DBS flags stable outlook despite record credit losses on pandemic

A worker walks past a DBS logo before an event in Mumbai

By Anshuman Daga

SINGAPORE (Reuters) - DBS Group Holdings forecast annual profit before allowances at around 2019 levels but set aside record high quarterly provisions due to the coronavirus pandemic which pulled down profit by 29%.

Southeast Asia's largest lender retained its quarterly dividend after reporting a 20% rise in profit before allowances on a 13% jump in total income in the three months to March 31.

The Singapore-based bank joined global lenders in provisioning higher credit losses to guard against the fallout from the crisis that has damaged the global economy.

"Our record operating performance in the first quarter has given us a head start to face the challenges of the coming year," said CEO Piyush Gupta, adding that DBS would not retrench staff or cut salaries even as it reduces costs elsewhere.

Gupta expects annual profit before allowances to be flat and said net interest margins are set to weaken due to lower interest rates.

DBS was the first bank in Singapore to report quarterly results. The sector had collectively forecast muted earnings growth for 2020 as interest rates soften and lending moderates after strong growth in the past few years.

"It was not in fact that negative otherwise, considering flat margins on quarter, costs already being reined in, non-interest income expectedly strong probably due to trading, and loan growth stayed positive despite China being slow in quarter one," said Kevin Kwek, a senior analyst at Stanford C. Bernstein.

DBS' quarterly profit fell to S$1.16 billion ($823 million)compared with S$1.65 billion a year earlier, in line with an average estimate of S$1.13 billion from four analysts, according to Refinitiv data. That was the lowest level since the quarter ending September 2017.

DBS retained its proposed quarterly dividend of 33 Singapore cents per share, which sent its shares 5% higher on Thursday.

As Singapore's trade-reliant economy braces for its worst recession on record, analysts expect small and medium enterprises to be badly impacted. Singapore has reported over 15,000 coronavirus infections, among the highest in Asia.

Gupta said DBS's loan exposure of S$39 billion to the SME sector, mainly in Singapore and Hong Kong, was predominantly secured against property.

DBS said business volume was holding up so far, with a decline in trade loans offset by a robust non-trade corporate loan pipeline from top-end customers.

It said quarterly allowances for credit and other losses surged to a record S$1.09 billion ($772.5 million) from S$76 million a year earlier, well above an average estimate of S$605 million, according to Refinitiv data.

Two-thirds of the provisions were booked in anticipation of a "deeper and more prolonged economic impact from the pandemic."

($1 = 1.4094 Singapore dollars)

(Reporting by Anshuman Daga; Editing by Jane Wardell and Stephen Coates)