Singapore banks find profit in customers' wealth

Wealth management is showing great potential for the three biggest banks.

Singapore banks’ efforts to invest in wealth management seem to be paying off quite well, if their most recent financial performance is anything to go by.

According to Chia Shuhui, senior analyst at BMI Research, wealth management has a considerable potential for growth and Singapore banks would continue to develop their expertise in this area as strong economic growth in Southeast Asia leads to increased demand for such products.

OCBC’s wealth management fee income increased by 50%, which led to a 14% jump in the bank’s net profit in the first quarter of 2017. Wealth management now accounts for almost a third of the group’s total income. Chia also notes that DBS’ net profits were boosted by a considerable growth in wealth management (increasing by 26% y-o-y), with wealth management accounting for 15-20% of the bank’s total income.

Similarly, UOB’s profit inched up 5.4%, thanks to the 56.1% increase in fund management and wealth management income. Whilst wealth management accounts for approximately 15-20% of UOB’s income, the bank’s wealth management segment has more than doubled since 2010.

Krishna Guha, equity analyst at Jefferies, notes that whilst data disclosure is not granular enough, it is interesting to note that revenue margins for OCBC and DBS wealth management are 1.7% and 1%, respectively, and the ratios have been quite stable. “Fee constitutes about 45% of wealth revenue which is higher than those at group level (30-35%). The stable revenue margins suggest that even though wealth revenue has linkages to market sentiment, DBS and OCBC most likely have a good mix of the key revenue sources, namely financing, management/advisory, and market access/transactions,” Guha adds.

A wealth management hub
BMI Research’s Chia reckons that given the large size of the ASEAN market, Singapore banks are well-placed to capitalise on the growing middle class and the growing demand for wealth management products. “ASEAN’s population of 625m accounts for approximately 8.8% of the global population and consists of a rapidly rising middle class. We forecast ASEAN to grow at an average of 5% over the next decade (compared to the global average of 2.9%),” he adds.

OCBC bought Barclays’ private banking business in Singapore and Hong Kong in 2016, and now plans to buy National Australia Bank’s private wealth and retail banking business in these two cities. DBS also acquired ANZ’s wealth business in five markets.