DBS Group Holdings Ltd. expects its net interest margin to further rise from second-quarter levels, setting Southeast Asia's biggest bank by assets on the path to another record year of income.
Singapore-based DBS reported a 48% year-over-year increase in net profit for the three months to March 31 and said the outlook for net interest margin (NIM), a key indicator of a bank's profitability and growth, has improved after an unexpected rate increase by the US Federal Reserve and a rise in the Hong Kong interbank offered rate in July.
"When we spoke the last time we sort of figured the rates were topping out and since then the Fed has actually had hikes that we've not taken into account," Piyush Gupta, the bank's CEO, said during a post-earnings call. Looking ahead, the CEO expects NIM to be "a couple of basis points upside from the second quarter."
NIM in the second quarter rose to 2.16% from 2.12% in the first quarter and 1.58% in the April-June period of 2022. It marked the sixth consecutive quarter of NIM gains for the company.
Fresh peak
Gupta expects 2023 to be a record year for the bank, ascribing to its many engines of growth and how high interest rates help the business. He said in May that NIMs may have peaked and were expected to average between 2.05% and 2.10% this year.
The US Federal Reserve, however, raised its key interest rate by 25 basis points to between 5.25% and 5.5% in July, the highest level the upper bound of the rate has been in 22 years. S&P Global Market Intelligence's previous estimates showed that margins at Southeast Asia's largest banks may plateau before eventually declining in 2024.
"DBS continues to be very highly correlated to the interest rate cycle," Gupta said.
DBS Group reported a record net profit of S$2.69 billion in the April-June period, compared with S$1.82 billion a year ago. The results beat the S&P Capital IQ second-quarter GAAP net income consensus mean estimate of S$2.41 billion, with five analysts reporting. For the first half, net profit rose 45% year over year to S$5.26 billion.
"This is a set of highly compelling results. We anticipated DBS to print stronger NIM trends than peers in our preview, and the bank delivered more than that," Jefferies Group said in a note. The US investment bank flagged a decline in loans and deposits along with higher costs among the negatives in the earnings report.
DBS expects continued momentum in its wealth management division, including from net new money inflows of S$12 billion in the first half. The bank said commercial book net fee income rose 1% to S$1.67 billion, while wealth management fees were stable at S$742 million, as a decline of 11% in the first quarter was offset by a 12% increase in the second quarter.
The bank announced a dividend payout of 48 Singapore cents per share for the second quarter, taking the total dividend in the first half to 90 cents, compared with 72 cents a year ago.
