Written by The Edge
DBS Group Holdings, Southeast Asia’s biggest bank, reported an unexpected second-quarter loss as it booked a one-time goodwill impairment charge at its Hong Kong unit and lending margins narrowed.
The loss of $300 million compares with net income of $552 million a year earlier, the company said in a statement today. That missed the $572.9 million average of eight profit estimates from analysts surveyed by Bloomberg. The quarter’s goodwill cost totalled $1.02 billion.
Swings in stock and bond markets, and signs of economic headwinds in the US, Europe and China have deterred clients from making share sales, crimping profits at the Singapore-based bank. Singapore’s three-month interbank lending rate, or Sibor, which has averaged 0.6% this year, remains one of the biggest challenges to DBS and rivals Oversea-Chinese Banking Corp. and United Overseas Bank increasing lending income.
“I expected lending margins to continue to be unexciting,” Leng Seng Choon, Singapore-based analyst at DMG & Partners Securities Pte, said before the earnings announcement. “Businesses are still generally cautious in expanding. It might be challenging for all banks, including DBS, to increase loan market share because of competition.”
Net interest income, or the difference between what the bank makes from lending and what it pays on deposits, fell 4% to $1.07 billion in the quarter from a year earlier. The net interest margin, a measure of loan profitability, narrowed to 1.84% from 1.93% a year earlier, it said.
DBS booked the goodwill charge for its Hong Kong unit in light of “noticeable and persistent strains” in wholesale funding markets, according to the statement. Pressures on interest margin there are likely to persist, it said.
