Dao Heng hedges funds with switch to short-term assets
Dao Heng Bank has shifted about 40 per cent of its deposits into short-term liquid assets in a strategic move to insure itself against volatility in the market.
Managing director Kwek Leng Hai said after yesterday's annual general meeting that the high level of liquid assets was necessary in the prevailing interest rate environment.
'We placed more of our assets in Exchange Fund bills and notes and LAF [Liquidity Adjustment Facility] eligible papers,' Mr Kwek said.
'About 40 per cent of our deposits are now in the form of liquid assets.' The bank's conservative risk management protected it from the huge spike in interest rates on October 23, when overnight interest rates went up to 300 per cent as the Government defended the pegged exchange rate.
'We even lent more than $1 billion in the inter-market that day,' he said.
However, the downside of such conservatism is low returns.
'That is something we are working on,' Mr Kwek said.
'We will look at our total portfolio with a view to focusing more on high-yielding assets such as credit cards.' Dao Heng Bank has 500,000 credit card holders. Credit card advances topped $2.76 billion by June 30 this year, about 5.5 per cent of the loan portfolio.
Mr Kwek said it was too early to ascertain the impact of high interest rates on the bank's earnings but added high rates would arrest loan growth.
'We will be very cautious in our lending, we will not be aggressive in grabbing business,' he said.
Parent company Guoco Group, which has a bigger exposure to other Asian countries, is expecting a currency translation loss.
'Except for Singapore, most Asian currencies have dropped by 30 per cent to 60 per cent,' he said.
'There will be some impact to our figures when translated back to US dollars.' The currency turmoil had also opened up opportunities, he said.
He did not rule out chances for acquisitions in line with the group's business development once the turmoil was over.
Guoco Group holds a 57 per cent stake in Singapore-listed First Capital Corp and a 36 per cent holding in Guoco Holdings (Philippines).
In Malaysia, it owns 20 per cent of listed Hong Leong Credit.