The chief executive of Singapore’s largest bank, DBS, Piyush Gupta has stated that global banks will be confronted by two major headwinds next year: rising defaults and ultra-low interest rates.
According to Gupta, even though government support around the world has cushioned the pandemic’s economic damage, it has also“masked the real size” of problems that companies and households face.
He further stated that such problems will come to the fore when support measures are rolled back.
“So I do think we’ll see a pick-up in defaults and delinquencies around the world next year,” Gupta told CNBC’s “Squawk Box Asia” on Monday, December 7, 2020.
That’s not the first time that Gupta has warned about rising default rates globally. But he noted that DBS, like many banks globally, has in the past few months increased its reserves in anticipation of potential loan losses.
“I think with the new U.S. administration, if the rhetoric between the U.S. and China cools off a bit, I think that will soothe the nerves of the market and that could be helpful as well”, Piyush Gupta said.
From January to September, DBS has set aside 2.49 billion Singapore dollars (around $1.87 billion) in total allowances — more than four times the amount in the same period a year ago, the bank said in its third-quarter earnings release last month.
“Now, whether the quantum of the reserve is adequate is anybody’s guess. I’m quietly confident that we have done enough,” he added.
The CEO also said banks will continue to struggle with growing their lending margins, given that interest rates globally are expected to remain lower for a longer time. But an uptick in economic activity in the third quarter and a potential cooling in U.S.-China tensions could help to offset risks from lower rates, he added.
Gupta pointed out that activity in North Asian economies such as China, South Korea, and Taiwan are almost back to pre-Covid levels.
“So as business activity resumes, that should be helpful. I think with the new U.S. administration, if the rhetoric between the U.S. and China cools off a bit, I think that will soothe the nerves of the market and that could be helpful as well.”
In the bank’s home market of Singapore, Gupta stated that DBS can still grow its market share even as the banking landscape is set for a shake-up with the entry of four new digital banks. He added that revenues in Singapore have been growing at “high single-digit” levels.
Gupta indicated that DBS is an “integrated” bank with a presence in nearly the entire banking value chain including payments, remittances, financial planning, corporate financing, and investments.
“And therefore, I do think our capacity to continue to excel and grow in this market is very, very real,” he said.
