22/05/23

ASIA: OCBC bets on Greater China, Asean links to capture investment flows.

As published on businesstimes.com.sg, Monday 22 May, 2023.

Even as the outlook for the global banking sector remains uncertain amid recent instability, OCBC believes it has an ace up its sleeve.

Investment flows between Greater China and the Asean region are looking robust – particularly since China’s reopening post-Covid. And the Singapore bank sees a golden opportunity.

OCBC is in a good position to capture wealth and trade flows given its strong links between the two regions, said chief executive officer Helen Wong.

OCBC’s cross-border income grew 29 per cent in 2022; the group’s wealth business also saw net funds inflow of S$25 billion in the year, despite volatility in global markets amid the war in Ukraine.

Together with a record net interest income amid the rising rates environment, the lender registered a record net profit of S$5.8 billion for FY2022.

China’s reopening may have given an additional boost to the lender’s wealth business.

For the first quarter of 2023, OCBC saw S$10 billion in net new money inflows. Wong observed that there were more flows from Asean and Greater China in the period.

In comparison, net new money inflows for DBS and UOB for the same period were S$6.2 billion and S$6 billion, respectively.

Wong said the niche for OCBC – which has positioned itself as a support to Chinese companies going overseas, particularly to Asean – would be its operations across the markets in the two regions.

Calling it a “trade hub approach”, Wong noted the importance of linkages between Singapore and Hong Kong, which are the two biggest financial centres in Asia.

The bank also has a Greater China Business Office that covers investments into Singapore, Malaysia, Thailand, Indonesia and Vietnam.

Wong said: “Quite a number of foreign banks are active (in the region), but not everyone has that link from the Greater Bay area… to Asean.”

Since the pandemic, there has been more interest from the Greater China region coming to Asean, with investments in diversified areas, Wong said.

For example, Chinese electric vehicle companies may be attracted to Indonesia’s vast resources to make batteries, while those looking for computer chip manufacturers may be interested in Malaysia’s expertise in advanced manufacturing.

She also noted wealth management opportunities for banks in the region, given weakness in the Western banking sector.

“Interestingly, because of (the banking crisis in the West), we see the status of Singapore being a safe haven to be quite prominent,” she said.

To capture the flows, Wong noted that the group has been growing its digital capabilities, particularly in cross-border payments.

In April, the lender signed an agreement with Chinese state-owned financial services corporation UnionPay International, which will facilitate digital payments for consumers, especially those going to China.

OCBC’s partnership with Bank of Ningbo is likely also a strong growth driver.

OCBC first took a stake in Bank of Ningbo in 2006, before raising its stake in the Chinese bank to the maximum allowable 20 per cent in 2014.

Given that the bank does not have a large international presence, OCBC will naturally be referred to its clients that want to expand overseas, Wong said.

Meanwhile, Wong also noted opportunities to bank Chinese new economy companies – in industries such as tech – that are looking to expand in Asean.

She said some of these companies set up base in Singapore to receive foreign investments, and thus may require fundamental banking services – such as deposit accounts and credit cards – instead of financing.

“Some of these new economy companies are very used to having investors, and they’re very open to having foreign investors. When they set up in this part of the world, they may seem to be a small company, but it is still the international arm of the business… that is going to do big things,” Wong said.

Apart from southbound flows, the bank serves its network customers in China with financing opportunities, such as customers going into China in the early stages of manufacturing.

China will likely also present opportunities for its sustainability agenda, which Wong said is “as much of a business opportunity, but also something non-negotiable”.

OCBC had achieved S$47 billion in sustainable financing commitments by the first quarter of 2023. The bank has committed to achieving net-zero by 2050, and recently announced it will stop financing upstream oil and gas projects that were approved after 2021.

She expects strong support for sustainability in China will help spur further interest in the area: “When (the country) is determined to do something, there is always a policy, incentives… and a lot of discussion, and the regulator will be very supportive.”

Looking ahead, further cooperation between China and Singapore should allow the bank to further leverage its competitiveness in China-Asean flows.

Earlier this year, Singapore and China agreed to upgrade ties between the two countries, with the “All Round High Quality Future Oriented Partnership” that would extend the status of Singapore beyond being a trade hub in Asean.

This should allow more direct negotiations and connections between Singaporean and Chinese companies to reflect what the two countries can do together, Wong said.

She added: “With the agreement between the countries, they will explore anything that is not just driven by the commercial world – they will think about policy, about further linkages... and I wouldn’t be surprised if there are other regions (in China) opening up to Singapore companies (for investments).”

While the Chinese domestic market is big, she noted that Chinese companies will never stop exploring where they can invest overseas.

She said: “The pie is big enough such that we if we get a right share of the market, it can already be a very good amount of income.”