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SINGAPORE – Global banks will face two big hurdles next year: rising defaults and ultra-low interest rates, said Piyush Gupta, CEO of Singapore’s largest bank, DBS.
Government support around the world has cushioned the economic damage of the pandemic, but has also They “masked the true size” of the problems facing businesses and households, Gupta said Monday. Such problems will come to light when the support measures are reversed, he added.
“So I think we will see a spike in defaults and delinquencies around the world next year,” Gupta told CNBC’s “Squawk Box Asia.”
This is not the first time that Gupta has warned of rising default rates globally. But he said DBS, like many banks globally, has increased its reserves in recent months in anticipation of potential credit losses.
I think with the new US administration, if the rhetoric between the US and China cools down a bit, I think it will calm the market nerves and that could also be helpful.
From January to September, DBS has set aside 2.49 billion Singapore dollars (about $ 1.87 billion) in total allocations, more than four times the amount in the same period a year ago, the bank said in its earnings report. from the third quarter last month.
“Now whether the amount of the reserve is adequate is anyone’s guess. I’m sure we’ve done enough.”
‘Useful’ developments
The chief executive also said that banks will continue to struggle to increase their lending margins as interest rates globally are expected to remain lower for longer. But a rebound in economic activity in the third quarter and a possible cooling of tensions between the United States and China could help offset the risks of lower rates, he added.
Gupta noted that activity in North Asian economies such as China, South Korea and Taiwan has nearly returned to pre-Covid levels.
Piyush Gupta, CEO of DBS Group Holdings.
Bryan van der Beek | Bloomberg | fake images
“So as business resumes, that should be helpful,” he said. “I think with the new US administration, if the rhetoric between the US and China cools down a bit, I think that will calm the market’s nerves and that could also be helpful.”
In Singapore, the bank’s home market, Gupta said that DBS can still increase its market share even as the banking landscape is set for a shakeup with the entry of four new digital banks. He added that revenue in Singapore has been growing at “high single digits.”
DBS is an “integrated” bank with a presence in almost the entire banking value chain, including payments, remittances, financial planning, corporate financing and investments, Gupta said.
“And so I think our ability to continue to excel and grow in this market is very, very real,” he said.
