Ambitious Plan of DBS in China

DBS Group unveils its ambitious plan in China to triple the proportion of its profits in China against the total assets.

The biggest bank in Southeast Asia DBS Group plans to increase the profit contribution in China from current 2% to 3% to 5%-10% in the next five to ten years. Presently, this Singapore-headquartered bank has already 16 branches in Beijing, Shanghai, Guangzhou and Shenzhen.

“In the next three or four years, we are going to increase the number of branches in China to 50,” said Piyush Gupta, CEO of DBS Group after the launching ceremony of Asia Hub. “We are positive in developing in China. Today’s China is like the US in the 1970s with great market space and fast growth. Any banks in this country will have a lot of profits.”

Big investment in the future

DBS Group spent 200 million Singapore dollars in building Asia Hub in Singapore. This building was put into use in the middle October. At the entrance stood the eye-catching sculpture of three bowing men which was designed by Chinese artist Gao Xiaowu. “We chose it because we want to remind us of providing services in a humble profile and operating business in an Asian way,” said She Lim Huat, board chairman of DBS Group.

Gupta said that the group planned to invest 1.5 billion Singapore dollars in the Asian markets in the next 10 years, of which more than 10% will be put in China. It is disclosed that DSB Group plans to increase the contribution rate from 2%-3% to 5%-10% in the next five years.

“China had the fastest economic growth in the past ten years,” said She Lim Huat. “It is a very important market fro DSB Group and an important platform for our strategy in Asia. Our composite growth rate in the past five years was maintained at 40% to 45% in the past five years. We have 16 branches in China and right now we are applying to the Chinese watchdog for more branches.

“We are going to increase the number of branches to 50 in China in the next three or four years without violating the relative rules,” said Gupta. He admitted that DBS Group weak in the number and scale of branches; however, he is confident in the future. “Though we are behind many foreign banks in the number of branches and still have the problem of getting returns on investment in branches, we are bullish on our performance in the future.”

Likely to issue RMB bonds

A few months ago, the biggest European bank HSBC Holdings disclosed it interest in listing on the proposed international board of the Shanghai Stock Exchanges. When asked about whether DBS Group has the similar plan, Gupta said that it is not the proper time to talk about it now because the company is committing itself to expanding its business in China. It is likely to go public in China if the development is satisfactory.

According to Gupta, DBS is likely to issue RMB bonds in China under the regulation because the abundant fluidity is good for the healthy development of banks. He also said that DBS Group has a large amount of deposits and strong fluidity. Whether and when to issue RMB bonds depends on the fluidity and current economic and market situation.

When talking about the future development focus in China, She Lim Huat said: “Asia is faster than any other region in the world in creating wealth. China has stunning potential in making wealth. Our primary target this year is to develop the Fengsheng Financing Business, which targets the customers with assets of 400 thousand yuan (USD 59.9 thousand).

This disposition allies with the development trend of the wealth market in China and the world. At the end of June, Merrill Lynch and Capgemini published the 2010 Global Wealth Report, showing that in 2009 Asia for the first time catches up with Europe in the number of rich people (having the assets of 1 million US dollars). The number is 3 million. The number of rich people in Mainland China increased by 31% to 477 thousand, standing at the fourth place in the world.

By the end of June, DBS Group’s capital sufficient rate and percentage of Tier 1 capital were respectively 16.5% and 13.1%, higher than international standard. According to the requirement of China’s watchdog, the corporation banks established by foreign banks should meet the demand in the ratio of loan to deposit of 75% by the end of next year. For this, Gupta stressed that the loan to deposit ratio of DBS Group in China had already dropped from 141% at the beginning of this year to 100%. The company also commits itself to increasing the deposit amount. Gupta is confident in meeting the requirement at a set time.

Big deal of RMB

DBS Group, as well as the other foreign banks, covets the RMB market. On July 26, the Hong Kong Monetary Authority signed the liquidation agreement of RMB with the People’s Bank of China, removing the restrictions over the RMB capital transfer between different accounts of companies and individuals and the limitations on the quota of exchanging RMB for companies.

According to the experts, allowing banks to conduct RMB trade, the trade volume in Hong Kong increased from previous 2-3 million US dollars to 50 million US dollars, reflecting the rising interest of banks and companies in the RMB business.

“The exchange volume of RMB DBS Group had in September was 9 billion yuan (USD 1.35 billion),” said Andrew Ng, group executive treasury. “Right now the RMB deposit in Hong Kong has exceeded 100 billion yuan (USD 14.97 billion) and is expected to exceed 200 billion yuan (USD 29.94 billion) by the end of this year. In the next two or three years, it may increase by three to four times. There are abundant products whose development is based upon deposit, which is helpful to form a broad and deep RMB market.”

Andrew Ng pointed out that the internationalization of RMB is an important case for Asia in the next five to ten years. DBS Group plans to grab this opportunity to get engaged in RMB business more frequently. Apart from the current spot transactions, the company plans to extend its arms into foreign exchange, RMB bond, structural products and hedge fund.

“DBS Group plans to invest 250 million US dollars in the next five years to develop the bank’s treasury department, including the businesses of foreign exchange and fixed income. About 600 new employees will be recruited to increase the staff of treasury department in Hong Kong and India by 50%. The goal is to enhance the relevant ability of the bank.”

As Andrew Ng forecasts, the expansion of RMB market will be accompanied by the increasing overseas income for the treasury department. The proportion of this department’s income of the total income will jump to 55% in 2013 from today’s 35%.