DBS Group reported a higher-than-expected 68% rise in quarterly profit as rising interest rates boosted its net interest margins and Southeast Asia's largest bank by assets retained its full-year outlook for mid-single-digit loan growth.
Singapore lenders are set to report their highest quarterly net interest margins in more than a decade on rising interest rates but as the cycle peaks and economic growth falters, profit growth will be curbed, analysts said.
DBS Chief Executive Piyush Gupta said in the bank's results statement that interest rate increases are likely to moderate, but he doesn't expect rate cuts this year.
The Singapore-based bank warned that there was a downside risk of 5 to 7 basis points to the group's peak net interest margin guidance of 2.25% due to factors including outflows to treasury bills and a strengthening Singapore dollar.
DBS shares fell 0.6% in early trade on Monday in a weak broader market (.STI).
"Our business pipelines are healthy and asset quality robust. We expect confidence to return to markets in the coming year as interest rate increases ease and China reopens," Gupta said.
DBS, the first Singapore bank to report this season, said October-December net profit rose to a record S$2.34 billion ($1.76 billion) compared with an average estimate of S$2.16 billion from three analysts, according to Refinitiv data, and S$1.39 billion in the same period a year earlier.
The lender, which earns most of its profit from Singapore and Hong Kong, announced a special dividend of 50 Singapore cents per share, citing its strong earnings and capital position.
Analysts at Citi said in a note that while the market is likely to welcome the special dividend, softer guidance on net interest margins could be a focus during a management conference call later on Monday.
DBS reported a total net interest margin, a key gauge of profitability, of 2.05% for the latest quarter, up from 1.43% in the same period a year earlier.
Singapore banks, among the most well capitalised in the world, are on track to report record full-year results as they benefited from an early rebound in the city-state's pandemic-hit economy last year.
DBS' annual profit soared 20% to a record S$8.2 billion. Smaller peers OCBC (OCBC.SI) and UOB (OCBC.SI), which report results next week, are also expected to post a sharp rise in annual profits, but quarter-on-quarter earnings are seen as being flat to slightly lower.
The banks' shares have gained 10% to 15% since late October when Singapore's key market index (.STI) fell to 20-month lows. The gauge has since recovered by 12%.