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UPDATE 3-DBS flags pick-up in growth led by wealth management, stable credit costs

Anshuman Daga
·2-min read

(Recasts with external comments, new quotes from CEO)

By Anshuman Daga

SINGAPORE, Feb 10 (Reuters) - Singapore bank DBS Grouppainted an optimistic picture for 2021 as apandemic-induced slowdown gives way to an improved businessperformance, driven by wealth management, while credit costsdecline as government moratorium programs come to an end.

On Wednesday, Southeast Asia's biggest lender reported a 33%drop in net profit for the quarter ended December as benchmarkinterest rates plunged to historic lows and crimped margins,contributing to a 26% fall in full-year profit.

"DBS wrapped up a turbulent 2020 with a very strong balancesheet, supported by good asset quality, high capital and excessliquidity," said Eugene Tarzimanov, a senior credit officer atMoody's Investors Service.

"We expect credit costs to decrease in 2021 as DBS hasalready completed the bulk of provisioning, with asset risksreceding and economic conditions improving," Tarzimanov said.

Analysts expect strong revenue from the wealth business todrive a rebound in Singapore banks' full-year profit, withbetter economic prospects also expected to cushion the impact ontheir interest margins hovering near record lows.

DBS' net interest margin, a key gauge of profitability,dipped to 1.49% in the fourth quarter from 1.86% a year earlier.The bank earns most of its profit from Singapore and Hong Kong.

"The risks are well known," said Chief Executive PiyushGupta, referring to a further compression in net interestmargins expected this year. "So the question is if there'senough economic activity to cover up the revenue headwind," hetold a news conference.

Singapore's trade-reliant economy is charting an uneven pathto recovery after its worst-ever recession last year due to theCOVID-19 pandemic.

DBS said allowances for loan losses surged to S$577 million($435.3 million) in the fourth quarter from S$122 million a yearearlier but rose only slightly from the third quarter.

As interest rates decline, banks are turning to wealthmanagement businesses to boost growth on the back of record-highequity markets and strong trading volume.

Double-digit growth in the wealth management business overthe past five years has enabled this segment to account for thebiggest chunk of net fee and commission income for Singaporebanks as of the end of 2019.

"Overall, the fee income for January gives me confidencethat we can do double-digit growth in fee income," Gupta said,adding that DBS was set to report modest loan growth this year.

DBS, the first local lender to report results, posted netprofit of S$1 billion for the quarter ended December, versus anaverage estimate of S$1.02 billion ($769.6 million) from fouranalysts, according to Refinitiv data.

"This quarter was largely on expected lines with no bigsurprises - margins weakened and provisions stayed about thesame which you would expect for the fourth quarter to close theyear," said Kevin Kwek, a senior analyst at Stanford C.Bernstein.

DBS' peers OCBC and UOB report resultslater this month.($1 = 1.3256 Singapore dollars)(Reporting by Anshuman Daga; Editing by Jane Wardell andChristopher Cushing)