* Net profit S$1.7 bln, up 31% on-year; beats market estimate
* Profit shored up by negligible provisions
* Bank expects higher profit before allowances in 2022
* CEO expects 6-7% loan growth next year
* Shares rise 0.2% to near record high, outperform this year
SINGAPORE, Nov 5 (Reuters) - DBS Group expects to report higher profit before allowances next year after Southeast Asia's largest bank beat estimates with a 31% rise in third quarter net profit, aided by growth in fee income and improving asset quality.
Friday's result rounded out a robust quarter for Singapore banks such as OCBC and United Overseas Bank, just as global lenders are rebounding in markets hit by the COVID-19 pandemic and amid improved economic activity.
"Loan growth for the three banks already saw some recovery, and benefits of lower credit costs are already in the bottom line," said Kevin Kwek, a senior analyst at Sanford C. Bernstein. "Significant upside has to come from surprises on robustness of growth, and rates."
Singapore, recovering from last year's record recession, is re-opening its borders with 85% of its population fully vaccinated against the COVID-19 virus. The city-state's economy is expected to grow 6%–7% this year.
The performance of Singapore banks is being powered by a strong showing in their wealth management businesses, while they are also set to benefit from interest rates ticking up from record lows.
DBS reported net profit of S$1.7 billion ($1.26 billion) in July-September versus S$1.30 billion from a year earlier and the S$1.57 billion average forecast from four analysts compiled by Refinitiv.
"Our pipeline as we go forward into next year reflects that the momentum should continue," DBS CEO Piyush Gupta told reporters, adding that the bank is likely to post 6-7% loan growth next year versus 4-5% in a normal pre-pandemic year.
Shares of DBS, trading near record highs, rose 0.2% on Friday, having gained nearly 29% so far this year versus an 18% rise in OCBC and a 20% increase in UOB's shares.
"We were originally planning not to do salary hikes this year but the market situation and conditions compelled us to take salary actions in the middle of the year," Gupta said, highlighting higher costs.
DBS expects its asset quality to stay resilient and total allowances to remain low.
"As the revenue drivers further strengthen and if credit cost stays below normal, the group looks poised to deliver steady growth next year," Krishna Guha, an analyst at Jefferies," said in a report.
DBS wrote back credit allowances of S$70 million in the quarter, helping boost profits, compared with credit charges of S$554 million booked in the year-ago period.
Profit before allowances fell 7% to S$1.89 billion in the quarter. DBS' net interest margin, a key gauge of profitability, dipped to 1.43% from 1.53% a year earlier.
This year, Gupta spearheaded DBS' purchase of a stake in a privately-owned Chinese bank, months after acquiring a distressed Indian lender. DBS has also forayed into new ventures, including a digital exchange, to boost revenue.
($1 = 1.3512 Singapore dollars) (Reporting by Anshuman Daga; Editing by Chris Reese and Sam Holmes)