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 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 eased 0.6% in early Monday trade.

"We look forward to the coming year with a prudently managed balance sheet that is poised to benefit from rising interest rates," DBS CEO Piyush Gupta said in a statement, adding that the bank expects mid-to-single digit loan growth or better this year, after reporting a 9% increase last year.

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.

The Singapore lender's full-year profit rose 44% to a record S$6.8 billion as a 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.

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.