DBS says Q2 net profit beats forecast as loans grow

DBS (DBSM.SI), Southeast Asia’s biggest bank, posted a quarterly profit that was slightly above analyst forecasts, helped by strong loan growth as it rebounded from a loss a year ago when it took a goodwill charge.

The result marks the fourth straight quarter when DBS has posted better-than-expected earnings as CEO Piyush Gupta spearheads a recovery in the existing business and avoids expensive acquisitions.

A former Citibanker, Gupta has won investor praise for cleaning up DBS’s balance sheet, selling non-core assets and accelerating the bank’s expansion into China with the purchase of RBS’s (RBS.L) portfolio in three major cities.

“I like it that he is very micro,” said Neo Chiu Yen, vice president, equity research Asia at ABN AMRO private bank in Singapore.

Gupta is trying to improve efficiencies within the bank and that is showing up in the return on equity.

“It is a good strategy before you start expanding outside,” Neo said.

DBS said on Thursday it will remain vigilant in an increasingly uncertain macro-environment. 

DBS made a net profit of $735 million for April-June against a net loss of $300 million a year earlier due to a goodwill charge on its Hong Kong business.

That compared with an average forecast of $728 million, according to eight analysts surveyed by Reuters.

This was DBS’s second-best profit number in any quarter after it posted a record $807 million net in the first quarter of this year.

Net interest income rose 12% from a year earlier despite a four basis point drop in margins to 1.80% as loans expanded by 15% year-on-year. The margins were unchanged from the first quarter.

Net fee and commission income also rose 8% from a year ago, but net trading income declined by 45% due to mark-to-market losses in its fixed-income investments.

Investors are keen to see Gupta improving the bank’s valuations as it trades at a discount to rivals Oversea-Chinese Banking Corp (OCBC.SI) and United Overseas Bank (UOBH.SI) in terms of price-to-book.

DBS’s return on equity rose to 11.4% in the first half of the year from 9.8%.

Bad debt charges fell 33% to $137 million from a year ago.