DBS posts $302m Q2 loss

Paying for past mistakes and abuses, the poor Indian FT CEO is placed there to be made scapegoat for some honest mistakes made by our selected genetically bred scholars.
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By Harsha Jethnani
DBS posted an unexpected $300 million loss in the second quarter after it took a $1.02 billion goodwill charge on its Hong Kong business. -- ST PHOTO: DESMOND FOO

DBS Bank, South-east Asia's biggest banking group, on Friday reported second-quarter losses of $302 million owing to a goodwill impairment charge of $1.02 billion for DBS Hong Kong.

The group had recorded $552 million in profits in the second quarter of last year.

Excluding the one-off impairment, earnings in the free months ending June were a healthy record-breaking $718 million.

The writedown is a legacy from 2001 when DBS took over Dao Heng bank in an expensive US$5.8 billion deal (S$7.9 billion).

DBS said there have been 'noticable and persistent strains' in wholesale funding markets, which is forcing banks to adjust their funding strategies.

Liquidity pressures and persistent strains in wholesale funding markets have increased the likelihood of interest margin compression for DBS Hong Kong. In conducting its six-monthly fair value test and adjusting earnings projections for 2010 to 2014 according to these pressing market conditions, the bank decided it was appropriate to take an impairment charge.

The charges will have no affect on operating performance or expansion plans, said DBS chief executive Piyush Gupta. He said at a results briefing on Friday that he does not anticipate further goodwill impairment charges.

Net interest income was four per cent down to $1.067 billion while net interest margin was down to 1.84 per cent from 2.01 per cent. More than half of the decline - six basis points - was due to a shift in the securities portfolio to higher-quality issues with lower yields, DBS said. Deposit costs were also higher due to competition for US dollar and Hong Kong dollar funding.

Non-interest income registered a positive 16 per cent growth to $748 million. The non-performing loans ratio fell to 2.3 per cent from 2.8 per cent and loans expanded nine per cent from demand by regional corporates and from draw-downs on housing loans in Singapore and Hong Kong.

Mr Gupta said on Friday that he was pleased with the quarter's results but added that it was unlikely for the momentum to continue to the second half of the year. Globally, economic growth rates are expected to slow down in the latter part of the year, he added. The chief executive also does not expect to see double-digit growth in loans.