DBS flags small impact from coronavirus, fourth-quarter profits top estimates

By Anshuman Daga

SINGAPORE (Reuters) - DBS Group Holdings <DBSM.SI> expects the coronavirus outbreak to hurt full-year revenue by as much as 2% after Southeast Asia's biggest lender topped market estimates with a strong rise in fourth-quarter profit.

Singapore banks had previously forecast muted earnings growth for 2020 as interest rates soften and lending moderates after a robust performance in the past few years.

"Our base case is that, consistent with most research, the virus should start coming under control and die down once we get to the summer months. So, we have about a quarter of impact, much like SARS in 2003," CEO Piyush Gupta said on a webcast to reporters on Thursday.

Singapore-based DBS is factoring in a 1-2% revenue hit for its current year, on assumptions the virus outbreak will cut back on consumer spending, including on credit cards.

"The estimated impact is fair, assuming things do settle within the second quarter," Kevin Kwek, an analyst at Sanford C. Bernstein, said in an email.

"Banks in general aren't hurt by such events as much as say food and beverage companies - loans outstanding continue to generate income and softer growth deferred catches up later, for instance," he said.

In the latest fourth quarter, DBS reported a 7% rise in revenue to S$3.46 billion (£1.92 billion), underpinned by loan growth and a double-digit improvement in fee income, led by its wealth management and investment banking businesses.

"Spending on cards, both in Hong Kong and Singapore in February, is beginning to come off a bit," Gupta said, adding that the wealth management business is also seeing early signs of a slowdown.

The coronavirus epidemic, which has already claimed more than 1,300 lives in China, and infected hundreds in dozens of other countries, has rattled financial markets and raised concerns about its impact on global economic growth.

DBS, in which state investor Temasek Holdings holds a 30% stake, reported a 14% rise in net profit to S$1.51 billion for October-December versus S$1.32 billion a year earlier. This was above an average estimate of S$1.48 billion from five analysts, according to data from Refinitiv.

Singapore contributed nearly 72% to DBS' net profit last year, while Hong Kong made up 22%. In November, DBS had forecast mid-to-single-digit increase in loan growth for 2020.

Economists expect Singapore's export-reliant economy to contract this quarter as the coronavirus hits trade and tourism. Last year, the economy grew 0.7%, the slowest pace in a decade as the Sino-U.S. trade war took its toll.

"As people get antsy and the environment gets more uncertain, people's willingness to do deals comes off," Gupta said.

Singapore has reported 50 coronavirus cases, one of the highest tallies outside China. On Wednesday, DBS asked 300 staff to work from home after an employee tested positive for coronavirus.

To support customers, DBS announced a six months moratorium on principal repayments for property loans of small-and-medium businesses in Singapore and Hong Kong, and for mortgage loans for its retail clients in Singapore.

The bank's full-year profit rose 14% to a record S$6.39 billion and total income increased 10% to a record S$14.5 billion. It raised its quarterly dividend by 10%.

Rival Oversea-Chinese Banking Corp <OCBC.SI> and United Overseas Bank <UOBH.SI> report results next week.

(Reporting by Anshuman Daga; Editing by Shri Navaratnam)