DBS (DBSM.SI), Southeast Asia’s biggest lender, posted a record quarterly profit on Thursday and joined rivals in beating expectations as falling bad debts and strong trading income helped it overcome low interest rates.

But weak margins on loans at Singapore banks due to low US rates and an expected economic slowdown in the months ahead could slow the pace of earnings recovery this year.

“This year we have been able to leverage the strength of our customer franchise to expand our loan book and increase cross-sell, thus mitigating the effects of headwinds in a low rate market,” CEO Piyush Gupta said in a statement. 

“Going forward, we will continue to focus single-mindedly on execution so as to consistently deliver quality earnings.

DBS posted a net profit of $722 million in July-September against $563 million a year earlier, up 28%.

That compared with an average forecast of $645 million, according to seven analysts surveyed by Reuters.

Bad debts declined 26% to $195 million from a year earlier.

DBS’s smaller rivals Oversea-Chinese Banking Corp (OCBC.SI) and United Overseas Bank (UOBH.SI) have both announced better-than-expected quarterly earnings.

Asian banks have benefited from the region’s strong economic recovery which has helped reduce bad debts and boosted loan growth.

DBS said loans grew 15% in the third quarter from a year earlier, faster than UOB’s 8.7% expansion, but slower than OCBC’s 29% growth.

Net interest income, however, dropped 5% to $1.08 billion as net interest margins declined by 23 basis points, compared with an 18-basis-point decline for OCBC and 32 basis points for UOB.

Fee and commission income for DBS fell 6% to $340 million, while trading income more than doubled to $235 million.

The revival of Singapore’s IPO market this year is expected to help DBS earn more investment bank fees as it advised on the share sale of Global Logistic Properties’ (GLPL.SI) US$3 billion ($3.9 billion) and Mapletree Industrial Trust’s (MAPI.SI) US$720 million listing.

Singapore bank shares have underperformed the broader market this year as investors are concerned about weak margins as well as an economic slowdown in the next few quarters after a strong first half.

DBS shares are down 8.4% so far this year, underperforming both its rivals. UOB shares are down about 6% while OCBC, which has been bolstered by its private bank, is the only Singapore bank in the black this year, up 2.2%.



The overall Singapore index <.FTSTI> has climbed about 11% since the start of the year. 

DBS Group Holdings, Southeast Asia’s biggest bank, reported third-quarter profit that beat analysts’ estimates as loan growth outweighed narrowing interest margins.

Net income climbed 28% to a record $722 million in the three months ended Sept. 30, from $563 million a year earlier, the Singapore-based company said in a statement today. That beat the $655.3 million average of nine estimates compiled by Bloomberg.

DBS, led by Chief Executive Officer Piyush Gupta, is benefiting from a revival in credit growth as Asia’s economic expansion outpaces the rest of the world. That has spurred profit even as income from lending is crimped by low borrowing costs in Singapore and Hong Kong.

“Stronger loan momentum, and evidence that some fee-related initiatives are beginning to bear fruit” makes DBS a preferred pick, Robert Kong, a Singapore-based analyst at Citigroup Inc., wrote in a report on Oct 22.

Net interest income, or the difference between what the bank makes from lending and pays on deposits, rose 1% from the previous quarter to $1.1 billion. Loans rose 1%, spurred by corporate borrowing across Asia as well as home loans in Singapore. The net interest margin, a measure of loan profitability, declined four basis points to 1.8%.

Total loans in Singapore rose 12.1% from a year earlier to $309.4 billion in September, data from the Monetary Authority of Singapore show.



Non-interest income fell 2% from the previous quarter to $730 million, dragged down by a drop in loan-related fees, DBS said. Investment banking revenue rose, while trading income growth slowed, the statement said.