DBS profit sinks as bank tries to put bad loans behind it
Singapore: DBS Group Holdings Ltd chief executive officer Piyush Gupta was determined to put the pain of soured energy-industry loans behind him—even if it meant profit missing the lowest analyst estimate by a wide margin.
Southeast Asia’s largest bank on Monday said it boosted bad-loan allowances more than sixfold in the third quarter, resulting in a 23% drop in net income to S$822 million ($602 million). DBS shares slipped 0.8% in early Singapore trading.
The move “will enable investors to return their focus to our operating performance and digital agenda,” Gupta said in a statement.
Singapore banks have been struggling with rising provisions against the troubled regional oil and gas sector since Swiber Holdings Ltd filed for judicial management last year. Oversea-Chinese Banking Corp. and United Overseas Bank Ltd said in their quarterly reports that the energy-services industry remains under stress.
Over the longer term, investors may welcome the move to deal resolutely with the bad-loan issue, said Kevin Kwek, an analyst at Sanford C. Bernstein. “Upfront recognition of remaining asset quality strains will be preferred over stretching it out,” he said in an emailed reply to questions.
DBS was the last of Singapore’s big banks to report earnings and the only one to miss projections. Net income of S$822 million was well below the S$1.14 billion average of analyst estimates surveyed by Bloomberg. The lowest of those forecasts was S$1.05 billion.
Allowances for bad assets of S$1.66 billion compared with S$261 million in the year-earlier period.
Several local companies in the sector have either defaulted on loan repayments or sought debt restructuring after a prolonged weakness in oil prices. The problems have been exacerbated by falling collateral values for oil vessels.
DBS continued to boost income from wealth management, partly a result of its purchase of retail and wealth assets of Australia and New Zealand Banking Group Ltd in five Asian markets, announced last year. Net fee income rose 12% from a year earlier, led by growth in wealth management and investment banking fees, it said. Bloomberg
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