DBS expects net margins to decline, sees other growth drivers

DBS Bank says growth in Asia will continue to be quite strong

Singapore’s largest lending company DBS Corporation Net interest income is expected to decline gradually in the future, but the bank is confident it can drive other drivers in the future, such as loan growth and fee income.

On Tuesday, DBS reported revenue and net profit recognition for the first quarter. Revenue came in at S$4.94 billion ($3.7 billion), up 34% from a year ago, while net profit came in at S$2.57 billion, up 43% year-on-year. .

DBS says this is due to “higher net margins, solid business momentum and stable asset quality.” Net profit margin, or NIM, increased 66 basis points year-on-year to 2.12%, compared with 1.46% in the first quarter of 2022.

Net interest income is a measurement that compares the interest income a company generates from credit products such as loans and mortgages, with the interest it pays, such as a savings account or fixed deposit. determined.

Talk to “capital connection,” DBS CEO Piyush Gupta said NIM “probably peaked around these levels” — about 2.1% between February and April.

While saying there will be limited upside from these levels, Gupta said he expects the rate of decline to be very gradual and not “fall into the abyss”. DBS has guided the full-year average NIM from 2.05% to 2.1% in 2023.

SGX strategist says Singapore's trio of banks 'doing pretty well'

Geoff Howie, equity market strategist at the Singapore Exchange, agrees with Gupta’s view, arguing that NIM growth will become more difficult with rate hikes, particularly from the Federal Reserve. United States, began to decline gradually.

Talk to “Asian street signs“, Howie said, “From a net profit margin perspective, how do you back up from say, 475 basis points of Fed funds up over 13 months or so?”

Rising interest rates generally increase a bank’s income by allowing banks to increase the interest rate on loans, while interest costs for banks – such as the cost of paying for a deposit account – can constant.

He noted that in 2022, net interest income of Singapore’s three big banks has grown by about 30%, but as the NIM is “consolidating somewhat”, it will be difficult to continue this growth rate.

Howie points out that “you’ve got nine straight quarters of quarterly net interest income growth, that’s probably going to be over for a while, [and] we expect some consolidation in net interest income.”

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Ahead of the results, the company’s board also announced a dividend of 42 Singapore cents per share in the first quarter, higher than 36 cents in the same period a year ago.

Shares of DBS jumped as much as 1.37% on Tuesday following the results.

Other growth drivers

While Gupta sees net interest income growth dwindling, he said the bank is still seeing “healthy business momentum”. He said growth forecasts for Asia remained “pretty strong” despite the slowdown in the West.

He noted that “two quarters ago, people were pretty sure there was going to be a recession [in the West] , and now the jury is out on whether they can actually get out of the recession. So we think the slowdown won’t be catastrophic.”

Gupta said he continues to see fundamentals supportive in Asia, saying “demographics are good, infrastructure spending is ongoing, intra-Asia trade and commerce continue to grow strongly.” , wealth management continues to be very strong”

As such, he says these drivers stand ready to help DBS continue to build a “pretty decent” business into the future.


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