DBS Group Holdings did better than expected in its day-to-day banking business in the second quarter amid strong loans growth.
But its net profit suffered a 7 per cent drop to $560 million after it took a one-time charge related to a fall in the value of its stake in Thai Military Bank (TMB).
Excluding one-off items, South-east Asia's largest bank saw profits rise 21 per cent to $664 million for the three months ended June 30, lifted by strong loans and fee growth.
Last week, TMB suffered a quarterly loss owing to massive bad-debt provisions. DBS booked a $159 million charge to reflect the declining value of its 16 per cent TMB stake. This was partially offset by an unrelated one-off $55 million gain.
DBS chief executive Jackson Tai noted at a press conference yesterday that the bank had 'another strong quarter', setting 'new records in net earnings and customer loans'.
The bank was able to shift towards more 'lower-cost savings and current account deposits', from higher-cost fixed deposits, while expanding its loans books, he said.
This helped the bank to maintain net interest margins at the 2.21 per cent posted in the previous quarter despite declining interest rates.
Net interest income - the difference between interest paid and interest earned - crossed the $1 billion mark for the first time. It rose 14 per cent to $1.03 billion, driven by a 19 per cent rise in customer loans to $99 billion.
Besides corporate and other business lending, mortgages also picked up. Singapore housing loans grew 14 per cent from a year ago, while lending to Singapore small and medium-sized enterprises (SMEs) grew 17 per cent.
Mr Tai said he was 'not too worried about DBS' exposure' to the property market, and said the bank had been taking a 'stringent view' on credit quality and had 'avoided any concentration' in a single development or district.
Mr Edmund Koh, DBS' head of regional consumer banking, also said there had been 'an increase in foreigners taking up loans, from 5.6 per cent of the total new loans book last year to 7.8 per cent for the year to date'.
Meanwhile, DBS' net fee income surged 25 per cent to $371 million, supported by growth in stockbroking, credit card and wealth management.
DBS, which opened the quarterly reporting season for Singapore banks, released its results before trading started yesterday.
The share price fell 30 cents to $22.40, amid a regional downturn.
Asian markets were spooked by the sell-down on Wall Street the night before, on concerns about the unravelling of the mortgage market for borrowers with poor credit histories.
In response to queries, Mr Tai said that DBS has no material exposure to these sub-prime mortgages.
DBS is aggressively growing its China unit's operations with plans to hire and train 600 to 800 new local staff and open at least 30 to 40 'integrated retail and SME branches', said Mr Frank Wong, DBS' chief operating officer.
DBS is also 'looking for a local joint venture partner' so that it can apply for a 'securities licence'. This licence allows foreign banks to underwrite bonds and initial public offerings in China.
DBS' China operations are already profitable, while its subsidiary, the Islamic Bank of Asia, which has been operating for two months, 'is about to break even', added Mr Tai.
