Thursday, 2 August 2012

DBS sees pressure on margins as Q2 profit beats forecasts

* Q2 net profit S$810 mln vs S$795 mln expected by analysts
* DBS sees some pressure on interest margins, especially in China
* Says committed to pursue Indonesia's Danamon deal
By Saeed Azhar
SINGAPORE, Aug 3 (Reuters) - Singapore bank DBS warned of pressure on interest margins, especially in China, and flagged risks to loan growth, even as it beat forecasts with a 10 percent rise in its second-quarter profit.
The warning mirrored comments by rival Oversea-Chinese Chinese Banking Corp as Singapore lenders brace for an Asian slowdown amid concerns that Europe's debt crisis could dampen business and trade activities in the region.
DBS, Southeast Asia's biggest lender, posted a net profit of S$810 million ($648 million) for April-June against S$735 million a year earlier.
The result was ahead of an average forecast of S$795 million, according to six analysts surveyed by Reuters, but below the first quarter's record S$933 million profit.
Analysts expect DBS to begin a formal regulatory application process for its planned $7.2 billion acquisition of Indonesia's Bank Danamon afterIndonesia came up with new rules to restrict ownership of banks, but allowed some exceptions.
DBS Chairman Peter Seah said in a statement the bank was committed to pursue the Danamon deal and would be fully guided by Bank Indonesia "at every step of the way".
Singapore state investor Temasek owns about 29 percent of DBS, but its stake would rise to 40 percent if the DBS-Bank Danamon deal goes ahead.
The results came after OCBC, Singapore's second-biggest bank, warned on Thursday that loan growth will slow and margins remain under pressure after it posted a better-than-expected rise in quarterly profit.
United Overseas Bank, the smallest of Singapore's top three lenders, will report earnings on Tuesday.
DBS's net interest income, or income from the core lending business, rose 10 percent to S$1.3 billion from a year earlier, as loans expanded by 22 percent. DBS' net interest margin, however, declined by 8 basis points from a year earlier to 1.80 percent in the second quarter.
"Loan pipeline remains healthy, although some headwinds likely," DBS said in its presentation notes. "Expect a little margin pressure, especially in China."
Net fee and commission income fell 2 percent from a year ago to S$379 million, on volatile markets. Bad-debt charges dropped 24 percent to S$104 million.
DBS shares are up about 28 percent so far this year, slightly below UOB's near 30 percent rise, but higher than OCBC's 21 percent jump. The benchmark Straits Times Index is up about 15 percent in 2012.

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