OCBC sees sharp rise in interest rate hedges

MARKET volatility may be unnerving to most people but this is the time for bankers to prove their mettle and sell solutions or hedges, in bankspeak.

"During the last two weeks, prices were going up and down . . . and clients with US dollar payments were very worried and did a bit more hedges," said Wee Wei Min, OCBC Bank head of treasury advisory, yesterday.

"It has been a decent quarter for sales," said Ms Wee in an interview with BT. "We have seen an increase in interest rate hedges by customers in the last couple of months, with about 20 to 30 per cent more than the usual volume of hedges," she said.

Ms Wee deals mainly with corporate clients ranging from the large government-linked companies to small and medium-sized corporates, as well as consumers.

Corporate advisory is essentially helping clients find investment solutions and hedging by structuring products and derivatives in FX (foreign exchange), interest rates and commodities.

It's not just business clients, but non-profit organisations such as universities and churches with surplus cash also have investment needs, she noted. Not all products are complex and some can be designed conservatively with principal protection depending on clients' needs, she added.

For helping clients mitigate their risks, OCBC Bank won the Regional Derivatives House of the Year award at the 14th Annual Asia Risk Awards. Into its third year, the award assesses how banks in Asia have developed their franchise to help clients meet their risk management needs as well as their ability to handle risks internally.

One example of an award-winning hedge was to an Indonesian company which wanted to hedge the currency and interest rate exposure of a five-year floating US dollar loan, she said.

The company had borrowed in USD taking advantage of the low interest rate but as it received rupiah for its sales, it needed to hedge the interest rate and FX exposures. The product, a non-deliverable cross-currency swap, did two things: It converted the client's floating USD interest rate to a fixed rupiah interest rate; it also fixed the exchange rate exposure by locking in the FX rate.

One area of business which has grown rapidly is the bank's yuan offerings as more customers adopt the Chinese currency.

OCBC over the past 12 months has been able to provide customised solutions involving trade and FX structuring, interest rate hedging and efficient funding solutions across the regional network.

"In Singapore, OCBC's yuan total trade flows range from about US$6 to 10 billion a year in the last couple of years," she said.

For consumers, the bank this year revived a five-year principal protection structured product, taking advantage of interest rate volatility since May when the US Federal Reserve startled the market by warning it was looking to start tapering, she said.

Previously, when interest rates were very low, clients showed little interest, but when they began rising in the middle of the year, the bank was able to react promptly to offer the product, she noted.

The five-year principal protection product is now selling its fourth tranche, and since May has sold several hundred millions of dollars worth, she said.

Over the past five months, OCBC Bank's structured products business has grown by about 200 per cent year on year, she said. "Other houses may offer these and even higher interest rates but customers feel safe to put a five-year deposit with us," said Ms Wee, citing OCBC's safe reputation.

The treasury advisory team including institutional sales has between 100-120 people, she said.