Published September 24, 2008

Fresh hope in trying times

By SIOW LI SEN
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SEPT 15, 2008 will be marked as the starting day of the worst crisis for the many denizens of Suntec City, Raffles Place and Shenton Way. But that did not stop the staff of Royal Bank of Scotland (RBS) at One Raffles Quay in celebrating the launch of their rebranded royal-preferred banking in Singapore. Credit crunch or not, business must go on.

At a press conference, senior RBS managers downplayed the impact which the latest developments rocking the financial markets might have on their bank's expansion plans in Asia, in particular Singapore.

Although they did warn of challenging headwinds and that growth has to be brought down, they said Asia will still be an important engine for RBS.

Since buying ABN Amro last year, which meant taking over its retail and wholesale banking businesses (the private bank and asset management went to Fortis), RBS has wasted no time in integrating its operations with the Dutch bank and putting in place plans to grow its Asia operations.

RBS expects Asia to contribute 10 per cent to group revenues by 2010, up from 2.33 per cent now. In Singapore, this will partly come from opening two more branches by end-2009, bringing RBS' network to seven. RBS intends to hire 25 per cent more staff, mainly in sales, as it hopes to expand its offerings to affluent customers, defined as those with $200,000 in assets.

On the corporate side, RBS will be able to offer clients more 'powerful' services from the merged entity, they said.

It is undoubtedly good news that even as one bank (Lehman Brothers) fails and another (Merrill Lynch) gets sold off, there are those such as RBS which are gung-ho and ready for more action.

All this means more pressure on the three local banks - DBS Bank, United Overseas Bank and OCBC Bank - and the other foreign banks.

RBS may not be able to eat into their market share, but for sure it will try - and this typically means cutting prices, and offering freebies to lure customers.

If the others want to protect their customer bases, then it will lead to a round of price cuts and sliding margins.

Singapore is a rich market for banks. On the consumer side, Singapore has emerged as the market with the greatest concentration of 'millionaire' households - defined as those with assets under management of at least US$1 million. They account for an 'astounding' 10.6 per cent of all households here, said Boston Consulting Group in a report this month.

Despite the impressive statistic, Singapore is a small market in absolute terms and it is likely to result in smaller profits for all the banks as they slug it out to attract customers, especially in trying times such as these.

Corporates are relatively under-leveraged, though the economic slowdown will put many under pressure.

As the slide in prices continues, those heavily exposed to the property market - individuals as well as companies - will contribute to more defaults and bankruptcies.

One optimistic reading is that with some of the biggest banks out of the picture, and also the tightening of credit, pricing power will return to the market.

Banking for the next several years, at least until the volatility settles, will return to basics - collecting deposits and making loans - rather than structuring complex products which nobody understands, and earning fat fees for doing so.

Bankers may even revert to what they were before - stuffy and boring - rather than glamorous.