Citi, JP Morgan and StanChart losing to DBS in SME transaction banking : CIMB

CIMB claims DBS' transaction business which account for 14% of revenue is growing at the expense of rivals.

According to CIMB, DBS’s GTS Head Tom McCabe explained why the business became a  key growth driver for the group. GTS contributed 14.2% of 2011 group revenue and 15.2% of PPOP. The change started in 2010 when management realigned its sales focus, workflows and processes; recruited talent and deployed new technology.

Here's more from CIMB:

The benefits were reaped in 2011 as new products were launched, though importantly, the environment also allowed for rapid growth as foreign banks pulled out. Management said investments into ERP systems were crucial as they allowed the servicing of corporate & SME clients across geographical areas. DBS believes that it has a strong position in SMEs astraditionally-strong competitors in the GTS space (Citi, JPM, StanChart) have not necessarily been focusing on the area.

DBS also considers itself stronger than local peers because of its technology investments and range of products. DBS is optimistic that its new internet banking platform for corporates (IDEAL 3.0) will help sustain traction. Management guides ROE for GTS of above 20% (DBS Group: 11%) and cost ratio at 39% (DBS Group: 43%)

What We Think
We appreciate that GTS is an attractive annuity-like business that will improve valuation multiples of DBS. Once won, clients tend to be locked-in. We are also more optimistic on the business afterhearing examples of how Fortune 500 companies have been talking to DBS in the past nine months. We have been highlighting the stability of these earnings in the past eight quarters.