DBS Group is poised to benefit from Singapore's rising domestic interest rates, CEO, Piyush Gupta, told CNBC after the bank reported its first-quarter net profit climbed 10 percent on year, beating expectations.
"We did not see anywhere near the full range of benefits [of higher rates] in the first quarter," said Gupta said. "We did not see any benefits from the loans linked to Sibor (Singapore Interbank Offered Rate). Most of that will accrue only in the second quarter."
Sibor is Singapore's domestic interest rate and a benchmark used for lenders involved in Asian financial markets; the three-month rate has risen to 0.89 percent from around 0.46 percent at the end of 2014.
As a result of the increase, DBS will continue to see notable improvements in the net interest margin, Gupta said. Net interest margin, or NIM, excluding one-time items, was 1.69 percentage-points for the quarter, up from 1.66 percentage-points a year earlier.
DBS's net profit in the first quarter was 1.13 billion Singapore dollars ($850 million), driven mostly by strong 11 percent loan growth and wealth management fees ; analysts had expected earnings around 1.03 billion Singapore dollars, according to a Reuters poll.
China's "double-edged sword"
China's easing measures to help spur its slowing economy have been a "double-edged sword" for DBS, Gupta told CNBC.
"It does help in the volumes of our business, for example in the property side of the market," said Gupta. "On the other hand, it creates some challenges on the net interest margin that puts a squeeze on our domestic onshore rates."
China trade-related loans, a key driver of DBS's growth strategy, were down S$7 billion from the previous quarter. However, the broader suite of activities continue to look robust, said Gupta, with the deal base income coming from Chinese firms accessing capital markets through DBS, as well as the treasury and hedging activities with Chinese corporations onshore, Gupta said.
"They're getting 29 percent of their business out of Greater China," said Lachlan Colquhon, chief executive at East and Partners Asia. "But if they want more, then that exposes them to greater risks."
- CNBC's Leslie Shaffer contributed to this article