UPDATE 4-Singapore's DBS posts record Q1 profit, expects margins to decline as rates peak

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Q1 net profit surges to S$2.57 bln vs S$2.44 bln estimate

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Bank gains from jump in deposits on flight to safety

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Net interest margin climbs to 2.12%

(Adds CEO's comments, context, shares performance)

By Yantoultra Ngui

SINGAPORE, May 2 (Reuters) - DBS Group posted record first-quarter profit, with Singapore's biggest bank saying it had benefited from inflows from depositors seeking a safe haven amid the global banking turmoil, and uncertainty over the world economy and geopolitics.

Results released on Tuesday showed the bank's January-March net profit rose a stronger-than-expected 43% to S$2.57 billion ($1.9 billion) from S$1.8 billion a year ago, beating a mean estimate of S$2.44 billion from five analysts polled by Refinitiv.

But DBS said it expected a gradual decline in margins as rate hike cycle nears an end.

"We delivered a record performance and benefited from safe-haven deposit inflows during a quarter marked by increased market volatility," DBS Chief Executive Officer Piyush Gupta said in a statement.

Customer deposits rose 2% in constant-currency terms to S$529.2 billion during the first quarter from S$519.7 billion in the year-ago period. The quarterly rise in deposits came on the back of a 5% surge in 2022.

"Some of these inflows are from North Asia, some of those inflows are from other banks, including the troubled banks in the U.S. and Credit Suisse," Gupta told reporters.

Singapore's status as a financial safe haven became a bigger draw for depositors after the closure of Silicon Valley Bank and Signature Bank in the United States, and the UBS rescue of Credit Suisse in March.

On Monday, U.S. regulators seized First Republic Bank and sold its assets to JPMorgan Chase & Co, in a deal to resolve the largest U.S. bank failure since the 2008 financial crisis.

Regional rival HSBC also on Tuesday reported a more than tripling in quarterly profit, beating estimates, as it benefited from higher interest rates around the world.

Smaller Singaporean peer United Overseas Bank on Thursday posted a 74% surge in core net profit in the first quarter on the back of strong net interest and non-interest income growth.

Shares in DBS rose 0.3% to S$32.92 on Tuesday, in line with the broader Straits Times Index.

MARGIN PRESSURE

The Southeast Asia's largest lender by assets however said its net interest margin likely peaked in the first quarter and there would be a gradual decline as Gupta said the rate hike cycle was "pretty much done".

DBS reported a net interest margin, a key gauge of a bank's profitability, of 2.12% for the first quarter, up from 1.46% in the same period a year earlier. And the bank expected full-year net interest margin of between 2.05% and 2.10%.

DBS also said its housing loan bookings may see some impact from the government's latest cooling measures.

DBS' return on equity rose to a new high of 18.6% in the first quarter from 13.1% the same period a year earlier. Full-year return on equity was likely to be above 17%, it said.

DBS, which earns most of its profit from Singapore and Hong Kong, declared a dividend of 42 Singapore cents per share for the first quarter.

Meanwhile, Gupta said DBS clients held about S$140 million worth of Additional Tier 1 (AT1) bonds of Credit Suisse, which is a "tiny percentage" of the total investment portfolio of its clients.

Investors have been rocked by a Swiss authorities' decision to wipe out $17 billion of Credit Suisse's AT1 debt under its takeover by UBS, in a move that hit AT1 holders harder than shareholders.

($1 = 1.3362 Singapore dollars) (Reporting by Yantoultra Ngui; Editing by Sumeet Chatterjee, Sonali Paul, Stephen Coates and Simon Cameron-Moore)