DBS Group said on Friday that its fourth-quarter profits fell 40% compared with a year earlier, caused by a drop in fee income, a rise in expenses and an increase in bad debt provisions.
DBS, which is Southeast Asia's largest bank, reported profits of S$295 million ($195 million) for the three months to the end of December 31, sharply lower than its earnings of S$491 million during the same period in 2007. These were DBS's worst quarterly results for three years.
Full-year net profit fell 15% to S$1.93 billion from S$2.28 billion in 2007, which was broadly in line with analysts' expectations.
According to a statement by the bank, there was a 48% increase in bad debt impairments, with the bank taking a S$269 million hit, mainly due to higher charges for lending to small-and medium-sized businesses, and also to private banking customers. DBS earns 90% of its profit from Singapore and Hong Kong, and it was the bank's Hong Kong unit which was the worst hit, leading the increase in provisions.
Fee income fell 31% to S$383 million because of smaller contributions from its stock broking, investment banking and wealth management divisions. Expenses were up 19% from the previous quarter to S$689 million, while one-time restructuring losses amounted to S$88 million. The figures included a charge for a drop in the value of its holding in Thailand's THB, as well as severance payments following a 6% (900 jobs) cut in the bank's workforce in November.
On a positive note, net interest income rose 5% to S$1.1 billion, although the net interest margin narrowed to 2.04 percentage points from 2.11 percentage points in the same period a year earlier.
In January, DBS successfully completed a S$4 billion rights issue and in the same month chief executive Richard Stanley took a leave of absence after being diagnosed with leukaemia. Stanley had been at the helm for just eight months and chairman Koh Boon Hwee has taken over his duties until he is able to return.
Shares in DBS, which is 28%-owned by Temasek Holdings, lost more than 50% of their value last year -- making them the poorest performing among Singapore's bank shares.
Fitch Ratings expects the non-performing loan ratio for Singapore banks to more than double to between 3.5% and 4%, partly as a consequence of the collapse of the property bubble last year. The Singapore economy fell into recession in the third quarter of 2008.
Despite the results, DBS shares gained 2.8% on Friday -- compared with just 1% for the Singapore index -- suggesting that the earnings were in line with expectations.