Asia bank says ‘worst is behind’ on China

THE head of DBS, Singapore’s biggest bank by assets and also the largest in Southeast Asia, has declared that China’s economic slowdown has bottomed and “the worst is behind us”.

The comments are among the first made by any bank in Asia on China’s growth prospects since economic releases have begun to show signs of a rebound. Last week, an official indicator of the state of factory orders on the mainland showed that the manufacturing sector has begun to grow again.

“In the last few weeks we’ve started to see a pickup in demand and we are continuing to project and see stable margins,” said Piyush Gupta, DBS chief executive, as the bank unveiled earnings last week. “I’m fairly optimistic that the worst in China is behind us so from here on we should be able to hold the business and grow from this base.”

The three Singapore banks are collectively significant players in China, where wealth management is one of the fastest growing businesses. UOB this year opened a seventh “wealth management centre” in China, up from one in 2010.

DBS derives about 30% of group net income from what it calls “greater China”, encompassing mainland China, Hong Kong and Taiwan — three markets in which it has a total of more than 110 branches. In a video interview with the Financial Times, Piyush said that while China had “probably a trillion dollars of non-performing assets” in its banking system, the country had “the wherewithal and capacity to be able to deal with that”.

“In China, you’ve got two advantages. One, the banking system itself is quite profitable. Second, the country as a whole has resources and therefore I believe the capacity to absorb [non-performing loans] is real.

“The mechanics might be a little bit different from the ones we’re used to seeing in the West. But I think they will do what most countries do in these situations. They will just roll the can down [the road] and then slowly eat it up in their system,” Piyush says.

Investor attention recently was more focused on Singapore’s banks as they balance the increased risks associated with regional expansion with maintaining strong credit ratings.

Their debt capital markets businesses have also benefited from a surge in Singapore-dollar bond issuance from banks and companies taking advantage of a gradually strengthening Singapore dollar, the currency’s triple A rating and high yield.

Moody’s, the rating agency, said last week that even after the impact of new capital requirements under Basel III rules, Singaporean banks would “continue to maintain a capital ‘premium’ over global banks”.

That was due to regulation by the Monetary Authority of Singapore, which is requiring the banks to maintain higher capital cushions sooner than the Basel committee’s suggested timetable, it said.

 

This article first appeared in The Edge Financial Daily, on Nov 6, 2012.

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