Singapore's DBS profit beats forecasts, stocks rise

SINGAPORE, May 4 (Reuters) DBS Group Holdings, Singapore's biggest bank, beat market expectations on Friday with a 19 percent rise in quarterly profit, thanks to higher earnings from lending as well as stronger fee income from securities trading.

The better-than-expected profit lifted DBS shares by as much as 2.7 percent.

DBS said loan grew 20 percent in the first quarter, topping the Singapore banking industry's growth of 10.3 percent.

Analysts expect a property boom and a recovering construction sector to fuel loan growth for the rest of the year.

''DBS' Q1 results were significantly above expectations,'' said Harsh Wardhan Modi, an analyst at JPMorgan, who set a price target of S.10, a premium of 7.6 percent over its share price.

''We expect the stock to reverse its year-to-date underperformance.'' The bank, in which state investor Temasek [TEM.UL] has a 28 percent stake, earned first-quarter net profit of S7 million (5 million), compared with S8 million a year ago and against an average forecast of S2 million by analysts polled by Reuters.

DBS' shares have lagged rivals this year because of concerns that the bank, which has huge money market positions, might be more exposed to a fall in interest rates in Singapore.

DBS shares have gained just under 1 percent since the start of the year, while rival United Overseas Bank (UOB) shares gained around 19 percent, and Oversea-Chinese Banking Corp. (OCBC) rose 23 percent. The Straits Times Index <.sti> added 17 percent this year.

LOANS BEAT INDUSTRY David Lum, an analyst at Daiwa Institute of Research, said the result showed that DBS managed to maintain strong interest income despite a fall in interest rates in the first quarter.

''The risk this time was that the net interest income may be hurt by lower interest rates, but the result shows it was resilient.'' DBS is the biggest among the three Singapore banks in terms of assets, but its stock market value has fallen behind that of United Overseas Bank in the past few weeks.

DBS opened the quarterly reporting season for banks and is due to be followed by UOB on May 8 and OCBC on May 9.

On the revenue side, interest income for the quarter rose 15 percent to S4 million from a year ago, while fee and commission income rose 18 percent to S9 million.

Interest margins were little changed at 2.21 percent in the first quarter, compared with 2.23 percent a year ago, despite a decline in domestic interest rates.

Operating expenses climbed 17 percent to S8 million but the bank's cost and income ratio declined to 42.7 percent from 44.4 percent a year ago as income growth outpaced the cost increase.

REUTERS PV DS1455