DBS Group Holdings Ltd (SGX: D05) started 2019 with a bang, setting a new quarterly record income and net profit. Net profit was up by 9% from the corresponding period last year, driven by a five basis points increase in net interest margin (NIM).
As usual, CEO Piyush Gupta provided some insightful comments about the market and how DBS is positioned for the upcoming quarters in his presentation. Here are some of the highlights from it.
Business momentum growing
Despite the concerns surrounding the ongoing trade war, business momentum in the United States and China remain positive. The Chinese economy expanded by 6.4% in the first quarter, higher than analysts forecasts, while the US topped expectations, growing 3.2% in the first three months of 2019.
In addition, the March Purchasing Managers Index (PMI) has improved from January and February.
Consequently, DBS’ non-trade corporate loan grew S$4 billion net of repayment, demonstrating the impact of the positive economic sentiment.
Shrinking mortgage loan
One downside this quarter was that DBS saw a shrinkage in the volume of the local mortgage loan. This is perhaps due to the impact of last year’s additional property cooling measures.
Gupta said that the number of refinancing transactions is low — about half of what the bank experienced last year. Due to the shrinkage in the first quarter, he said that he expects home loan growth at not more than S$1.5 billion this year.
Commercial bank net interest margin widening
Net interest margin is the difference between a bank’s cost of capital compared to its interest earned on loans. Overall net interest margin for the bank in the quarter was 1.88%, up from 1.83% in the corresponding period last year.
Commercial banking, in particular, has a wider net interest margin of 2.15%. There has been a steady widening of the commercial banking net interest margin over the last few quarters. The slide below shows net interest margin and net interest income in the last five quarters:
Source: DBS CEO 2019 Q1 Presentation
Gupta said that he expects that commercial banking NIM should continue to increase over the next few quarters.
Considering the current macroeconomic environment, Gupta is optimistic about the rest of 2019. He said that he expects a mid-single digit loan growth and continued net interest margin progression this year. This is because the rate increases last year has still not fully flowed into DBS’ loan portfolio. As the bank slowly increases the interest rate on existing loans, the net interest margin will likely follow suit.
He also guided for high-single-digit top line growth for the full year, with the cost-to-income ratio maintained at 43%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore recommends DBS Group Holdings Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares of DBS Group Holdings Ltd.