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Regulations clouding banks' regional drive
[SINGAPORE] Regional expansion is becoming increasingly expensive with regulations - a route that lenders here nonetheless must take, given the size of the domestic market, said DBS chairman Peter Seah.
"Because of our size, all three of us have to operate outside of Singapore," said Mr Seah, referring to the three banks here. "For our Singapore operations alone, we are severely over-capitalised."
Singapore banks are among the world's most well-capitalised banks. Their core capital ratio, which is measured against risk-weighted assets, is at two percentage points above that of standards prescribed under Basel III.
DBS has set its sights on being a leading bank in Asia, and Mr Seah said this includes eventually being in Malaysia - a market where, unlike its two competitors, it is not in. "We would like to be there," he said.
But national regulators have become more inward-looking, and want banks to park additional capital within their domestic jurisdictions, Mr Seah noted. "Conceptually, that does not take into account the overall strength of the organisation," he said.
At a time of higher capital requirements, then, the expectation is for banks to price their loans and products at a higher rate than before, noted Mr Seah.
"If the world requires a stricter capital regime, and if it's consistent ... the issue would be whether banks have sufficiently attractive returns to attract shareholders," he said.
"If you need more capital to make the same dollar, then if you want to keep your return on equity at the same level, you need to price up."
But Mr Seah also highlighted worries over regulatory arbitrage, which would create an unfair advantage for banks operating under a looser regulatory framework.
"We have to be concerned about whether the capital and liquidity requirements are going to be consistently applied worldwide by all regulators and regimes. Because if it is not, then you will have regulatory arbitrage, meaning for the same dollar of capital, I can do less," said Mr Seah.
"But somebody with more lenient capital requirements can price down."
In a wide-ranging interview, Mr Seah also noted the board is keenly watching risks that include those out of Greater China, but endorses the strategy as a long-term one.
"You either believe that China is going to be your long-term market for growth, or you don't."
When the offshore renminbi market opened in Hong Kong some 10 years ago, DBS was the largest player in the market, Mr Seah said. "And to be honest, we made a lot of money from the offshore renminbi (trade)."
Profits from Greater China currently make up a third of DBS's earnings.
"When we feel that there are potential credit issues, we slow down our growth," said Mr Seah, adding that the board structure of DBS allows the bank to take a close look at risks in China. Mr Seah chairs DBS's Hong Kong unit, and CEO Piyush Gupta takes the post of deputy chairman.
DBS bagged the gold award for Best Managed Board for large-cap companies at the Singapore Corporate Awards yesterday.