Demand for loans pushes up DBS profit

PUBLISHED : Friday, 02 August, 2013, 12:00am
UPDATED : Friday, 02 August, 2013, 5:25am

Strong loan demand lifted profits at Southeast Asia's largest bank but growth will slow in the coming six months, said the chairman of DBS Hong Kong.

DBS posted record first-half profits yesterday, a day after the Singaporean bank abandoned its bid for Indonesian bank Danamon. Profit in the first six months of the year grew 5 per cent to SG$1.84 billion (HK$11.21 billion) due to higher loan volumes and higher interest margins. Profits at the bank's Hong Kong operation also climbed 31 per cent to HK$2.96 billion.

Chairman of DBS Hong Kong, Sebastian Paredes, said loans surged 15 per cent over the past 12 months, but a dim economic outlook for the second half would drag down the overall growth rate for the year to 10 to 12 per cent. He added that the net interest margin in the second half would remain steady at 1.5 to 1.6 per cent.

"We have been able to capitalise on our connectivity with China," Paredes said. He said two-thirds of the loans were short-term one-year trade loans to mainland firms, mainly state-owned enterprises, and much of the rest to small and medium-sized enterprises in Hong Kong.

Paredes said slowing economic growth on the mainland, capital outflow from Hong Kong and the predicted depreciation of the yuan would make the second half "more challenging", but mainland demand for trade loans remained strong.

Yuan deposits rose from 13 billion yuan to 16 billion yuan in the past year. Paredes said DBS Hong Kong's yuan business grew 15 to 22 per cent in the last two years, thanks to the liberalisation of the yuan, accounting for over 20 per cent of earnings in the first half. He expects the yuan business to contribute up to 25 per cent of earnings in the second.