Singapore banks expect lower rates, China stimulus to boost wealth business
Declining rates on bank term deposits will spur rich clients to turn to high-yield wealth management products.
SINGAPORE - Singapore banks’ mainstay wealth businesses are set to drive growth in the near term on interest rate cuts and hopes of a revival in the Chinese economy, even as they are expected to post a quarter-on-quarter decline in earnings in the third quarter.
Two of Singapore’s top lenders, DBS and OCBC, are set to report falls of 3 per cent and 7.4 per cent in third-quarter profits respectively on subdued loan growth, London Stock Exchange Group estimates show.
DBS kicks off the bank reporting season on Nov 7, followed by OCBC on Nov 8.
While declining rates on bank term deposits will spur rich clients to turn to high-yield wealth management products, the impact of rate cuts and China stimulus will take time to play out and be reflected in the banks’ earnings, Maybank Investment Banking Group’s regional head of financials, Mr Thilan Wickramasinghe, said.
Singapore banks, South-east Asia’s largest by assets, have been reaping the benefits of a booming wealth business that drove assets and fee income to records in recent quarters, while higher interest rates kept a lid on loan growth.
Demand for loans is expected to improve, following the US Federal Reserve’s interest rate cut in September and broader-than-expected monetary stimulus and property support measures in China, a key market for Singapore banks.
“With the 50-basis point cut and more cuts projected, this should be positive for loans growth as borrowing costs become less prohibitive,” said Mr Neo Teng Hwee, chief investment officer of UOB’s private banking arm.
“Some leveraged investments may pick up too, as overall capital markets look resilient, given the likelihood of a soft landing and declining inflation.”
Ms Vivienne Chia, global head of investment solutions group at Bank of Singapore – the private banking arm of OCBC – said she expected demand for credit facilities to pick up as the interest rate cycle develops. “We anticipate a double-digit increase in Bank of Singapore’s loan book in 2025 due to the favourable impact of lower interest rates,” she said.
Bank of Singapore said it was not able to provide past figures.
DBS Private Bank’s group head Joseph Poon said the bank has not seen and does not expect a jump in client borrowings in the near term, given that the 0.5 per cent rate cut has yet to be fully digested and the timing of further cuts is undecided.
However, the impact on sentiment from lower rates helps sustain the broad-based bullishness in asset prices and would lead more wealth clients to deploy their cash into investments, he said.
“This will enable us to be on track to double our wealth fees, which already topped $2 billion last year, by 2027.”
Singapore banks have been expanding their wealth business to tap the rising number of dollar millionaires in Asia, mainly in China, with the rich increasingly looking to park their assets in offshore markets.
Asia is projected to contribute nearly 30 per cent of new financial wealth globally by 2028, from 17 per cent last year, driven by wealth creation in China and India, according to Boston Consulting Group’s Global Wealth Report 2024.
China’s recent stimulus measures to revive the world’s second-largest economy are positive for the Singaporean banks’ wealth business, private bankers and analysts said.
“It creates investment opportunities for many of our clients who have a lot of dry powder on the sideline looking for ideas,” said Mr Rickie Chan, Bank of Singapore’s private banking head for Greater China, and Hong Kong chief executive.
“It also improves sentiment, the wealth effect to a certain extent, of our clients across Greater China, which will likely lead to more clients and prospects wanting to hear our investment advice.” BLOOMBERG
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