February 10, 2015 / 12:31 AM / 4 years ago

UPDATE 2-DBS's quarterly China bad loans jump, but bank plays down risks

* DBS Q4 net profit S$838 mln versus S$931 mln consensus

* China bad loan provisions up four times

* DBS much of jump due to one sour loan to a copper smelter (Adds detail on China, commodities exposure, share reaction)

By Saeed Azhar and Anshuman Daga

SINGAPORE, Feb 10 (Reuters) - Singapore’s DBS Group Holdings saw its China bad debt provisions quadruple in the latest quarter but the bank played down the risks for its loan book, saying much of jump was due to one soured loan to a copper smelter.

DBS said it was not worried about its China portfolio as most of its loans were trade finance loans to banks, but Chief Executive Piyush Gupta warned the country’s anti-corruption drive as well as debt woes in certain corporate sectors may lead to some unexpected surprises.

“It’s quite clear in the last two or three months...(in) some specific sectors in China - you are beginning to see stress and default,” he told Reuters Television after the bank’s earnings briefing.

China’s slowing economy has heightened financial risks around the country’s heavily indebted companies and governments, which owe a combined $15 trillion, according to a state audit and private estimates.

Much focus has been on the slowing property sector, particularly after struggling developer Kaisa was late with a bond coupon payment this year.

DBS, Singapore’s biggest bank, said fourth-quarter bad debt provisions for Greater China excluding Hong Kong soared to S$40 million ($30 million).

James Antos, Hong Kong-based banking analyst at Mizuho Securities Asia, said it was difficult to reconcile DBS’s outlook for its China-related loans with recent macro-economic data.

“I don’t care who you are, you can’t fight the economic cycle and the economic cycle is down,” he said.

“So I can’t believe that DBS is going to get out of China unscathed, especially since this is one of the most important growth areas strategically that they have identified for their bank.”

Overall bad debt provisions rose 40 percent to S$211 million from a year earlier, the highest level since the quarter ended June 2013, according to Thomson Reuters data. Provisions for Singapore loans to consumers and small to medium sized businesses also climbed sharply.

The charges saw DBS book a weaker-than-expected net profit of S$838 million, below an average forecast of S$931 million from six analysts polled by Reuters.

The provisions also eclipsed a 10 percent rise in full-year net profit to a record S$4 billion.

Despite the bad debt charges, its non-performing loan ratio was 0.9 percent in the fourth quarter, little changed from recent quarters.

DBS earns nearly 90 percent of its profit from Singapore and Hong Kong and about 6 percent comes from mainland China and Taiwan.

Separately, DBS’s Gupta quashed much speculation that he could be a potential replacement for Peter Sands, the embattled chief executive of Standard Chartered, saying he had not been approached and was not interested in the job.

$1 = 1.3536 Singapore dollars)

Additional reporting by Gautum Srinivasan, Editing by Edwina Gibbs

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