The worst is over for DBS' bad loans: analyst

Its NPLs are predicted to moderate from the 2016 level.

According to OCBC Investment Research, DBS’ non-performing loan formation to moderate from 2016 highs. This goes along with improvements in its net earnings in 1Q17.

The Singaporean bank reported its net earnings of S$ 1.2b, higher than consensus estimates. The bank showed improvement in several fronts including non-interest income brought by better Fee and Commission Income. Net profit amounted to S$1.25b supported by gains on wealth and consumer banking.

“With a healthy loans pipeline, still growing wealth income and a careful watch over cost, we have taken the above into our earnings projections, raising our F17 earnings from S$4488m to S$4674m,” OCBC Investment Research said.

DBS went higher than consensus estimates of S$ 1.12b as polled by Bloomberg. Net earnings went up 1% YoY or 33% QoQ. Net Interest Margins improved from 1.71% from the last quarter to 1.74%. Its management expects NPLs to continue in Oil & Gas support service sectors, but to come off from last year’s level.

Future value also increased to S$ 19.97 per share as the worst appears to be over for its NPLs. DBS fair value continues to increase with an estimate of S$ 18.99 to S$ 19.97 as it increased by 12%. With its current price, the DBS maintains its hold rating.

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