Financial Management DBS Bank

Question: Discuss about theFinancial Managementfor DBS Bank. Answer: DBS Bank Deposit Compared with OCBC and UOB The study reflects that Investors Service possess a variety of distinctions amongst the Singapores three major set of banks assets. These banks are DBS Bank Ltd, Oversea-Chinese Banking Corp Ltd and United Overseas Bank Limited, which ultimately leads to credit differentiation over the time. The report lays down that DBC, OCBC and UOB portrays strong similarity in financial fundamentals (Lai and Daniels 2015). These consist of vigorous quality of assets, better degree of capital adequacy with healthy funding and liquidity profiles. Consequently, their baseline assessment of credits is at the identical level representing the category, which stood highest among the global banks. According to the study in spite of powerful financial fundamentals of DBS, OCBC and UOB, there are several distinctions amid the three banks. It takes into the consideration the factors such as geographical mix, their changing needs for capital markets functions, sources of financial support constitution and challenges pertaining to the commencement of Basel III rules (Sufian and Kamarudin 2016). Banks different geographical mixes could maximise the risk of OCBC and DBS more than they would for UOB. The changing needs for functions associated with the capital markets increases the risk for DBS in greater proportion than for the OCBC and UOB (Lai and Daniels 2016). Talking about the structure of funding, DBS is placed in better position to derive benefit from the higher rates than OCBC and UOB. OCBC on the other hand, faces the greater amount of challenges related to deductions of capital under Basel III. Study suggests that all the three banks are growing their trans-nation dealings. UOBs proportionately bigger exposure to Singapore and lesser share of loans in banking market, which is regarded as riskier than Singapore in comparison to other nation such as China, Thailand and Indonesia (Chew 2015). This defines a lower exposure of country related risk when compared with OCBC and DBS. Reports have suggested that the three banks usually display a lower need for capital market functions. However, out of three, the market risk need for DBS is major and its incomes portray to some extent higher share of gains from trading activities in comparison to OCBC and UOB. Considering the structure of funding, reports says that higher rate of interest in the US and Singapore markets will lead to superior constructive consequences on DBS earnings, due to its better structure of financial support. Reports highlights that DBS cost of fund are lowest due to its larger share of low-growth consumer depo sits (Tong 2014). As for the OCBC, study reflects that banks proceeds are rather reliant upon the volatility of the monetary performance of its indemnity arm particularly the Great Eastern Holdings which is not rated. In spite of the prevalent of such kind of volatility higher amount of rate of interest will be optimistic in the fiscal performance of GEH (Tsui-Auch and Yoshikawa 2015). According to the reports, life insurance consists of lower risks and profits arising out of this division are connected with the amount of instability due to multifaceted bookkeeping rules. Based on the rules of Basel III, there is greater challenge of capital adequacy for OCBC in the upcoming years. This is due to the fact that OCBC is faced with deductions from CET1 capital for its investment in GEH whereas DBS and UOB faces relatively lesser deductions. It is noteworthy to denote that the financial strength of Singapores three local banks namely DBS, UOB and OCBC have make sure that they commonly share all the identical ratings however, in moving forward this could change. Several ratings agencies have reported that the credit assessment of banks may be different in moving forward because of several factors, which may create an impact on the degree of risk. It is worth mentioning that UOB greater amount of exposure to Singapore with reduced amount of shares in loans in the banking markets have led the ratings agency consider riskier than Singapore in comparison to China, Thailand and Indonesia (Tan, Huat and Ling 2016). This assist in reducing the degree of exposure to nation related risk in comparison to OCBC and DBS. The exposure in capital markets activities has led all the three banks to have booked a healthy trading gains since the outbreak of 2008-09 global financial crisis. It is noteworthy to denote that such kinds of gains are considered as more volatile in comparison to the wholesale consumer lending. This may lead to rise of risk for DBS since it relatively has greater amount of shares in trading gains in terms of the total income than OCBC and UOB. It should be noted that the United States based credit rating agencies have specifically pointed out that higher amount of interest rate in the US and Singapore markets (Maysami, Goby and Mensah 2014). This represents that DBS holds more benefit than OCBC and UOB. The reason behind such benefits is that DBS holds lower amount of cost of findings because of greater sum of low yielding customers deposits. This may lead to reduced amount of upward pressure on its funding cost in the rising environment of interest rate. The impact created by Base l III rules of capital will differ for the three banks however according to the reports OCBC is exposed to greater amount of risk because of capital deductions. As pointed out under the Basel III rules, banks holding non-consolidated insurance subsidiaries are under the obligation to subtract such investments from their ordinary equity first tier as stated under (CET1) capital. This represents that OCBC is under obligations of gradually cutting down its investment in Great Eastern Holdings, which is approximated to around $3.5 billion (Tsui-Auch and Yoshikawa 2015). Reports suggest that life insurance involves lower amount of risk and profits that are connected with the level of volatility partly due to the complex rules of accounting. The contributions made by the insurance segment to OCBC quarterly profits has been regarded as volatile which ranged between 5 to 32 per cent during their last eight quarters. Personal Reflection: The above stated differences of OCBC, UOB and DBS have been a learning curve. The study has helped me in understanding one common phenomenon, which apparent for each of the bank is the higher rate of interest on making deposits. Upon analysing the business of both the bank, it is found that DBS reported more similarity in laying down its fiscal fundamentals with better asset management than OCBC and UOB. I also understood from the study that there are number of differences among the Singapore three largest banks. The study has helped me to understand that the funding structure of DBS is much better than the two other banks. From the analysis, it is evident that all three banks have indulged themselves in the expansion of cross border business. The analysis also lays down that UOB holds large proportion of exposure in the Singapore market with lower amount of shares in the banking markets. The study has also helped me to understand that insurance posses lower level of risk, as profits are associated with fewer degree of volatility due to multifaceted accounting rules. I have also understood from the study that with the adoption of Basel III rules non-subsidized investment have enabled the subsidiaries to deduct the investment from their CET 1. Reference List: Chew, M., 2015.Leaders of Singapore. World Scientific. Lai, K.P. and Daniels, J.A., 2015. Banking on Finance in Singapore: The State-led Financialization of Banking Firms. Lai, K.P. and Daniels, J.A., 2016. Financialisation of Singaporean Banks and the Production of Variegated Financial Capitalism. Maysami, R.C., Goby, V.P. and Mensah, E.C., 2014. Enhanced Customer Satisfaction In The Wake Of Banking Liberalization: The Singaporean Case.International Journal of Business, Marketing, Decision Science,7(1). Sufian, F. and Kamarudin, F., 2016. Determinants of efficiency in the malaysian banking sector: Does bank origins matter?.Intellectual Economics,10(1), pp.38-54. Tan, L.H., Huat, T.C. and Ling, C.N.L., 2016. Pay for Performance: Is CEO Pay Aligned with Performance in Singapore?. Tong, C.K., 2014. Centripetal authority, differentiated networks: The social organization of Chinese firms in Singapore. InChinese Business(pp. 21-40). Springer Singapore. Tsui-Auch, L.S. and Yoshikawa, T., 2015. Institutional change versus resilience: A study of incorporation of independent directors in Singapore banks.Asian Business Management,14(2), pp.91-115.