Covid-19 crisis may widen income gap in Singapore: DBS

WHILE the Singapore government has ramped up efforts to save jobs amid the Covid-19 pandemic, the full impact on income is "far deeper and broad-based" than current economic numbers would suggest, with low-income earners bearing the brunt of the prolonged slump, fresh data from DBS showed.

Against this backdrop, the pandemic is a "highly regressive" event which could potentially widen the income gap in Singapore, said DBS senior economist Irvin Seah at a media briefing on Tuesday.

As at May this year, more than 300,000 - or 26 per cent - of 1.2 million DBS customers have experienced a decline in income by more than 10 per cent. Among these affected customers, about a third suffered even sharper income deterioration in excess of 50 per cent, according to the bank's recent report on financial wellness.

Findings from the report - a collaboration between DBS Group Research and DBS Financial Planning Group - are derived from an analysis of macroeconomic data and anonymised data insights from 1.2 million retail customers from March to May this year.

The extent of income deterioration was found to be most pronounced in the lower-income group. Lower-income earners (S$2,999 and below) constitute about 49 per cent of DBS customers that saw a drop in salary. Within this group, about half saw their income fall by over 50 per cent.

To add, those between age 35 and 44 accounted for the highest share of affected workers. Specifically, the income of more than half (56 per cent) in this age group plunged by 30 per cent or more, despite older workers being "marginally" more vulnerable to income deterioration.

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This may be due to the fact that most older workers have lower wages to begin with, and are supported by government policies such as Workfare Special Payment and Wage Credit Scheme, which may have mitigated their potential risk, said DBS.

Sector-wise, it is unsurprising that the extent of income deterioration in the food and beverage, hospitality and aviation sectors was found to be more pronounced - and still worsening - compared with other industries. In the aviation sector, for example, some 40 per cent of workers had suffered income deterioration in March. This jumped to 81 per cent as at May.

This comes even as Singapore's retrenchment figure for the first half of the year was only around 10,000, with resident unemployment currently at around 90,000. Mr Seah said such macroeconomic data does not reflect the full impact of the Covid-19 crisis on income deterioration, even though some jobs have been saved through policy measures such as the Jobs Support Scheme.

"The impact on income is far more broad-based than what employment data is suggesting," he said.

With more layoffs expected, the number of total debt servicing ratio breaches could potentially rise amid a further fall in income, if not for the mortgage loan deferment scheme that has temporarily halted repayments.

"This is only delaying the inevitable for some individuals. A viable solution to wean off the dependency on loan deferments while averting a spike in delinquencies would have to be worked out."

The growing concern on income is further compounded by the lack of savings. Some 42 per cent of DBS customers who had suffered income deterioration had less than a month of emergency funds available. This is especially the case for the lower-income group, and many could come under significant stress, said Mr Seah.

While some segments of society struggle with potential job losses, and many - particularly the lower-income group - are already suffering from a severe drop in income, there are some who have found opportunities amid the market chaos - a stark disparity that presents a clear picture of the pandemic's impact on different groups.

In particular, a group of DBS retail investors saw sharp market corrections earlier this year as a buying opportunity. Asset allocation for many of these retail investors shifted significantly towards equities, and away from bonds and unit trusts. Net fund flows in equities surged almost three times in March compared with a month ago, and "significantly" outsized the net fund flows to bonds and unit trusts.

Against this backdrop, retail investors have outperformed institutional investors year-to-date. The performance of DBS's retail investor base was down 8.2 per cent year-to-date, outperforming the institutional base by 6.8 percentage points and the Straits Times Index by 9.6 percentage points.

"Retail investors have actually remained risk-on and invested very heavily into the equities when markets plunged. They will be in a much better position to make good gains when the market recovers subsequently," said Mr Seah.

While those who are financially more able have naturally been more proactive in their investments, he noted that DBS customers who are active users of the bank's digital advisory tool NAV planner have been "even more" proactive.

Additionally, NAV planner users were "more aggressive" with a six-percentage point increase in equity allocation to 39 per cent year-to-date, compared with a "tamer" four-percentage point rise to 34 per cent for consumer banking customers.

More than one million customers have used the NAV planner since its launch in April, and close to 100,000 were able to "turn their finances around to become net savers" after using the financial tool, said DBS head of consumer banking group Jeremy Soo at the briefing.

"Covid-19 hits everyone, but the narrative of different groups of people is highly contrasting. We have one group that is struggling from the significant impact on income, and another group that is financially better prepared," added Mr Seah.