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DBS expects up to 8% loan growth in 2018 amid 'robust' global, domestic markets

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DBS expects up to 8% loan growth in 2018 amid 'robust' global, domestic markets

After a record year of lending growth in 2017, Singapore’s DBS Group Holdings Ltd. expects its loan book to expand by up to 8% this year, and its net interest margin may see a rebound, the bank's executives said.

The upbeat guidance came after the lender reported a record net profit for 2017, up 4% year over year to S$4.39 billion. Despite a thinner net interest margin, DBS's loan book grew 11% year over year to a record S$323 billion thanks to the contribution from the retail banking and wealth management businesses in Asia acquired from Australia & New Zealand Banking Group Ltd. in 2017, as well as a robust property market in Singapore.

Despite recent volatility mainly in the stock market, a stronger global economy bodes well for loan growth, DBS CEO Piyush Gupta said during a Feb. 8 earnings call. A strengthening Chinese yuan will also offer more arbitrage and other trading opportunities, which in turn will boost DBS's financing business, Gupta said.

Domestically, Gupta said Singapore's mortgage market will remain active, and expects refinancing needs from individuals amid deal activity involving the collective sale of residential units to developers, known as en bloc sales in Singapore, leading to people moving out of their existing homes and into new ones.

He also said total income, which also includes fee income, will likely see low double-digit growth in 2018. Total income was up 4% to a new high of S$11.9 billion in 2017.

Net interest margin, a key profitability metric for banks, narrowed by 5 basis points to 1.75% in 2017. Much of the decline was due to hikes of short-term key interest rates in Singapore, the bank said.

Gupta expects "some uplift" in NIM in 2018, but refrained from projecting by how much.

"It is hard to have a call on NIM, on what it might be [in 2018]," said Gupta, pointing to the uncertainty over the number of interest rate hikes in 2018 and whether these hikes will trickle through to consumer lending rates.

"If the Singapore dollar is weak, there is no reason for [the Monetary Authority of Singapore] to intervene, the pass-through rate to [the Singapore Interbank Offered Rate] is 90%. If the Singapore dollar strengthens and MAS does not enter into the swap market, the pass-through rate will be somewhat muted," he added.

Gupta also noted that the bank will not exit the oil and gas sector, even though the sector accounted for the bulk of its nonperforming loans in 2017.

The bank reported an 8% rise in total allowances for the year to S$1.54 billion, primarily on the accelerated recognition of weak oil and gas support services exposure in the third quarter.

As of Feb. 7, US$1 was equivalent to S$1.32.