The chief executive of Southeast Asia’s largest bank by assets, DBS Group (DBSM.SI), which has seen its net interest margins reach record highs for the decade on rising interest rates, expects rates to moderate.
Like their international counterparts, Singapore lenders are benefiting from higher interest rates, but economists warned that as the cycle peaks and the economy begins to slow, rising bank profits may be restrained.
Although he doesn’t anticipate rate reductions this year, DBS Chief Executive Piyush Gupta stated at a news conference on Monday that he expects U.S. interest rate increases to moderate.
Gupta stated that the group’s peak net interest margin projection of 2.25% was subject to a negative risk of 5 to 7 basis points because of things like inflows to treasury bills and a strengthening Singapore dollar.
He claimed that asset quality was strong and the business pipeline was still solid. “Nobody anticipated China’s opening up to be as quick and seamless as it was. From there, you will experience some tailwinds “Gupta stated.
Due to a substantial improvement in net interest margins, DBS announced a stronger-than-anticipated 68% gain in quarterly earnings. The company also maintained its mid-single-digit loan growth forecast for the entire year.
The lender announced a special dividend of 50 Singapore cents per share, with Singapore and Hong Kong accounting for the majority of its profits. DBS last distributed a special divided in 2017.
According to Refinitiv data, DBS, the first Singaporean bank to report this quarter, stated its October-December net profit increased to a record S$2.34 billion ($1.76 billion), exceeding the three analysts’ combined average expectation of S$2.16 billion.
However, DBS shares declined 1.6% on Monday amid a weaker overall market (.STI).
“The underlying results are mixed, with lower pre-provision operating profit than anticipated partially offset by lower credit expenses. It’s unclear that updated guidance will result in further gains in forward earnings “In a note, analysts at Jefferies stated.
A crucial indicator of profitability, total net interest margin, was 2.05% for the most recent quarter, up from 1.43% in the same period a year earlier, according to DBS.
An early recovery in the city-pandemic-damaged state’s economy last year helped Singapore banks, which are among the best capitalized in the world, set records for the full year.
The DBS annual earnings reached a record high of S$8.2 billion, up 20%. The next week’s reports from smaller competitors OCBC (OCBC.SI) and UOB (OCBC.SI) are projected to show a substantial increase in annual profits, but quarter-over-quarter earnings are anticipated to be level to slightly lower.
Since late October, when Singapore’s major market index (.STI) dropped to 20-month lows, the banks’ shares have increased by 8% to 16%. Since then, the gauge has increased by 12%.
According to Gupta, DBS is exposed to the Adani Group of Companies in India to the tune of S$1.3 billion, S$1 billion of which was used to finance Adani’s $10.5 billion purchase of Holcim’s (HOLN.S) cement business in India last year.
In a report published on January 24, the New York-based short-seller Hindenburg Research charged the Adani Group with stock manipulation and inappropriate use of offshore tax havens, both of which it said concealed the size of Adani family stock ownership in group companies.
The value of the conglomerate’s seven publicly traded companies has since been reduced by $110 billion, notwithstanding its denial of any wrongdoing.
In reference to the cement industry, Gupta remarked, “They’re stable cash generating enterprises therefore we’re not concerned about the risk.” The foundation is secured.
$1 is equal to 1.3325 Singapore dollars