By Aaron Woolner, Asia Risk
First published on 13 Oct, 2014
This year saw DBS consolidate its position as the dominant bank in Singapore. Backed by a cast-iron balance sheet and some of the highest credit ratings among banks the region – it is rated AA– by Standard & Poor's and Aa1 by Moody's – the firm has continued to expand. While the broader group is active across 15 markets, the head office is the booking centre for a range of activities across all major derivative asset classes: foreign exchange, interest rates, equities, commodities and fixed-income securities.
Rates remain at the heart of the bank's Singapore business, which offers the full product spectrum from swaps to options, floors, caps, collars, swaptions, as well as bespoke products. It is the market leader in the Singapore dollar interbank swap market where it is the major liquidity supplier and is a primary dealer of Singapore government securities, with average daily turnover of more than S$1 billion notional in swap transactions.
Despite a persistently low interest rate environment which has seen volatility remain depressed while the interest rate curve continues to flatten, DBS's Singapore treasury and markets division, which houses all the firm's derivative trading activity, saw a 10% increase in income compared with the previous 12 months.
The firm has a one-third share of the USD/SGD interbank market with an average daily trading volume in excess of S$2 billion, according to DBS figures. The firm stresses that this is an average and that its strong position in the corporate SGD/USD market means it regularly structures transactions that exceed the daily average.
Likewise it is the largest market-maker in the Singapore dollar money market where it holds a 40% share of transactions and where it works with the local regulator, the Monetary Authority of Singapore, to develop the local bond market.
With a core Tier I capital ratio of 13.7% as of December 31, 2013 the firm has a strong balance sheet and one area it has been able to deploy this is in the commodity markets. While global firms such as Deutsche Bank and Credit Suisse have closed down their global businesses in the past 12 months – both of which were active in Singapore – DBS has been expanding.
The bank only started commodity derivative trading in 2010 and has doubled the size of its business each year since then, using its strong corporate franchise to link commodity financing to the firm's trading activities.
Despite the Asia-centric nature of global commodity markets, much trading is still done during New York and London hours and as a result the bank has extended the business hours of its commodity division to allow clients to risk-manage their trading book more effectively.
Given the success of the Singapore Exchange's iron ore swap contract, it is unsurprising that DBS plays an active role in that contract and the firm places a particular emphasis on its research capability. But it is in the agriculture sector that the firm's success has been particularly pronounced, according to one senior figure from a Singapore-based trading firm.
"When it comes to a number of agriculture commodities the leading global players are facing significant competition from DBS," he says.
Regulation has become ever more important in a post-crisis world and one of many changes that derivative dealers face is the imposition of the credit valuation adjustment (CVA) and the more widespread use of the credit support annex to reduce Basel III capital charges. DBS has enhanced its pricing tool with an in-built calculator that facilitates the calculation of CVA, enabling it to respond more quickly to pricing enquires.
But despite all this success, Thio Tse Chong, DBS managing director of treasury and markets in Singapore, says the bank isn't resting on its laurels. "Singapore is a mature market so to realise a 1% or 2% CAGR growth is not easy but we are continuing to try and expand our wallet share in our local market and we want the customers to make DBS their dominant bank.
"Hopefully we can increase share by providing more services than just pricing: we want to offer full-scale banking services to clients – not just in the T&M but also cash management, GTS and payments," he says.