DBS SEES INCREASED DEMAND FOR ESCROW SERVICES
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With increased counterparty risk, escrow services help
safeguard customers' interests
SINGAPORE, 29 May 2009 – DBS Trustee, a wholly owned subsidiary of DBS Bank, said today the greater economic uncertainty and heightened risk of aborted commercial transactions in the past two quarters, has led to increased demand for escrow services, which help safeguard the interests of customers.
In commercial transactions, such as the sale and purchase of shares, businesses or equipment, it is usual for potential buyers to place a deposit with the seller to demonstrate good faith. If the transaction falls through, the deposit monies are returned. This practice, often taken for granted when the economy is buoyant, cannot be guaranteed in times of economic upheaval.
Faced with cashflow pressures, even a trusted counterparty may misuse deposit monies received to tide over a more pressing need. In such instances, the rightful owner often has to initiate legal proceedings to recover the funds.
The inconvenience and risk of loss associated with legal action can be avoided if the deposit monies or assets were placed with an escrow agent at the inception of the transaction. As an independent third party, an escrow agent such as DBS Trustee protects the assets of the transacting parties by ensuring that the monies are only released upon the fulfilment of contractual obligations.
This realisation has led to increased demand since late last year for escrow services by individuals, small and medium-sized enterprises and corporates across Asia.
At the height of the market turbulence in the first quarter, some commercial parties would insist on seeing monies placed in an escrow account before delivering the goods. This allowed both parties to be more comfortable, knowing that monies have been set aside for a specific transaction, before they spend too much time pursuing it.
DBS Trustee is seeing an increase in the number of escrow enquiries from customers. More than in the past, customers are using escrows to hold deposits and/or proceeds from sale of assets whether resulting from a normal transaction or from a liquidation proceeding to ensure that the monies are paid to intended recipients.
Pranam Wahi, Managing Director and Head of Global Transaction Services at DBS Bank, said: "With the difficult economic climate, we have observed that commercial parties appear more nervous about counterparty risks. This has been exacerbated by an increased incidence of commercial transactions failing mid-stream. Through our escrow services, our clients are able to have peace of mind as they are assured that their monies would be safe even if a transaction falls through. While the economy may be bottoming out, we are not out of the woods yet and we believe escrows continue to be relevant to individuals and companies looking to safeguard their interests."
Escrows are a versatile tool and can be customised for a variety of transactions, including mergers and acquisitions, private equity investments, delistings, divestments and initial public offerings. DBS is also able to open escrow accounts in markets such as Singapore, Hong Kong, Indonesia and India, as well as to structure cross-border escrows.
DBS Trustee was set up in 1975 as a wholly owned subsidiary of DBS Bank, and offers corporate and private trust services. It is the trustee for three out of four directly listed Exchange Traded Funds (ETF), including the first Shariah-compliant ETF, listed on the Singapore Exchange. DBS Trustee is also the trustee for two real estate investment trusts, namely, Ascott Residence Trust and CDL Hospitality Trust.
DBS is one of the largest financial services groups in Asia with operations in 16 markets. Headquartered in Singapore, DBS is a well-capitalised bank with "AA-" and "Aa1" credit ratings that are among the highest in the Asia-Pacific region.
As a bank that specialises in Asia, DBS leverages its deep understanding of the region, local culture and insights to serve and build lasting relationships with its clients. DBS provides the full range of services in corporate, SME, consumer and wholesale banking activities across Asia and the Middle East. The bank is committed to expanding its pan- Asia franchise by leveraging its growing presence in mainland China, Hong Kong and Taiwan to intermediate the increasing trade and investment flows between these markets. Likewise, DBS is focused on extending its end-to-end services to facilitate capital within fast-growing countries in Indonesia and India.
DBS acknowledges the passion, commitment and can-do spirit in each of its 14,000 staff, representing over 30 nationalities. For more information, please visit www.dbs.com.