SINGAPORE (Nov 6): DBS Group Holdings reported 25% lower 3Q earnings of $802 million from the same quarter a year ago.

The five-year low came on the back of an 87% rise in net allowances to $815 million as residual weak oil and gas support services exposures were classified as non-performing assets (NPAs).

DBS CEO Piyush Gupta says the recognition of the residual weak oil and gas support service exposures as NPAs will enable investors to return their focus to our operating performance and digital agenda.

"Overall, we see a decent set of underlying results. Kitchen sinking should see DBS start next year with a clean slate," Goldman Sachs' analysts says in a report.

Total 3Q income rose 4% to $3.06 billion from a year ago due to higher net interest income and fee income. These were however partially offset by an 20% decline in other non-interest income.

Net interest income increased 9% to $1.98 billion. Loans rose 8% or $24 billion to $314 billion, which included $6 billion from the consolidation of the Singapore, Hong Kong and China operations of the wealth management and retail banking business acquired from ANZ.

Net fee income rose 12% to $685 million from broad-based growth. Higher sales of unit trusts and other investment products resulted in a double-digit percentage increase in wealth management fees to $272 million. Investment banking fees rose 19% to $64 million from higher advisory income. Transaction banking fees grew 5% to $154 million from higher cash management income.

Other non-interest income fell 20% to $399 million due to lower trading income as well as the impact of a $41 million property disposal gain a year ago. These declines were partially offset by higher gains on investment securities.

The lender says underlying growth was broad-based across corporate, trade and Singapore housing loans. Net interest margin was four basis points lower at 1.73%.

Expenses rose 5% to $1.26 billion and the cost-income ratio was stable from a year ago at 41%. Profit before allowances increased 4% to $1.80 billion.

DBS says its exposure to the oil and gas support services sector amounted to $5.3 billion in 3Q, less than 2% of its overall loan portfolio.

As at Sept 30, oil and gas support services non-performing assets amounted to $3.0 billion, for which cumulative specific allowances of $1.5 billion have been made.

General allowance reserves continued stood at $2.6 billion, which were in excess of both the 1% general allowance requirement by the MAS and the amount that would have to be set aside under FRS 109 from Jan 1 2018.

The overall NPL rate rose from 1.5% in the previous quarter to 1.7%.

The Common Equity Tier-1 ratio was at 14.0%, declining 0.4 percentage points from the previous quarter as balance sheet growth and the payment of interim dividends more than offset the capital accretion from the third quarter’s earnings. The leverage ratio of 7.5% was more than twice the minimum of 3% currently envisaged by the Basel Committee.

Adds Gupta, “Broad-based loan and fee income growth propelled third-quarter and nine-month total income and profit before allowances to new highs, more than offsetting the impact of less favourable interest rates and trading income. Our digitalisation efforts are progressively transforming the bank, generating customer benefits and creating shareholder returns.”

Shares in DBS closed 3 cents lower at $22.97 on Friday.