DBS stands tough amidst China’s economic slowdown

Naysayers need to step back.

DBS’ large exposure to China may look frightening on the surface, but there is no need to worry about the bank’s asset quality.

According to UOB Kay Hian, the risk from DBS’ exposure to China is overemphasized, as its asset quality remains sturdy in the face of China’s economic slowdown.

“About 70% of its exposure to China is via trade finance, which is well collateralised (70% backed by bank guarantees and cash deposits). It has shortened the average duration of its trade assets from six months to four months, and has put in place controls to ensure that it finances genuine trade activities,” assured UOB.

Here’s more from UOB Kay Hian:

DBS has a small exposure to high-end developers from Singapore and Hong Kong operating in China, but the loan-to-value (LTV) ratio for these loans is low at 30%. It does not have any exposure to shadow banking, local-government debts and trust companies.

Financial reform already underway in China. China is shifting from hyper-growth driven by investments and exports to steady-growth led by consumer spending and services.

The government appears ready to accept a slower pace of economic growth without relying on fiscal stimulus, which has the undesirable side effect of increasing the level of leverage.

China has set a 2-year timetable to establish deposit insurance and liberalise deposit rates. The reform also involves setting up a mechanism for the orderly resolution of failed banks.

The government will allow the establishment of privately owned banks to finance privately-owned enterprises (POE).