Why are Singapore banks scrambling to grow their wealth management units?

Their assets under management grew at 12-19% CAGRs in the past five years.

Wealth management (WM) is increasingly important for Singapore banks. As at 2015, DBS’ WM income contributed 13% to its total income and OCBC’s, 27%.

Maybank Kim Eng analysts note that DBS and OCBC previously made acquisitions to expand in this space: OCBC acquired ING’s Asia Private Bank in 2009 for USD1.5b (price/AUM of 5.8%) while DBS bought Societe Generale’s Asian private-banking business in 2014 for USD220m (price/AUM of 1.75%). Tapping growing wealth in Asia is meant to counteract slowing loan growth and revenue headwinds.

Here's more from Maybank Kim Eng:

WM is a fee-based, low-capital and high-ROE business. Singapore banks have been working hard at lifting their share of the business, with some success. WM assets under management (AUM) for the three grew at 12-19% CAGRs in the past five years.

WM income for DBS and OCBC grew at 23% and 12% CAGRs over that period respectively. In view of increasing growth in this space, we think that the business can provide an alternative source of earnings growth to counteract slowing loan and revenue growth in the region for Singapore banks.

Globally, the WM business is not without its pressures and Singapore is not unscathed. Hefty fines have been slapped on certain private banks for helping their clients evade taxes. The global crackdown on tax evasion and tax information-sharing has been forcing private banks to disclose client information to foreign tax authorities. Anti-laundering procedures also escalate regulatory and compliance costs.

Closer to home, a hunt by Asian governments for undeclared wealth income parked in Singapore may prove disconcerting. Indonesia’s recent attempts to offer a tax amnesty to its citizens who are willing to repatriate funds home could have ramifications for the pool of monies parked here.

Sources said that the amount of Indonesian money parked in Singapore could reach USD200b, or SGD280b. During the recent results briefing, DBS’s CEO Piyush Gupta estimated that ~10-15% of its private banking book is from Indonesia, which is still a considerable sum.