DBS Group, Southeast Asia's biggest lender, on Friday exceeded expectations by posting an 11 percent rise in quarterly profit on strong loan growth, despite taking a small hit from credit market turmoil.
The Singapore-based bank, in which state investor Temasek Holdings has a 28 percent stake, posted a net profit of S$610 million for its third quarter from July to September, compared with S$552 million a year ago and against an average forecast of S$481 million from five analysts polled by Reuters.
The bank set aside S$70 million for its exposure to U.S. subprime mortgage debt, marked down S$42 million against its exposure to an investment vehicle that invests in risky debt derivatives and took a S$38 million charge on its stake in Thailand's TMB Bank.
The writedowns and mark-to-market losses were below market expectations since four analysts had forecast an average S$125 million in writedowns alone.
Core earnings beat market expectations due to strong loan growth and higher fee income, led by its key Singapore market where the economy is booming and which accounts for about two-thirds of its profit.
Excluding the impairment charge on TMB, the net profit was up 17 percent to S$648 million, the bank said.
"Results for the quarter were reassuring despite turbulence in the global credit markets," said Chief Executive Jackson Tai, who leaves his job towards the end of the year.
Forecasts had varied widely depending on estimates of trading losses and lower income from fees. BNP Paribas had expected DBS to report a 7.6 percent decline in quarterly profit from a year earlier, but UBS had forecast a 35 percent drop in profit.
DBS had $1.6 billion of holdings in collateralised debt obligations including $188 million exposure to U.S. subprime mortgages.
Its shares were hit hard in August after it said its exposure to CDOs was almost double what it had initially declared after it had to inject cash into a special-purpose vehicle that invests in CDOs.
This was the second straight quarter of write-downs for the bank after it took an impairment on the value of its 16 percent stake in Thailand's TMB Bank in the second quarter.
Despite the setback, lending grew 23 percent in the third quarter from a year ago, underpinned by Singapore's property boom and a recovering construction sector.
On the revenue side, interest income for the quarter rose 15 percent to S$1.05 billion from a year ago, while net fee income rose 38 percent to S$403 million.
DBS opened the quarterly reporting season for Singapore's banks and is due to be followed by United Overseas Bank on Oct 30 and Oversea-Chinese Banking Corp on Nov 6.
DBS shares have lagged its rivals because of its exposure to the credit crisis.
Shares of DBS fell 5.3 percent in the third quarter, while Oversea-Chinese Banking Corp dropped 2.7 percent.
United Overseas Bank, which has benefited from Singapore's property boom, rose 0.5 percent in the quarter.
DBS derives about one-third of its earnings from Hong Kong, where it has around a third of its assets. The bank is also in the process of building up its China operation.