Economic slowdown to impact DBS’ loan growth

Management now expects growth of about 10%, down from 13%, partly due to decelerating trade finance business.

OCBC Investment Research noted:

2Q12 earnings were in line with market expectations
DBS Group Holdings Ltd posted 2Q12 net earnings of S$810m, slightly above market expectations of S$807m from a Bloomberg poll. This is up 10% YoY, but down 13% QoQ.

Overall, 1H12 earnings amounted to S$1743m, up 13%. Net Interest Income rose 10% YoY but was down 1% QoQ to S$1324m in 2Q12. Non-interest Income fell 3% YoY and 24% QoQ to S$621m.

The QoQ decline was largely due to strong trading gains in 1Q12. Net Interest Margin (NIM) fell from 1.80% in 2Q11 and 1.77% in 1Q12 to 1.72% in 2Q12. It declared an unchanged interim dividend of 28 cents. The stock will be quoted ex-dividend on 15 Aug 2012.

Market conditions remain challenging, but management is cautiously optimistic
While headwinds remain, especially from the US, Europe and China, management is cautiously optimistic about prospects for the rest of the year. They are not overly concerned about liquidity in the market and believe that DBS is still able to borrow cheaply from the market.

However, margin compression has taken place, and there was margin pressure in China which led to a 2-bp impact on the group in 2Q12.

Going forward, with the slowdown in the other key economies as well as in Asia, this is likely to impact overall loan growth and management is now expecting growth of about 10% (down from 13%) partly due to trade finance business slowdown and a general softening in manufacturing activities.