Wealth investments paying off for Singapore’s three big banks

Singapore’s big three banks have invested heavily in their wealth-management businesses over the past year and the results are starting to show.Higher income from servicing Asia’s more well-heeled individuals helped DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank offset bad-loan provisions and weaker loan margins to post better-than-expected first-quarter profits. OCBC’s wealth-management revenue surged 70 per cent from a year earlier, the firm reported Tuesday (May 9).

The banks have expanded their wealth operations to take advantage of growing affluence in the Asia-Pacific region, where individual wealth surpassed North America for the first time in 2015, according to Cap Gemini SA. Last year, OCBC purchased Barclays Plc’s wealth units in Hong Kong and Singapore, while DBS bought Australia & New Zealand Banking Group’s retail and wealth operations in five markets.

In wealth management, “we will continue to grow organically”, OCBC Chief Executive Officer Samuel Tsien told reporters at a briefing for his bank’s first-quarter results. “We will continue to deepen. And should there be opportunities that fit into our culture, then we will look at those.”

OCBC, South-east Asia’s second-largest lender, reported a surprise 14 per cent jump in profit for the period as higher wealth and insurance income offset a decline in net interest income at a time of low Singapore benchmark rates.

The bank’s shares rose 1.1 percent to S$10.41 as of 12.26pm Tuesday in Singapore, the highest intraday level since July 27, 2015. The stock gained 17 per cent this year, while DBS jumped 19 per cent and UOB rose 15 per cent.

The Barclays acquisition helped OCBC’s private-banking unit, Bank of Singapore, climb four places to rank seventh among Asia’s 20 largest private banks in terms of assets under management last year, according to data compiled by Asian Private Banker. DBS was sixth on the list, unchanged from a year earlier. UOB entered the APB list for the first time at 14th.

“Wealth formation in Asia is very strong,” DBS CEO Piyush Gupta said May 2 after his bank’s results. “If you are one of the top 10 players in the market, you will get a degree of growth just by being in the market.”
DBS, South-east Asia’s biggest lender, reported a 1 per cent gain in first-quarter profit from a year earlier. UOB posted a 5.4 per cent profit increase on April 28.

Rising wealth revenue helped boost fee income for all three banks: DBS’s fee and commission income gained 16 per cent to S$665 million. OCBC’s fee and commission income grew 29 per cent to S$481 million. UOB’s fee and commission income rose 18 per cent to S$508 million.

One lingering concern for the banks: The possibility of more bad debts from regional oil services firms, which have been hit by low energy prices. DBS and OCBC are among the major lenders to Singapore-based Ezra Holdings, which is among companies in the sector that have sought protection from their creditors.

While he said the oil and gas situation had “stabilised,” OCBC’s Mr Tsien couldn’t predict whether there would be any downward movement in the bank’s specific provisions. DBS remained “vigilant to continued headwinds” in the sector, Mr Gupta said.
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“OCBC has been warning for some time that these oil and gas issues are not yet over,” Mr Hugh Young, Aberdeen Asset Management Plc’s Asia managing director, said in an interview on Bloomberg TV. “There will still be some hits coming through from oil and gas throughout the year.”