DBS strengthens reserves as Q1 profit dips amid global uncertainty

[SINGAPORE] DBS Group, Singapore’s largest bank, increased its general allowance reserves on Thursday in response to growing macroeconomic and geopolitical risks, after reporting a 2% decline in first-quarter net profit compared to the same period last year. However, the results exceeded analysts' expectations.

The decision to boost reserves comes at a time when global central banks are dealing with prolonged high interest rates and inflationary pressures, which have resulted in tighter liquidity conditions. Analysts believe DBS’s proactive approach to provisioning highlights a cautious strategy in anticipation of potential loan defaults, particularly in industries vulnerable to global trade disruptions such as manufacturing and commodities.

“Recent escalations in trade tensions have amplified macroeconomic risks and market volatility,” said DBS Chief Executive Tan Su Shan in a statement. “As uncertainty continues, we will remain agile in seizing opportunities while carefully managing risks.”

This emphasis on risk management mirrors a broader industry trend where financial institutions are prioritizing the resilience of their balance sheets. Other regional banks, including Japan’s Mitsubishi UFJ and Australia’s Commonwealth Bank, have also raised provisions in recent months, signaling a sector-wide shift towards more defensive strategies.

DBS’s quarterly results followed those of smaller rival United Overseas Bank, which reported a stable but weaker-than-expected first-quarter net profit on Wednesday and refrained from issuing guidance for 2025 due to uncertainties related to U.S. tariffs.

Global banks, including HSBC and Standard Chartered, have also expressed concerns about the potential risks to economic growth stemming from U.S. President Donald Trump’s tariff policies.

The effects of U.S. trade policies are particularly evident in Asia, where export-driven economies are facing mounting pressure. As a global financial center, Singapore remains susceptible to changes in trade flows and investment sentiment, leading banks like DBS to adopt a more cautious outlook.

DBS, Southeast Asia's largest lender by assets, reported a net profit of S$2.9 billion for the January-March period, down from S$2.95 billion a year earlier. The decline was mainly attributed to higher tax expenses stemming from the introduction of a 15% global minimum tax, marking the first year-on-year drop since Q1 2022.

Despite this, the result surpassed the consensus estimate of S$2.82 billion, according to data from LSEG.

The bank's pre-tax profit reached a record S$3.44 billion in Q1, slightly above the same period last year, as total income rose to a new high due to strong business growth, as per the bank's financial statement.

Despite the net profit dip, DBS demonstrated resilience in its wealth management and fee-based income segments, which grew by 8% year-on-year. This highlights the success of the bank’s diversification strategy, which has helped it weather interest rate fluctuations.

As part of its precautionary measures, DBS also took a general allowance of S$205 million to bolster its provision reserves, which now stand at S$4.16 billion, in light of ongoing macroeconomic and geopolitical uncertainties.

In addition to its financial results, DBS announced an ordinary dividend of 60 Singapore cents per share and a capital return dividend of 15 cents for the first quarter. The bank’s return on equity for Q1 was 17.3%, down from 19.4% in the same period last year.

The net interest margin, a key measure of profitability, fell to 2.12% in the first quarter, down slightly from 2.14% in the same period a year ago.

Looking ahead, market analysts will closely monitor how DBS navigates the challenges of tighter regulatory scrutiny and slower loan growth in key markets such as Hong Kong and China. The bank’s ability to maintain its dividend payments while strengthening its capital buffers will be crucial to retaining investor confidence.

OCBC Bank is set to report its results on Friday. (US$1 = S$1.2940).