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DBS Group expects virus outbreak to cut 2020 revenue by 1%-2%

DBS Group Holdings Ltd. expects the novel coronavirus outbreak to cut its revenue by 1% to 2% in 2020, citing reduced consumer spending and lower demand for its treasury business, CEO Piyush Gupta said.

The bank, however, retained its full-year guidance that was announced in the third quarter of 2019, with revenue and profit expected at single-digit growth. Loans are expected to grow in the mid-single-digit rate this year. As recently as the first half of January, "we were seeing very clear green shoots," Gupta said at an earnings briefing on Feb. 13, pointing to improvement in producer price index numbers and exports.

DBS, which reported a 14% increase in its net profit excluding one-time items at S$6.39 billion in 2019, said its base case expectation is that the impact of the virus on its business would be felt over one quarter and the hit on revenue will be between S$100 million and S$150 million.

"Base case is that consistent with most research, the virus should start coming under control and die down once we get to the summer months," Gupta said, drawing a parallel with the Severe Acute Respiratory Syndrome, or SARS, outbreak of 2003.

The biggest bank in Southeast Asia by assets plans to offer a six-month moratorium on principal repayments by some segments of customers in Singapore and Hong Kong, Gupta said, adding that details will be announced later. It is also planning to announce measures for working capital, he added.

"We're actually trying to see what more we can do, recognizing that both our customers and the community at large will be anxious, and perhaps in the case of our customers, financially stretched," Gupta said.

Other lenders in Singapore and Hong Kong are taking similar measures, including relief on mortgages or credit cards, to help clients affected by the virus outbreak, which has hit economies across Asia and killed more than 1,350 people.

Singapore's United Overseas Bank Ltd. said Feb. 12 that it has allocated S$3 billion for its Singapore corporate clients as relief assistance.

Gupta said large corporate customers will likely be more resilient and the bank’s trading business is also "looking good".

DBS expects some temporary impact on the manufacturing sector, but expects the bigger impact to be on the consumer and services sectors where there may be permanent revenue losses that will impact their earnings this year.

The bank reported that net profit in the fourth quarter of last year rose 14% year over year to S$1.51 billion, partly due to lower allowances for credit and other losses. EPS rose to S$2.31 from S$2.01 a year ago.

Net interest income rose 4.1% year on year to S$2.43 billion, while net fee and commission income grew 17% to S$741 million. The group's total income came to S$3.46 billion from S$3.25 billion.

Net interest margin for the quarter clocked in at 1.86%, down from 1.90% in the third quarter and 1.87% in the prior-year period. Its nonperforming loan ratio remained steady at 1.5%, same as the previous and year-ago quarters.

As of Feb. 12, US$1 was equivalent to S$1.39.