end of the fourth quarter.

--Editors: James Gunsalus, Russell Ward