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Singapore's DBS expects record profits to continue on higher-for-longer rates


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Singapore's DBS expects record profits to continue on higher-for-longer rates

DBS Group Holdings Ltd., the largest bank in Southeast Asia by assets, anticipates maintaining its net profits in 2024 at a level near the record achieved in the current year, helped by higher interest rates.

Net profit rose 18% year over year to S$2.63 billion during the July-to-September quarter, the group reported Nov. 6. This figure exceeded S&P Capital IQ's net income GAAP estimate of S$2.54 billion, with six analysts reporting.

For the January-to-September period, the bank's net profit climbed 35% year over year to a record high of S$7.89 billion, DBS said in its earnings report.

"As we enter the coming year, higher-for-longer interest rates will be a net benefit to earnings, while our solid balance sheet with ample liquidity, prudent general allowance reserves and healthy capital ratios will provide us with strong buffers against macro uncertainties," DBS Group CEO Piyush Gupta said in a statement accompanying the earnings announcement.

Gupta said the lender is "quite confident" that net profit would surpass S$10 billion in 2023. "I think we'll be able to hold and protect the S$10 billion number into next year," the CEO said during the bank's earnings webcast.

Higher rates

The Monetary Authority of Singapore, which uses currency as its primary policy tool due to the dominance of external trade over the country's economy, was among the first central banks in Asia-Pacific to initiate monetary tightening in October 2022 to counter inflation. Interest rates have risen in Singapore and other key geographies where DBS operates following the lead of global regulators led by the US Federal Reserve in implementing tighter monetary policies.

During its most recent review Oct. 13, Singapore's central bank opted to maintain its existing monetary policy settings, observing that inflation had moderated and anticipating a potential improvement in the economy during the second half of 2024.

DBS reported net interest income of S$3.68 billion, up from S$2.99 billion in the third quarter of 2022. The bank's net interest margin for the quarter rose to 2.19%, up from 1.90% in the prior-year period and 2.16% in the second quarter. Loans grew 1%, or S$5 billion in constant-currency terms, to S$420 billion from the previous quarter.

"We saw good net interest income growth, largely driven by net interest margin expansion. However, this is peaking and loan growth remains much weaker than expected to provide an offset," Thilan Wickramasinghe, head of research at Maybank Investment Banking Group, said after the announcement. "Improvements in wealth management is a positive and should provide more support next year."

Technology pain

DBS is also working on improving its technology after the Monetary Authority of Singapore on Nov. 1 imposed a six-month pause on DBS' nonessential IT changes. The banking regulator barred DBS from acquiring new business ventures during the period or reducing the size of its branch and ATM networks following repeated and prolonged disruptions of DBS' banking services in 2023.

Gupta acknowledged the bank has not "done well on technology" and assured that DBS would improve its processes and quality assurance. The bank has not closed any branches in the last three or four years and does not have any new ventures that could be affected by the regulatory order, Gupta said.

"How technology costs pan out as DBS addresses infrastructure reliability issues is a key area we will be observing going forward," Maybank's Wickramasinghe said.