DBS Q2 net profit up 8% to $1.14 billion
But biggest local bank warns of asset quality pressures on O&G service players
DBS Group is enjoying strong growth momentum in its key businesses, but asset quality pressures will continue in its oil and gas loan book, chief executive Piyush Gupta said yesterday.
The oil and gas sector, particularly companies doing support services, has led to higher non-performing loans in recent quarters as weak oil prices have hit industry players hard.
"The sector continues to stay challenged," Mr Gupta said.
Even for firms servicing oil producers, "contracts are picking up somewhat, but the oil and gas service players don't have pricing power", he added.
"So they have been able to get short-term contracts, but they have not been able to price up, and the prices they are getting on the contracts right now are barely able to cover operation expenditure. So it is hard for them to cover interest payments," he said.
The non-performing loan rate rose to 1.5 per cent in the second quarter from 1.1 per cent in the same period a year ago. The amount of non-performing assets stood at $4.83 billion, up from $3.05 billion a year before.
Specific allowances amounted to $304 million for the second quarter.
Mr Gupta noted that DBS may have to make more specific allowances on the ships that are currently non-performing.
"It would be no more than another $300 million, and a lot of that could happen next year, but it depends on negotiations and when we actually sell the ships," he said.
... the prices they are getting on the contracts right now are barely able to cover operation expenditure. DBs chief executive Piyush Gupta on firms servicing oil producers
Mr Gupta was speaking at a media briefing on DBS' second-quarter results. Singapore's biggest lender reported that second-quarter net profit rose 8 per cent from the same period a year ago to $1.14 billion.
Total income barely changed from a year ago at $2.92 billion, as higher net interest income was offset by the impact of lower trading, investment and fixed asset gains.
Net interest income rose 3 per cent from a year ago to $1.89 billion. Loan growth of 6 per cent offset the impact of a 13-basis-point decline in net interest margin to 1.74 per cent.
Net fee income rose 1 per cent to $636 million, while other non-interest income fell 13 per cent to $400 million from lower trading income and gains on investment securities, as well as an absence of gains on fixed assets.
Business momentum is strong, Mr Gupta said, with new bookings of mortgages rising in the second quarter to the highest level in five years and asset under management (AUM) in its wealth business increasing 16 per cent from a year ago to $175 billion.
Once the acquired business from ANZ is integrated with DBS, another $20 billion of AUM will be added to the pool, he added.
Earnings per share was $1.76 for the second quarter, up from $1.67 a year ago, while net book value per share was $17.49, up from $16.48 a year ago.
DBS has declared an interim dividend of 33 cents a share for the first half. It is the last of Singapore's three lenders to report second-quarter numbers.
Last week, OCBC Bank said net profit jumped 22 per cent from a year earlier to $1.08 billion as its banking, wealth management and insurance operations delivered a strong performance.
United Overseas Bank then reported that net earnings for the second quarter rose 5.5 per cent to $845 million from selling more loans at higher margins.