Southeast Asia’s top lender DBS shows 22% drop in profit, but business shows recovery

DBS Group posted a decline in quarterly profit by a fifth of what it was reported during the same period of previous year as the company increased the process of loan-loss provisions in the markets suffered pandemic, but it stated that the bad loans were steady and income of fee has been growing as economies are rebounding after the ease in lockdowns.

The profit of Southeast Asia’s top lender still beat the market estimates and also posted increase compared to previous quarter. DBS’ was able to maintain its return on equity to 10% during the difficult times which is another positive side appeared along with other post-pandemic recovery signs, while investors would take it positively after the recent stock price drop, bringing it to the undervalued queue.

DBS’ reported a decline in net interest margin to 1.62% for the second quarter compared to a prior year same period of 1.91% as interest rates diminished. While the bank forecasted the full-year margin to stay around 1.6%.

Banks’ net interest margins is another important measure of profitability that Investors would like to see for the quarter ended in June, which tells whether the lender business would be able to tackle loan losses in better way during the recession-hit economies.

For the quarter ended by June 2020, DBS profit slumped to S$1.25 billion ($913 million) as compared to prior year same period profit of S$1.6 billion. However, it surpassed the analysts’ average estimate of S$1.19 billion based on Refinitiv data and was also higher than the preceding quarter profit of S$1.16 billion. Where a DBS rival, United Overseas Bank missed the analysts’ estimates which posted a 40% decline in net profit during quarter ended June 202 mainly because of frowned margins and mellower credit costs.

Singapore lender group has estimated the total allowances in the range of S$3 billion to S$5 billion in two years, which includes already first half booking of S$1.9 billion. The group expects 5% growth in loans for the full year in which non-trade corporate loans are the leading ones. The company has reduced its dividend nearly half from from 33 cents per share to 18 Singapore cents per share following the regulator’s restrictions.

Piyush Gupta, CEO of DBS said the its bank performance matched its expectations and number of fee income streams started to improve from the April lows.