Regional derivatives house of the year: DBS Bank

Asia Risk Awards 2020

Andrew Ng, DBS
Andrew Ng, DBS

DBS’s continually high level of connectivity and collaboration has helped the Singapore bank strengthen its position as a one-stop shop for its clients and provide them with the best pricing opportunities available on the market – something that has been particularly appreciated during the Covid-19 pandemic.

“Clients seek simplicity and efficiency, and not every bank is set up the way we are,” says Andrew Ng, DBS’s group head of treasury and markets. “At DBS, we offer a broad spectrum of products under a single umbrella. This is backed by a team of experienced bankers that are able to provide timely and relevant investment advice across our full suite of products to help our clients opportune on market trends.”

DBS is able to look across both its onshore and offshore business in order to spot the best market window opportunities for its clients. This was especially important during the USD liquidity crisis in March, when raising funds in the currency became a huge challenge for many Asian corporates.

DBS’s hedging and risk-warehousing capabilities have also helped improve the efficiency for clients in regional markets seeking to raise funds offshore and then swap the proceeds back into their home currencies.

It is this funding efficiency that has allowed the Singapore bank to continue to win business across the region this year.


One large market where DBS’s setup has been a proven winner is China. DBS remains very bullish on the opportunities there.

“We see a lot of potential in tapping the wealth accumulated in China,” says Leung Tak Lap, group head of advisory sales for treasury & markets.

Clients in China are increasingly seeking the opportunity to access cheap offshore funding without the need to move away from the renminbi. DBS is able to use its hub in Singapore to service this need.

“A client buys an onshore RMB structured deposit linked to an offshore asset, with the payoff denominated in RMB,” says Leung. “The structure is very simple for the client to understand, and allows the client to invest directly into an offshore asset without the FX risk.”

Leung says they are able to offer good funding on the product because of their strong onshore presence, their cross-border collaboration and the bank’s strong credit rating. DBS is rated AA-, according to S&P.

“Our funding advantage and strong synergies between units enable us to provide comprehensive solutions to our clients that are relevant to their needs,” says Leung.

Close collaboration between the bank’s onshore and offshore units also helps in the timeliness of delivering these solutions.

“For a new client, we can close a deal in one week. For existing clients, we can do it within the day,” says Leung.

DBS’s cross-border structuring has been particularly valuable for Chinese financial institutions struggling to deal with new asset management rules that were first published in 2018.

The rules, which had been expected to enter into force at the end of this year, include a ban on certain guarantees embedded in wealth management products, and a cap on investments in such products. This means that many institutions now need to find an alternative ways of generating good returns – turning to the offshore market is one possibility.

Although the rules have now been delayed for a year – to give financial institutions some breathing space as they try to deal with the Covid-19 – Leung says that the substance of the rules is unlikely to be changed, and DBS has been working hard to help firms get ready for their eventual introduction.

“We have done a number of transactions with top-tier banks in the country, and we are now focused on advising smaller institutional market players on investment product ideas with returns linked to diversified asset performance,” says Leung.

Leung also sees huge opportunities linked to the reform of the Chinese loan market. Since August all new floating rate loans offered in the market have to be priced off the loan prime rate (LPR), rather than a lending rate set by the central bank, which is less market-based.

DBS has been given regulatory approval to issue swaps and options based on the new benchmark, and they are now educating their investors about the LPR.

“There is a big market of opportunity out there with trillions of the commercial loans based on the LPR lending benchmark,” says DBS.

Looking ahead, DBS is particularly excited about the new Wealth Management Connect scheme that was announced by Beijing in July, and will bring offshore and Chinese asset management firms together within the Greater Bay Area.

While everyone is still waiting for more guidance on exactly how the new connect project will work, DBS says that it is fully prepared to participate in the new scheme when things become clearer.

Regional player, local markets

DBS’s connectivity and collaboration has also helped in other markets, where the bank has been able to take advantage of cross-border funding cost differentials.

India is one of those markets, where the non-deliverable swap currency curve between the US dollar and the Indian rupee is currently trading at an almost 30-basis point discount compared to the onshore curve, according to Leung.

“Being able to hedge the currency risk out to the offshore market gives us the flexibility to take advantage of whichever market looks more attractive,” says Leung.

The bank also developed a structured finance product where derivatives are embedded in regular loans, which means that the clients don’t have to carry the mark-to-market risk of the derivatives. The structure has proven particularly popular with certain types of multinational corporations that may not be allowed, under their internal mandate, to execute derivatives in India.

“These are basically financing transactions where we embed the derivative into the financing itself, so there’s no separate cross-currency swap or an ISDA that the client has to sign,” says Leung, referring to the standard master agreement that counterparties sign when entering into over-the-counter derivative transactions.

DBS started with offshore masala bonds, which are then packaged up into a loan format and sold in the onshore market.

“Where DBS is engaged in a bilateral financing transaction and the cross-currency basis looks advantageous, the transaction can be done via a foreign currency loan and cross-currency swap with the client,” says Leung.

DBS started doing these structures last year, and then realised that there was a limitation: masala bonds can only be used for investment into India via capital expenditure, which means that their use as a refinancing tool is limited.

DBS, though, found a way round this by using its own foreign portfolio investor (FPI) licence to invest in the onshore bond market and hedge the currency risk on its own books. The INR fund structuring is then done out of the corporate treasury in Singapore.

“Our interest rate derivatives desk in Singapore generates synthetic INR funding offshore by working with our Singapore balance sheet and executing the cross-currency swaps for these financings. When working on a transaction we are mindful of the offshore and onshore cross-currency basis to ensure that the hedge is optimally executed,” says Leung.

This product has been a big hit with clients.

“So many times DBS has been able to suggest solutions that we have not thought about, and this allows us to explore options that can eventually turn into successful products,” says one corporate client from India.

DBS has also been able to use its extensive research capabilities, as well as its prowess in cross-currency structuring, to take advantages of pricing discrepancies elsewhere.

Korea has been particularly ripe for this. As money has been pulled out of Korea, the basis between the Korean won and the US dollar cross-dollar swap curve has widened to 120bp; during more normal times this would be closer to 50bp.

“We identified the widening cross-currency basis in Korea swiftly, enabling us to capture opportunities. For our Korean clients looking to raise KRW financing, we could offer foreign currency loans and swap them back into Korean won with an effective pricing that was significantly cheaper compared with their onshore KRW loans,” says Leung.


DBS has long been proud of its digital footprint, which it has developed over the years and which helps bring additional value to its clients. Every year the bank adds upgrades to its digital offering, and this year introduced an add-on that it calls “hyper-personalisation”.

This was done in response to the growing competitive threat posed by virtual banks across Asia. The Monetary Authority of Singapore, for example, has granted five new licences to virtual banks in Singapore. These virtual banks were expected to launch in 2021, but Covid-19 may have pushed this timetable back.

“We had to think: how are we going to provide our customers with the same or more value-add in light of these new banks coming in?” says Leung. “So in response to this we’ve built up a pricing mechanism using data to provide more granular FX board rates for customers.”

Previously all clients would be given the same pricing, irrespective of size or the kind of business they are doing, but this often left some firms, particularly smaller companies, with unfavourable pricing.

“Offering a single price will no longer be competitive enough in the future,” says Ng. “Data is at the foundation of the markets we operate in today, and we need to be able to harness information based on past transaction patterns to structure competitively-priced solutions that best suit our customers’ individual needs.”

The hyper-personalisation technology is principally aimed at mass market customers, rather than those that have relationship managers who can negotiate more favourable pricing with the bank.

“We chose Singapore as the first market to launch this as most of our customers are based here. But we have plans to eventually roll the initiative out to the rest of the South-east Asia,” says DBS’ Ng.

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