SINGAPORE -- The three top banks in Singapore posted net profit growth for the April-June quarter, driven by strength in both lending and fee income.
DBS Group Holdings, the biggest player in the country, on Friday announced an 8% year-on-year profit jump for the period, wrapping up a benign earnings season for lenders of the city-state. DBS recorded the largest net profit in value among the three banks, at 1.13 billion Singapore dollars ($830 million), despite a relatively flat topline increase, as its loss provision declined by 17% from a year ago.
Expenses fell 1% to S$1.26 billion, giving additional support to the bottom line. Digitization of various aspects of operation helped DBS cut costs, according to CEO Piyush Gupta. The cost-to-income ratio decreased to 43.4% from 44% a year ago, and Gupta said it can be brought down to 40% in the next three to four years, with further migration of services from human-based to online.
Net interest income for the state-linked bank advanced 3% on the year, on 6% improvement in its loan balance, while fee and commission income gained 1%. Trading income, however, slumped 13%, limiting total income growth to 0.2% from a year ago.
But DBS' performance was less impressive than that of No. 2 lender Oversea-Chinese Banking Corp., which last month reported a 22% leap in its bottom line to S$1.08 billion, fueled by a strong contribution from its insurance and wealth management businesses. United Overseas Bank, the smallest of the three banks, announced a 6% upturn in net profit to S$845 million last Friday.
All three banks recorded positive growth in interest income despite narrower margins -- the difference between the interest the lenders earn and their cost of funds -- thanks to the broad-based expansion in loan volume.
Non-performing loan ratios seem to have stabilized. Only DBS recorded a higher ratio: 1.5%, up from from 1.4% in the quarter ended March. For Oversea-Chinese and United Overseas, the ratios were just about flat from March-end, at 1.3% and 1.5%, respectively.
But the oil-and-gas-support industry continues to be a cause of concern for Singapore's banks. "I would not say that in the oil and gas sector, recovery is already on the way," Oversea-Chinese CEO Samuel Tsien told reporters last week, as the low price of oil continues to drain demand for the sector. DBS' Gupta said the bank will have to build up more loan-loss provisions for the rest of the year -- and possibly next year as well -- if the value of loan collaterals weakens further. The three banks have conservatively provided for the weak loans, with allowance coverage ratios higher than 100% for total non-performing assets.