DBS wealth management income likely weighed by market volatility in 4Q18

DBS ATM in SingaporeDBS ATM in Singapore

DBS, the first of the three Singapore banks to report fourth quarter earnings, was expected to show decent earnings growth even as wealth management fees were expected to have been hurt by market volatility.

UOB KayHian forecast fees and commissions income fell 1.3 percent on-year and declined 9.7 percent on-quarter to S$627 million in the fourth quarter.

“Market sentiment weakened after the U.S. imposed tariffs on US$200 billion of exports from China. High net worth clients turned more risk averse, resulting in a significant decline in wealth management fees, the brokerage said in a note earlier this month. With investment banking fees also lackluster, the declines wouldn’t be offset by healthy growth in loan-related fees and credit cards, it added.

But UOB KayHian said it still expected good results, forecasting fourth quarter net profit of S$1.29 billion, up 8.0 percent on-year, but down 8.8 percent on-quarter, with double-digit net interest income growth offset by declines from wealth management fees and net trading income.

Net interest income forecast to rise

It forecast net interest income of S$2.31 billion for the quarter, up 10.1 percent on-year, and estimated the net interest margin, or the difference between what banks charge for loans and the cost of their funds, rose 1 basis point on-quarter and 9 basis points on-year to 1.87 percent.

CGS-CIMB was slightly more optimistic, forecasting fourth quarter net profit of S$1.32 billion. It estimated net interest income would come in at S$2.32 billion, with NIM up 1 basis point at 1.87 percent. It forecast non-interest income of S$902 million for the quarter, down 18.2 percent on-quarter.

“Wealth management, investment banking and trading income are likely to have been a drag on earnings due to the volatile market conditions,” CGS-CIMB said in a note in late January.

But it added that while DBS would likely face the biggest hit from market volatility among the three Singapore banks, it likely also posted the strongest NIM growth, due to its strong CASA, or current and savings account ratio, franchise which helps to lower its funding costs.

CGS-CIMB forecast DBS’s loans grew 0.7 percent on-quarter in the fourth quarter, even as Monetary Authority of Singapore (MAS) data showed system loan growth was a tepid 0.3 percent in the July-to-November period as trade war tensions had a ripple effect in Southeast Asia’s economies.

However,”from a risk-reward perspective, strong loan growth may come at the expense of broad margins given a likely aversion towards excessive risk-taking in this subdued economic climate and a reduced appetite for capex spending,” the brokerage added.

Maybank KimEng forecast full year net profit of S$6.01 billion, up 43 percent on-year, with net interest income of S$9.24 billion and non-intersest income of S$4.13 billion. It estimated the full-year net interest margin would come in at 1.84 percent.

Daiwa forecast full-year net profit of S$5.73 billion, with net interest income of S$8.99 billion, net fees and commission income of S$2.87 billion, trading and other income of S$1.48 billion. It forecast a net interest margin of 1.87 percent.

Get the Shenton Wire morning briefing in your inbox