Switzerland has always been good to rich people. It has exclusive resorts, fine cities and of course, a tradition of discreet private banking.
Switzerland built this reputation for centuries, but now, things are starting to change. As cash-strapped governments in Europe and the US panic, the country has been forced to loosen its bank secrecy laws, resulting in many clients voting with their feet. And they’re overwhelmingly going to one place – Singapore.
The consultancy firm PricewaterhouseCoopers forecasts that Singapore could dislodge Switzerland as the world’s wealth capital as early as 2015. The country’s low tax rate and stable currency are important factors, but it’s the growth in Southeast Asia that’s really driving the whole enterprise.
Singapore’s banks are well placed to take advantage of this growth. Today, I want to tell you about three which are worth a look.
More wealth equals more banks
Global wealth is set to rise from €313trn in 2010 to €667trn in 2030. In that time, 80% of global wealth creation will come from emerging markets, with Asia set to be the biggest contributor. With that in mind, I think we can expect a massive wealth boom across all of Southeast Asia. We can already see the effects in Singapore.
Of course, as with anything in Asia, China will play a large role in this region-wide growth. According to financial services provide Swift, the Chinese currency, renminbi, has become the second most widely used currency in trade finance.
The government is currently re-jigging its financial sector and has announced a two-year timetable to modernise the sector. There are also reform plans to tackle failed banks and allow the establishment of privately owned banks to provide finance to private companies.
That’s precisely where Singapore’s banks come in.
Three ‘wealth capital’ banks
Singapore’s new position will mean plenty of opportunities to provide trade finance facilities and offshore renminbi services. I’ve found three banks that look like they could be great value. They are DBS Group Holdings (DBS), Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB).
Based on a recent study by UOB Kay Hian, earnings contribution from overseas have registered a ten-year annual growth rate of 7.4% for DBS, 20% for OCBC and 12.2% for UOB.
In 2003, profit before tax from international operations accounted for 19.6% for OCBC and 24.5% for UOB. Last year that had grown to 41.3% for OCBC and 39.1% for UOB.
Let’s see what they’ve got planned for the future.
DBS already has 50 branches in Hong Kong, 29 branches in China and 43 branches in Taiwan. Net profit from this three Chinese markets have grown at a three-year compounded annual growth rate of 14.6%.
OCBC is in a pretty good position too. The company has 16 branches in major cities in China and a 20% stake in Bank of Ningbo.
The pending acquisition of the Hong Kong-based Wing Hang Bank will support retail and small and medium enterprises in Hong Kong and expanding its network in China to 31 branches. Profit before tax grew by a three-year compound annual growth rate (CAGR) of 44.8% from Greater China.
Finally, UOB plans to double its corporate loans to Hong Kong and Chinese companies looking for growth in Southeast Asia over the next three years. This will see an increase in overseas wholesale banking from 43% in 2013 to 50% in 2015; regional wealth management from 30% in 2013 to 50% by 2015.
The bank also set up a dedicated foreign direct investment advisory unit to assist Chinese companies to expand into Southeast Asia.
This is a story I’m going to be watching with interest.