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Singapore banks can be the rock for wealth clients
SINGAPORE banks took analysts by surprise with their strong second quarter performance in wealth management.
Despite the fear of a risk-off sentiment in the market, the trio reported higher assets under management from their affluent clients in the second quarter, up 8-9 per cent from a year earlier. All three also posted stronger wealth management fees compared to the corresponding quarter last year as well as the first quarter.
The Singapore banks are increasingly dependent on wealth management as a driver of fees income. Citi Research's analysis of the Singapore banks' most recent results showed that wealth-related fees in the first-half of 2019 made up 37 per cent of DBS Bank's core fees, 48 per cent of OCBC Bank's core fees, and 35 per cent of UOB's core fees.
Will there be more room for Singapore banks to play in this space? Based on what they are doing, the answer is yes.
Part of that growth in wealth management will come in tandem with the Singapore banks' regional expansion, as they ride along with Asian entrepreneurs building their regional empires. UOB disclosed in the second quarter that close to 60 per cent of its wealth flows from affluent customers come from overseas customers across the group's network of wealth management centres in South-east Asia.
This squares neatly with UOB's established Asean network, with the bank aiming to have half of its overall revenue coming from outside Singapore by 2021, up from about 40 per cent currently.
DBS and OCBC have also deepened their presence in Greater China and Hong Kong, with DBS's exposure already at nearly 30 per cent, and that of OCBC - after its Wing Hang acquisition - at about 20 per cent. OCBC has said it would look at expanding its onshore wealth management space in China.
Back home, the trio are potential beneficiaries from more family offices setting up in Singapore, with the city-state having doled out tax incentives under the Enhanced Tier Fund Tax Exemption Scheme. More commonly referred to as "13X" - as the tax exemption falls under Section 13X - this allows qualifying family offices to have specified income derived from certain designated investments such as securities to be exempted from tax. The "13X" is said to be unique in the world, with global private banks also keen to root themselves in Singapore to capture flows from such fund setups.
It has to be said that amid volatile times, Singapore is likely viewed as a safer location for regional and global investors to nest some of their assets.
For one thing, Singapore banks' well-capitalised position and sturdy regional franchise put them in good standing against certain global banks that are still undergoing restructuring in their home markets, or in managing a bloated overseas franchise. Protracted corporate restructuring by large universal banks can unsettle their wealth clients who just want a peace of mind in these times, a circumstance that the Singapore trio can leverage on to capture greater wallet share.
The local banks may also benefit from geopolitical uncertainty, although admittedly it is a double-edged sword. To be clear, Singapore, like most economies in the world, benefit from stability. Geopolitical risks and trade tensions hurt business sentiment and economic growth - which shrink the wealth pie. Grabbing a bigger share of a smaller pie does not necessarily makes one a winner.
That said, if Singapore is perceived as a viable place for flight-to-safety assets, it should leave its door open. The official line from authorities here suggests that Singapore does not want to be seen as profiting from the misery of others. But what should be obvious too is that Singapore should not be expected to close its doors to wealth flows when it remains open for business.
While the local banks and regulators have said there has been no noticeable surge in inbound capital in recent weeks amid geopolitical tensions, there is a quiet acknowledgement of some impact in terms of inflows into Singapore.
As it is, sprawling properties in Singapore have recently found new buyers who can afford to shop for assets anywhere in the world. This should come as no surprise, given that the "lower for longer" rate environment will keep the yield hunger alive for wealthy entrepreneurs who also seek safety and security.
Competition in the wealth management space will continue to be stiff for the Singapore banks. Gains in wealth management alone are not enough for Asian banks looking to capture growth from this region. A stronger multiplier gain for economies comes from businesses contributing to real growth by putting in orders down the supply chain and generating jobs, rather than entrepreneurs reaping capital gains on assets alone. Without certainty, businesses will look to defer their spending.
But the rise of Asia overall should endure as a structural trend. The appeal of Asia, as a region bubbling with growth, should build up Singapore as a wealth magnet for global investors who are seeking entrepreneurial opportunities, but that also need a safe place to park and preserve their assets in this part of the world.
There will be some pain all around - including on the Singapore banks - as the world economy recalibrates itself to threats of de-globalisation, protectionism and rivalry for hegemony between the United States and China. How then to think about Singapore's standing amidst this?
Perhaps there is a lesson from a children's story written by a young Singaporean. In the book, The Rock and the Bird, a large rock lives by the sea and takes punishing waves that lap unfailingly against it day after day. Yet, the rock - with its heightened awareness of mortality - keeps on surviving just by being.
The world does not spin on Singapore's axis. But if wealth clients see the country as their rock and bulwark, it is what it is. With the right regional strategy, Singapore banks will do well by riding on the Singapore cachet.