Singapore banking professionals are bracing themselves for a slow first half and expect dealmaking to decline thanks to the impact of the coronavirus on the finance sector and the wider economy.
The time it takes to conclude deals is getting longer because of economic uncertainty, but also because banks in Singapore have restricted local face-to-face client meetings and cut back on foreign travel, including banning trips to China, says senior Singapore-based banker Jace Zhou (not his real name). Building up strong personal relationships with clients via in-person meetings is an essential part of successfully doing business in Asia.
“Deals with corporates in Asia have a gestation period of three to six months on average. But now some deals that were supposed to close in H1 are already getting pushed into H2, so bankers are currently hard pressed to deliver revenue,” says Zhou.
A slowdown in China’s economy will have “trickle-down effects” on the supply chain of banks’ clients in the rest of Asia, says Jeremiah Wen (a pseudonym), who works for a large European bank in Singapore. “Corporate clients will be facing slowing demand and supply issues, so the need to finance their business operations will likely decrease, which will lower the volume of financing requests to banks,” says Wen.
Cador Sia, a banker with a Singaporean firm, says he is “very concerned” about how the coronavirus outbreak will affect the financial sector, especially in the first half. “China makes up around 15% of the world’s economy. A slowdown there will flow over to other countries, including Singapore,” adds Sia, who like all the finance professionals we spoke with asked us not to use his real name.
Singapore’s Ministry of Trade and Industry last week downgraded its economic growth forecast to between 0.5% and 1.5% because of a weakened outlook after the outbreak of the coronavirus.
OCBC CEO Samuel Tsien said on Friday that his firm expects a 2% drop in revenue this year because of the coronavirus – a similar estimate to that made by DBS CEO Piyush Gupta earlier this month, who put his bank’s revenue hit in the 1% to 2% range. However, both men based these relatively low estimates on the virus easing by June, and there is still significant uncertainty about the length and severity of the outbreak.
It’s not just the big deal makers in Singapore banking who are voicing concerns about the coronavirus. “Small businesses which are vulnerable may not survive an economic downturn, and banks should expect a rise in defaulted loans,” says junior banker Jazlyn Toh (a pseudonym). “The Singapore banking sector faces a risky time ahead,” she adds.
CFO Ewen Stevenson said last week that if the outbreak continues into the second half of 2020, the “most extreme” coronavirus “downside” for HSBC this year would be $600m in new loan losses. He stressed, however, that he didn’t expect the impact to be “anything like that”.
Mack Chua, who works for a private bank, says the wealth management sector in Singapore might not feel as much short-term pain as other parts of financial services. “However, if the virus persists and leads to a global economic downturn, it’s very likely that private wealth management will also be impacted to a considerable extent,” he adds.
For now, most bankers are counting (rightly or wrongly) on the coronavirus outbreak tailing off by the middle of the year, leading to a rise in client activity. Private banker Santino Hou expects the “economy will pick up again after this crisis fizzles out”, while Wen expects the current slowdown to only be “temporary”. Portfolio manager Xavier Gouw says last week’s Budget, in which the government set aside S$6.4bn to support impacted businesses, families and agencies, will help cushion the economic blow of the virus.
Senior banker Zhou says it could be “pedal to the metal” for bankers from about July to December as they try to complete 2020 deals in half the usual amount of time with the same resources.
Photo by Lily Banse on Unsplash
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