Singapore: The new chief of Singapore’s DBS Group plans to earn more from Southeast Asia and India by broadening consumer and private banking services, even as analysts raised concerns about the bank’s latest quarterly earnings boost.
In his first news briefing since taking over at southeast Asia’s largest bank late last year, Piyush Gupta, outlined plans to shift the bank’s focus, with southeast and south Asia to account for 30% of revenue in five years, with the same coming from greater China, while Singapore’s share would drop to 40% from 60%.
Analysts had earlier said Gupta’s plans would be key in driving the outlook for DBS, which is 28% owned by state investor Temasek.
“For the first time in a decade, DBS has a credible strategy in our view,” said Sanjay Jain, who heads research on Asian financials for Credit Suisse in Singapore.
“It may not be very different from the path many others have taken (and many have failed), but it’s a good start and half the job is done.”
DBS ambitions to build a business beyond its domestic borders have proved elusive in the past due to its reluctance to pay a rich premium for deals and its small presence in Indonesia and India. Last year, Greater China, primarily Hong Kong, accounted for 27% of revenues, and southeast Asia-south Asia just 7.5%.
The bank has not been able to build a significant foothold in China, unlike rivals which have bought stakes in domestic lenders there. Greater China outside Hong Kong accounts for only 6% of its income.
“Unlike its two major peers, DBS doesn’t have sizeable operations in the fast-growing emerging markets and its outlook largely hinges on the mature economies of Singapore and Hong Kong, which make it less capital-efficient,” Todd Dunivant, head of banking research at HSBC, said in a note.
DBS reported a forecast-beating 67% rise in quarterly profit as fee income surged, it dodged larger losses on its exposure to Dubai World and gained from a tax writeback.
Gupta, the former Southeast Asia head at Citigroup, said DBS would try to build its existing businesses in Taiwan and Indonesia and broaden consumer banking services in India and China, while focusing on large Asian corporates and the rich.
DBS shares closed 1.1% lower at S$14.04, while the benchmark Singapore market lost 2.2%.
Clouded By Dubai
The bank’s fourth quarter was clouded by its exposure to a unit of Dubai World, which is trying to restructure some $22 billion in debt repayments.
Gupta said the Dubai World loan had been classed as non-performing, but Dubai World was still servicing its debt and he was hopeful of a positive outcome to debt talks.
“We have chosen to be conservative and taken some provisions,” he said.
DBS took S$384 million in bad debt charges, but did not specify how much of that was from loans linked to Dubai World. Overall non-performing loans (NPL) jumped 43% from S$269 million a year earlier.
October-December net profit was S$493 million ($348 million) versus S$295 million a year ago, the bank’s second straight quarter of earnings growth. The bank’s year-ago performance, hit by the global crisis, was its worst quarter in three years.
Analysts were mostly unimpressed with the result because of the jump in bad debt charges and the boost to earnings from a S$47 million tax writeback.
“Bottom line is all a tax adjustment,” said Morgan Stanley’s Matthew Wilson.
Analysts had forecast net profit of S$372 million, factoring in big losses from DBS’s exposure to the Dubai World unit, according to the average of five forecasts in a Reuters survey.
The outlook for Singapore banks in 2010 has improved on the back of an economic rebound in Asia, feverish capital market activity and a likely decline in bad debt charges.
DBS shares have fallen about 7.8% so far this year, less than rival Oversea-Chinese Banking Corp’s 9.2% drop but more than a 6.4% fall in United Overseas Bank stock.