DBS Group, South-east Asia's biggest bank by assets, posted a smaller-than-expected two per cent drop in quarterly profit after strong loan growth helped to ease credit-related writedowns.
Analysts warned that more difficulties lie ahead in the second half when a looming United States recession catches up with Asia's robust economies, putting a brake on earnings momentum.
DBS took a previously announced $86 million (US$63.33 million) of writedowns in the first quarter on complex derivatives exposed to risky debt, which pushed its trading income into the red'It's all driven by the macro environment for DBS,' said Mr Matthew Wilson, an analyst at Morgan Stanley. 'I'm cautious on the United States because a recession there will affect Singapore.' Mr Wilson warned the booming Singapore property market, which had boosted loan growth for the lender, was also peaking.
Most analysts expect Singapore's loan growth to slow to 12 to 13 per cent this year after it expanded by 20 per cent in 2007.
DBS earned January-March net profit of $603 million, down from $617 million a year ago. Analysts had predicted net profit of $566 million, according to an average forecast from six analysts polled by Reuters.
DBS shares were almost flat at $20.50 at 9.25am Singapore time after rising to a 2008 high of $20.80.
The result on Wednesday came after United Overseas Bank, Singapore's second-biggest bank, posted a 2.1 per cent rise in quarterly profit, broadly in line with market forecasts, but warned that loan growth could slow this year. Smaller rival Oversea-Chinese Banking Corp (OCBC) reports later on Wednesday.
Writedown, Visa gain
DBS, in which state investor Temasek has a 28 per cent stake, took a previously announced $86 million of writedowns in the first quarter on complex derivatives exposed to risky debt, which pushed its trading income into the red.
But the writedown was much lower than last year when it wrote down $270 million on structured instruments, the bulk in the fourth quarter, including debt exposed to the collapsing US sub-prime mortgage market.
Asian banks, including DBS, have been spared from the worst of the sub-prime-related losses that have hit global peers such as UBS, Bear Stearns and Merrill Lynch.
However a nine per cent rise in interest income, boosted by 21 per cent growth in loans, and an unexpected $53 million gain from its investment in Visa's initial public offering, limited the losses.
January-March fee income rose 14 per cent from a year earlier, but fell seven per cent from the previous quarter.
Stockbroking fees dropped six per cent amid volatile markets, while wealth management services fees declined 15 per cent.
Former Citibanker Richard Stanley, who took charge as DBS's new chief executive last week, will brief the media and analysts for the first time later on Wednesday.
Analysts are looking for hints on how Mr Stanley plans to grow the bank's Asian business beyond its core markets of Singapore and Hong Kong, from where it derives about 90 per cent of its earnings.
Chairman Koh Boon Hwee said DBS would continue to grow its customer franchise and increase business volumes as it seeks expansion in Vietnam, India and Taiwan.
DBS shares dropped 13 per cent in the first quarter, underperforming its rivals. UOB dropped 3.8 per cent and third-ranked OCBC fell 2.3 per cent.
DBS declared a dividend of $0.20 per share, similar to the previous quarter. -- REUTERS
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