RETAIL BANKING | Roxanne Uy, Singapore

Can Standard Chartered really 'chip away' at DBS' advantage?

Only time will tell if Standard Chartered manages to poach its rivals’ customers, says an analyst.

According to a report, Standard Chartered has been very active in capturing savings deposits through attractiveinterest rates (1.88% p.a.) and such aggressive foreign banks could slowly chip away at DBS’s savings deposit advantage. We sought the insights of industry analysts on this and here's what they have to say:

ABF: How exactly can DBS maintain its savings deposit advantage through foreign banks like Standard Chartered?

Standard & Poor’s: Ivan Tan, Director, Financial Services Ratings

We believe that the three local banks - DBS, OCBC and UOB – will continue to maintain above average funding profiles, underpinned by their established franchise and large physical network of branches and ATMs.

This advantage is reflected in a significantly larger Singapore dollar deposit base vis-a-vis the foreign banks. The larger foreign banks, particularly those with Qualifying Full Bank licences, have leveraged on their competitive advantage to attract deposits through their international connectivity, trade finance capacity, franchise and wealth management services.

Foreign banks with a smaller presence might compete on price to attract deposits. However, the resultant higher funding costs from such a strategy will exert downward pressure on margins and profitability. We believe that the local banks will also continue to improve their service levels and product offerings to maintain their market share of deposits.

Macquarie Securities: Matthew Smith, Senior Analyst
The composition of DBS's domestic deposit base is largely current account deposits and savings deposits. Standard Chartered is not well positioned to compete with DBS for these deposits, which are very low cost (almost free) and therefore very profitable for a bank.

DBS's advantage here lies in the POSB franchise that it acquired in 1998. That gave it a unique base of Singaporean retail deposit customers who use the accounts for items like spending needs, bill paying, gyro arrangements, and payroll. They tend to stick around for decades, if not life, because it's easy to use. It helps that POSB ATMs are nearly ubiquitous here, which is not true for the foreign banks.

Standard Chartered won't pick up this kind of low-cost deposit base, because it tends to be very sticky to POSB and also because their branch network and ATM network pales in comparison to DBS's, at least in Singapore. For Standard Chartered to boost its retail deposits, it has to pay more for fixed deposits.

This is less economically attractive for a bank, and although DBS raised its FD rates recently, it is not likely to chase these deposits aggressively -- simply because it doesn't have to.

I think it's important to distinguish between competition for retail deposits in Singapore and the broader and much larger wholesale market of corporate deposits. Obtaining corporate deposits is all about building up capabilities in areas such as cash management and transaction banking.

Standard Chartered's wholesale business is well ahead of DBS's in my opinion, perhaps not in Singapore specifically, but wholesale banking is more of a regional playing field rather than being specific to Singapore. And there are a lot more players involved than just DBS and SC.

IG Markets: Justin Harper, Market Strategist
Standard Chartered has put the cat among the pigeons in aggressively targeting savers which a high interest account. This should be good news for savers in Singapore who have had to suffer very low rates of interest on savings accounts for many years. Having a foreign player like Standard Chartered offering such an account will hopefully provoke DBS and other local banks to improve their own offerings.

They can no longer rest on their laurels now they have tough competition and the threat of customers leaving them. I think the likes of DBS have no option but to improve the interest rates its pays on savings accounts. However there is a huge amount of inertia among banking customers and few can be bothered to change banks, even if the rates are much higher.

Only time will tell if Standard Chartered manages to poach its rivals’ customers. 

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