Singapore lenders eye bigger stage in Asia

SINGAPORE — Not content with being a big fish in a small pond, Singapore banks DBS, OCBC and UOB have experienced modest success in venturing beyond South-east Asia. Stringent regulations, growing protectionism and political instability are among the obstacles in their way.

Nevertheless, due to a wealth of factors, there seems to be no better time for local banks to make their mark on the regional and global stage, but they would have their work cut out for them as they compete against domestic and international lenders, and ramp up capabilities in infrastructural financing, which would be a significant growth area.

As DBS chief executive officer Piyush Gupta put it: “(Apart from) the deepening of Asian capital markets and massive demand for financing as infrastructure building in Asia picks up, rising affluence and wealth creation as well as an ageing population in Asia are giving rise to different kinds of wealth-management needs. The digital revolution will fundamentally redefine the banking sector in a few short years.”

Collectively, the Greater China region comprising mainland China, Hong Kong, Macau and Taiwan is a key overseas market for the three Singapore banks. Under the Chinese government’s encouragement, Chinese firms are expanding and investing overseas, and Singapore banks have been quick to help these companies gain a foothold in South-east Asia.

OCBC Bank Group CEO Samuel Tsien said: “Resource-rich countries such as Indonesia are naturally attractive investment destinations for Chinese companies. This means we serve not just the onshore needs of our customers in each Greater China market. As importantly, we address their cross-border and offshore needs in South-east Asia.”

OCBC’s Greater China strategy is premised on the opportunities arising from growing capital, trade, investment and wealth accumulation and flows between the Greater China region and the rest of Asia, added Mr Tsien.

OCBC plans to deepen its presence in Malaysia and Indonesia, and connect North- and South-east Asia through its position as a regional group offering diverse financial services. “We bring our core businesses of retail and commercial banking, wealth management and insurance to each market, underpinning these businesses with our core competencies in risk management, a diversified funding base and continued investments in technology and people,” said Mr Tsien.

For UOB, European and North American investors’ interest in Asia also presents opportunities. The bank’s group head of global strategy Ian Wong said: “Intra-regional trade in Asia will remain integral to the region’s economic growth. But, we also see a rise in inbound investment in Asia from Europe and America.”

He added: “We are working closely with our ecosystem partners in recovering OECD (Organisation for Economic Cooperation and Development) countries to drive investment, trade and wealth to Asia ... We will enhance our geographical footprint ... with new branches in China and Myanmar.”

Industry experts said the internationalisation of the yuan had further drawn banks to the Chinese market. With the currency becoming one used for payments, foreign direct investment, overseas direct investment and individual savings, and a reserve currency for about 40 countries, banking opportunities abound.

While there will be high demand for infrastructure financing in the region, especially in China, lenders need to raise their game to capitalise on this. For example, China’s One Belt, One Road initiative, which aims to rejuvenate ancient Silk Road trading routes, may build up infrastructure, increase trade and finance, and also boost connectivity across Europe, Africa and Asia.

The Asia Development Bank has estimated that countries in Asia need US$8 trillion (S$10.7 trillion) to cover infrastructure needs between 2010 and 2020.

Nevertheless, Mr Tsien said there is currently a funding gap. “I don’t think Asian financial markets are ready for that yet. Our banking system still caters more to conventional commercial banking, our capital markets more to traditional debt and equity instruments, and our investors more to standalone projects rather than integrated projects,” he said.

“Banks must upgrade their response to the changing landscape by investing and appreciating the dynamic requirements of infrastructure finance.”

Retail banking hard to crack

Last August, OCBC acquired Hong Kong’s Wing Hang Bank for S$6.23 billion, bringing 120 branches and offices in Greater China under its management, among them a network in the Pearl River Delta — one of China’s main hubs of economic growth.

The lender has also bought stakes in the Bank of Ningbo and Avic Trust to enlarge its presence in China.

The acquisition strategy to make forays into foreign markets is not without risks for Singapore banks. In 2001, DBS bought Hong Kong’s Dao Heng Bank for about HK$45 billion (S$7.74 billion). The move turned out to be a misstep as DBS had to make a S$2.1 billion write-down for Dao Heng.

PwC Singapore’s banking and capital markets leader Karen Loon noted that China is “not an easy market”. “There are loads of approval processes, besides competition from domestic banks,” she said. In general, overseas growth in the near term for Singapore lenders would “largely be organic, considering increased regulatory pressure and political issues”, she added.

DBS hopes to leverage on the digital revolution, and is spending more than S$200 million to beef up its digital-banking operations. Among other recent initiatives, it partnered with IBM to use cloud-based technology to enhance its wealth-management business here, and plans to roll this out in Hong Kong. In China, DBS was the first foreign bank to launch online unit-trust trading services.

Mr Gupta said: “A successful digital banking strategy will enable us to accelerate our access to emerging markets without the need for a large brick-and-mortar footprint.”

In terms of retail banking, DBS, OCBC and UOB have yet to make much of an impression in China. Other domestic and foreign lenders including the Bank of China (Hong Kong), HSBC, Standard Chartered and Bank of East Asia have a far larger footprint. “It would be interesting to note the extent to which (Singapore banks) are able to use digital technology to expand in China”, said Ms Loon.

Compared to the “tough” retail banking sector, “wholesale banking may be a lot easier” for local banks to gain a foothold in other markets, she added. “While Singapore banks may tap trade and equity flows, the challenge really is the extent to which they can expand in that (segment).”

In China, DBS operates 10 branches and 19 sub-branches in 10 major cities. It aims to expand to about 15 cities, with between 50 and 70 branches and sub-branches, its CEO Piyush Gupta said.

OCBC has 17 branches and sub-branches across 10 cities, while UOB has presence in nine cities, operating 10 branches and sub-branches in all.