DBS quarter profit slide 23% to 5-year low as oil and gas provisions soar

Net fee income rose 12% from a year ago, led by double-digit growth in wealth management and investment banking fees

Singapore's DBS Group Holdings booked an unexpected slide in quarterly profit, which fell 23 per cent to hit a five-year low as the bank nearly doubled provisions for loans to the troubled oil and gas industry.

But Southeast Asia's biggest lender also indicated that the worst was probably over, saying this quarter's 87 per cent hike in net provisions to a record S$815 million ($597 million) would mean further provisions for the sector were unlikely.

Singapore banks, long lauded for their conservative lending practices, have been tested over the last two years as a number of local offshore and marine firms have restructured their loans due to low prices and project delays.

"There is weakness in the portfolio. We think that weakness would typically have trickled in over the next quarters through to the end of 2018," CEO Piyush Gupta told a news conference on Monday.

"We have just taken the opportunity to accelerate recognition of that weakness upfront into this quarter," he said, adding that the move also factored in new reporting standards due to be implemented by Singapore's central bank.

Net profit came in at S$822 million in the three months ended September, below S$1.07 billion profit reported a year earlier and an average estimate of S$1.13 billion from four analysts.

It also said the bank's underlying loan growth is likely to be 7 per cent to 8 per cent for this year and next year, slightly higher than what was flagged at the start of 2017, driven by broad-based loan demand across the region.

Net fee income rose 12 per cent from a year ago, led by double-digit growth in wealth management and investment banking fees.

"Overall, we see a decent set of underlying results. Kitchen sinking should see DBS start next year with a clean slate," Goldman Sachs' analysts said in a report.

Stress among oilfield service firms has seen Swiber Holdings file for judicial management, Ezra Holdings file for US bankruptcy protection, while Ezion Holdings is seeking to restructure $2 billion of debt.

Singapore's Oversea-Chinese Banking Corp and United Overseas Bank, have also been hurt as loans to the sector turn sour but DBS is more exposed than its smaller rivals.

DBS emphasised, however, that its exposure to the oil and gas support services sector was less than 2 per cent of its overall loan portfolio at S$5.3 billion.

Shares in DBS were down 0.9 per cent in late Monday trade, after rallying some 32 per cent so far this year to 18 year-highs.

Singapore state investor Temasek is the biggest shareholder in DBS with a stake of about 30 per cent.