Singapore's DBS Group Holdings Ltd. expects its net interest margin (NIM) to ease over the rest of 2023 after a surge in its margin helped the Southeast Asian lender post a 43% year-over-year rise in first-quarter net income.
"I do think NIM probably peaked but I do think NIM decline will be very gradual. So overall for the year, we probably average somewhere between 2.05% and 2.10%," DBS Group CEO Piyush Gupta said during the bank's May 2 earnings results briefing.
DBS Group reported a net profit of S$2.57 billion for the first quarter ended March 31, up year over year from S$1.80 billion, as total income grew 34% to S$4.94 billion. The group's NIM for the quarter rose 66 basis points year over year to 2.12% from 1.46%.
The results beat the S&P Capital IQ first-quarter GAAP net income consensus mean estimate of S$2.32 billion, with three analysts reporting. The consensus mean estimate for gross margin was 2.11%.
Singapore's central bank was among the first in the Asia-Pacific region to start tightening its monetary policy as inflation became the prime concern for authorities toward the end of 2021. Central banks in other Asian geographies where DBS Group has substantial business have raised interest rates to counter inflationary pressures. However, several central banks have indicated recently that they may be nearing the end of their tightening cycles as high interest rates begin to drag on economic growth.
Peak margins
The interest rate hike cycle is "pretty much done," Gupta said in response to a question on why he believes NIM will decline. He added that while a decline in interest rates is not expected, deposit repricing will continue, which will gradually raise the cost of funding.
"While Singapore banks could see a further rise in NIMs and net interest income from a year ago, the pace of margin expansion should moderate with rising deposit costs," OCBC Investment Research said in a May 2 note on DBS Group.
Looking ahead, DBS Group forecast loan growth of 3% to 5% and noted that housing loan bookings have recovered. Fee income growth is expected at a high single digit as wealth management and investment banking recovers, while return on equity is forecast at above 17% for the full year.
"We think net interest margins, while peaked, should see only a slow decline providing further interest income support despite lower loan growth," Thilan Wickramasinghe, head of research at Maybank Securities, told S&P Global Market Intelligence via email.
"Singapore banks have held up relatively well despite the March global banks turmoil triggered by US small banks' failures, which in our view reflects investors' relative comfort with the sector's solid capital, liquidity ratios and risk management standards," OCBC said in its report. "Risks to monitor ahead include the impact of increased macroeconomic uncertainties globally on interest rates, income generation, credit demand and asset quality trends," the report added.
