(Bloomberg) — DBS Group Holdings Ltd. Chief Executive Officer Piyush Gupta said investors in Southeast Asia’s largest lender should be cautious about uncertainties stemming from Federal Reserve interest rate hikes and slowing Chinese growth.
That tone followed the release of strong profit growth for the fourth quarter, wrapping up a year which he described as the bank’s best financial performance in the last decade.
Gupta’s concern is a scenario where central bank’s tighten policy too quickly and choke off economic recoveries, an outcome that he said DBS hasn’t factored into its outlook. For now though, that’s unlikely, even if there are seven or eight Fed hikes, he said.
“If the central banks find that inflation is too sticky and therefore rates get back to three, three and a half, 4% above, then that’s another story. That’s not our base case,” Gupta said in a briefing Monday.
In China, there remains uncertainty over the economy’s trajectory and consumption with its strategy to tolerate very little spread of the omicron variant, Gupta said.
Bumper Quarter
The caution follows a 37% jump in fourth-quarter profit, boosted by its highest loan growth in seven years and increased fee income. Net income climbed to S$1.39 billion ($1.03 billion) in the three months ended Dec. 31, beating the S$1.36 billion average estimate.
“It is quite clear from a financial strategy and business standpoint, this is probably the best performance we’ve had in certainly the entire of the last decade,” Gupta said.
Loan growth increased by 9%, which helped to mitigate the impact of interest rate cuts, Gupta said in the statement earlier. Fee income rose 15%, while wealth management and transaction banking also reached new highs. Investment banking benefited from record fixed income and a recovery in equity market activities, while card spending surpassed pre-Covid levels.
DBS shares rose 0.5% as of 12:06 p.m. in Singapore. They are up about 45% over the past 12 months.
Acquisitive Period
The earnings cap a year that’s seen DBS turn around its profit margin from a year ago when the global pandemic hit commercial banks. The lender’s also managed to secure high profile deals, including the purchase of Citigroup Inc.’s consumer banking assets in Taiwan.
The growth in loans book and fee income “speak to a recovering economic environment, as well as our broadly diversified franchise,” Gupta said. “We look forward to the coming year with a prudently managed balance sheet that is poised to benefit from rising interest rates.”
Business momentum is also expected to remain healthy amid moderation in the economic recovery, with the bank expecting mid-single digit loan growth or better as well as double-digit fee income growth, Gupta said.
Past Cycles
DBS is on a better footing to benefit from Fed rate hikes compared with the previous cycle of increases, said Andrea Choong at CGS-CIMB Securities Singapore in a recent note. The bank’s more robust liquidity position also provides headroom for stronger loan growth without a pressing need to compete for funding, keeping funding costs low, she said.
The board is proposing a fourth quarter dividend of 36 cents per share, an increase of three cents from the previous payout. Barring unforeseen circumstances, the annualized dividend will rise by 9% S$1.44 per share.
(Recasts from first paragraph with detail from CEO comments)
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