DBS in surprise third-quarter profit slide to five-year low as oil and gas provisions soar

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

A DBS logo in pictured in the backdrop of the central business district in Singapore July 10, 2015. REUTERS/Edgar Su

But Southeast Asia’s biggest lender also indicated that the worst was probably over, saying this quarter’s 87 percent 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 percent to 8 percent 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 percent 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 SWBR.SI file for judicial management, Ezra Holdings EZRA.SI file for U.S. bankruptcy protection, while Ezion Holdings EZHL.SI is seeking to restructure $2 billion of debt.

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

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

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

Singapore state investor Temasek [TEM.UL] is the biggest shareholder in DBS with a stake of about 30 percent.

Reporting by Anshuman Daga; Editing by Edwina Gibbs