Singapore's DBS bank posts 29% fall in first-quarter net profit; shares jump 4%

• DBS said on Thursday that its first-quarter net profit fell 29% year-over-year to 1.17 billion Singapore dollars ($829.2 million) in January-March this year.
• The fall in earnings was a result of the Singaporean bank setting aside 1.09 billion Singapore dollars ($772.5 million) to cover potential losses from the coronavirus pandemic.
• DBS said two-thirds of that money were for "general allowances to anticipate a deeper and more prolonged economic impact from the pandemic," while the remaining was mainly "for new exposures recognised as non-performing during the quarter."
• Piyush Gupta, chief executive of DBS, warned that margins could "drop off quite sharply" in the second quarter.

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Southeast Asia's largest bank, DBS, on Thursday said it set aside 1.09 billion Singapore dollars ($772.5 million) to cover potential losses from the coronavirus pandemic — which resulted in a 29% year-over-year fall in net profit in the first quarter. 

The Singaporean bank's net profit fell to 1.17 billion Singapore dollars ($829.2 million) in January-March this year, down from 1.65 billion Singapore dollars ($1.17 billion) in the same period last year.

Unlike many banks around the world which have held back dividend payouts, DBS said its board has declared an interim dividend of 33 Singapore cents ($0.23) per share. The bank's shares jumped more than 4% after the earnings release. 

Here are the other financial metrics from the bank that investors were looking out for: 

• Total income was up by 13% year-over-year to 4.03 billion Singapore dollars ($2.86 billion)
• Net interest margin, a measure of lending profitability, was at 1.86% — 2 basis points lower than the first quarter of last year 
• Non-performing loans inched up slightly to 1.6% of total outstanding loans from 1.5% in the first quarter of 2019

Piyush Gupta, chief executive of DBS, warned that margins could "drop off quite sharply" in the second quarter by another 8 to 10 basis points.

"The biggest headwind we have obviously is the interest rate. The big cuts by the Fed (will) eventually trickle through and to our interest rate environment and that's likely to produce the biggest headwind for us in the course of this year," he told CNBC's "Capital Connection."

He added that some damage would also come from industries that have been hit hard since the coronavirus outbreak, including aviation as well as oil and gas. That's why the bank has decided to shore up its reserves for losses that could come in the months ahead.

Troubles in the oil and gas sector

Out of the 1.09 billion Singapore dollars ($772.5 million) that DBS has set aside, two-thirds — or around 703 million Singapore dollars ($498.2 million) — were for "general allowances to anticipate a deeper and more prolonged economic impact from the pandemic."

The remaining amount of 383 million Singapore dollars ($271.4 million) was mainly "for new exposures recognised as non-performing during the quarter."

The bank said that it has around 23 billion Singapore dollars ($16.31 billion) of outstanding loans in the oil and gas sector. One loan involving an oil trader was recognized as non performing — which means the borrower is overdue on payments — in the last quarter, according to the bank. 

While it didn't specify any names, DBS was reportedly among the 23 lenders that troubled Singaporean oil trader Hin Leong owed money to. Various media and analyst reports had put DBS' exposure to Hin Leong at around $290 million.

Gupta said the bulk of the bank's oil and gas loan portfolio, which is made up of global majors and state firms, would be "okay" even if oil prices remain at $15 to $20 per barrel.   

Singapore's economy could shrink 6%

DBS kicks off earnings reporting season for Singapore-listed banks. Its smaller peers United Overseas Bank and Oversea-Chinese Banking Corp will release their first-quarter earnings next Wednesday and Friday, respectively. 

The banks' earnings reports come as the outlook for Singapore's economy dims following lockdown measures domestically and overseas to contain the virus outbreak. All that has brought much of global economic activity to a standstill.

Singapore, where the government response to the pandemic was once hailed as a model for others to follow, has reported one of highest numbers of coronavirus cases in Asia. As of Wednesday, the country has confirmed 15,641 infections — the vast majority of which involved migrant workers living in packed dormitories, according to the Ministry of Health.

Gupta predicted that the Singapore economy could shrink by close to 6% for the full year of 2020.

"Because we're an open economy, we get buffeted by slowdown in every parts of the world," he said. "I think there's broad scale of slowdown (in Singapore). There are some pockets of growth but I think it will be late this year before you start seeing any turnaround."