* Q1 net profit rises 16 pct y/y to record S$933 mln
* Q1 net interest margin 1.77 vs 1.73 in Q4
* Says Danamon deal an opportunity for growth
* Indonesia cbank to review deal after new ownership rules
By Kevin Lim
SINGAPORE, April 27 DBS Group, Southeast Asia's largest bank, surprised analysts by posting record quarterly profit and said its expansion in the region will help drive future earnings.
DBS has been picking up assets across Asia over the past decade to lessen its dependence on Singapore and Hong Kong, with the lender announcing this month plans to purchase Indonesia's Bank Danamon for $7.2 billion in what would be its biggest-ever acquisition.
"DBS continued to build its Asian franchise with good growth across its regional markets," CIMB's head of research Kenneth Ng said in a note to client.
"This strong set of results adequately reflects success in its initiatives and cements DBS as our top pick in the (Singapore banking) sector," he said.
DBS boosted net profit by 16 percent from a year ago on higher loans and margins as well as increased income from trading and wealth management.
The bank's income from Singapore rose 15 percent, while revenue from outside the city-state soared 35 percent, with China loans jumping 81 percent and Indian lending increasing by 42 percent.
DBS's forays overseas in recent years include some assets of Taiwan's Bowa Bank and Royal Bank of Scotland's retail and commercial banking businesses in China. The value of both transactions was not disclosed.
Besides the Danamon bid, which is subject to approval by Indonesian regulators, DBS has received approval from Malaysia's central bank to discuss buying a 14 percent stake in Alliance Financial Group.
Chief Executive Piyush Gupta declined to comment on the talks with Indonesian regulators about Danamon, but reiterated that the deal provided DBS with "a fantastic opportunity for growth" as it allowed the Singapore bank to increase its exposure to faster-growing markets.
DBS said earlier this month it planned to buy the 67.4 percent stake in Danamon held by Singapore state investor Temasek Holdings in exchange for new DBS shares.
The deal valued the Indonesian bank at a 52 percent premium to its share price at that time. DBS, which is 29 percent owned by Temasek, will pay cash to buy out Danamon's minority shareholders.
Several Indonesian lawmakers have, however, expressed concerns about the proposed transaction, and central bank governor Darmin Nasution said on Friday that regulators will issue new bank ownership rules at the end of May before reviewing the Danamon deal.
LOANS, TRADING INCOME
Gupta told reporters after the earnings annnouncement that DBS is confident of achieving loan growth in the "low teens" with net interest margins sustained at current levels.
"Our funding capacity is robust, our asset quality remains sound, and we believe we are well placed to seize opportunities in the months ahead," he added.
DBS said earlier on Friday net profit rose to S$933 million ($751.72 million) in the three months ended March, beating the S$807 million achieved a year earlier.
Analysts polled by Reuters had an average forecast of S$771 million, with the highest estimate at S$826 million.
The Singapore lender's much better-than-expected result was partly due to net interest margin rising to 1.77 percentage points from 1.73 in the preceding quarter, reversing the downtrend in recent months.
Customer loans grew 25 percent from a year ago to S$197.6 billion, while trading income rose 21 percent and earnings from wealth management increased 39 percent to offset a weaker performance from stockbroking and investment banking.
Phillip Securities analyst Ken Ang described the rise in trading income as the main surprise behind DBS's better-than-expected result.
DBS's loan margins are likely to be sustainable above the fourth quarter's 1.73 percentage points, judging by the higher average rate for customers loans during the first quarter, he added.
"Average rates for customer loans increased quarter-on-quarter from 2.72 percent to 2.84 percent, while average rates on customer deposits decreased marginally from 0.68 percent to 0.67 percent," he said.
DBS shares rose after the results and were up 2 percent at S$13.99 around 0600 GMT. United Overseas Bank gained 1.9 percent on hopes it will also report higher loan margins, while Oversea-Chinese Banking Corp dropped 0.1 percent as buyers of the stock were no longer entitled to a dividend.
UOB will announce its results on May 9, while OCBC will report earnings on May 11.