Dah Sing still on buying spree

Financial services group says it wants to keep on expanding, through organic growth and acquisitions, to better compete

The acquisition spree by Dah Sing Banking Group was far from over, senior executives said yesterday.

Dah Sing, which bought consumer lending specialist Pacific Finance for $936 million in June and Banco Comercial de Macau (BCM) for $1.67 billion last month, reiterated that expansion was a top priority for the bank, which was spun off from its parent firm in a controversial listing last year.

'In the financial services industry you have to have scale and size to be able to compete,' managing director Derek Wong Hong-hing said.

'When we carried out the spin-off last year we made it clear that we would try to expand through both organic growth and acquisitions.'

Mr Wong declined to forecast when the BCM and Pacific Finance transactions would be completed and start contributing to earnings, saying Dah Sing was still awaiting regulatory approvals.

He also denied that the bank's latest fund-raising manoeuvre - the issue of US$150 million in subordinated debt - was a preparation for its next takeover plan.

Mr Wong said the group was likely to pass on BCM's insurance business to parent firm Dah Sing Financial Holdings (DSFH), which retained its insurance-related businesses after the spin-off and recently acquired a 20 per cent stake in mainland start-up Great Wall Insurance.

Both parent company and subsidiary yesterday reported declines in profits for the six months to June, largely in line with market expectations.

The bank's earnings dropped 14.5 per cent to $460.63 million. One of the heaviest borrowers in the interbank market, the bank fell victim to the unusually steep rise in interbank funding costs during the second quarter.

Net interest margins contracted by almost 100 basis points, by far the worst fall among the listed banks for the period.

Mr Wong cautioned against expectations of a dramatic improvement in interest margins in the second half, but said the pressure on spreads had begun to ease.

With the doubling in interest expenses to more than $600 million, the bank registered a 25.6 per cent decline in net interest income to $644.89 million, despite across-the-board loan growth among all lending segments.

Fees and commissions income fell 11.4 per cent to $205.21 million, due in large part to lower returns from treasury activities.

The bank's capital adequacy ratio stood at a healthy 19.2 per cent.

DSFH, which owns 78.3 per cent of the bank, reported a 68.1 per cent drop in net profit during the same period. The losses at its key subsidiary were compounded by a huge comparative drop in write-back of provisions, to $31 million from $144 million last year.

The group, however, can take comfort in the doubling of new insurance premiums, as profit contribution from the division rose to 13 per cent from 8 per cent a year ago.

UBS banking analyst Sally Ng said Dah Sing Bank remained a 'long-term pick'.

'However, we think the lack of unsecured consumer lending growth, intense pricing competition in the small and medium market and a more difficult trading environment, could lead to higher pressure on its asset yields at a time of rising funding costs,' Ms Ng said.