Singapore Banks

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PUBLISHED MAY 15, 2014
Banks on guard over China exposure

They scrutinise trade finance transactions for abuse
BYJAMIE LEE
leejamie@sph.com.sg @JamieLeeBT

Banks in Singapore are watching their exposure to China, particularly as fears over an economic slowdown and the creditworthiness of Chinese corporate borrowers take hold - PHOTO: REUTERS
[SINGAPORE] Banks in Singapore are watching their exposure to China, particularly as fears over an economic slowdown and the creditworthiness of Chinese corporate borrowers take hold.
But there is debate over the amount of risk - and to some extent, responsibility - taken by banks, especially if the trade financing is heavily incentivised by arbitrage.
CEO of DBS Piyush Gupta has said the bank has no direct exposure to shadow banking in China, and is not linked to any "overexposed" Chinese bank.
UOB's head of investor relations and research, Jimmy Koh, said UOB China's wealth management solutions focus on plain vanilla products and bancassurance. The China exposure in its loanbook is small, compared to its peers.
And OCBC's CEO, Samuel Tsien, has said the bank is managing its risk by targeting clients with care.
Besides the overarching concern over the health of China, there is caution as banks here observe the use of long-tenor letters of credit (LCs) - loans from which Chinese borrowers can churn money into risky high-yield products.
Singapore-based banks usually represent the Chinese exporters, who can get a loan from banks here, instead of waiting for payment from Chinese importers, especially if payment is due one year later.
One argument is that since offshore banks - such as those based in Singapore - represent just the offshore exporters most of the time, they are technically managing one side of the risk in the trade.
If the Chinese importers default from churning money into risky, high-yield products, it is less of an immediate risk for the offshore banks as long as Chinese banks represent the importers, bankers said.
"We don't take direct risk on the Chinese importers, we take risk on the Chinese banks," said Piet-Hein Ingen Housz, global head of metals commodities at ABN Amro. "I don't think the Chinese banks will default. The Chinese banks are primarily owned by the Chinese government, and a default would result in systemic risks."
If an offshore bank represents both the importer and exporter, though, then the risk is higher.
Most banks will point out that the average tenor for all their trade loans is around six months. Most trade finance loans are, indeed, short-term in nature.
They also note that strictly speaking, banks are usually tasked to verify trade documents, but not the shipments' contents. If the shipment passes muster, banks are expected to honour the LCs.
But bankers like Catherine Low from ING Bank think banks have to take their responsibility further.
"We are very selective of our clients. We want to support the real economy," said Ms Low, ING's country manager in Singapore.
As an example, the bank will shun importers asking for certain commodities that they do not typically buy, with a view that they may be making use of trade financing for speculation.
"We tend not to work with clients that are arbitraging certain trends."
Some banks have trimmed their exposure to third-tier banks, sources said. For ING, its caution means that it will not work on a trade linked to a client with a poor track record, even if the firm is backed by a top-tier Chinese bank, said Ms Low.
Citi, which holds some exposure to third-tier banks, ensures proper hedging with commodity financing, said Parvaiz Dalal, the bank's head of structured trade, commodity financing and asset distribution in the Asia-Pacific.
The Singapore office has not seen 360-day LCs come in, said Melvyn Low, head of global transaction services at Citi Singapore.
Banks also watch their exposure to small-and-medium enterprises, said Yap Sim Woon, head of trade product management for the Asia-Pacific at RBS.
Paul Dowling, principal analyst at East & Partners Asia, told BT: "The smaller the company, the more likely they are involved in shadow banking."
Then, there's some fine detective work that banks go through to ensure that the trade financing is backing genuine trades, particularly with long-tenor loans.
"It'll probably raise alarm balls if the long-tenor financing is for apples," said Mr Yap.
ING checks for "out of whack" prices of commodities such as oil and iron ore that are quoted in trade documents. It also goes as far as checking if the shipment is being loaded on an appropriate ship, said Ms Low.
Similarly, DBS uses third-party shipping documents as evidence of the shipment of goods, among other forms of verification, said Lum Yin Fong, the bank's head of global product management, global transactions services.
Still, it's important to have foot soldiers in the region, especially if the offshore bank is acting for both the importer and the exporter.
"You have to have resources on the ground," said Mr Dowling. "If you try to transact remotely, you can't follow the money."
Banks can also fall back on a well-worn strategy.
"Our exposure is not just in China. We have counterparties in Indonesia, Vietnam, Thailand, even Mongolia," said Ms Low. "That's one way of managing: diversification."
With additional reporting by Andrea Soh

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PUBLISHED MAY 15, 2014
Chinese long-tenor trade loans raise eyebrows
Banks say they are strict in due diligence process, take on 360- day LCs selectively
BYJAMIE LEE
leejamie@sph.com.sg @JamieLeeBT

Through these long-tenor letters of credit (LCs), also known as 360-day LCs, Chinese importers take in commodities such as copper and iron from offshore players - including importers' offshore subsidiaries - PHOTO: REUTERS

[SINGAPORE] A form of long-term loan commonly sought by Chinese importers is raising questions as to whether such credit has been fed into the shadow banking system, bankers said.
This comes as commodity loans such as copper-backed loans - some of which have loan tenors extending beyond six months - are now increasingly booked in Singapore.
Through these long-tenor letters of credit (LCs), also known as 360-day LCs, Chinese importers take in commodities such as copper and iron from offshore players - including importers' offshore subsidiaries.
These loans were especially popular last year, sources said.
The fear is that the imported metal is being sold to domestic buyers and the money put into wealth management products.
Most are high-yield products sold by Chinese banks that are backed by loans for riskier ventures. These emerged partly in response to deliberately depressed savings rates in China.
To be clear, 360-day LCs - which are usually yuan-denominated - are not new, and perfectly legitimate. The trade flow, while not necessarily driven by fundamental demand, is mostly verified.
That said, these loans are somewhat odd. Trade financing is meant to cover short-term needs and is therefore deemed safe by banks. By complying with a 360-day LC, Chinese buyers effectively commit to repay a loan that Chinese banks had extended to them for supplies, about a year later.
Importers can well convert raw materials into finished goods, sell them in about six months, repay the loan with the cash, and undergo the same cycle.
Singapore-based banks tend to represent the Chinese exporters that have set up operations here. Under a related trade financing agreement, these offshore exporters can also get a loan first from banks here, rather than wait for payment from Chinese importers, especially if payment is due one year later.
China has become a net borrower of Singapore, data from the Monetary Authority of Singapore (MAS) showed. Trade bills are the biggest lending source at 65 per cent of total loans to China - including loans from foreign banks - as at September last year, up from 18 per cent in the pre-crisis period.
Home-grown lenders have been more aggressive in chasing trade loans than the foreign banks here. The portfolio concentration of loans to China for the three banks here, particularly DBS and OCBC, is about double that of the foreign banks as at September last year.
Few would dispute that Hong Kong's exposure is larger. Banks there made HK$2.3 trillion (S$371 billion) in loans to China at the end of last year, data from the Hong Kong Monetary Authority showed. This excluded about HK$300 billion in trade finance loans alone.
"A widespread indiscriminate use of such trade instruments can lead to unhealthy shadow banking and consequently a possible risk to the financial system if too much 'shadow' money goes into high-risk activities," said Catherine Low, ING Bank's Singapore country manager.
Borrowers may use the 360-day LCs for forex or rates arbitrage, provided they are hedged or have the financial capability to absorb the risk, she noted.
Broadly speaking, the risk of manipulation in trade financing - such as fake invoices and bank documents, as well as poor risk management - is not limited to one-year loans, or to China. But the attention to China comes with its growing heft as an economic giant - which means greater cross-border trade and global implications of speculative trade practices - and as it frees up the use of the yuan, partly through offshore markets for now.
The "investment" trend is a concern, reckoned Paul Dowling, principal analyst at East & Partners Asia.
"Although similar behaviour has always been around with importers or exporters mixing and matching their debt funding to maximise returns, there has been something of a spike reported by financiers over the past six months or so," he said.
But the practice is easing, he added. "We see this slowing quickly however, and as tenors close, such applications will wash out of the system."
Banks with operations here say that they are stringent in their due-diligence process and take on 360-day LCs selectively.
Even amid competition for a bite of the trade finance pie, banks here are now more insistent on 180-day LCs, particularly for loans linked to metals such as copper.
"Chinese authorities are monitoring these trades closely," said one source.
Banks hold copper for collateral for these trades for protection. But since such trades - even when supported by real trade documents - are more driven by arbitrage, speculation and a credit binge, there is fear of downward spirals in prices and defaults.
There are clear worries. Given expectations that Chinese banking regulators will unveil new rules to restrict financing for commodities such as iron ore, prices have softened on fears that those holding inventory for financing will panic-sell to repay loans, a Morgan Stanley report noted.
China's commodity imports last month were exceptionally robust on the back of re-stocking and strong demand, analysts said.

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http://www.businesstimes.com.sg/premium/...s-20140823

PUBLISHED AUGUST 23, 2014
Covered bonds from S'pore banks on the cards
Sources say lack of clarity over title issues close to being sorted out

The market for covered bonds was estimated to be worth S$25 billion with DBS Bank, OCBC and UOB possibly issuing more than S$10 billion combined during the next three years. - ST FILE PHOTO
Singapore
THE first covered bond issue from a Singapore bank could finally be on its way as regulators near an agreement to open a market estimated to be worth S$25 billion.
Singapore's central bank set rules for covered bonds almost a year ago, but the first deals have been delayed for lack of clarity over title issues involving the city's pension fund.
Industry sources say the necessary clarifications are now imminent, clearing the way for the city state's banks to access the low-cost, stable funding tool. "Going forward, covered bonds will be a popular source of funding for the Singapore banks and the market potential for such bonds will be tagged at around S$25-30 billion, based on the Monetary Authority of Singapore (MAS) ruling that limits the amount of assets backing the bonds to 4 per cent of a bank's total assets," said Kevin Wong, chief technical strategist for Asia at City Index.

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http://www.businesstimes.com.sg/premium/...e-20141001

PUBLISHED OCTOBER 01, 2014
Business loans in August reverse bank lending slide
BYKELLY TAY
kellytay@sph.com.sg @KellyTayBT

The increase in total borrowings was powered by a 1.6 per cent rise in loans to businesses, which staged a turnaround in August after contracting 0.3 per cent in both June and July - PHOTO: SPH
Mortgage lending has been affected by the cooling measures . . . But for developers, projects are going full steam ahead.
- CIMB's Song Seng Wun
[SINGAPORE] Thanks to a rebound in business loans, bank lending in Singapore returned to growth in August, according to preliminary figures released by the Monetary Authority of Singapore (MAS) on Tuesday.
Over the month, total domestic banking unit (DBU) loans rose by S$7.1 billion to S$604.6 billion. The 1.2 per cent increase marked the first growth in loans since May - borrowings had dipped ever so slightly by 0.1 per cent in July, after staying flat in June.
On a year-on-year basis, credit growth accelerated in August after slowing for eight consecutive months, increasing 11.8 per cent, compared to 10.8 per cent in July.
The increase in total borrowings was powered by a 1.6 per cent rise in loans to businesses, which staged a turnaround in August after contracting 0.3 per cent in both June and July.
Said DBS economist Irvin Seah: "This could reflect businesses building up their capacity for future growth, and it could also be that the government's productivity enhancement measures are gradually taking effect - companies may be answering the call to invest in technology to reduce their reliance on labour."
Loans to the building & construction and general commerce sectors - which together made up close to half of all business borrowings in August - grew 2.5 per cent and 1.3 per cent respectively. Business lending momentum was also helped by a 15.9 per cent surge in the transport, storage & communication sector.
Consumer loans grew by 0.5 per cent month on month in August, from July's 0.3 per cent.
Compared to the same month a year ago, August registered a 5.8 per cent increase in consumer loans - slower than the 6 per cent seen in June, and the 17th consecutive month of slower expansion.
Housing and bridging loans - the largest consumer loans segment making up close to three-quarters of the basket - grew 0.5 per cent in August over the month, at the same pace as in July. Compared to the year before, loans in this segment increased 6.6 per cent to S$173.5 billion, down from July's 7 per cent.
This was the slowest pace of growth in housing and bridging loans since mid-2007. Noted CIMB economist Song Seng Wun: "Lending for the mortgage side of things has been affected from the government's series of measures used to cool down mortgage loans. But for developers, projects are going on full steam ahead - building & construction borrowings are underpinning loans growth."
Car loans continued their 24th straight month of contraction, although August's fall of 1.6 per cent was less than July's 2 per cent drop. On a year-on-year basis, car loans shrank 19.7 per cent to S$9.2 billion, versus the declines of 19.9 per cent in July and June.
Loans and advances in Asian currency units (ACU) stood at S$521.3 billion in August, compared to S$524.4 billion in July. The ACU market refers to loans denominated in currencies other than the Singapore dollar.
As for Singapore's loans-to-deposits ratio, DBS's Mr Seah said: "We've seen a marginal inching up in the loans-to-deposits ratio from 1.12 in July to 1.13 in August. I think this is not going to change in the near term, and the gap between loans growth and deposits growth will remain wide.
"But I think the silver lining is that the bulk of the loans growth is now driven by business loans, rather than mortgage loans or any household-related loans."

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http://www.businesstimes.com.sg/banking-...banks-npls

Spike in bad home loans swells Singapore banks' NPLs
UOB housing NPL hits half a billion dollars at end Q3; Wing Hang consolidation pushes up figure at OCBC

By
Siow Li Senlisen@sph.com.sg@SiowLiSenBT
homeprices311014.jpg SLIDING Singapore home prices - especially those of high-end residences - are piling on more bad loans onto local banks' non-performing loan (NPL) books. PHOTO: BLOOMBERG
31 Oct5:50 AM
Singapore

SLIDING Singapore home prices - especially those of high-end residences - are piling on more bad loans onto local banks' non-performing loan (NPL) books.

United Overseas Bank (UOB) yesterday said that its housing NPLs have increased in the past two consecutive quarters to

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http://www.businesstimes.com.sg/banking-...pore-banks

Spike in foreign currency bonds expected from S'pore banks
By
Siow Li Senlisen@sph.com.sg@SiowLiSenBT
oocbcbanksjw1111.jpg OCBC Bank sold US$1 billion 4 per cent subordinated notes in April this year and they were the bank's first Basel III compliant capital instrument. PHOTO: SPH
11 Nov5:50 AM
Singapore

SINGAPORE banks are expected to step up their foreign currency bond sales to fund increasing intra-regional expansion. This comes as Asean banks step up bond issuances overall, as loans growth outpace deposit inflows, said Moody's Investors Service in a report on Monday.

Banks in Singapore and Malaysia have increasing foreign-currency funding requirements arising from their active pursuit of intra-regional expansion, added Moody's. The three Singapore banks have been active in tapping the foreign currency debt market to fund their growing trade finance business as they follow corporate customers expanding in the region.

OCBC Bank sold US$1 billion 4 per cent subordinated notes in April this year and they were the bank's first Basel III compliant capital instrument. It followed with another US$1 billion of 4.25 per cent subordinated notes in June. "We do not have immediate plans to issue any new capital but would not rule out the possibility of further bond issuances in the future as part of our ongoing efforts to manage the capital and funding mix," said Ang Suat Ching, OCBC Bank's head of funding and capital management.

"The US dollar (USD) market offers good liquidity and the USD is a freely traded and recognised currency that the local banks need in order to grow their balance sheets beyond Singapore. It is also demanded by clients to facilitate their global business activities," said Ms Ang.

DBS Group Holdings in July sold US$1.25 billion bonds due 2019, made up of US$750 million fixed rate tranche and US$500 million at floating rate.

United Overseas Bank in Q3 issued US$500 million and A$300 million of senior unsecured debts which further strengthened and diversified the funding base, the bank said last month.

Lee Wai Fai, UOB's chief financial officer, said that while the bank is committed to maintaining a sustainable funding base that is anchored on deposits, it also seeks opportunities, from time to time, to tap alternative funding sources. "By tapping the bond markets on a regular basis, we are able to maintain a close relationship with our international investors, diversify our funding mix and optimise our funding costs," said Mr Lee.

Moody's said that Asean banks will increasingly turn to capital markets, particularly by issuing bonds, in order to fund their lending operations.

"Loan growth in most parts of the Asean region has steadily outpaced deposit inflows over the past several years, leading banks to use most of their stock of deposits to fund loans," said Alka Anbarasu, Moody's assistant vice-president and analyst.

In addition, some banks have turned to their excess liquid assets as an alternative source of funds, a source Moody's believes is also diminishing.

"Going forward, we expect that further growth will also be driven by funding needs, rather than solely by choice. Therefore, funding and liquidity will increasingly become factors that differentiate Asean banks' credit profiles," said Mr Anbarasu.

Outstanding bonds and borrowings (excluding interbank loans) by rated Asean banks increased by 71 per cent to US$168 billion at end-2013 from US$98 billion at end-2009. This was in part driven by opportunistic market tapping at a time when credit spreads were low and investors' appetite for Asean bank debt was growing. Moody's noted that loan-to-deposit ratios (LDRs) rose to around 90 per cent at most Asean banks at end-2013 from the low 80 per cent-range at end-2009.

Indonesian banks appear the most stretched, particularly in local-currency funding. Banks in Thailand and Vietnam have some of the highest foreign-currency LDRs, indicating elevated foreign-currency funding needs.

Singapore banks' LDR ratio has been steadily rising, and in June reached 110.6 per cent, the highest since 1998.

Singapore's loan growth is expected to remain around the 10 per cent level while deposit growth is likely to languish near zero, said a DBS Research report at end-September.

As for their LDR, the three domestic banks have lower Singapore dollar (SGD) LDR given their bigger branch network versus the foreign banks.

DBS said at end-September, group LDR was 86 per cent while SGD LDR was 78 per cent. The bank, which has been aggressively growing its trade loans, said non-SGD LDR was 95 per cent. OCBC Bank's group LDR at end-September was 85.5 per cent; SGD LDR was 80.2 per cent and USD LDR was 99.5 per cent. United Overseas Bank said at end-September its SGD LDR was 94.1 per cent and USD LDR was 70.6 per cent; group LDR was 85.8 per cent.

Overall, Moody's expects loan growth for Asean banks to remain robust in the mid-teens in percentage terms, supported by continued infrastructure spending and working capital needs; increasing penetration of banking services, particularly in Indonesia and the Philippines; and cross-border loan demand due to regional expansion by Asean corporates and greater demand for trade finance.

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dbs 19.84, ocbc 10.47, uob 23.69

banks benefited from switch of out dog sectors - prop, offshore etc

no wonder STI looks so good but very few people hardly feel good

Not Vested
Banks
GG

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CEO of DBS Piyush Gupta has said the bank has no direct exposure to shadow banking in China, and is not linked to any "overexposed" Chinese bank.
UOB's head of investor relations and research, Jimmy Koh, said UOB China's wealth management solutions focus on plain vanilla products and bancassurance. The China exposure in its loanbook is small, compared to its peers.
And OCBC's CEO, Samuel Tsien, has said the bank is managing its risk by targeting clients with care.
......
"We don't take direct risk on the Chinese importers, we take risk on the Chinese banks," said Piet-Hein Ingen Housz, global head of metals commodities at ABN Amro.
......
"We tend not to work with clients that are arbitraging certain trends."

http://www.reuters.com/article/2014/11/1...V120141119

Nov 19 (Reuters) - A banking culture that implicitly puts financial gain above all else fuels greed and dishonesty and makes bankers more likely to cheat, according to the findings of a scientific study.

Researchers in Switzerland studied bank workers and other professionals in experiments in which they won more money if they cheated, and found that bankers were more dishonest when they were made particularly aware of their professional role......

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http://www.straitstimes.com/business/ban...et-quality

The Straits Times
Singapore banks face slow loans growth, weak asset quality, Banking News & Top Stories - The Straits Times
Banking News -The issues of slowing loan demand and vulnerable asset quality were front and centre for the local banks in the third quarter as the commodity crunch and economic headwinds continued to pressure corporate and consumer borrowers.. Read more at straitstimes.com.