Geopolitical, trade tensions fuel Singapore’s safe haven status

Banks report brisk second quarter despite country's economic slowdown as wealth management business helps drive growth

With no end in sight to the ongoing social unrest in Hong Kong, Trump intransigence in the US-China trade talks, and the UK heading for a Boris Johnson-led no deal Brexit, more assets could find their way to Southeast Asia’s wealth management hub.

For the second quarter of this year, Singapore's economy put in a lackluster performance, raising fears that the trio of local lenders will face a challenging business environment in the second half of the year. But the robust wealth management segment looks set to withstand the turbulence.

Singaporean banks DBS, OCBC and UOB topped analysts’ estimates following their respective second quarter results. Despite the domestic slowdown, all three claim that their earnings diversity and strong capital resources will bolster them for the challenges ahead.

DBS group reported a net profit of S$1.6 billion (US$1.16 billion) for the three-month period up to June 30, a lift of 17% compared to S$1.37 billion for the same period a year earlier.

DBS’ consumer banking and wealth management’s first-half total income rose 15% from a year ago to a new high of S$3.17 billion.

Income for the wealth management customer segment rose 17% to a new high of S$1.56 billion while assets under management expanded 8% to S$234 billion.

DBS calculates its wealth figures by including the mass affluent offering known as Treasures, together with its high net worth and ultra-high net worth Treasures Private Client and Private Bank business units.

OCBC reported a 6% rise in net profit after tax to a new high of S$2.45 billion for the first half of 2019.

For the second quarter ended June 30, net profit increased 1% to S$1.22 billion from S$1.21 billion for the same period a year ago.

The group’s overall income from wealth management activities, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, rose 12% to S$1.67 billion, from S$1.49 billion a year ago.

The wealth management franchise contributed 32% to the group’s total income compared with 31% in the first half of 2018.

Assets under management at Bank of Singapore increased 9% year-on-year, underpinned by continued net new money inflows, to a new high of US$111 billion (S$151 billion) as of June 30.

The smallest of the three banks UOB posted an 8 percent year-on-year growth in net profit of S$1.17 billion for its second quarter.

UOB does not provide a detailed breakdown specific to its wealth management unit including it instead under the umbrella of its group retail unit.

According to the bank group, retail registered 7% income growth to S$2.07 billion. Income from high affluent customers increased 9% year-on-year. While assets under management of this segment expanded by 9% to S$118 billion, of which close to 60% was from overseas customers across UOB’s network of wealth management centres in Southeast Asia.

Yet while assets under management are swelling, revenues are not expected to necessarily track them as wealthy clients adopt a wait-and-see posture or hunker down until geopolitical issues abate. And that is unlikely to be a short-term position.

However, building bigger asset bases is a positive for the “local” banks and Singapore as a wealth hub servicing wealthy clients. The buildup may be coming at a price to the larger international banks or the smaller boutique private banks.  

Conversely of course, international wealth managers who can book assets in several global finance hubs are also potential beneficiaries of the anxiety now hanging over Hong Kong.     

However, all three CEOs of Singapore’s banks have stated publicly that they have yet to see strong evidence of an upsurge of inflows of capital from Hong Kong.

While their domestic business matures, all three Singapore banks have used the past couple of years to diversify their wealth management catchment area.

Addressing the media in Singapore last week, OCBC chief Samuel Tsien emphasized that the Bank of Singapore, OCBC’s private banking arm, is now a fully-fledged international wealth management business and not purely an Asian-focused business. 

In April this year, his bank launched a Luxembourg-based wealth management subsidiary and a London branch aimed at ultra-high net worth individuals in Europe. This followed an expansion of its operations in the Middle East.

Tsien also said that with the bank in a strong cash position, any business opportunities that matched the bank’s aims in core business and core countries would be considered.

Bank of Singapore was formed after OCBC snapped up ING’s Asian Private Banking business in 2009 for US$1.5 billion.

In 2016 Bank of Singapore acquired the Asian business units of Barclays Wealth and has continued to grow its international coverage.

Likewise the city state’s largest lender DBS, while emphasizing organic growth is its preference, has bulked up on assets through acquiring international wealth units.

In 2014, DBS bought the Asian private banking business of Societe Generale in Singapore and Hong Kong, as well as selected parts of its trust business.

This was followed by the acquisition of ANZ’s wealth management and retail banking business in five markets in Singapore, Hong Kong, mainland China, Taiwan and Indonesia in 2018.

UOB meanwhile has adopted a different strategy from its counterparts for its wealth management push, preferring to go for organic regional growth.

The bank, which is also calculating on more growth from its ASEAN markets, is utilizing its SME and commercial banking units to cross-sell investment products to existing customers.   

Date

8 Aug 2019

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