DBS Group has forecast its annual profit before allowances at around last year’s levels, but set aside record-high quarterly provisions owing to the coronavirus pandemic, which pulled down profit by 29 per cent.
South-east Asia’s largest lender retained its quarterly dividend after reporting a 20 per cent rise in profit before allowances on a 13 per cent jump in total income in the three months to March 31.
The Singapore-based bank joined global lenders in provisioning higher credit losses to guard against the fallout from the crisis that has damaged the global economy.
Chief executive Piyush Gupta said yesterday that a strong start to the year will help cushion the effects of the slowdown in the later months.
“The fact that we have a strong start to the year is very helpful because that gives us a cushion, a head start for the full year. We grew income by about $500 million in the first quarter, and as we see right now… we might be able to come in flat for the whole year,” he said.
Net income fell 29 per cent to $1.17 billion in the three months ended March 31 from $1.65 billion a year earlier, the bank said yesterday. That compares with the $1.19 billion average estimate of six analysts surveyed by Bloomberg.
DBS last posted a quarterly profit decline in the third quarter of 2017.
The bank maintained its proposed dividend at 33 cents for the first quarter.
Allowances for loan losses surged to $1.09 billion in the January-to-March period from $76 million a year earlier. They were well above an average estimate of $605 million, according to Refinitiv data.
DBS said it set aside the allowances “to accelerate the build-up of reserves”, with two-thirds of the amount kept for general allowances to anticipate a “deeper and more prolonged economic impact from the pandemic”.
The remainder was for specific allowances, mainly for new exposures recognised as non-performing during the quarter.
The bank’s oil-and-gas lending portfolio, at $23 billion, makes up its single largest loan exposure to impacted industries made vulnerable by the pandemic.
For instance, the specific provision of $383 million taken by DBS reflects one loan to an oil trader that was recognised as a non-performing asset in the quarter. It did not identify the oil trader.
Of the total $5 billion in loans to oil traders, 50 per cent is backed by bank letters of credit. The bank also lends to global traders or state-owned companies.
In its lending to support services, three-quarters of its exposure – $3 billion out of $4 billion – has been recognised as non-performing assets. The bank expects to take further specific provisions on its exposure to support services.
It has a $7 billion loan exposure to oil producers, mainly to oil majors and state-owned companies, the bank said.
Before allowances, DBS’ profit rose 20 per cent to a record $2.47 billion, with total income up 13 per cent from loan growth, stronger fee income and higher investment gains.
Its net interest income grew as key interest rates were resilient despite the United States Federal Reserve’s rate cut in March.
But Mr Gupta noted that net interest margins are expected to weaken.
In the housing segment, DBS said its mortgage book stood at $75 billion in total, with minimal losses expected. Close to 8,000 mortgage principal and interest payment applications have been deferred, representing $4.7 billion in loans outstanding.
The bank group sees no retrenchments or pay cuts, but will be hiring judiciously in this financial year.