By Yantoultra Ngui

SINGAPORE (Reuters) - Singapore's biggest bank, DBS Group, flagged risk from heightened uncertainty and tweaked its 2025 guidance after posting on Thursday a 2% drop in first-quarter net profit that beat expectations.

Shares of DBS rose 1.5% in morning trade, outperforming the benchmark index's 0.3% drop.

Jefferies, in a research note to clients, said the profit beat "underlines the underlying strength of DBS's franchise" and maintained its preference for DBS among Singaporean banks.

"Recent escalations in trade tensions have heightened macroeconomic risks and market volatility," DBS Chief Executive Tan Su Shan said in a statement. "As uncertainty persists, we will stay nimble to capture opportunities while prudently managing risks."

DBS broadly maintained its 2025 guidance, although it now expects three rate cuts versus two in the second half of this year, according to Tan's observations accompanying the results.

She added that funding would be deployed into non-loan assets if loan demand weakened, and projected commercial book non-interest income growth to be in the mid-to-high single digits, versus high-single digits expected in February.

Tan also said general provisions would provide a buffer, instead of potential for writebacks expected previously.

DBS's results followed that of smaller peer United Overseas Bank, which on Wednesday posted a stable yet weaker-than-expected first-quarter net profit and paused giving 2025 guidance due to uncertainties triggered by U.S. tariffs.

Other major global lenders such as HSBC and Standard Chartered have also highlighted the threat to economic growth due to the impact of U.S. President Donald Trump's tariffs.

DBS, which is Southeast Asia's biggest lender by assets, said its January-March net profit declined to S$2.9 billion ($2.24 billion) from S$2.95 billion a year earlier, due to higher tax expenses from the implementation of the 15% global minimum tax. It was the first on-year drop since the first quarter of 2022.

But the result beat the mean estimate of S$2.82 billion from two analysts, according to LSEG data.

Profit before tax hit a record of S$3.44 billion in the first quarter, slightly higher than a year ago, as total income reached a new high from robust business growth, according to the bank's financial statement.

DBS said it took a general allowance of S$205 million as a prudent measure to strengthen general provision reserves to S$4.16 billion in light of recent developments that have added to macroeconomic and geopolitical uncertainty.

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It announced an ordinary dividend of 60 Singapore cents per share and a capital return dividend of 15 cents for the first quarter.

DBS's first-quarter return on equity was 17.3%, down from 19.4% a year ago.

Net interest margin, a key gauge of profitability, dropped to 2.12% in the first quarter from 2.14% in the same period a year earlier.

Oversea-Chinese Banking Corporation is scheduled to report its results on Friday.

($1 = 1.2940 Singapore dollars)

(Reporting by Yantoultra Ngui; Editing by Chris Reese and Stephen Coates)

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