DBS Group Holdings, the largest bank in Singapore and Southeast Asia, reported a 22% fall in second-quarter net profit compared to a year ago as it set aside more money for loan losses that could arise from the economic impact of the coronavirus pandemic.
The bank said on Thursday that net profit fell to 1.25 billion Singapore dollars ($912.9 million) in the April-to-June quarter – down from 1.6 billion Singapore dollars a year ago. It beat Refinitiv estimates of around 1.19 billion Singapore dollars.
DBS Chief Executive Piyush Gupta told CNBC that while some of the bank’s income streams are improving as countries ease lockdown measures, earnings in the coming quarters could still be hit.
That’s because many governments are supporting the economy through measures such as allowing businesses and households to delay loan repayments, he explained. Once such support ends, the bank could experience an uptick in bad loans, said Gupta.
In addition, low interest rates globally would continue to suppress margins, he said.
“I think nobody knows how deep or wide the size of this hit can be, nobody knows where the pandemic itself is going. And then in several countries, because you have moratoriums which are government backed, you really don’t get a good sense of the underlying shape of the … economy,” he told CNBC’s “Capital Connection” after the earnings release.
“Like most of the players, we’re just trying to buffer up ahead of time,” the CEO added.
Here are the other financial indicators that DBS reported:
The bank also provided an outlook for business. It said it expects its loans portfolio to grow by 5% for the full year, led by non-trade corporate loans; while net interest margins could inch lower to 1.6%.
Separately, smaller rival United Overseas Bank reported a 40% year-over-year decline in second-quarter net profit at 703 million Singapore dollars ($513.4 million) – below estimates by Refinitiv.
UOB also put aside additional allowances of 379 million Singapore dollars ($276.8 million) in the quarter “in view of COVID-19 impact.”
Shares of DBS and UOB jumped after their second-quarter results were announced. DBS shares were up by around 2.5% from the previous close, while UOB climbed around 1.5%. Both banks outperformed the benchmark Straits Times Index, which inched up by around 1%.
Pramod Shenoi, head of Asia-Pacific research for financial institutions at CreditSights, said the two banks are “prudent” in taking provisions as they anticipate a potential deterioration in their loans portfolios.
“Everybody’s aware that the environment is getting worse, it isn’t showing up as yet in specific assets turning bad,” he told CNBC’s “Squawk Box Asia” after their earnings release.
“That turn in the cycle when asset quality actually starts going bad is something that we’re going to see over (the) coming quarters, potentially a peak in the second half of next year,” he added. “But till that point in time, the banks have to be prudent, set aside money via provisions and that’s what both the Singapore banks are doing.”