By Anshuman Daga
SINGAPORE (Reuters) - DBS Group's <DBSM.SI> second-quarter net profit slumped by a fifth as it boosted loan-loss provisions in a pandemic-hit market, but Southeast Asia's top lender said bad loans this quarter were steady and fee income was rising.
The profit beat market estimates and rose from the preceding quarter, sending its shares up 2% on Thursday. Singapore's bank shares have been pummelled recently following a capping of their dividends last week by the central bank.
"DBS did better with help on treasury income and surprisingly was again able to contain costs like Q1," said Kevin Kwek, a senior analyst at Sanford C. Bernstein.
He said given the circumstances, DBS' ability to maintain a 10% return on equity would be seen positively, especially in light of the recent stock price drop.
Investors are keen to see if the June quarter marked the trough for banks' net interest margins, a key measure of profitability, and whether lenders can effectively tackle loan losses in recession-hit economies.
Smaller rival United Overseas Bank <UOBH.SI> missed analysts' estimates with a 40% fall in quarterly net profit due to lower margins and higher credit costs.
DBS CEO Piyush Gupta said in a statement that the operating trends were in line with the bank's guidance and several fee income streams were improving from troughs in April as economies emerge from lockdowns.
Gupta maintained DBS' guidance for total allowances at S$3 billion-S$5 billion over two years, with S$1.9 billion already booked in the first half.
DBS expects 5% growth in full year loans, led by non-trade corporate loans.
The bank said profit for the June quarter fell to S$1.25 billion (695.42 million pounds) from S$1.6 billion a year earlier, and versus an average estimate of S$1.19 billion from five analysts, according to Refinitiv data.
The profit was above the first-quarter's S$1.16 billion number. Loan loss allowances also declined quarter on quarter.
DBS' net interest margin fell to 1.62% in the second quarter from 1.91% a year earlier.
(Reporting by Anshuman Daga; Editing by Shri Navaratnam; and Muralikumar Anantharaman)