ANZ acquisition buoys DBS' loan and fee income figures in Q1

Loan growth rose 10%.

DBS’ acquisition of Sydney-based ANZ’s operations in Asia has boosted the former to strong financial footing at the start of the year, according to a report from Jefferies.

Also read: DBS profit up 26% to $1.15b in Q1

Net interest income rose 16% YoY amidst higher gross loan growth (10%) buoyed by the acquisition as well as sustained demand for mortgage, trade finance and corporate loans.

The divestment also boosted DBS’ wealth management business alongside higher fee income growth (15%).

The bank is also set for high profitability in the medium term as it ramps up its digitalisation agenda and changing product mix between SME and mortgage lending.

Here’s more from Jefferies: 

Management maintained 8% loan growth guidance for the full-year. Margins for the quarter rose to 183 bps, +9 bps YoY, +5 bps QoQ due to higher base rates. HK margin was up 8 bps YoY, 9 bps QoQ. Management reiterated full-year margin guidance of 185 bps. On the back of better pass through of USD rate hikes, we raise our full-year margin estimate from 181 bps to 185 bps.

Sharp decline in credit cost as gross NPA trend down - Gross NPA declined 4% from the previous quarter. New NPA formation fell to the lowest in four years and was more than offset by recoveries and write-offs. Coverage rose by 5 ppt to 90%. Annualized credit cost was 20 bps. Rising rates may be detrimental to asset quality though higher oil prices may also lead to some recoveries. We lower our credit cost for full-year from 26 bps to 22 bps.

Good cost control but CIR guidance maintained at 43% - Expenses rose 12% YoY and 3% QoQ achieving positive jaws versus prior comparative periods. Notwithstanding the cost control, full-year CIR guidance was unchanged due to the possibility of additional headcount, more investment in staff and technology, etc.