What makes Singapore banks stand out from the crowd?

August 21, 2023

Amidst the uncertainty in the global financial markets, Singapore’s three largest banks – DBS, UOB and OCBC all reported strong financial results for Q2 2023, with net profits rising by an average of 30% from SGD 4.4 billion to SGD 5.8 billion in Q2 2023. Overall, the operating revenue of the three banks stood at SGD 12 billion, a 28% increase from the previous year’s SGD 9.37 billion. Singapore bankstight-knit investments in fixed-income securities, private equity and alternative investments paid off as the perfect buffer against current market fluctuations.  

This level of ingenuity from the Southern Lion is why many believe Singapore is well-positioned to weather the storm. Couple this with the banks’ strong balance sheets, robust risk management frameworks, well-diversified portfolios and significant exposure to Asia, and its evident why Singapore is expected to remain resilient.  

In 2022, DBS, UOB and OCBC even elevated Singapore’s financial stature with the following investments. For starters, DBS launched DBS Wealth Insights, a new wealth management platform. With intentions to branch out as wide as possible, DBS partnered with InvestEngine, Wealthfront and Scalable Capital in the UK, the USA and Germany, respectively, granting DBS the ability to offer its services in the respective countries.

On the other hand, UOB presented a different approach to growth. From investing SGD 50 million in Carro, a used car marketplace, to SGD 10 million in mFund, a venture capital firm, diversification was the name of the game for UOB. The bank also looked inward, as it released the details of its planned investment to build the Innovation Centre in Punggol Digital District by 2026 – a substantial SGD 500 million. And of the top 3, UOB ended 2022 the strongest. It finally integrated two of its biggest mobile banking apps, UOB Mighty and TMRW by UOB, into one platform offering its customers the broadest range of features and services possible.

This doesn’t mean OCBC deserves to be overlooked. A personal dark horse of Singapore for 2022, the bank solidified its position through interesting partnerships and surprise investments. First, their collaboration with ADDX, a digital exchange for private securities, will help OCBC offer tokenized structures to accredited investors through the platform. Secondly, their investment in Cotnour, a blockchain-based trade finance platform, will help further facilitate trade finance transactions between banks and their customers using blockchain technology.  

Overall, these factors have helped the banks generate record profits in Q2 2023, from higher interest rates with MAS’ (The Monetary Authority of Singapore) most recent effort to bring the policy rate to 3.54%. Singapore also generated strong loan growth of 7.4% in the first half of 2023, quickly outpacing the GDP growth and helping boost banks’ net interest income.  

And as mentioned before, Singapore’s ingenuity in asset management shows – strong asset quality, and NPL (non-performing loan) ratios stay below 1.27%. This achievement is possible despite the economic slowdown in some of the bank’s key markets, such as China and Hong Kong, proving how Singapore truly has the lock and key within this fiery financial landscape.

Another strong factor was Singapore banks’ strong albeit unpredictable fee income growth, which stemmed from wealth management, bancassurance and cards.  

Unpredictable fee income: A challenge for Singapore banks

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Figure 1: Consolidated fee income of the top 3 Singapore banks

Breaking it down, DBS recorded the highest fee income in Q3 2023, with a 9% increase compared to previous years, while UOB and OCBC declined by 7% and 10%, respectively. In the grand scheme of the situation, consolidated fee income remained mostly the same and didn’t show any growth between Q2 2022 and Q2 2023 (Figure 1).

Although wealth management fees recovered for DBS, growing from SGD 265 million to SGD 377 million, a 42% quarter-on-quarter growth, the same cannot be said for UOB and OCBC. Continuing to witness a decline at 9% and 5%, respectively, the volatility in the global economy only worsens the situation even further for these respective two banks. Why? The affluent clientele has become more cautious about investing, making them less likely to engage in discretionary portfolio management services. This eccentricity has also led to lower investment returns, reducing the fees banks can charge for their wealth management services.

With loans hitting their maximum profitability and credit volumes limited due to sluggish business demand and government regulations to curb foreign homebuyers, the responsibility for generating earnings will increasingly shift onto fees. Yet, prospects in investment banking remain bleak in addressing this challenge.

At the moment, it seems Singapore banks face a herculean task. The investments made by Singapore’s top 3 banks in alternate revenue sources may balance the decline of wealth management fees a bit. Yet, many know it is not the final answer to fully offsetting the current situation. Moving forward, Singapore’s leading banks will have to emphasize innovation, strategic partnerships and customer-centric approaches to enhance fee income, navigate the evolving landscape and drive sustainable growth.  

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