Fees help boost DBS profit 16pc despite dip in interest income
Higher revenue from fees and commissions offset a dip in interest income in Hong Kong for DBS Group, Southeast Asia's biggest lender by assets, to boost the local division's profit by 16 per cent to HK$3.56 billion last year.
Driven by stockbroking, loan syndication and wealth management, non-interest income jumped 56 per cent year on year to HK$2.88 billion.
But net interest income fell 2 per cent to HK$5.52 billion for the year as spreads between the prime lending rate and fund costs fell in Hong Kong, squeezing interest margins.
In fact, net interest margins had slipped 32 basis points to 2.21 per cent last year from 2006.
Profit for the fourth quarter was up 6 per cent to HK$867 million from the year-ago level. Thinning interest margins will continue to overshadow banking operations this year.
'As US interest rates go lower, a lagging effect on our prime lending rate is felt,' said Amy Yip Yok-tak, chief executive of DBS Bank (Hong Kong). She believes 'it's highly probable' for the prime Hong Kong interbank offered rate spread to 'be squeezed further'.
On January 31, banks in Hong Kong cut both their prime rate and deposit rate by a smaller magnitude of 25 basis points than the US Federal Reserve's 50 basis points a day earlier.
'The falling interest rates do help boost banks' mortgage volume, but the underlying risks are rising at the same time,' she said. 'This is reflected in some banks, which have already raised their mortgage rates [to retain a certain interest margin].'
In addition to a squeeze in interest margins, banks in Hong Kong would be hit further by declining sales in wealth management products as the stock market became more turbulent this year, analysts said.
A report by Goldman Sachs said that the strong surge in fee income enjoyed by Hong Kong banks last year would recede this year, reflecting lower initial public offering financing, reduced stockbroking and wealth management revenue.
'We will continue to promote those products,' Ms Yip said.
