SINGAPORE – China’s shaky economic recovery will likely spur fast-growing Chinese firms to expand into South-east Asia and allow lenders to benefit from the increased trade flows, said an OCBC Bank executive.

Singapore’s second-largest bank aims to increase contributions from its Greater China and Asean markets towards its transaction banking business, which serves firms in areas ranging from cash management to trade finance.

Mr Melvyn Low, OCBC’s head of global transaction banking, said the bank will intensify its efforts in instant cross-border payments and is also exploring the use of digital currencies for payments and trade.

“My goal is that the entire business outside of Singapore has to be as large or even larger than my Singapore business,” he told The Straits Times in a recent interview.

Singapore currently accounts for more than half of transaction banking earnings at OCBC, which also counts Malaysia, Indonesia and Greater China – mainland China, Hong Kong, Macau and Taiwan – as its key markets.

Hong Kong and mainland China are the fastest-growing parts of the business, with the markets’ contributions to its total income growing at a compound annual growth rate of 20 per cent in the last five years.

The lender said in July 2023 that it will invest more than $50 million over three years to build up its transaction banking capabilities in Greater China, with the aim of achieving more than 500 regional mandates for cash management over five years.

A regional mandate allows the bank to process and convey a business client’s financial and transactional data from the company’s various subsidiaries to its head office, via a regional centre in Singapore or Hong Kong. It also acts on the head office’s instructions for other markets, in areas such as account opening and payments.

Transaction banking is critical to most banks as it attracts cheap and sticky deposits; it is cumbersome for clients to change banks once they have integrated most of their systems. The business also generates fee income that is set to continue to grow, even as eventual rate cuts rein in interest income.

Mr Low said: “It’s unlike even other fees in other parts of banking where you could be risk on or risk off. Payment fees are generally very stable and go up because everybody does more of it each year.”

A sizeable portion of the bank’s target of 500 regional mandates is likely to come from Chinese clients, he said, adding: “We also think that there will be a number of Singaporean clients who want to open in Malaysia and maybe Indonesia.”

OCBC has also won some mandates from Western multinational corporations for last-mile collections and payments in Singapore, Malaysia and Indonesia, said Mr Low. “These are proof points that it’s not just international banks who can play with those guys.”

Asked about the impact of China’s economic struggles, such as its property crisis and slowdown in consumer spending, Mr Low said domestic banks, which serve the vast majority of the market, are currently focusing on overcoming such problems.

Meanwhile, foreign banks there such as OCBC can help Chinese companies expand into new markets abroad, he said.

“These companies’ home market is still going to be significant. But if things aren’t growing that fast, and they are ambitious... they will come out. It won’t be because they’re running away, but more because they see opportunity outside while their domestic market might not be growing as fast as it used to,” said Mr Low.

IG International market analyst Hebe Chen said the beleaguered Chinese economy may prove to be a double-edged sword for OCBC.

“On the one hand, institutions like OCBC could be viewed as a bridge for businesses seeking to diversify their market exposure. On the other hand, the woes in China’s domestic market could potentially lead to tighter control over capital within the mainland, raising barriers for capital outflow,” she said.

OCBC’s plan is to engage Chinese companies in its twin hubs of Singapore and Hong Kong, and bring them into markets such as Malaysia, Indonesia, Thailand and Vietnam. 

Tourism, e-commerce, logistics and high-tech manufacturing are several sectors where Chinese clients will deepen their global footprint, noted Mr Low.

The bank’s largest Chinese clients include Shanghai-listed conglomerate Xiamen ITG and its subsidiary ITG Resources (Singapore), which specialises in trading commodities such as ferrous metals and petrochemicals.

Hong Kong presents much potential for growth, added Mr Low, whose team plans to shorten the time taken for small and medium-sized enterprises in Hong Kong to open an account, similar to how such customers here can set one up within minutes.

It takes an average of seven to 14 days for firms to open an account in Hong Kong due to know-your-customer and other requirements.

“How do you drive that down, in a digital environment, to even within the same day? We are positioning ourselves to be the leader in this kind of digitalisation move,” said Mr Low.

OCBC’s transaction banking business built most of its digital solutions in Hong Kong based on the city’s Faster Payment System, and is therefore unencumbered by legacy systems, said Mr Low.

He was referring to Hong Kong’s real-time payment solution that was launched in 2018 and is similar to Singapore’s PayNow service.

“Regionally, we think Hong Kong plays an increasingly important role. The Chinese corporates coming out will naturally choose Singapore or Hong Kong, or even both...

“This dual economy is quite interesting for us. Hong Kong is a domestic market, but it is also a regional hub (that serves as a company’s) launch pad,” he added.

Digital push

Mr Low said digital transformation is a key part of capturing more business. Nearly 70 per cent of OCBC’s trade finance customers in Singapore have done away with traditional paper applications and now use the lender’s Internet banking platform to apply for trade solutions such as import letters of credit, banker’s guarantees and trade loans.

Monthly transactions on the bank’s OneCollect platform, which lets merchants collect payments through a QR code, also grew by 2½ times from January 2023 to December 2023. The number of merchants registered on the platform grew by about 30 per cent in the same period.

Mr Low said: “That’s only with the domestic QRs. When cross-border QRs come in, we expect the growth to be a lot more.

“The real value is going to be in the cross-border space... Truth be told, it’s been very difficult.

“If you look at the way that trade platforms have come and gone, there’s no one that has really taken shape and been able to handle the kind of cross-border flows (the industry is seeing).”

He added: “I think the cross-border elements of digital currency, particularly in the areas of payments and trade, will be the next big thing. We are experimenting and playing in that space.”

In September 2023, OCBC China launched a solution for merchant clients to collect and deposit e-CNY, China’s central bank digital currency, in partnership with China UnionPay.

The bank will also press on with its initiatives in instant cross-border payments, said Mr Low, citing how individual OCBC customers have been able to use the bank’s digital app to scan and pay at Alipay+ merchants overseas since September 2023. 

“These are related spaces to us because although they are consumer-style businesses... the merchant must be able to accept the payment. These are important areas where we will see more developments in the next two to three years.”