Headwinds related to China and stresses in the oil and gas support services sector have affected the full-year result of Singapore-based DBS Group in 2016.

Singapore’s DBS Group reported a net profit of S$ 4.24 billion for 2016, 2 percent below a year ago as a stronger operating performance was offset by higher allowances.

Total income rose 6 percent to a record S$ 11.5 billion from higher loan volumes, improved net interest margin and broad-based non-interest income growth, according to a press release sent on Thursday.

Non-performing Loan Rate Rose

Productivity gains from digitalisation and cost management initiatives contained expense growth to 1 percent. As a result, profit before allowances increased 10 percent to a new high of S$ 6.52 billion.

The operating performance provided headroom for higher specific allowances to be taken as the non-performing loan rate rose from 0.9 percent to 1.4 percent due largely to stresses in the oil and gas support services sector. Capital and liquidity continued to be strong and well above regulatory requirements.

Unchanged Dividend

The Board proposed a final dividend of 30 cents per share for approval at the forthcoming annual general meeting. This will bring the full-year dividend to 60 cents per share, unchanged from a year ago.

«The strong operating performance is the payoff from investments we made to build multiple business engines and to digitalise the bank. They enabled us to meet headwinds related to China and stresses in the oil and gas support services sector,» DBS CEO Piyush Gupta said.

Divestment Gains

On 10 February 2017, DBS announced that it had sold its equity interest in DBS China Square Limited, whose main asset is PWC Building in Singapore.

The divestment gains of S$ 350 million, which will be recorded in the first quarter 2017 results, will be set aside as general allowances, raising general allowance reserves to S$ 3.52 billion and allowance coverage to 104 percent.

Declines in China-related Trade Finance

Consumer Banking/Wealth Management income rose 21 percent to S$ 4.28 billion. The growth was broad-based across loans, deposits, bancassurance and cards.

Wealth Management customer segment income increased 19 percent to S$ 1.68 billion with assets under management growing 14 percent during the year to S$ 166 billion.

Institutional Banking income was stable at S$ 5.22 billion. Growth in cash management and capital market activities was offset by declines in China-related trade finance and treasury sales of RMB hedging products. Treasury segment income was also stable at S$ 1.13 billion

Fourth-quarter Earnings Lower

For the fourth quarter, net profit declined 9 percent from a year ago to S$ 913 million.

Total income rose 5 percent to S$ 2.78 billion as non-interest income growth more than offset the impact of a lower net interest margin.

The productivity gains from digitalisation and cost management initiatives resulted in a 2 percent decline in expenses, which contributed to a 10 percent increase in profit before allowances to S$ 1.55 billion. The improved operating performance was more than offset by a doubling of total allowances.

Compared to the previous quarter, fourth-quarter net profit was 15 percent lower as seasonal factors contributed to a 5 percent decline in total income and 2 percent increase in expenses. Profit before allowances was 10 percent lower.