Singapore banks are best geared to serve the growing number of Chinese supply chains relocating to the Asean region, according to a Maybank report.
Rising labour costs in China and generous investment incentives in South-east Asia have been attracting supply chains from China for a while, the bank said yesterday.
The pace of relocation is now accelerating as multinationals and large-to mid-sized Chinese firms look to hedge risks in the light of trade war concerns and unrest in Hong Kong.
These firms need regional banking counterparties with strong balance sheets and access to US dollar funding. Singapore banks offer these and are more regionally integrated with a wider suite of technology-enabled services than other Asean banks.
The three Singapore banks - DBS Bank, United Overseas Bank (UOB) and OCBC Bank - have the highest credit ratings in Asean. Their US dollar funding mix is estimated to have increased from 14 per cent of deposits in 2013 to 30 per cent last year. That is 22 percentage points higher on average than other large regional banks, the Maybank report said.
A 2019 poll conducted by the American Chamber of Commerce in Shanghai found that 13 per cent of United States businesses in China looked to Asean to redirect investment. That proportion was only 9 per cent in 2018.
US imports from Asean rose 11 per cent between January and October last year over the same period in 2018, while they fell 15 per cent from China.
Singapore banks made significant technology investments over the past few years to upgrade core banking systems, integrate regional operations and leverage big data and artificial intelligence to drive insights and lower costs. These investments bring with them innovative and sophisticated product solutions.
"For relocating supply chains, these solutions may provide competitive advantages, as well as improve the ease of changing geographies, in our view," the report said.
"We believe UOB will benefit the most, given high levels of regional integration and a proven cross-border execution track record.
"OCBC will also benefit, but longer-term sustainability will depend on successful execution of their Greater Bay strategy connecting North Asia and South-east Asia trade flows."
Singapore banks made significant technology investments over the past few years to upgrade core banking systems, integrate regional operations and leverage big data and artificial intelligence to drive insights and lower costs.
UOB's Asean franchise accounted for 22 per cent of its loans as of the third quarter last year. OCBC's was 19 per cent, and DBS', including India, was 8 per cent.