DBS's institutional banking growth to slow

Singapore

THE cooling of China's economy will ease the growth of DBS Group Holdings' institutional banking business this year, after a double-digit expansion in the past five years, the bank's institutional banking head Jeanette Wong predicts.

"Sometimes when you have a large base you grow at a smaller pace," she said in an interview with The Business Times last Wednesday.

But Ms Wong is unfazed as the annuity part of the business, the lucrative cash management services, continues to expand at double digits. It was already up 20 per cent in the first half of 2015, year-on-year.

The institutional banking business makes up more than half of DBS's total income and some 60 per cent of its profit. For H1 2015, pre-tax profit for institutional banking rose 2 per cent from a year ago to S$1.6 billion on income growth of 7 per cent to S$2.67 billion.

DBS, which is South-east Asia's biggest bank, posted net profit of S$2.4 billion overall for H1 2015, up 8 per cent year-on-year.

DBS's consumer banking and wealth management unit, the group's second biggest income contributor, enjoyed a much bigger jump in earnings. H1 pre-tax profit surged 56 per cent to S$650 million on a 28 per cent rise in income to S$1.76 billion.

"(I) don't think it'll (institutional banking) be double digit growth this year," said Ms Wong, as China's slowing economy affects practically the entire region.

In the first half of 2015, DBS's institutional banking business saw a S$4 billion drop in assets due to a fall in commodities prices and the cooling of China's economy.

"They're buying less ... the whole supply chain is affected," said Ms Wong.

From 2009 to 2014, the institutional banking business had almost doubled in revenue, gaining at a compounded annual growth rate (CAGR) of 13 per cent. Revenues hit S$5 billion in 2014 with non-loan or fee income making up 50 per cent, up from 38 per cent in 2009.

The institutional banking's headcount has almost doubled to 3,500, from 1,800 in 2009.

Ms Wong was DBS's chief financial officer from 2003 to 2008. She took charge of DBS's institutional banking business in August 2008, when the world was in a financial crisis.

Ms Wong said she watches the growth of the more profitable non-loan income closely.

"We were primarily doing loans (in the past)," she said.

It has a client base of 200,000 companies, of which 20,000 are large corporates with annual turnover of at least S$1 billion.

Some of DBS's clients are ranked among the world's biggest and they include China National Petroleum Corporation which owns PetroChina, the world's eighth biggest public company, according to Forbes magazine.

Among the bank's other Asian giant clients are the Indian conglomerate, Reliance group; Indonesia's Astra, South-east Asia's largest automotive group; Hong Kong's Cheung Kong group; and Taiwan's Hon Hai, better known as Foxconn, the world's biggest electronics contractor manufacturer.

DBS's institutional banking unit is made up of three main businesses - trade, which is its biggest; global transaction services (GTS) which includes cash management; and custody.

Although the trade business is bigger, the GTS business is the crown jewel as it is like an annuity with multiple income streams.

A strategic priority for DBS since 2010, GTS generated S$1.6 billion revenue in 2014, delivering 22 per cent CAGR over the last five years, she noted.

The moderating growth pace of institutional banking does not bother her, because she said the megatrends are intact to ensure the long-term growth of the business. They include the internationalisation of the renminbi, China's "one belt, one road" trade route ambitions, Asia's infrastructure development needs, and the rise of Asian corporates.

"We hope to make it up in other areas of business," she said.

There is the strategic advisory unit, which advises clients on takeovers. DBS's strategic advisory team did six large deals valued at more than S$1 billion in 2014, compared to less than two a year from 2011 to 2013.

On the lending side, DBS has been topping the league tables for mandated arrangers in South-east Asia. In Asia, excluding Japan, DBS was the third largest mandated arranger for H1 2015 with 52 deals worth US$4.7 billion, behind HSBC and Bank of China.

Another growing area is bilateral loans, she said. This year DBS opened a branch in Australia to support corporates clients investing in real estate, hospitals and ports there.

DBS is also making strides into the small and medium enterprise (SME) segment with a number of digital innovations.

These include apps which allow SMEs to open accounts on their mobile and approve transactions while on the move.

"It's part our community giveback, hopefully it'll also brand us," said Ms Wong.