DBS says Q4 net drops 9% as more funds kept aside for bad loans, full year net down 2%, shares up

The DBS has proposed a final dividend of 30 Singapore cents a share and for a full-year dividend of 60 Singapore cents.

Singapore's DBS among banks in bid to buy Barclays' Asian wealth unit
A man uses a Development Bank of Singapore (DBS) automated teller machine in Singapore January 4, 2016.

DBS Group, the largest bank of Singapore, said on Thursday (Feb 16) that higher provision for bad loans led to a steep 9% decline in the net profit for the fourth quarter. The shares, however, opened higher.

The bank said it has set aside 87% more money for non-performing assets caused mainly by the oil and gas industry. The non-performing loan rate climbed to 1.4%, up from 0.9% in the year-earlier quarter, the bank said.

The DBS net profit dropped to S$913 million ($643.50 million) for the three months to December from the year-earlier period. It had set aside S$462 million in provisions for the quarter, up from S$247 million a year ago.

Full-year earnings, meanwhile, fell 2% to S$4.24 billion, as a stronger operating performance was offset by higher allowances, according to the bank statement.

The earnings release was before the market opened but the news was not enough to push the DBS shares down. After three consecutive days of decline, the stock opened 0.4% while its smaller rivals Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB), opened slightly higher or flat.

On Tuesday, OCBC said net profit after tax for the fourth quarter declined 18% on-year to S$789 million.

In the fourth quarter quarter, DBS net interest income fell 2% to S$1.82 billion as the net interest margin fell 13 basis points to 1.71 percent. Non-interest income rose 19% to S$952 million.

For the full year, net profit fell 2 percent to S$4.24 billion due to higher allowances. Excluding the allowances, profit rose 10 percent to S$6.52 billion.

The bank noted that its total income rose 6% on year to S$11.5 billion, its highest ever, on higher loan volumes, improved net interest margin and non-interest income growth.

DBS proposed a final dividend of 30 Singapore cents a share, for a full-year dividend of 60 Singapore cents a share, unchanged on year.

Piyush Gupta, the bank's CEO, pointed in a statement to the rise in profit excluding allowances and said the strong operating performance was due to investments in multiple business divisions and efforts to digitize the bank.

"They enabled us to meet headwinds related to China and stresses in the oil and gas support services sector," he said in the statement. "The financial discipline we exercised over the years in building up buffers for capital, liquidity and allowance reserves has ensured that our balance sheet remains resilient. Our financial strength will stand us in good stead in the coming year."

The bank is scheduled to hold a press briefing on the results later Thursday.

Stress in oil and gas sector

"A significant part of the increase in non-performing loans and specific allowances for the full year and fourth quarter was due to stresses in the oil and gas support services sector," the bank said in the release.

Struggles among oil and gas debtors have dominated the narrative of the Singapore banking sector over the past year. In the latest sign of a still-weak industry Ezra Holdings flagged earlier this month that it could possibly write down $170 million due to problems with one of its joint ventures, EMAS Chiyoda Subsea.