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Asian markets key focus for OCBC in 2017: CEO
OCBC intends to pursue more opportunities in Asia and follow its clients deeper into Asean markets such as Indonesia and Myanmar, at a time when Singapore companies will be more compelled to expand overseas as growth at home slows, said the bank's chief executive, Samuel Tsien.
Speaking to The Business Times in a wide-ranging interview, Mr Tsien pointed to the uncertainty and volatility in the second half of 2016, a theme that will likely carry into the new year.
"I can only say that 2017 is probably going to be like the second half of 2016, where there is a lot of lack of confidence, and uncertainty," Mr Tsien said. "There will probably be a lot more events, and government or monetary policies will continue to be unsteady."
The election win of Donald Trump as US president has effectively killed hopes of the Trans-Pacific Partnership (TPP) trade pact coming to fruition, with Mr Trump rejecting the TPP, for which Singapore is a signatory.
"Global trade is probably going to be more subdued. The trade agreements that were established before . . . are not likely to materialise. So as a result of less tariff encouragement, it is likely that people are going towards territories of which they are more familiar with," said Mr Tsien.
China, as Asean's largest trading partner, will bring opportunities through infrastructure spending via its One Belt One Road plan.
Singapore will have to capture the investment flows from China into the region, playing to its strength in structuring financing beyond straight lending. These would include certification, insurance, and hedging, said Mr Tsien.
"I think Singapore should continue to build on that connectivity role that we play so well. But the connectivity role now has to be among Asean, and also between Asean and China," he said. "China, being so big an economy, I think will continue to have a dominating role (in) Asia. And in that sense, it is very important that we continue to engage China."
This comes even as the relationship between the US and China takes centrestage in geopolitics.
"It really depends on what the US attitude is, and what the relationship between the US and China is going to be. If the two major superpowers are not in congruence with each other's approaches, then there could be even more constraints on investment and trade flows between the two big continents," said Mr Tsien.
"If we have less globalisation, it will not be positive for Singapore. We need to have a lot more activities passing through Singapore, in order to make us prosper."
As OCBC pursues more opportunities through intra-Asean trade, it is looking for growth in Indonesia, where China investments have gone into businesses such as utilities, power plants, and water treatment, said Mr Tsien.
"The government policy has been pretty steady over the past few years. We feel that the investment appetite of the local people for their own country is going to increase. And as a result of that, foreign investments going into Indonesia is also going to increase," he said.
OCBC will ramp up investments in digital banking in Indonesia, adding mobile banking capabilities to its franchise through OCBC NISP. OCBC has a market share of 2 per cent in Indonesia, having raised it from 1.7 per cent some five years ago, said Mr Tsien.
"Digital banking is an area where we would definitely look at, to develop that market. Because in a way, Indonesia is like a mini-China. There are many big areas where you cannot reach out to the population, unless it is through electronic means," said Mr Tsien.
A digital banking strategy also plays to the high mobile device penetration in Indonesia, where on average, one person has got more than one mobile device, he added.
OCBC has "high hopes" that Myanmar will become an important market too, said Mr Tsien, noting the historical ties with Singapore.
"We already have a good base of Myanmar customers doing business with us in Singapore. And now, many customers are re-investing in their home country. And we're following these customers back into the home country."
Mr Tsien believes that having local bankers head operations in each Asean market would help to deal with challenges in these emerging markets, even as analysts warn of more credit risks in Asean.
"Particularly when the country is in a development phase, there will be some hiccups from time to time," he said adding the portfolio could get caught up in it.
"All of the countries that we operate in, we've actually got people with significant local market knowledge to lead the operation. To make sure that they are able to understand what is the real financing need . . . rather than created needs, where people take advantage of the banks to do something else with the money we lend them."
Analysts have also zoomed in on Singapore banks' exposure to the oil-and-gas segment, with oil prices plunging to below US$30 per barrel this year. The latest deal between Opec members and other oil-producing nations to cut output has brought some relief to the market.
"I think what we had seen in 2016, when the oil price dropped to below US$30, is probably not going to be repeated," said Mr Tsien. "Is it going to be sustainable at close to US$60 or above? There will still be volatility. But I believe the stabilised oil level cannot be below US$50."
And hopes of more small and medium enterprises (SMEs) expanding into Asean should lift the prospects of Singapore banks. Mr Tsien urged SMEs to make use of overseas markets, both as a base for them to do business and to supply materials back to Singapore, as well as a market to sell to the local people.
"I think they've generally felt that because it's an unfamiliar market, they would not like to invest a lot into those markets. They would start up a small trading operation, small sourcing arm, or a small servicing centre," he said.
"I think we have been very comfortable in our home market. As a result of that, anything which does not fall into what we're used to seeing, is too risky for us to take on. And that mentality will probably change quickly, if we find out that the local market is not growing very strongly."