SINGAPORE (Reuters) - DBS Group Holdings Ltd beat market estimates with a 17% jump in second-quarter net profit as Southeast Asia’s biggest lender benefited from rising interest rates, although a subsequent reversal in rate moves has clouded its outlook.
Higher interest rates in Singapore and Hong Kong during the second quarter lifted DBS’s net interest income to a record S$2.43 billion ($1.77 billion).
DBS, the first among three Singaporean banks to report results, maintained its mid-single-digit percentage loan growth forecast for the full year.
But with interest rates softening now and Singapore’s economy growing at its slowest annual pace in a decade in the second quarter due to a drop in manufacturing output and exports, the outlook for the banks is challenging, analysts said.
DBS is positioning for slower growth in the next few years after reporting strong earnings in recent few years, its CEO Piyush Gupta told a news conference on Monday.
“In a declining interest rate environment and in a slower world, we won’t be able to sustain double digit top line growth,” Gupta said.
DBS’s net profit came in at S$1.6 billion in the three months ending June, versus S$1.37 billion a year earlier and an average estimate of S$1.47 billion from three analysts, according to data from Refinitiv.
The bank, in which Singaporean state investor Temasek Holdings owns nearly 30%, said it saw sustained business momentum from loan and fee income growth, led by wealth management. Total income advanced 16% to S$3.7 billion and net interest income rose 9%.
Gupta said DBS’ diversified businesses meant it could tap growth outside and partly buck a weak local Singapore economy. Asian economies were still on a growth track, he said.
“A large part of our loan growth is Singapore property developers who are developing in the United Kingdom, they are developing in Australia. Our clients are doing businesses outside Singapore and we follow them out,” said Gupta.
“A large part of our business is actively diversified, so we are not tightly coupled to Singapore’s growth data and growth numbers directly,” he said.
DBS’ loans grew 5% in constant-currency terms and net interest margin, a key gauge of profitability, improved six basis points to 1.91%.
“The biggest risk to us is if we have more than two rate cuts or if the rate cuts are deeper and sharper,” said Gupta, referring to rate cuts by the U.S. Federal Reserve.
DBS shares were down 0.9% on Monday afternoon in a broader market that was down 0.7%.
Smaller Singapore-based lenders Oversea-Chinese Banking Corp and United Overseas Bank report results on Friday.
($1 = 1.3715 Singapore dollars)
Reporting by Anshuman Daga; Editing by Stephen Coates and Muralikumar Anantharaman