DBS braces itself for a looming 30-35% drop in mortgage loan applications

Profit shrank 7% in 4Q13.

According to OSK DMG, in 4Q13, core earnings fell 7% q-o-q, largely from: i) lower net fee income (-5% q-o-q) and trading income (-13% q-o-q), and ii) higher expenses (+9% q-o-q) from increased computerisation and seasonal costs.

FY13’s key positives include: i) strong broad-based growth in non-interest income (+21% y-o-y), ii) decent net interest income growth (+5% y-o-y) and robust 18% y-o-y jump in loans, which cushioned NIM slippage (-8bps y-o-y), iii) stable NIMs since 4Q12, and iv) positive jaws of 3ppt, with costs being well-contained.

Here's more from OSK DMG:

These were partly offset by higher allowances (+85% y-o-y) as specific provisions normalised while general provisions rose in line with strong loan growth.

Absolute NPLs rose 10% y-o-y, with the increase coming mainly from South Asia and South-East Asia (+184% y-o-y; 20% of total NPLs).

Management expects stable NIM and loan growth of 8-10% (moderated by a 30-35% drop in mortgage applications) for 2014.

Asset quality would remain resilient as the tapering of quantitative easing and measures to cool the property sector are unlikely to have a material impact on customers.

Management is comfortable with its current strategy of diversifying its funding base by tapping into USD deposits and commercial papers, as this matches the short-term nature of its trade finance flows. It expects healthy fee income growth, supported by a robust pipeline and a sustained business momentum, and the CIR to edge up on plans to invest in digital banking.