SINGAPORE (Reuters) - Southeast Asia’s biggest lender DBS Group Holdings Ltd beat market estimates to post a record quarterly profit, as strong lending income offset weakness in wealth management, brokerage and investment banking fees.

FILE PHOTO: A DBS bank signage is pictured in Singapore September 5, 2017. REUTERS/Edgar Su/File Photo

DBS, the first Singapore bank to kick off the sector’s results, posted an 8.5 percent rise in first-quarter net profit from a year earlier, and said the macro-economic environment had stabilized.

“By and large, I’m relatively sanguine about the business momentum,” CEO Piyush Gupta told a news conference. DBS maintained its forecast of mid-single-digit loan growth for this year and stable net interest margins, a key gauge of profitability.

The lender’s shares advanced 2.8 percent to their highest since June 2018, outperforming a 0.9 percent rise in the broader market.

“Overall, core driver was in line with expectations, we expect similar trends for peers as well,” Jefferies analyst Krishna Guha said in a report. “We were positively surprised by strength in trading gains,” he said.

United Overseas Bank reports results on May 3 followed by Oversea-Chinese Banking Corp a week later.

DBS reported a net profit of S$1.65 billion ($1.21 billion) for the three months to end-March, up from S$1.52 billion a year earlier and an average estimate of S$1.48 billion from four analysts, according to Refinitiv I/B/E/S.

After three years of strong loans growth, Singapore’s banks are gearing up for tougher times as the city-state’s export-reliant economy slows.

Preliminary data for Singapore’s first-quarter GDP released earlier this month confirmed the city-state was experiencing its weakest year-on-year growth in almost a decade. A trade war between the United States and China - two of Singapore’s biggest export markets - has disrupted global supply chains in a blow to growth in many trade-reliant economies including the city state.

DBS, nearly 30 percent owned by state investor Temasek Holdings, said its loans grew 1 percent in the latest quarter from the fourth quarter. Non-trade corporate loans rose 3 percent while trade loans declined 4 percent.

When asked about the big risks for the business for this year, Gupta highlighted a steep collapse in the interest rate environment if the U.S. Federal Reserve started to cut rates, but said he doesn’t foresee that happening.

He, however, singled out the Singapore mortgage market as a weak spot. “For the first time in a long, long time, we actually show a shrinkage in our mortgage loan book in the first quarter,” Gupta said.

“Our bookings continue to be soft and the amount of refinancing transactions in the market are actually very low, about half of what they were a year ago.”

Still, DBS’s return on equity rose to 14 percent, its highest in more than a decade. Net interest margin rose five basis points to 1.88 percent, in line with higher interest rates in Singapore and Hong Kong.

“The record earnings and return on equity (ROE) progression demonstrate the strengthened profitability of our franchise from digitalization, a shift toward higher-returns businesses and more nimble execution,” Gupta said.