OCBC

During a year marked by volatility in equities, currencies and interest rates, Singapore bank OCBC has responded by offering innovative products and corporate treasury solutions to assist clients. "The subprime crisis brought a lot of volatility," says Wee Wei Min, head of treasury advisory, global treasury at OCBC Singapore. "Because of the volatility, there were a lot of demands to provide hedging solutions and investment solutions for customers. The main skew of things is a lot of focus on hedging and investing."

OCBC cites its absolute up-down Singapore dollar principal-protected deposit offering launched in June as an example of an interesting new product. It takes into consideration the view that the Singapore economy will be negatively affected by the global economic slowdown, at least for the next few quarters, the bank says.

The three-year principal-protected deposit is linked to the movement of the MSCI Singapore Cash Index. The coupon is payable annually with investors receiving an enhanced yield so long as there is a directional move in the index. The enhanced yield is calculated as the absolute difference between the 'up months' and the 'down months', the bank says. If there is no difference between up months and down months, the annual coupon is 0.25%. If there are two to four months of absolute difference, the coupon is 2.5%. If there are six to eight months of difference, the coupon is 4% and if there are 10 to 12 months of difference, the coupon is 6%.

OCBC has also helped clients cope with currency fluctuations. It used a swap structure, for example, to help a customer that believed the renminbi would continue to appreciate over the next two years against the US dollar, and wished to reduce its borrowing costs in Singapore dollars. This structure potentially allows the client to receive 3% a year based on a Singapore dollar notional amount agreed at the start, and to participate in the upside.

The bank did this by developing an appreciation swap whereby if the renminbi appreciates against the US dollar on any particular month, the customer receives 0.25% of the notional amount. If it depreciates on any particular month, depending on the rate of depreciation, it pays based on a formula but capped at 0.13% of notional amount each month. The swap will be knocked out once the customer receives a cumulative 1% of the notional amount. In a best-case scenario, the swap lasts for only four months, then gets knocked out. In a worst-case scenario, if the client's view was wrong from the start and the US dollar appreciates against the renminbi, the client has to pay an additional cost of 1.56% for the next two years. As it happened, the client collected 1% and the swap was knocked out in September.

Interest rate hedging

OCBC has also done a lot of new work related to hedging interest rate risk, although the bank declines to give indicative numbers. "It has been a big year for interest rates," says Wee. "We have seen huge movements in interest rates, and we have customers who were hedging across various markets. Some have hedged at very attractive rates. Some purchased option caps and swaps. As rates come off, we continue to engage our clients, advise them on rates, and across the whole year we have seen very steady growth in that area."

One OCBC corporate customer in Singapore says the bank's work in helping with interest rate risks has been of particular value this year. The client, a publicly listed company, says one interest rate swap deal structured by OCBC ended up saving it S$86,000 ($58,000).

The client also praised the quality of OCBC's relationship managers in times of stress. "We have relied on OCBC for a long time," the client says. "We rely on the bank for relationship (advice), especially during a crisis. In general, most of the relationship managers at OCBC stay put for quite a while - a minimum of three years. That makes them relatively more stable."

In addition to its 22-strong team of relationship managers on the corporate side, the bank engages with clients regularly on a variety of other levels. "With our client base, we have to reach out to thousands of customers," says Wee. "We have leveraged across our different channels, from sales people in treasury who look after our top clients down to SMEs. Our people will look after a select group of customers, constantly calling the customer, meeting with them face-to-face to proactively engage them."

OCBC also has education programmes for internal staff training that include rigorous role-playing for potential sales scenarios. This, combined with its developing confidence in providing derivatives-based solutions to suit customer needs in challenging markets, has helped the bank win this award.