The bank said more than half of the margin decline was due to a shift in the securities portfolio towards higher-quality issues with lower yields.
In addition, deposit costs were higher due to competition for USD and HKD funding.
DBS Group Holdings, however, has recorded net earnings of SGD 718 million for the second quarter 2010, before a goodwill impairment charge of SGD 1.02 billion for DBS Hong Kong Limited, according to a DBS financial report.
The earnings were up 30% from a year ago and 35% from the previous quarter.
Allowance coverage exceeded 100% as additional general allowances were taken and asset quality continued to improve. The quarterly earnings were the highest in DBS’ history.
Net interest income remained stable at SGD 1.07 billion. DBS utilised its capital and liquidity position to support customers’ financing needs as regional economic conditions strengthened.
Loans expanded 9% from the previous quarter from broad-based regional corporate loan demand and from housing loan drawdowns in Singapore and Hong Kong.
DBS was also active in supporting corporate customers’ financing needs through bond issues.
Non-interest income rose 16% from the previous quarter to SGD 748 million.
Fee income increased 5% to SGD 358 million, according to the report. Wealth management fees benefited from increased product sales while credit card revenues increased with higher transaction volumes.
Trading income found 21% growth from the previous quarter to SGD 278 million. DBS said the rise was driven by customer revenues, which grew 45% and accounted for more than half of total trading income.
Investment gains doubled to SGD 98 million as there were increased opportunities for profit-taking of debt securities.
Meanwhile, expenses rose 2% from the previous quarter to SGD 717 million. The cost-income ratio was little changed at 40%.
Specific allowances for loans fell from SGD 324 million in the previous quarter to SGD 68 million as asset quality improved.
Non-performing assets declined 8% to SGD 3.72 billion due to customer repayments, bringing the non-performing loan rate down from 2.7% to 2.3%.
General allowances of SGD 124 million were also set aside in line with loan growth. Cumulative allowances rose to 101% of non-performing assets from 92% in the previous quarter.
Return on equity was 11.1% and return on assets was 1.07%, compared with 8.2% and 0.82% respectively in the previous quarter.
DBS CEO Piyush Gupta said, “DBS’ core earnings reached a record high this quarter, reflecting the strong growth in underlying drivers in line with our strategic direction. In addition, notwithstanding the goodwill impairment, we remain structurally bullish on prospects for Hong Kong and China, which are integral to the Asia growth story. Hong Kong is the anchor for our Greater China operations, and we will continue to build the business."
DBS continues to participate in Asia’s growth with its healthy liquidity and a capital adequacy ratio of 16.5% and a tier-1 ratio of 13.1% remain above regulatory requirements.
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