SINGAPORE - Singapore banks are beefing up their investment banking teams to capitalise on a sector that is defying slower economic growth and volatile share markets.
The lending business is also getting tougher for the three local players, as loans growth continues to moderate and interest margins remain compressed.
But investment banking has gained significant traction in the past year, even though fees contribute only about 2 per cent to 3 per cent to overall revenue.
A Credit Suisse report said DBS remains the dominant player in the capital markets sector while United Overseas Bank (UOB) and OCBC Bank are catching up fast in terms of market share and investment banking fee income.
DBS accounts for about 36 per cent of the debt capital market sector.
OCBC has about 11 per cent and UOB about 7 per cent.
Comparing the debt and equity markets, DBS' head of fixed income Clifford Lee said: "The equity market is the more established of the two across Asia, and investors are more familiar with it.
"On the debt side, it is the younger of the two cousins, so while it seems as if debt is growing faster now, in reality, the debt market is trying to catch up with the equity market. With volatility in the equity market, and with investors becoming more familiar with debt, it gives us a chance to do more deals."
Local banks have also grabbed a bigger share of intra-regional deals and gained from the pullback of some big European banks.
In September, OCBC was the joint lead manager and joint bookrunner for Hong Kong-listed Wing Tai Properties' $170 million bond issuance.
DBS was also joint bookrunner for the dual initial public offering of IHH Healthcare.
Mr Gan Kok Kim, OCBC's head of group investment banking, said that since the global financial crisis, companies have required a more holistic relationship with their banks.
"When the financial crisis hit, banks deleveraged and pulled out of the market," he said.
"The banks which continued to support their clients, that are well capitalised and less affected, were able to build a more consistent and longer-term relationship."
Similarly, Mr Eric Ang, head of capital markets at DBS, said big investment banking houses may not have the resources, the reach and the network that give local banks the competitive edge here.
"There is no point doing an IPO without having retail clients. If you are Goldman Sachs, you have no retail distribution network in Singapore. DBS is the largest bank in Singapore, and we have a market share of about 70 per cent, so invariably, DBS will be there."
OCBC's Mr Gan noted that many global banks are moderating the size of their investment banking arms in Asia after their operations were not able to reap the intended results.
He said: "The global banks were quite focused on investment banking in Asia, sending some of the expertise and capabilities from their home countries.
"But in the last year or so, some banks have relooked the business because certain expectations about faster growth and similar types of revenue were not what they are used to in Europe."
He added that Asian clients are still not as prepared to be regular merger and acquisition clients and are more opportunistic when it comes to such deals.
But Asian corporates are becoming much more savvy with the array of fund-raising options.
UOB, noticing this trend, has beefed up its debt capital market and merger and acquisition capabilities in Singapore, China, Indonesia and Thailand over the past 18 months.
Mr Ronny Chng, its head of group investment banking, said: "We noticed how our customers are changing in the way they manage their financing and expand their business franchise. Many of our customers that have traditionally relied solely on bank loans are now looking to tap the bond market for financing."
He added that there has been increased interest from customers buying assets in Asia for growth.
"Many Asian corporations are cash-rich companies with low gearing, a prudence resulting from the Asian financial crisis."
"These companies are now looking to expand beyond their home markets to ride on Asia's economic growth. South-east Asia in particular has been a hot acquisition ground for Asian corporations this year."
Said OCBC's Mr Gan: "The growth in Asia is relatively better than the rest of the world; that has put a little bit more focus on investment banking in Asia, and the other areas of financial services."