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DBS expects net interest margins will decline, sees other growth drivers

Singapore’s largest lender DBS Group Holdings expects web curiosity revenue to taper off sooner or later, however the financial institution is assured that it could trip on different drivers going ahead, similar to a development in loans and charge revenue.

On Tuesday, DBS reported document income and web revenue for the primary quarter. Income got here in at 4.94 billion Singapore {dollars} ($3.7 billion), up 34% from a 12 months in the past, whereas web revenue stood at SG$2.57 billion, a 43% leap in contrast with the identical interval the final 12 months.

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DBS mentioned this was as a consequence of “increased web curiosity margin, sustained enterprise momentum and resilient asset high quality.” Web curiosity margin, or NIM, rose 66 foundation factors year-on-year to 2.12%, in contrast with 1.46% within the first quarter of 2022.

Web curiosity revenue is a measurement evaluating the curiosity revenue a agency generates from credit score merchandise like loans and mortgages, with the outgoing curiosity it pays out, similar to to financial savings accounts or mounted deposits.

Chatting with CNBC’s “Capital Connection,” DBS CEO Piyush Gupta mentioned NIM’s “have most likely peaked at round these ranges” — about 2.1% for February to April.

Regardless of saying there’ll restricted upside from these ranges, Gupta mentioned he expects the tempo of decline shall be very gradual and never “falling off a cliff.” DBS guided for a full-year common of between 2.05% and a couple of.1% for NIM in 2023.

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Geoff Howie, market strategist for equities on the Singapore Change, agreed with Gupta’s view, saying development in NIM will grow to be tougher as rate of interest hikes, particularly from the U.S. Federal Reserve, begin to taper off.

Chatting with CNBC’s “Road Indicators Asia,” Howie mentioned, “From a web curiosity margin perspective, how do you again up from say, 475 foundation factors of Fed funds hikes over 13 months or so?”

Rising charges usually increase financial institution earnings by permitting banks to boost charges on loans, whereas the curiosity prices to banks — like that paid on deposit accounts — can stay unchanged.

He famous that in 2022, web curiosity revenue jumped about 30% for Singapore’s three main banks, however as NIMs are “considerably consolidating,” it will likely be troublesome to proceed this tempo of development.

Howie factors out “you had 9 consecutive quarters of quarter-on-quarter web curiosity revenue development, that could be the top of it for a while, [and] we anticipate some consolidation within the web curiosity revenue.”

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In gentle of the outcomes, the corporate’s board additionally declared a dividend of 42 Singapore cents per share for the primary quarter, increased than the 36 cents in the identical interval a 12 months in the past.

Shares of DBS rose as a lot as 1.37% on Tuesday following the outcomes.

Different development drivers

Whereas Gupta sees web curiosity revenue development truly fizzling out, he mentioned the financial institution continues to be seeing “wholesome enterprise momentum.” He mentioned development forecasts for Asia are nonetheless “fairly sturdy” regardless of the slowdown within the West.

He famous that “two quarters in the past, everyone was pretty certain there shall be a recession [in the West] , and now the jury’s out whether or not they may truly escape a recession. So we expect {that a} slowdown shouldn’t be going to be calamitous.”

Gupta mentioned he continues see supportive fundamentals in Asia, saying “the demographics are good, infrastructure spending is occurring, commerce and intra-Asia commerce continues to be sturdy, wealth administration continues to be very sturdy”

As such, he mentioned that these drivers are in place to assist DBS proceed to construct a enterprise “fairly decently” going ahead.