Singapore's largest bank, DBS Group, has earmarked $74 million (S$100 million) in allowances in connection with the city-state's $2 billion money laundering scandal. These specific allowances are considerably higher than in recent quarters and have been set aside to cover contingencies related to exposure associated with a major money laundering investigation in Singapore, one of the largest such cases in the country's history.
DBS has provisioned for expected credit losses at a level eight times higher than during the same period in 2022. Notably, $100 million of these provisions are directly tied to the money laundering scandal. The scandal has ensnared several local and global banks, with approximately S$2.8 billion in assets frozen or seized by the police. This includes 150 properties associated with around 10 Chinese-born customers, suspected of having connections to funds originating from overseas online gambling rings.
Despite the scandal's repercussions in the financial sector, DBS CEO Piyush Gupta expressed confidence that new funds would continue to flow into the financial hub, stating, "I don't see the flows to suffer."
Despite the money laundering scandal, DBS reported a better-than-expected 18% increase in third-quarter net profit, driven by higher interest rates. The bank has also forecast that these higher interest rates will help maintain its profit at a steady level next year, with Gupta stating, "Net profit (for 2024) to be maintained around the record 2023 level."
DBS's strong balance sheet, ample liquidity, prudent general allowance reserves, and healthy capital ratios provide it with robust buffers against macroeconomic uncertainties. The bank's solid performance is attributed to higher interest margins and fee income.
Gupta anticipates that wealth management and cards will contribute to sustained fee income momentum. He also forecasts that next year's profit before allowances will be higher, with total allowances normalizing to 17-20 basis points of loans.
DBS was recently restricted by Singapore's central bank from acquiring new businesses or making non-essential IT changes for a six-month period. This move is aimed at ensuring that the bank focuses on strengthening its digital banking services following disruptions earlier in the year. Gupta assured that DBS would implement a comprehensive set of measures to address these digital disruptions.
Singapore's economic stability and strong inflows of wealth have been advantageous to its banks, including DBS. However, global economic uncertainties could pose challenges to Singapore's economic prospects.
Smaller peer United Overseas Bank reported a weaker-than-expected 1% drop in third-quarter net profit last month. Oversea-Chinese Banking Corp is set to announce its quarterly results on November 10.
By fLEXI tEAM