Tuesday, October 25, 2016

Quality Concerns Front-And-Center At DBS Group

It's a lot easier to lose a reputation than to gain it, and DBS Group (OTCPK:DBSDY) has investors worrying about whether they're about to see a flashback to the bad old days of unexpectedly high bad loans at this leading Singapore bank. With a major recent bankruptcy from a debtor that wasn't even flagged as a problem, concerns about credit quality, balance sheet quality, and even management quality are back in investors' minds. And if that weren't enough, China isn't exactly the picture of health and DBS is running out of levers to pull to keep its peer-high net interest margin strong.

I suppose the fact that the ADRs are only down about 6% since my last update is actually sort of good news given how sentiment has turned (the average sell-side target price is 15% lower than back in March). I still believe this is a good bank, but the sort of provisioning and credit losses that the bank reports over the next couple of years will show whether that belief is well-founded. I've cut my expectations to what looks like a low bar (roughly 2% growth over the next five years, and about 6% growth over the long term), but anyone who remembers back to our own banking crisis will know how badly wrong those projections can go if credit quality really falls away.

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Quality Concerns Front-And-Center At DBS Group

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