DBS Q4 profit up 8 pct, posts record annual profit

By Saeed Azhar

SINGAPORE (Reuters) - DBS Group Holdings may face a stiffer challenge in 2012 as Asian economies slow, following a strong end to 2011 when it posted an unexpected 8 percent rise in quarterly earnings to achieve its best-ever annual profit.

DBS, Southeast Asia's biggest lender, has been capturing market share from rivals, in particular European banks that have stepped back from Asia due to the eurozone debt crisis. In the three months ended December, the Singapore lender chalked up loans growth of 28 percent.

Analysts, however, say earnings growth this year could prove to be difficult as a slowdown in Asian economies reins in loan growth, while interest rate margins remain hostage to low U.S. rates.

"I am expecting a fairly sharp slowdown in lending this year," said Sam Hilton, a Hong Kong-based banking analyst at Keefe, Bruyette & Woods Asia Ltd.

He said loan growth for Singapore banks should slow to 10-15 percent this year from an average 25-30 percent last year, as trade financing, which has stayed strong, is due for a slowdown.

"This time around, it is more about what is the impact of the global growth uncertainty on the outlook," Hilton said.

Hopes for higher rates in DBS's key markets -- Singapore and Hong Kong - were dented after the Federal Reserve signalled that U.S. rates would probably remain at their current level near zero through late 2014.

"We are committed to pursuing growth in a judicious and disciplined manner while keeping a watchful eye on the health of the global economy " CEO Piyush Gupta, a former Citigroup executive who took over the top post more than two years ago, said in a statement.

DBS made a net profit of S$731 million for October-December period, up from S$678 million a year earlier. About 62 percent of earnings came from Singapore.

That compared with an average forecast of S$672 million, according to six analysts surveyed by Reuters.

Lower taxes in the last quarter, as a result of a tax write-back, helped DBS beat expectations, said Leng Seng Choon, a banking analyst at DMG Securities.

For a graphic on DBS click http://graphics.thomsonreuters.com/12/02/SG_DBS0212.

DBS kicked off the earnings season for Singapore banks, with Oversea-Chinese Banking Corp reporting results on Feb 20 and United Overseas Bank on Feb 23.

Gupta has been praised by investors for turning around the bank as he focused on boosting revenue from the existing businesses such as wealth management and avoiding pricey acquisitions.

But growth will remain restricted unless DBS acquires a lender in Indonesia or Malaysia, countries where it has smaller presence compared to its key competitors.

Net interest income rose 17 percent to S$1.29 billion from a year earlier, despite a 6 basis point drop in margins to 1.73 percent from a year earlier as loans expanded by 28 percent. DBS' net interest margin was flat versus the third quarter.

Net fee and commission income dropped 4 percent from a year ago to S$342 million, hurt by weak capital markets in the last quarter of 2011.

Bad-debt charges rose 46 percent to S$229 million from a year ago.

DBS shares have rebounded this year, soaring 18 percent compared to UOB's 15 percent rise and OCBC's 13 percent gain before its earnings announcement.

Its shares fell about 20 percent last year, underforming the benchmark index.

(Editing by Muralikumar Anantharaman and Kevin Lim)