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Banking & Finance

DBS remains confident despite slowing economy, competition

Investment in technology to help as digital banks enter

  © Reuters

SINGAPORE (Nikkei Markets) -- Despite a sharp slowdown in Singapore's economy and the emergence of digital competitors, DBS Group Holdings, Southeast Asia's largest lender, said it remained confident about prospects even as it beat expectations with its quarterly results.

"I don't think the rest of the year will be as bad as the second quarter," CEO Piyush Gupta said at a results briefing. He cited signs of a pickup in the global economy toward the end of June following the G-20 meeting in Japan when the U.S. and China agreed to a sort of a truce in their ongoing trade war.

While economic uncertainty and geopolitical tensions have increased globally, Asia would continue to grow, he added.

"A slow Asia is still a positive Asia... If the economy is growing at 4.5% to 5%, you should expect overall growth in the financial system," he said.

Earlier in the day, the bank, the first of the three dominant lenders in Singapore to announce results, posted a 17% rise in second-quarter net profit to 1.6 billion Singapore dollars ($1.17 billion) as loans and interest margins grew while fee income hit a record. The results were better than the consensus estimate of S$1.47 billion in a Refinitiv poll.

For the first six months of this year, the bank's net profit rose 12% to a record S$3.25 billion.

DBS maintained its guidance for loans to grow this year by a mid-single-digit percentage and income to increase by a high-single-digit.

The bank's results come amid increasingly somber local data. Singapore's economy grew by just 0.1% in the second quarter from a year ago, the slowest pace since the end of the global financial crisis, as manufacturing and exports contracted sharply. Financial services continued to be one of the economy's better performers, although the landscape could change following the central bank's decision to issue up to five new digital banking licenses.

Referring to the challenges that could arise from digital competitors, Gupta said Singapore banks have invested heavily in technology over the past three to four years and consumers in the city-state enjoy a wide range of online services such as instant payments, transfers and even card and loan applications.

Turning to Hong Kong, Gupta said DBS has not encountered any significant flows of funds from the former British territory despite widespread protests over the past two months.

DBS, whose biggest shareholder is Singapore state investor Temasek, has a large presence in Singapore and Hong Kong and is active in several other markets including China, India and Indonesia. DBS Private Bank, which provides wealth management services to Asia's rich, is among the biggest in the region.

While there have been more enquiries about shifting funds from Hong Kong to Singapore, such flows may not actually take place, Gupta said.

"Hong Kong has a very credible financial system, so if it happens, it will be a slow move," he added.

As for DBS's digital banking units in India and Indonesia, Gupta said revenues are on track with projections although the operations may continue to lose money for another two to three years.

In an earlier statement accompanying its results, DBS said net interest income, which is interest income excluding the interest paid on deposits, increased 9% from a year ago to S$2.43 billion as loans grew 5% in constant-currency terms. Net interest margin improved six basis points to 1.91%.

Compared to the previous quarter, net interest margin rose three basis points.

However, this margin could narrow in the second half of this year in line with expectations of two cuts by the U.S. Federal Reserve to its benchmark interest rate, Gupta said.

Net fee income rose 9% on year to a record high of S$767 million, DBS added, as wealth management fees grew 11% to S$332 million from higher investment product sales.

Investment banking fees rose 44% aided by higher debt and equity capital market income, while trading income increased 57% from a weak year-ago performance. Gains on investment securities quadrupled from a low base to S$131 million.

--Kevin Lim

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