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DBS Group CEO Piyush Gupta said the bank’s asset management and capital markets businesses continued to have “challenges”, despite the bank posting strong second-quarter earnings.

“Business momentum is a little bit mixed. Our corporate lending activities are actually doing quite well. And so balance sheets continue to grow,” Gupta told CNBC’s “Capital Connection” after the bank’s results were released Thursday.

“Private banking clients have been reluctant to put money into the business, which is clearly a challenge. Headwinds in asset management and capital markets mean that overall fee income … is lower year-on-year,” he added.

DBS, Southeast Asia‘s largest bank, reported a 12% drop in net fee income in the second quarter due to lower contributions from asset management and investment banking compared to last year.

Net fee income in the first half fell 9% from a year earlier to S$1.66 billion (US$1.2 billion). Asset management fees fell 21% to S$745 million as weaker market conditions led to lower sales of investment products, DBS said. Investment banking fees also fell 36% to S$73 million as capital market activity eased.

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Uncertain outlook

Gupta said the outlook for the asset management business remains uncertain given the current market sentiment. Read also : Ohio Politics Explained podcast: police reform after Akron death, abortion and impeachment.

“If the markets start to change and you start seeing more animal spirits, we may do some more deals in the capital markets – and asset management, private banking clients may become more active,” the executive said.

“But like I said, at this point, I’m not holding my breath about what’s going to happen,” he added.

On Thursday, DBS reported that net profit rose to S$1.82 billion in the April-June period from S$1.7 billion a year earlier. That’s higher than the average forecast of S$1.69 billion, according to Refinitiv data.

The bank’s net interest margin rose to 1.58% in the quarter, up from 1.45% a year ago.

“Net interest margin, which had been in decline since 2019, increased in the first quarter as interest rate hikes began, and the improvement accelerated in the second quarter. Net interest margin for the first half was 1.52%, five basis points higher than a year ago,” DBS said in its report.

Gupta said the increase in net interest margin was “the biggest story”, noting the sharp increase. He noted that net interest margin projections “are quite robust in the third and fourth quarters.”

“And if that’s the case, then yes, it’s a net interest margin expansion story that will drive business,” Gupta said.

DBS said the board declared an interim tax-free single-tier dividend of 36 cents for each DBS ordinary share for the second quarter of 2022.

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