Banking & Finance

Bank of Singapore eyes entry into China via onshore partnership model

Bank of Singapore chief says plans to enter China coincides with growing headwinds for the private banking sector, underscoring the need for risk-averse approach

PUBLISHED : Monday, 25 July, 2016, 10:18pm
UPDATED : Monday, 25 July, 2016, 10:18pm

The Bank of Singapore says it’s leaning towards working with an onshore Chinese partner over a direct entry on its own, as it gears up for its first foray into mainland China, in the expectation the joint venture will deliver benefits in terms of client contacts while avoiding the need for costly new hires.

Bank of Singapore Chief Executive Bahren Shaari said his bank is in no rush to reach a decision, but the approach signals a more risk-averse way into the market amid growing headwinds for private banks.

“Shanghai is something we have in mind. There is no fixed location. You set up in a location where the money is,” Shaari said. “Client acquisition is still going to be a challenge even if you have an onshore setup.”

He added that the bank “will need to find bankers to hunt for clients”.

Earlier media reports said that the Bank of Singapore was likely seeking to set up a direct presence in China on its own this year, although an onshore partner structure was a possibility.

The Bank of Singapore’s pivot towards China comes at a time of mounting pressure in private banking, with the industry expected to undergo a further consolidation. Income from trading activities is being squeezed at the same time that banks are facing rising costs related to regulatory compliance and technology.

“The consolidation will continue. Each bank will need to find a unique business model. Whatever model you run, the cost base must be manageable to support the top-line revenue. The top-line revenue is not growing as much as in the past, especially this year,” Shaari said.

Underscoring the challenges, in the mainland banking centres where Bank of Singapore is seeking a new onshore presence Western banks such as Citi and RBS have this year been shutting down branches and looking for other ways to cut costs.

Shaari said the bank’s competitors have struggled to find the right business model in the mainland over the last decade.

The challenge is to find returns amid a low-yield environment, where US 10-year Treasuries are yielding between 1.3 and 1.4 per cent, he said.

“People started to look into the onshore model more than 10 years ago, which was when other competitors started. But no one has got it right. A wall of investments went in. People have now lost money, closed branches and have changed their business models,” Shaari said.

“The only thing that is different now is that you wind up with 10 years of lessons. It’s better not to make the same mistakes,” he said.