DBS Group said yesterday that the bank's loan growth could slow for the rest of the year and the spread was narrowing between its loan income and funding costs on the mainland.
The Singapore-based bank posted a SG$1.74 billion (HK$10.81 billion) profit in the first half, up 13 per cent compared with the same period last year, boosted by higher interest income and lower provisions.
'DBS turned in another quarter of solid performance despite a difficult operating environment,' DBS chief executive Piyush Gupta said, adding that Asia is likely keep slowing and that the chances of China coming out with a massive stimulus plan like last time is slim.
The bank's non-interest income dropped 2 per cent to SG$785 million as a result of equity market volatility. But this was offset by 22 per cent growth in loans in the first half, mainly in Singapore and on the mainland.
The bank's net interest margin, a measure of lending profitability, rose slightly to 1.43 per cent in Hong Kong compared to the end of last year. It narrowed by about 50-60 basis points on the mainland to 2.2 per cent due to tightening liquidity.
DBS Bank (Hong Kong) chief executive Sebastian Paredes said he expected the net interest margin in Hong Kong to stabilise in the second half, but it could continue to be squeezed on the mainland.
The bank's loan growth rate in Hong Kong in the second half could remain in single digits and be much lower than the same period last year.
DBS said it did not see credit deterioration for its loans on the mainland - despite the economic slowdown there - and would continue to capitalise on trade business coming out of the region.
Gupta said the bank was slashing interest rates related to trade finance on the mainland but was compensating for this in loans in other sectors.
The bank's headcount grew 5 per cent, or 300 people, in the first half - slower than the last two years, when hiring increased by 15 per cent a year.
The yuan business has become an important business driver for DBS, contributing about 21 per cent of revenue in Hong Kong.
Paredes said he also expected the city's yuan deposits to stabilise after dropping for five straight months from November.
DBS' yuan deposit in Hong Kong reached 14 billion yuan (HK$17.16 billion) by the end of June.
Yuan loan growth in the city could decline in the second half due to higher interest rates and more US dollar liquidity in the city, Paredes said. The bank's yuan loans grew by 22 billion yuan in the first half in Hong Kong.