DBS confident after Q1 profit beats forecast 08 May 2009 15:41

Q1 profit falls 28 pct, less than expected

* Q1 bad debt charges almost triple, may rise further

* DBS confident as sees Singapore, HK economies bottoming

* Shares rise 3.2 percent to add to week's 30 pct rally

(Adds quotes from chairman, update on CEO plans)

By Saeed Azhar

SINGAPORE, May 8 (Reuters) - DBS Group <DBSM.SI>, Southeast Asia's biggest bank, voiced optimism about its outlook on signs the financial crisis was easing, even as it expected bad debts to rise further.

DBS, which posted a smaller-than-expected 28 percent drop in first-quarter profit on Friday, and other Singapore banks are benefitting from the turmoil by seizing market share for loans and bonds from foreign banks who are scaling back from Asia.

"We have moved away from a systemic financial crisis," DBS chairman Koh Boon Hwee told reporters. "The problems are known, governments all over the world are working, and therefore, in that sense, financial risk has significantly moved over."

DBS shares were up 3.2 percent by 0630 GMT, outperforming a 1.7 percent rise in the benchmark Straits Times Index <.FTSTI>. This took gains for the week to around 30 percent.

Smaller rivals, United Overseas Bank <UOBH.SI> and Oversea-Chinese Banking Corp <OCBC.SI>, had reported a 23 percent and 12 percent drop in quarterly profits, respectively, two days ago, which too were smaller than expected.

DBS saw loan growth of 14 percent in the first quarter from the year-ago period, the fastest among the three listed Singapore banks, but bad debt charges almost tripled to S$414 million. The non-performing loan ratio rose to 2 percent from 1.5 percent in the fourth quarter.

"Certainly, it's still quite a difficult environment, there will continue to be credit problems," said Brian Hunsaker, an analyst at brokerage firm Fox-Pitt Kelton in Hong Kong. "I don't think we can say the first quarter was the peak for non-performing loans."

Jan-March net profit fell to S$433 million ($294 million) from S$603 million a year ago, the bank said. Analysts had forecast a net profit of S$321 million, according to the average of five forecasts compiled by Reuters.

DBS generates about 90 percent of its earnings from Singapore and Hong Kong.

Goldman Sachs, which has DBS on its "conviction buy" list, said in a note that provisioning for bad debts may have peaked after Singapore's worst economic performance in the first quarter, when the economy tanked 11.5 percent.

NO DECISION ON CEO YET

Koh, who has been running the bank since January, said DBS has not made a decision about its next chief executive after Richard Stanley died of cancer last month. Koh said he was not a candidate for the post. For a story on DBS's CEO options click on [ID:nSIN443441].

DBS said quarterly net interest income rose 2 percent to almost S$1.1 billion but trading gains helped boost non-interest income by 76 percent to S$269 million despite a 10 percent drop in fee and commission income as capital markets faltered.

DBS shares have risen around 45 percent since the start of the year, fired up by a recent rally in banking shares around the world. Shares of UOB are up 20 percent and OCBC has gained 46 percent over the same period, while the benchmark Straits Times Index <.FTSTI> is up 29 percent. ($1=1.471 Singapore Dollar)

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DBS Bank Q1 Result

 -- DBS GROUP <DBSM.SI> 
    -  Southeast Asia's biggest bank posted on Friday a 
smaller-than-expected 28 percent drop in quarterly profit to 
S$433 million ($294 million), as strong loan growth and trading 
gains partially offset a near tripling in bad debt charges. 

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PREVIEW-Bad debt charges may haunt Singapore banks 04 May 2009 11:55

    * What: Singapore banks' Q1 earnings, Malaysia's Maybank's Q3 
    * When: UOB & OCBC May 6, DBS May 8, Malaysia mid-to-late May 
    * Bad debt charges, slowing loans to hit profits 
    * Singapore banks increased market share in Q1 
     
    By Saeed Azhar 
    SINGAPORE, May 4 (Reuters) - Singapore's three banks could 
post sharp declines in quarterly profits this week as bad debt 
charges soar, and investors will be keen to see how much market 
share they are gaining from battered foreign players in Asia. 
    Malaysian banks are also likely to be hurt by a squeeze in 
interest rate margins following hefty rate cuts by the country's 
central bank and as loan growth stutters. 
    Southeast Asian banks survived the initial phase of a global 
financial crisis relatively unscathed due to minimal toxic debts 
on their books, but began to feel the effects of an Asian 
economic downturn from the second half of 2008. 
    DBS Group Holdings <DBSM.SI>, Southeast Asia's biggest bank, 
could see its profit slide 47 percent in the Jan-March period 
from a year earlier, according to an average estimate by five 
analysts in a Thomson Reuters poll. 
    "NPLs have only just started to rise in the fourth quarter of 
2008 and are likely to continue on an uptrend as the recession 
feeds through into the banking system," Kar Weng Loo, an analyst 
at Banc of America Securities-Merrill Lynch, wrote in a note to 
clients, referring to non-performing loans. 
    Despite the gloomy year-on-year forecasts, analysts expect 
some bright spots in the first quarter, such as higher trading 
gains quarter-on-quarter as banks bet on volatile foreign 
exchange and stock markets. 
    Singapore banks, which are capturing market share from 
foreign lenders, are also gaining pricing power, which may boost 
interest rate margins compared with the October-December period. 
   "A steeper yield curve and better loan pricing should provide 
upside support for net interest margins despite negative loan 
growth," said CLSA banking analyst Thilan Wickramasinghe. 
    These expectations and a renewed global appetite for 
risk-taking have boosted shares of Singapore banks since they hit 
multi-year lows in early March. Singapore's index for financial 
stocks <.FTFSTAS8000> has gained almost 46 percent since hitting 
a year-low of 323.51 points on March 10. 
    But CLSA's Wickramasinghe warned the "overarching concern" 
for Singapore banks is asset quality, which may translate into 
higher bad debt charges. 
     Moody's Investors Service last month cut its ratings outlook 
on Singapore's three banking groups to "negative" from "stable", 
saying the global recession would hurt earnings and asset 
quality. 
    Thai banks kicked off the earnings season for Southeast Asian 
lenders earlier this month, with Bangkok Bank <BBL.BK>, the 
country's biggest, reporting a 13.5 percent drop in quarterly 
profit  [ID:nBKK496559]. 
    Analysts in Malaysia do not provide quarterly forecasts, but 
Malaysian bank earnings are likely to take a hit from a slowing 
economy and lower interest rate margins due to the central bank's 
150 basis points interest-rate cut since the fourth quarter. 
    But a significant deterioration in overall asset quality is 
unlikely because of the absence of any large corporate defaults, 
said Loong Chee Wei, analyst at CLSA in Kuala Lumpur. 
 
    SINGAPORE - ESTIMATED Q1 NET PROFIT AVG (S$ mln) 
         Q1 2009    CHANGE (PCT) VS   Q1 2008   ANALYSTS 
    DBS   321           -47             603       5 
    UOB   387           -27             529       4 
    OCBC  293           -53             622*      5 
     
    *OCBC's core earnings in Q1 2008 excluding a tax refund and 
gains from asset sale were S$460 million. 
    (Data based on a Reuters poll) 
    MALAYSIA FULL YEAR FORECAST (bln ringgit) 
                         2009    CHANGE (PCT) VS 2008   ANALYSTS 
    Maybank              2.44    -16.7           2.93       16* 
    Bumiputra-Commerce   1.89     -3.0           1.95       16 
     
    * Maybank's financial year runs from July to June.

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UBS raises DBS price target to $11.30

SINGAPORE, April 27 (Reuters) - Swiss bank UBS on Monday reiterated its "buy" recommendation on Singapore's DBS <DBSM.SI> and increased the target price to S$11.30 from S$10.30.

"In a recession, (lending) margins tend to shrink. However, we believe this time they will remain resilient as DBS is able to exert its pricing power to widen the spread," UBS said in a report.

The Swiss bank also it believed the Singapore economy has bottomed in the first quarter and noted that bank shares tended to rally once the trough was reached.

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UBS reiterate "buy" recommendation on DBS

    -- DBS GROUP HOLDINGS LTD <DBSM.SI>
   -  UBS reiterated its "buy" recommendation on Singapore's DBS
and increased the target price to S$11.30 from S$10.30, citing
reasons such as the banking group's ability to gain market share
with increased funds gained from a recent S$4 billion ($2.69
billion) rights issue. [ID:nSGC001105] 

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Moody's cuts rating outlook on singapore banks

SINGAPORE, April 20 (Reuters) - Moody's Investors Service on Monday cut its ratings outlook on Singapore's three banking groups to "negative" from "stable", saying the global recession would hurt earnings and asset quality.

DBS Group <DBSM.SI>, United Overseas Bank <UOBH.SI> and Oversea-Chinese Banking Corp <OCBC.SI> are currently rated "Aa1" for both long-term debt and deposits, equivalent to the AA-plus rating assigned by rivals Standard & Poor's and Fitch Ratings.

"The negative outlooks of DBS, OCBC and UOB reflect the fact that the deepening global economic downturn could have a protracted impact on their asset quality and earnings," Moody's Vice President and Senior Analyst Christine Kuo said in a statement.

But Moody's also said the three Singapore lenders had strong franchises and healthy credit profiles, and benefited from a "very high level of support" from the Singapore government.

"Consequently, even in a severe downside scenario, we would expect the banks' financial strength ratings to remain above average and their debt and deposit ratings to be solidly positioned within the Aa-rating band," Kuo said.

Singapore last week reported its economy contracted a record 11.5 percent from a year earlier in the first quarter and said gross domestic product could shrink as much as 9 percent for the whole of 2009.

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