Regional institutional derivatives house of the year: DBS Bank

Asia Risk Awards 2019

Thio Tse Chong, DBS Bank

Uncertainty in the US rates market has kept DBS and its clients on their toes this year. But thanks to its leading market position in Asia, a strong research team and solid risk warehousing credentials, the Singaporean bank has continued to bring value to its institutional clients across the region.

“It has been an extraordinary year,” says Thio Tse Chong, DBS’s managing director of treasury and markets. “As we entered 2019, we were setting up for [the US Federal Reserve] to hike rate four times this year.”

As it turned out a slowing economy means that the US central bank has not raised rates once this year. In fact, it has done the reverse and, in July, cut rates – by a quarter of a percentage point – for the first time since the depths of the financial crisis more than a decade ago. As a result, within the financial sector the rates markets shot up in the second half of 2018 and headed down after that.

Thio says that this sudden change made investors miss the opportunity of putting on enough duration to increase their yields. But DBS was prepared and at the beginning of the year advised its clients to tap into the currency markets as an alternative. Some of the clients were able to generate more yields by using the basis difference to invest between certain assets, compared to what they would have in their local currencies.

DBS, with about 120 analysts and more than 2,500 bankers to look after markets and individual companies across the Asian region, has expanded its rates and currency derivatives business in order to better meet client needs for yield and market insights. This included upgrading its electronic trading systems, new research capabilities and expansion into London in order to improve its distribution of Asian products among European clients.

Singapore’s largest bank saw its innovation and product offerings bear fruit in countries such as South Korea, China and the United Kingdom in the past 12 months.

In South Korea, DBS has successfully developed and validated a pricing model for long-tenor euro callable structured notes so that insurers can capture a favourable basis between the euro and Korean won.

The insurers in the country need high-quality long tenor assets to match their long-liability duration, as well as better yields. They are interested in other foreign currency investment options due to the adverse currency basis between the US dollar and Korean won.

We dive deep into different opportunities to create yield for our clients

Thio Tse Chong, DBS Bank

DBS reacted to this demand with speed and confidence, despite not having a natural demand for euro funding. As one Korean beneficiary put it: the bank stands out because most of the other Asian houses are not issuing many non-US dollar currency notes compared with their peers in Europe and the US.

“We made a request to DBS about the kind of call option note that we want. Luckily, they had just started to issue euro-denominated note. It took only one or two hours for them to get back with an attractive price while other houses took [longer],” says the client.

This year DBS has attracted four Korean insurers to invest in its long tenor callable notes denominated in non-US dollar currency. This investment option also serves as an alternative yield-enhancing product for Korean insurers, who have been forced out of investing in structured products such as range accruals thanks to the implementation of accounting rule IFRS 9.

“We dive deep into different opportunities to create yield for our clients,” says Thio. “We’ve managed to capture some pretty strategic basis advantage and bring European supra issuance in euro, in Australian dollar and in sterling into Asia, when the basis market gives a lot of edge.”

In contrast to South Korea, where the spotlight was on providing better-yielding investment options, DBS’s focus in China has been on helping clients trade in the country with good risk management and diverse hedging solutions.

“We see growing interests in accessing China,” says Thio. “Investors were open to putting on some risk in the first quarter in China equity, fixed income and credit.”

The bank says it is careful about dabbling in risky credit, though, and maintains a strong due diligence process when talking to its clients about where credit risk lies.

Only connect

DBS has set a clear goal to connect Asia and Europe. Over the past few years, the Singaporean bank has consolidated and expanded its treasury and market desk in London to support customer flows and trading activities in the European time zone. The branch seeks to serve as a trading intermediary for clients, support investment and capital flows between Europe and Asia and extend the bank’s Asian product offering to the people on the other side of the world.

The bank’s ambition is aided by a new research service launched in March, which gives institutional clients additional tools, knowledge and information to make the best decision that they can.

“We are beginning to work with clients in the full customers’ journey in the way they invest rather than just sending a document about what we wrote yesterday,” says Thio. “We are going towards hyper-personalisation and customisation for each institutional client to research credit and equity, accompanied by macro research in forex and rates.”

Clients will receive custom-made research that will help with investment strategies and ideas as well as direct access to DBS’s analysts. They will also benefit from a monitoring service for the lifetime of the transaction.