DBS profits could get hurt by ANZ acquisition

Operations were smooth but higher specific provisions could hurt its earnings.

The net profit of DBS in Q3 could fall by as much 2.1% YoY and 7.3% QoQ after it acquired ANZ's wealth management and retail banking businesses in Singapore and Hong Kong.

According to UOB Kay Hian, DBS executed well operationally but earnings would be hurt by higher specific provisions.

On the upside, the bank continues to gain growth momentum, especially for fee income. The consolidation of ANZ's businesses in Singapore and Hong Kong could add deposits of $17b, loans of $11b, and wealth assets under management of $23b.

Loan growth could also rise to 2.5% QoQ.

UOB Kay Hian analyst Jonathan Koh said, "DBS benefitted from broad-based expansion of corporate loans and residential mortgages."

Here's more from UOB Kay Hian:

The 3-month SIBOR and SOR rose 13bp and 20bp QoQ respectively to 1.12% and 0.95% in 3Q17 but the positive impact on NIM would largely be felt in 4Q17 as loans are re-priced gradually over time.

We expect the consolidation of ANZ’s wealth management and retail banking businesses to a) pressure NIM due to the addition of low-margin loans for high net worth clients; and b) lower loan/deposit ratio to 87.9% (2Q17: 89.7%).

We expect fee income to increase 6.7% YoY to $655m in 3Q17. We expect strong growth from wealth management (+14.4% YoY), boosted by contributions from ANZ’s wealth management business. We expect robust contributions from investment banking as DBS completed the IPO of NetLink NBN Trust, the largest IPO in Singapore YTD.