SINGAPORE (Aug 11): Singapore’s three local banks – DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank – have expanded regionally over the last couple of decades, putting them in a stronger position to gather onshore assets for their private banking and wealth management businesses.

In fact, earnings from the private banking and wealth management businesses of the three local banks have been soaring, which some analysts say will drive up their return on equity (ROE) ratios and justify higher price-to-book valuations for their stocks.

According to a report by Bank of America Merrill Lynch, the Singapore banks experienced private banking AUM growth of 15% to 16% annually from 2012 to 2016.

Last year, DBS was ranked sixth in the Asian Private Banker’s league table, while OCBC and UOB were ranked seventh and 14th respectively. The top three names in the league table were UBS, Citigroup and Credit Suisse. According to BoAML, these big players grew their AUM at only 1% to 8% from 2012 to 2016, less than half the rate of the Singapore players.

The growth in AUM by the Singapore banks was partly driven by acquisitions.

Private banking and wealth management are now becoming a more significant driver of OCBC’s earnings. For 1HFY2017, OCBC reported an 18% y-o-y rise in earnings to $2.05 billion, buoyed in part by a doubling of contributions from Great Eastern Holdings, to 23% of total earnings from 11% in 1HFY2016. Income from wealth management increased 51% to $1.51 billion, accounting for 33% of total income of $3.96 billion, which was up 6%.

DBS has also been making acquisitions to grow its private banking operations in the last few years. In 2014, it acquired the Asian private banking business of Société Générale, paying 1.75% of its US$12.6 billion of AUM. This month, DBS will integrate $6 billion of private banking AUM from Australia and New Zealand Banking Group, which will lift its pro forma AUM to $195 billion (this includes DBS Treasures Private Client accounts). In 2010, its private banking business had AUM of $40 billion.

UOB has relied on organic expansion rather than acquisitions in building up its private banking business. As at June 30, it had total wealth management AUM of $99 billion, of which some 35% was from private banking (including Privilege Reserve accounts). UOB says its private banking AUM was 33% higher y-o-y as at June 30.

As the three banks leverage their regional commercial and investment banking platforms to establish thriving private banking businesses, this is driving up their fee income and return on equity.

Will it drive their stocks higher too? Find out more in this week’s issue of The Edge Singapore (Issue 792, week of Aug 14), available at newsstands, bookstores, gas stations and 7-11 outlets today.