DBS Group Profit Misses Forecast on Bad Debt Rise

Singapore's DBS Group, Southeast Asia's biggest bank, suffered a bigger-than-expected 40 percent drop in quarterly profit, hit by an increase in bad debt provisions.

A grim economic outlook is threatening earnings growth for most of Asia's banks this year as loan growth stutters, asset quality worsens and the cost of credit rises.

David Lum, banking analyst at Daiwa in Singapore, said higher provisions for non-performing loans (NPL) and lower fee income reported by DBS will continue in coming quarters and affect other banks as well.

"We are only at the start of the NPL-led and charge-off cycle," he said. "Asset quality will start to weigh down on earnings going forward, and I would not expect fees from investment banking to recover anytime soon."

DBS Chairman Koh Boon Hwee said in a statement that the bank was well placed to weather the uncertainties of 2009 after it bolstered its books with a S$4 billion rights issue.

October-December net profit fell to S$295 million ($195 million) from S$491 million a year ago. Analysts had estimated net profit of S$324 million, according to the average of six forecasts compiled by Reuters.

The bank took S$269 million impairments on bad debt, a rise of 48 percent, led by higher charges for loans made to private banking clients and smaller-and-medium sized businesses.

DBS, 28 percent-owned by state investor Temasek, recorded faster loan growth than the industry average in the last two years, but it now faces the risk of rising bad loans amid a deepening recession in its main markets, Singapore and Hong Kong.
     
Property Woes

A boom in Singapore's property sector, which ended last year, is also threatening to damage the banking industry as companies struggle to refinance debt.

Fitch Ratings expects the NPL ratio for Singapore banks to more than double to 3.5-4 percent by end-2009 from an historical low of 1.3 percent at end-September 2008.

Alfred Chan, associate director at Fitch, told Reuters before DBS' results that big corporate failures could prompt a further rise in bad debt. He noted property loans -- to developers, mortgages and construction firms -- make up half the total loans of Singapore's banks.

DBS said quarterly net interest income grew 5 percent to S$1.12 billion, but fee and commission income dropped 31 percent to S$263 million, amid faltering capital markets.

Loans grew 17 percent in the December quarter from a year earlier, slowing from 22 percent growth in the third quarter.

Full-year net profit fell 15 percent to S$1.93 billion from S$2.28 billion in 2007 and compared with analyst expectations of around S$1.95 billion.

DBS shares dropped 42 percent in October-December, more than the 23 percent drop in rival United Overseas Bank and a 30 percent fall in Oversea-Chinese Banking. The benchmark Straits Times Index lost 25 percent.

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