DBS posts lowest quarterly profit in 2 years on provisions

BloombergFriday, February 17, 2017
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DBS’ total loan allowances for 2017 will be ‘similar’ to the amount the lender declared for last year, excluding Swiber, says Gupta
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Singapore • DBS Group Holdings Ltd, South-East Asia’s largest bank, reported its lowest quarterly profit in two years as bad-loan provisions almost doubled, overshadowing higher fees and trading income.

Net income fell 9% to S$913 million (RM2.86 billion) for the three months ended Dec 31 from S$1 billion a year earlier, the Singapore-based bank said yesterday in an exchange statement. That missed the S$1.014 billion average forecast of eight analysts surveyed by Bloomberg.

DBS joined its largest domestic rival Oversea-Chinese Banking Corp (OCBC) in posting lower than estimated profit this week on the back of bad-debt allowances, particularly to cover loans to the struggling oil and gas (O&G) services industry. While the sector is still challenged, the formation of new non-performing assets is expected to be lower than 2016, DBS CEO Piyush Gupta said in a slide presentation.

“It was a weak set of results on the back of higher O&G losses,” Melissa Kuang, an analyst at Goldman Sachs Group Inc, wrote in a note. “On the brighter side, DBS commented that while the O&G service sector remains challenging, new NPA formation should have peaked and will be lower in 2017.”

DBS shares were little changed at S$18.22 as of 9:21am in Singapore yesterday, while OCBC lost 0.1%. Smaller rival United Overseas Bank Ltd, which reports its quarterly numbers today, was unchanged.

DBS’ allowances for credit and other losses jumped 87% in the December quarter from a year earlier to S$462 million, a “significant part” of which was due to cover the energy services industry, it said. The amount was slightly higher than the S$440 million estimated by RHB Research Institute.

The troubles in energy services have dragged at least four companies into default, the highest profile of which was Swiber Holdings Ltd, which sought judicial management in July. DBS has previously announced S$721 million in total Swiber exposure and may have S$637 million exposure to Ezra Holdings Ltd, CIMB Group Holdings Bhd said in a Feb 2 report, citing its own estimates. Ezra on Feb 3 flagged a possible writedown on a joint venture.

OCBC CEO Samuel Tsien said after his bank’s earnings on Tuesday that he wasn’t able to say whether the stress in O&G had ended. The lender reported an 18% drop in fourth-quarter net income.

DBS’ total loan allowances for 2017 will be “similar” to the amount the lender declared for last year, excluding Swiber, Gupta said in his presentation. In 2016, those allowances climbed 93% from a year earlier to S$1.43 billion.

DBS’ non-performing loan ratio rose to 1.4% from 1.3% in the three months ended September, the earnings filing showed.

Its net interest margin fell to 1.71% from 1.84% a year earlier. Net interest income dropped 2% to S$1.82 billion, and fee and commission income gained 6% to S$515 million. Other non-interest income rose 40% to S$437 million and customer loans rose 6% to S$302 billion. — Bloomberg

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