Euromoney, January 2019
A 76% year-on-year climb in third-quarter net profit, accompanied by a plunge in the share price on the day it is announced: these are complicated times for a bank in Asia, a region in the midst of a worsening trade war.
“Our own sense is that the direct impact of the trade war on the macroeconomics will not be as material as people worry,” chief executive Piyush Gupta said at the results briefing.
“What is more worrying is the impact of market sentiment: the indirect impact of the trade war.”
He is right. If you take the sentiment out of it, DBS is doing just fine. Third-quarter income, up 10%, was a record at S$3.38 billion ($2.47 billion); nine-month profit, at S$4.31 billion, is also a record.
Profits are well up because the heavy allowances for oil and gas-support service exposures are now digested, and the formation of new non-performing assets is declining. Return on equity stands at 12.4% and the balance sheet is strong. Wealth management, small and medium-sized enterprise services and transaction banking are going from strength to strength.
But you can’t wholly take the sentiment out of it.
Market sentiment is the reason DBS’s investment banking fees were down 66% year on year. It is the reason new mortgages are slowing down and DBS has downgraded the amount by which the mortgage book is expected to grow this year.
Growth of loans generally will decelerate to mid-single digits – still growth, but much slower than we have been used to.
The acquisition of consumer and wealth businesses from ANZ is largely absorbed now, which have pushed up expenses but otherwise brought considerable regional heft in areas where it would have been hard to grow organically, such as Indonesia and Taiwan. History will likely view the acquisition, which was cheap and opportunistic, as successful.
Market movements notwithstanding, DBS has continued to impress as the region’s – if not the world’s – most dynamic innovator in banking.
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