DBS Group Holdings Ltd. is eyeing S$10 billion in net profit in 2023 after Southeast Asia's biggest bank by assets reported another quarter of record earnings, helped by improved margins and asset quality.
The banking group's net profit in the 2022 fourth quarter rose 69% year over year to S$2.34 billion, taking the full-year total to S$8.19 billion, up from S$6.80 billion in the previous year. The Singapore-headquartered bank reported a record quarterly net profit in each quarter of 2022. The fourth quarter results beat the S&P Capital IQ consensus net income estimate of S$2.20 billion.
"We have a shot at it," Piyush Gupta, the bank's CEO, said at a post-earnings call Feb. 13, referring to the possibility of reaching S$10 billion in net profit in 2023. Still, he tempered his comments by saying: "There's a lot of uncertainty in the environment ... Whether we get a $10 billion hand on the bottom line, it depends on some of the moving parts." The CEO said loan growth is robust and flagged the currency translation effects of the Singapore dollar's strength on the bank's 2023 earnings outlook.
The bank's net interest margin for the fourth quarter increased to 2.05% from 1.43% in the prior-year quarter, helped by rising interest rates. Nonperforming loans fell to 1.1% as of the end of 2022 from 1.3% in the same period the prior year. After global central banks aggressively tightened monetary policy through most of 2022 to check surging inflation, the pace of rate increases is slacking. That may crimp additional NIM improvements for banks, and the higher rates could raise funding and asset quality concerns.
Rising interest rates
"Continued rate hikes by the Fed and regional central banks should support further NIM growth," Thilan Wickramasinghe, head of research for Singapore and head of regional financials, Maybank Securities Singapore, told S&P Global Market Intelligence in an email. "However, we expect the momentum to slow as funding costs accelerate."
Wickramasinghe is cautious on market resilience given high interest rates and slowing global growth. Still, China's reopening is a tailwind.
"We expect provisioning costs to rise going forward, particularly specific provisions," Wickramasinghe said. "DBS' strong management overlay on general provisions gives some downside support."
DBS reported specific allowances of S$74 million for the fourth quarter of 2022, while there was a general allowance write-back of S$116 million due to transfers to NPA, upgrades and repayments. For the 2022 full year, total allowances rose to S$237 million from S$52 million in the prior-year period due to higher general allowances.
The banking group expects loans to grow by mid-single digits in 2023, while fee incomes could rise faster as China's border reopening helps the region.
Gupta said loan growth is slowing, as previously guided by the bank. "We've already started seeing it. And those did come off," Gupta said. "The reason for that is quite simple; ... if you have to pay based on a 4.5% interest rate, then you find ways to pay down your loans or find cheaper sources of borrowing."
As of Feb. 10, US$1 was equivalent to S$1.33.
