SINGAPORE – DBS Group Holdings posted a 20 per cent drop in third-quarter net profit to $1.3 billion from $1.63 billion a year earlier, on higher allowances for potential bad loans and lower net interest income. 

Earnings were better than expected, topping the $1.12 billion average estimate of eight analysts surveyed by Bloomberg.

The board has declared an interim dividend of 18 cents per share, down from 30 cents for the year-ago period, to which the bank’s scrip dividend scheme will be applied.

South-east Asia’s largest bank set aside allowances of $554 million in the third quarter. Together with allowances of $1.94 billion in the first half of the year, total allowances in the first nine months of this year quadrupled to $2.49 billion from a year ago, DBS said on Thursday (Nov 5).

Three-fifths, or $1.5 billion, of this amount were general allowances conservatively set aside to fortify the balance sheet against macroeconomic risks. 

The bank’s non-performing loan (NPL) ratio weakened to 1.6 per cent from 1.5 per cent a year ago. 

DBS also saw lower net interest income, which fell 12 per cent year on year to $2.17 billion as loan growth was offset by a lower net interest margin. The drop was 6 per cent from the previous quarter.

Net interest margin fell nine basis points to 1.53 per cent as the impact of global interest rate cuts in March and April was more fully felt.  Net interest margin is a key gauge of profitability for banks, measuring the difference between income earned from loans and the interest paid to depositors. 

DBS’ annualised earnings per share stood at $1.98 for the quarter, a decrease from $2.50 a year ago.

Compared to the second quarter, net profit rose 4 per cent as fee income rebounded 17 per cent to pre-pandemic levels. This softened the impact of lower interest rates and a decline in trading income from a high base. 

DBS chief Piyush Gupta said the third-quarter results reflect a recovery in business momentum as regional economies emerge from lockdowns. 

“The rebound in fee income to pre-Covid levels has enabled us to cushion the full impact of lower interest rates. At the same time, the accelerated build-up of allowances has strengthened our ability to meet the challenges of an uneven economic recovery in the coming year,” he said.

Loans were stable in constant currency terms at $371 billion as underlying loan momentum remained healthy, said DBS.. 

Further drawdowns of non-trade corporate loans were offset by the repayment of short-term facilities made in the first half. 

While Singapore housing loans dipped due to the delayed impact of the circuit breaker in the second quarter, new bookings rebounded strongly in the third quarter, DBS noted. 

Net profit for the first nine months fell 24 per cent year-on-year to $3.71 billion due to the higher allowances. 

DBS shares closed at $21.55 on Wednesday, up 12 cents or 0.6 per cent.