Local banks not affected much by Q2 slowdown

Local banks have been able to stay ahead of the slowdown by tightly managing costs and investing in growth areas like wealth management.
Local banks have been able to stay ahead of the slowdown by tightly managing costs and investing in growth areas like wealth management.ST FILE PHOTO

Foreign banks are feeling more of the pinch from the finance sector contracting 11.2%

Foreign banks here are feeling the pinch as growth in the finance sector slows, but local lenders are stepping up their game to keep the downturn at bay.

Ms Lynne Roeder, managing director of recruiting firm Hays in Singapore, told The Straits Times: "We have seen a slowdown in hiring for permanent roles. However, this was largely limited to foreign banks. For many of the local banks, it's business as usual."

That provides some reassurance about local banks, even as the industry continues to faces risks from a struggling oil and gas sector.

Ministry of Trade and Industry (MTI) data out last week showed that the finance and insurance sector contracted 11.2 per cent in the second quarter over the first, on the back of a poor showing by banks as "persistent regional headwinds" put a drag on lending.

Mr Liew Nam Soon, EY Asean managing partner for financial services, said: "The data from MTI reflects market challenges with growth and trade and the impact is felt clearly by the banks."

However, he sees opportunities for banks in certain areas. "These include focusing on the wealth management sector, which is still growing, identifying and executing on value mergers and acquisitions, using digital innovation and fintech to differentiate customer service and seek new customer segments and, finally, lowering costs and optimising capital through restructuring and robotics," said Mr Liew.

BUSINESS AS USUAL

We have seen a slowdown in hiring for permanent roles. However, this was largely limited to foreign banks. For many of the local banks, it's business as usual.

MS LYNNE ROEDER, managing director of recruiting firm Hays.

Banks are certainly investing in areas such as wealth management.

Mr Jimmy Koh, head of investor relations and research at United Overseas Bank (UOB), said there is potential in this area, with the bank's customer base and assets under management (AUM) both growing.

"In particular, our high net worth segment saw encouraging AUM growth of 12 per cent and income growth of 10 per cent" for the first half of this year, compared with the same period a year ago.

OCBC Bank's wealth management fees in the second quarter were the highest since the first quarter of 2015, while the AUM of its Bank of Singapore unit grew 13 per cent to US$61 billion (S$82 billion) as at June 30, compared with last year. Mr Koh added that there are growth opportunities in both wholesale and retail banking, driven by the region's expanding middle class and increasing cross-border trade.

That is something Mr Liew noted as well, saying that aside from China, Asean is another market to focus on as it is still showing strong growth from rising middle-class consumption as well as a further opening up of trade.

A DBS spokesman said the bank's diversified business means it is not reliant on single engines of growth.

The bank said it was able to grow lending by 2 per cent to $285 billion in the first half of this year. The growth in corporate loans and market share gains in Singapore mortgages "more than offset a 22 per cent contraction in trade loans".

Banks have also helped ease the pain by tightly managing costs.

DBS' cost-to-income ratio, a measure of efficiency where lower is better, has improved from 45 per cent a year ago to 44 per cent.

Referring to the second quarter, OCBC group chief executive Samuel Tsien said: "The bank's cost management has been quite effective.

"If you look at our total operating expenses, they increased by only 1 per cent year on year and quarter on quarter. At the banking operations level, they increased by 1 per cent quarter on quarter, and increased by 2 per cent year on year."

Ms Roeder said many banks are "shoring up" their front and back office teams with experienced hires, "in preparation for any potential downturn around the corner".

Ms Jacinta Low, OCBC's head of human resource planning, noted: "We continue to plan our recruitment activities for the different divisions in the bank whenever the need arises." Also, more than 20 per cent of vacancies are filled internally every year at the bank.

DBS also said it continues to pace hires in line with business needs and to optimise processes and digitise the bank.

"Digital banking, such as the ability to open bank accounts or perform transactions remotely, meets a growing need among customers for greater convenience, and also delivers cost-efficiencies compared to traditional banking."

A version of this article appeared in the print edition of The Straits Times on August 20, 2016, with the headline 'Local banks not affected much by Q2 slowdown'. Print Edition | Subscribe