A logo of DBS is pictured outside an office in Singapore January 5, 2016.
A logo of DBS is pictured outside an office in Singapore January 5, 2016. Reuters / Edgar Su

DBS Group flagged strong business momentum after its profit rose to a record last year, cementing a recovery for Southeast Asia's largest lender as pandemic-hit economies rebound and boost loan growth and asset quality.

Singapore lenders are also expected to be big beneficiaries of rising interest rates, while the city-state's economy is forecast to grow 3% to 5% this year after expanding at its fastest annual pace in over a decade in 2021.

Krishna Guha, an analyst at Jefferies said on Monday that while the bank's fourth-quarter profit was slightly below estimates due to lower than expected non-interest income, growth in other revenue metrics was "outstanding."

"Guidance for 2022 is in line with our current inputs but for the credit costs, and is likely to be the next driver of positive earnings revisions," Guha said in a note.

DBS, the first Singapore bank to report this season, said net profit for October-December rose to S$1.39 billion ($1.03 billion) and follows a particularly weak pandemic-hit year when profit tumbled to a three-year low in the fourth quarter.

The result, however, missed an average estimate of S$1.47 billion from four analysts polled by Refinitiv, and was also 18% lower than the third quarter, hit by a 41% drop in non-interest income. DBS shares traded flat on Monday.

"As I look forward, the pipelines are looking good," Chief Executive Piyush Gupta told a news conference on Monday, adding that DBS was seeing all-round robust growth across its wealth management, transaction banking and investment banking businesses.

He said risks included the uncertainty on the level and timing of U.S. rate increases, and China's moves to combat the spread of the Omicron variant of the coronavirus and the impact on the world's second-largest economy.

Under Gupta, DBS has pumped in billions of dollars to upgrade its technology infrastructure over the past decade as it embraced cloud computing and digitised services.

Since Gupta took charge in 2009, DBS has broken into the ranks of the top wealth managers in Asia, acquired a bank in India and one in China over the past year, and forayed into businesses such as a digital exchange and a global carbon exchange to tap new revenue streams.

DBS, which earns most of its profit from Singapore and Hong Kong, struck a deal last month to pay S$956 million to buy Citigroup's consumer business in Taiwan, as it shores up regional acquisitions to power growth.

DBS expects mid-to-single digit loan growth or better this year, after reporting a 9% increase last year.

The bank's full-year profit rose 44% to a record S$6.8 billion as 9% growth in loans, the highest in seven years, and a surge in wealth management and transaction banking services fees offset the impact of lower interest rates.

U.S. interest rate futures are more or less fully priced for a half-point increase in March and up to 1.75 percentage points of tightening by year end, according to CME Group's FedWatch tool.

For the latest quarter, DBS said allowances for loan losses decreased to S$33 million in the latest quarter from S$577 million a year earlier.

Buoyed by the improved outlook for banks, investors have pushed up Singapore bank stocks this year, with DBS and smaller rival UOB trading near record highs.

($1 = 1.3464 Singapore dollars)