Deglobalisation set to continue regardless of US presidential transition: OCBC
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OCBC's head of global wholesale banking Tan Teck Long said businesses will likely continue diversifying their operations.
ST PHOTO: AZMI ATHNI
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SINGAPORE – Companies are rethinking their supply chains as the global economy becomes less connected – a process that will carry on despite the upcoming change of government in the US
Mr Tan Teck Long, OCBC’s head of global wholesale banking, said businesses will likely continue diversifying their operations and beefing up logistics to guard against geopolitical uncertainties.
“Deglobalisation will still be a big theme, and therefore it requires a change in investment,” he told The Straits Times.
Singapore’s second-largest bank is especially focusing on a growing number of Chinese companies that are expanding outside their home market. Mr Tan said: “I think we will see that trend accelerate over the next few years.”
OCBC has already been ramping up investments in Greater China
The bank said in 2023 that it aimed to lift its revenue from Greater China clients doing business in Asean by more than 50 per cent by 2025. It has already surpassed this target.
More firms are building additional capacity outside of China to serve various markets, partly due to lower costs, said Mr Tan, adding: “That means you make in China for China, and make elsewhere for elsewhere.”
Natural resources are a big draw for firms growing their presence overseas. This is behind Chinese investments in Indonesia’s nickel industry
“Many customers want to tap the South-east Asian market as part of their growth strategy,” said Mr Tan.
A key part of OCBC’s Greater China strategy is its partnership with its associate company Bank of Ningbo, a Zhejiang-headquartered commercial bank. The Singapore lender holds a 20 per cent stake in BON, and in 2017 inked a 10-year strategic cooperation agreement with it.
OCBC taps BON’s network of customers eyeing South-east Asia, and serves these clients through relationship managers in places like Malaysia, Indonesia, Vietnam and Thailand who help Chinese customers bridge language and cultural differences.
Mr Tan added: “BON is also well known for its fintech, and we work with them to upgrade our systems and make further investments so that we can serve their customers more effectively.”
For example, OCBC has linked up with BON’s onshore treasury management system. This allows BON customers whose expansion plans OCBC supports to get a holistic view of their onshore China accounts and OCBC accounts in Asean, and transfer funds more seamlessly between these accounts.
OCBC has also upgraded its transaction banking capabilities, including allowing firms to transact in more currencies and toggle between their bank accounts in various markets without having to sign in to multiple platforms.
In July 2023, the bank said it aims to achieve more than 500 regional mandates for cash management by 2027. It has already secured more than 250 new regional mandates, and is on track to hit its target early.
A regional mandate allows the bank to process and convey a business client’s financial and transactional data from the company’s various subsidiaries to its head office, via a regional centre in Singapore or Hong Kong. It also acts on the head office’s instructions for other markets, in areas such as account opening and payments.
OCBC is also setting its sights on Hong Kong’s capital markets, as deal flows are set to increase on the back of falling interest rates.
Hong Kong continues to be a gateway to mainland China, presenting opportunities for the bank when it comes to mainland Chinese firms looking to raise funds in the city, said Mr Tan.
OCBC, which counts Singapore and Hong Kong as its twin hubs, is on track to reach a previously set goal to double its Greater China investment banking revenue by 2025.
High interest rates have weighed on the bond and stock markets in recent years so the bank has also focused on arranging syndicated loans and is among the top players in Hong Kong and mainland China. “If the bond market comes back, it’ll be a big plus for us as well,” said Mr Tan.
Meanwhile, the Chinese government has rolled out various measures to boost its economy, including two funding schemes that will initially pump 800 billion yuan (S$148.4 billion) into the stock market.
Asked about the impact of China’s stimulus plans, Mr Tan said the Chinese government has acknowledged the wealth effect of capital markets – when people tend to spend more as their assets increase in value.
“Chinese consumer confidence suffers partly because asset prices have come down in both their real estate assets as well as the stock market... If China manages to get the wealth effect reversed, it will go a long way to boost confidence.”
Firms considering investing in China are largely waiting for things to turn around, but the bank has seen interest from its network customers in certain sectors such as renewable energy.
Mr Tan said: “These customers are from South-east Asia, mainly Singapore.”
At home, there has been growing demand from clients in areas such as digital infrastructure investments, sustainable financing and overseas expansion in niche real estate including student accommodation. OCBC’s third-quarter earnings rose 9 per cent to $1.97 billion, from $1.81 billion a year ago, it reported on Nov 8.
Declining interest rates might lead to higher business confidence but are unlikely to result in a sudden pickup in loan demand, said Mr Tan. There might be a more tangible impact on the real estate sector, which is more sensitive to interest rates.
“We see the sector as a primary beneficiary, especially long-term real estate investments, as well as the Reits (real estate investment trusts) market,” he noted.
“Businesses are digesting the rate cuts, but I don’t think this fundamentally changes the new investments they are making. They’re recognising the importance of resilient supply chains, and diversifying. That is probably a greater driver than interest rates alone.”
