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DBS shows optimism about year ahead, problem loans fade

Digital efforts pay off in emerging markets

The logo of DBS Bank is seen in Hong Kong. (Reuters)

SINGAPORE (Nikkei Markets) -- DBS Group Holdings kicked off the earnings season for banks in Singapore by posting a record quarterly profit and doubling its dividend, a surprise that made the stock one of the best performers of the day on the local bourse.

Loans and fees increased for Southeast Asia's largest bank by assets, while provisions for bad debt halved from a year ago, indicating DBS would no longer be as troubled by the problems in the offshore industry as in previous quarters.

CEO Piyush Gupta was optimistic about 2018, pointing to sustained momentum across most of the bank's businesses.

DBS is the largest player in the Singapore market, accounting for about 30% of mortgages and 21% of credit card spending, according to its estimates.

Gupta also said the bank would focus on its digital transformation, which has helped increase efficiency and lower costs as more customers transact online. In India, DBS's digital-only bank has attracted close to 2 million customers, while the recently launched digital bank in Indonesia has around 70,000.

Besides India and Indonesia, the bank, whose biggest shareholder is Singapore state investor Temasek, also has sizeable operations in Hong Kong, China, and Taiwan. It is a major player in the region's wealth management business where its private bank is ranked sixth among those that operate in the Asia-Pacific.

Jack Wang, a partner at Raffles Investment in Singapore, said local banks would benefit in the rising interest rate environment, as interest margins continue widening in the next few quarters. Savings rates have hardly moved despite the increase in lending rates, he said.

He added that Singapore banks were also benefitting from fund flows from China, as seen from the 24% jump in DBS's assets under management last year.

Net profit for DBS rose 33% year-on-year in the October-December quarter to 1.22 billion Singapore dollars ($920 million), up from S$913 million in the same period last year.

The earnings, the highest the bank has achieved for a quarter, were roughly in line with analysts' forecasts.

For the full year, DBS's net profit came in at S$4.39 billion, an increase of 4% and a record for a calendar year.

The big surprise came in the form of higher dividends as the Singapore lender doubled its final payout to 60 Singapore cents and proposed a special dividend of 50 cents per share to mark its 50th anniversary. Gupta said the bank plans to pay a regular dividend of S$1.20 for the 2018 financial year, an increase from 93 cents in 2017.

Raffles Investment's Wang said the move would put pressure on smaller rivals Oversea-Chinese Banking Corp and United Overseas Bank to raise their dividends as well.

OCBC and UOB, Singapore's number two and three lenders, are scheduled to report fourth quarter earnings on February 14.

Shares of DBS were up around 4.9% around 4:00 pm Singapore time, while OCBC and UOB were up 1.2% and 0.9%, respectively.

At the media and analyst briefing, Gupta said DBS expects "low double-digit growth" in income for 2018.

"Despite the volatility in the market and the turbulence, the fundamentals of the global macro economy are very, very robust," he said.

In its earnings report, DBS said net interest income rose 15% on-year to S$2.10 billion in the three months to December as loans increased 11% in constant-currency terms. Meanwhile, net interest margins rose seven basis points to 1.78% in line with higher Singapore-dollar interest rates.

DBS halved its allowances for problem loans to S$225 million from S$462 million in last three months of 2016, while its non-performing loan ratio was unchanged from the previous quarter at 1.7%.

--Kevin Lim

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