DBS profit falls 25% to US$588m in Q3

Blame the US$597m net allowance for its oil and gas support services.

DBS Bank's profit crashed by 25% YoY to US$588m in Q3, due to a sharp spike in allowances.

According to DBS, net allowances of US$597m were taken as residual weak oil and gas support services exposures were classified as non-performing assets (NPAs).

However, excluding allowances, profits rose 4% to US$1.3b.

Net interest income rose 9% YoY whilst non-interest income fell 3% YoY. Total income before allowances rose 3% YoY to US$1.3b.

The bank said its total exposure to the oil and gas support services sector amounted to US$3.9b, which is less than 2% of its overall loan portfolio.

In line with the impending implementation of Financial Reporting Standard 109, DBS accelerated the recognition of the residual weak cases as NPAs.

It got US$623m from its general allowance reserve, resulting in a net allowance charge of US$597.7m.

As of 30 September 2017, oil and gas support services non-performing assets amounted to US$2.2b, for which cumulative specific allowances of US$1.1b have been made.

OCBC Investment Research analyst Carmen Lee commented, "We expect some initial knee-jerk share price reaction to the higher-than-expected 3Q2017 allowances, especially in view of the recent good price outperformance. Pending more information and clarification after the analysts’ briefing later in the day, we put our rating and fair value estimate under review for now."