SINGAPORE — DBS Group expects to report higher profit before allowances next year after Southeast Asia's largest bank beat estimates with a 31 per cent rise in third quarter net profit, aided by growth in fee income and improving asset quality.

Friday's (Nov 5) result rounded out a robust quarter for Singapore banks such as OCBC and United Overseas Bank, just as global lenders are rebounding in markets hit by the Covid-19 pandemic and amid improved economic activity.

"Loan growth for the three banks already saw some recovery, and benefits of lower credit costs are already in the bottom line," said Mr Kevin Kwek, a senior analyst at Sanford C. Bernstein. "Significant upside has to come from surprises on robustness of growth, and rates."

Singapore, recovering from last year's record recession, is re-opening its borders with 85 per cent of its population fully vaccinated against Covid-19. The city-state's economy is expected to grow 6 per cent –7 per cent this year.

The performance of Singapore banks is being powered by a strong showing in their wealth management businesses, while they are also set to benefit from interest rates ticking up from record lows.

DBS reported net profit of S$1.7 billion in July-September versus S$1.3 billion from a year earlier and the S$1.57 billion average forecast from four analysts compiled by Refinitiv.

"Our pipeline as we go forward into next year reflects that the momentum should continue," DBS CEO Piyush Gupta told reporters, adding that the bank is likely to post 6-7 per cent loan growth next year versus 4-5 per cent in a normal pre-pandemic year.

Shares of DBS, trading near record highs, rose 0.2 per cent on Friday, having gained nearly 29 per cent so far this year versus an 18 per cent rise in OCBC and a 20 per cent increase in UOB's shares.

"We were originally planning not to do salary hikes this year but the market situation and conditions compelled us to take salary actions in the middle of the year," Mr Gupta said, highlighting higher costs.

DBS expects its asset quality to stay resilient and total allowances to remain low.

"As the revenue drivers further strengthen and if credit cost stays below normal, the group looks poised to deliver steady growth next year," Mr Krishna Guha, an analyst at Jefferies," said in a report.

DBS wrote back credit allowances of S$70 million in the quarter, helping boost profits, compared with credit charges of S$554 million booked in the year-ago period.

Profit before allowances fell 7 per cent to S$1.89 billion in the quarter. DBS' net interest margin, a key gauge of profitability, dipped to 1.43 per cent from 1.53 per cent a year earlier.

This year, Mr Gupta spearheaded DBS' purchase of a stake in a privately-owned Chinese bank, months after acquiring a distressed Indian lender. DBS has also forayed into new ventures, including a digital exchange, to boost revenue. REUTERS