Banks should continue to be the main beneficiaries of efforts by central banks to fight inflation. The key message from the top management of DBS Group Holdings, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) is that the higher interest rate environment will continue to be positive for net interest margins (NIM) and net interest income (NII).
In 2QFY2022 ended June, the NII of all three banks rose by double digits y-o-y and q-o-q, offsetting declines in other areas of their businesses. For all three banks, wealth management-related income including fees fell in 2QFY2022. DBS, OCBC and UOB’s wealth management fees declined by 21%, 25% and 27% y-o-y respectively. This is reflected in Table 1 where net fees and commissions and other non-interest income fell. And it is here the challenge lies. The banks, especially OCBC and DBS, had acquired private banking assets in anticipation of the wealth management megatrend. Of course, the decline in 2QFY2022 may be temporary, merely a reaction to the Russia-Ukraine war and possibly to tensions in the Taiwan Strait.
If markets stabilise from their bout of volatility, wealth management income could rebound. Piyush Gupta, group CEO of DBS, says: “We’ve had a solid wealth management quarter because we’ve had a lot of new money flow. We’ve got over $10 billion of net new money [in 1HFY2022], which is double what we normally get.” For most private banks, AUMs are down because asset values fell. “We made up for it by getting new money into the system. Also, we have slightly more deposits in our wealth management base than a lot of other private banks. That part of the story is good,” adds Gupta.