During a results briefing on Nov 6, DBS Group Holdings’ group CEO Tan Su Shan identified structural growth drivers for the bank. First on the list is wealth management, a sector on which local banks rely to drive fee income. Adjacent to wealth management, Tan says, is the structural growth in assets and funds managed by the bank’s Financial Institutions Group (FIG). “These are our clients. They’ve seen trillions of dollars in asset growth,” Tan said during DBS’s 3QFY2025 ended Sept 30 results briefing. These two structural growth drivers are linked.
Interestingly, United Overseas Bank (UOB) has also seen an increase in income from the FIG sector. Based on its 3QFY2025 ended Sept 30 loan book of $351 billion, 11% is to financial institutions, investment and holding companies.
Digital assets are a third structural growth driver, according to DBS’s Tan. As she sees it, the US Genius Act changed perceptions. Genius stands for the Guiding and Establishing National Innovation for US Stablecoins Act. This act requires stablecoins to be backed one-for-one by US dollars or other low-risk assets.
Structural growth drivers
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In a recent interview during Morgan Stanley’s Asia Pacific Summit 2025, Nick Lord, banking analyst at Morgan Stanley, replied when asked: “There are three things you have to think about (for growth). The first thing is, is this a structural growth market? The answer to that is yes,” Lord points out, referring to wealth management in Asia.
If wealth generation in Asia is a structural growth sector, where is the economic growth driving it coming from?
A Morgan Stanley report in November last year titled “Revisiting Asia’s Financial Acceleration” identified that Asian growth is shifting from China to Asia ex-China. “Shifting growth patterns and supply chain diversifications are altering trade and FDI (foreign direct investment) flows — again in favour of Asia ex-China rather than China,” Morgan Stanley says.
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Morgan Stanley sees India, Japan, Korea and Asean as increased areas of focus. As a result, growth in economic and wealth management is likely to broaden to Asia ex-China. “You have growing wealth in Asia, including India. Everyone is talking about the wealth generated in China, which is being allocated to wealth management products. Obviously, wealth is being generated in Asean, but India is just entering a structural growth period that will sustain for multiple years. This isn’t coming to an end soon,” Lord says.
Secondly, the focus is currently on gathering deposits and assets under management (AUM), in response to questions from media and analysts about net new money. At any rate, the local banks, including DBS, continue to hire relationship managers for their wealth business. “At the moment, the key is to try and onboard as many customers and as many assets and you see that in terms of the hiring of relationship managers,“ notes Lord. “You see that in terms of the growth that some of the major Singapore and Hong Kong banks are putting into this, because what you’re trying to do is grow your business.”
When banks attract net new money and deposits, they are gathering liabilities. DBS’s current account savings account (Casa) rose 12.7% y-o-y as of Sept 30 to 53% of total deposits; OCBC’s Casa rose by 15% to 50.3% of total deposits and UOB’s Casa rose by 11% y-o-y to 57% of total deposits.
A DBS Group Research report dated Dec 9 points out that DBS and OCBC’s AUMs rose by 18% y-o-y while UOB’s AUM was up 8% y-o-y in 3Q2025 from net new money and better investment activities.
Financialisation of Asian markets
The third part is to deploy these liabilities. “The third part is how does this turn into a corporate and investment banking business (for the banks)?” Lord asks.
“At the moment, as an Asian bank, you’re gathering lots of liabilities, which are deposits. Those funds have to be deployed. Diversification is key. As banks accumulate more funds, they will want to invest them more diversely. Asia will be an important part of your investment portfolio. You need the instruments to invest in. That ultimately will lead to the development of increased financialisation of markets,” he explains.
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“The inevitable consequence of a growth in wealth management is that the asset side of the balance sheet has to respond,” Lord reiterates.
Market observers have noted that moderate levels of financialisation promote real GDP growth. Still, excessive levels may be detrimental to the economy (for instance, the 2008 Global Financial Crisis, where Asia emerged relatively unscathed).
Banks have continued to grow as a share of Asian economies post-2017, with banking system assets as a percentage of GDP rising faster than in Europe and the US. Morgan Stanley also believes in a gradual shift in bank balance-sheet growth away from China and towards South and Southeast Asia.
As is evident, Asia is primarily a bank-funded market. Corporations in Asia continue to rely on bank loans for investment and growth. “ Asia and Europe are still primarily bank-funded markets. That is, corporates in Asia and Europe rely on bank loans,” Lord says. He believes that Asia will increase the use of capital instruments to fund its companies over time as part of its plans to diversify funding sources.
In the US, bank debt accounts for 30%–35% of total corporate debt. Also, in the US, large corporations rely more on bonds than on bank loans, with the bond market dominating corporate debt issuance.
Interestingly, the US Federal Reserve’s May 23 notes indicate that private credit (or private debt) has emerged as one of the fastest-growing segments of non-bank financial intermediaries (NBFIs) over the past 15 years. The asset class totalled US$1.34 trillion in the US and US$2 trillion globally as of 2Q2024.
“In America, it’s a very different situation. America has a lot of this (an alternative to bank funding). You have a whole range of instruments to fund your corporate growth,” Lord affirms.
Funding South and South East Asian growth
Financialisation will increase the amount of capital market instruments. For instance, financial hubs like Singapore, which is also the preferred location for the treasury departments of companies setting up in Asean, have led to a revival of the local stock market, following this year’s inflows of deposits driven by the Singdollar’s haven status.
In February, the Monetary Authority of Singapore announced the Equity Market Development Programme (EQDP) to strengthen the local stock market. Year to date, the Singapore Exchange (SGX) has seen seven Catalist IPOs and nine Mainboard listings, including dual/secondary listings of Avepoint and China Medical System Holdings. In 2024, aside from a secondary listing, the SGX Mainboard saw no IPOs.
In 2025, the Monetary Authority of Singapore issued a consultation paper on providing retail investors with access to private-market investment funds. Both private credit and private equity managers are evaluating liquidity options, including secondaries and other types.
Bursa Malaysia announced 55 IPOs in 2024, up 72% y-o-y from 32 in 2023. According to The Edge Malaysia, Bursa has had 58 IPOs this year. Malaysia’s Finance Minister II, Amir Hamzah Azizan, says Bursa is on track for 60 IPOs this year.
“You’re going to have more companies being listed; you’re going to have more bonds being listed and you’re going to have more issuance (of securities), securitisation, among others. Banks are increasingly talking about circulating the loan book,” Lord says.
In Morgan Stanley’s Nov 2024 report, India’s financialisation journey is underpinned by its demography, strong economic growth and a policy focus on macroeconomic stability. “India is pursuing a distinct model for the digitalisation of its economy, supported by a public utility called IndiaStack. Aadhaar is the foundational ID that lies at the base of the stack, with nearly all Indians having one. IndiaStack is a transaction-led, low-cost, high-volume, small-ticket-size system with embedded lending,” the report describes.
The digital revolution has already changed how India handles documents, invests and makes payments, and it is set to alter how India lends, spends and insures. The success of Aadhaar is the basis for the new layers being built into IndiaStack. Nearly 500 million Indians who lacked access to the formal banking system now have bank accounts, Morgan Stanley notes, as Aadhaar has lowered KYC (know-your-client) costs, accelerating the financialisation of the Indian economy.
Among the local banks, only DBS has a meaningful presence in India. DBS’s former group CEO, Piyush Gupta, is chairman of Temasek India.
Asian banks have also continued to grow in size within the Asian banking system, with cross-border claims falling to less than 14% of regional GDP, reinforcing Asia’s position as a driver of its own financial destiny, Morgan Stanley says.
Foreign direct investment (FDI) funds regional growth through intra-regional flows. FDI is flowing from North Asia to Asean. Among the top 10 sources of FDI into Asean in 2024, Intra Asean is 40%, Japan is 38% and Taiwan and South Korea have replaced a couple of European countries in the top 10, according to the Asean Secretariat’s Oct publication, the Asean Investment Report 2025. Asian banks, including Singapore banks, are capturing these flows as foreign banks exit.
For instance, Wee Ee Cheong, group CEO of UOB, told the Chinese-language press that Citigroup’s retail banking business in Malaysia, Thailand, Indonesia, and Vietnam, acquired by UOB in phases, helped improve the bank’s profitability.
“My guess is that Asia will increase the amount of capital market instruments, because it gives you a wider range of ways to fund your companies. It comes back to diversification. Generally, diversification makes you more resilient, and a more diversified funding structure is ultimately better for the health of the economy. That is the route we’re going down,” Lord observes.
Notably, international banks such as UBS, JPMorgan, and HSBC maintain a presence in private banking and the higher-value-added segment of capital markets. “We see wealth/capital markets as being the new battleground as the slowdown in balance sheet growth pushes Asian banks to seek out new sources of revenue and as Asian regional banks also look to compete more aggressively in this space. Despite this, we see strong barriers to entry supporting the global banks in the higher end of both of these markets,” Morgan Stanley says.
Financialisation endgame
The financialisation phenomenon would inevitably lead to more investment banking activities. “It will lead to growth in investment banking,” Lord confirms.
In Singapore, the local banks head the league tables for SGD issuances, according to Bloomberg. For Asia ex-Japan, HSBC, Standard Chartered and DBS are in the top 10. Chinese banks and securities houses dominate the Chinese bond and equity markets. Similarly, Japanese banks dominate Japanese issuances, although firms such as BofA Securities and Goldman Sachs are among the top 10.
“If you look at things like loan syndication and bond issuance, in Asia, they are dominated by Asian banks and the Japanese and Chinese banks. Asian banks dominate these debt markets in Asia,” Lord says JP Morgan, Morgan Stanley, and Goldman Sachs dominate global equity offerings, according to Bloomberg data. “In equity distribution and different asset classes, European and American banks are more significant players,” he adds.
Currently, it appears that banks are somewhat territorial — China for China, Japan for Japan, and India for India.
“To what extent do Asian banks push across the whole capital spectrum? DBS has been doing a little bit more in this space. Japanese banks are vibrant players in this area. Indian banks are doing more in India. They don’t need to come out of India, there’s enough opportunity there,” Lord observes.
With all the banks vying for a share of the wealth management pie, will the net new money they collect have sufficient capital-market instruments for the Asian wealthy to invest in? Would that lead to consolidation? “At some stage, it will consolidate. But nobody is going to get out of the game at this stage because we’re in a very, very early innings in this game,” Lord points out.
Another risk of increasing financialisation is a financial crisis, such as the GFC. The nature of the Asian Financial Crisis (AFC) was very different from that in the US because it was driven by overvalued currencies pegged to the US dollar and weak current accounts in Asia, rather than by financialisation, as in the GFC.
Whether Asian financialisation creates risk depends on the quality of financial sector regulation. Lord reckons it is pretty well regulated in Asia. If there have been any issues, they could stem from unregulated fintechs, as was the case with Chocolate Finance in Singapore.
As Lord sees it, there is nothing inherently wrong with the model of collecting funds and investing them, but the ecosystem needs to be well managed and regulated.
Better dividends and capital returns
Singapore banks’ increasing reliance on fee income to offset stagnant Net Interest Income (NII) could drive them towards a wealth management/investment banking model. On the other hand, if Asean continues to grow and companies continue to invest, banks can also focus on loan growth.
“How much the banks can do in capital return depends on several things. One of the most important swing factors will be the pace of loan growth. If the pace of loan growth picks up, then it may well be that they absorb that capital through growth,” Lord explains.
DBS is an example of a company that has managed its balance sheet to sustain growth. In 3QFY2025, its fee income and treasury customer sales reached new highs, led by wealth management, while trading income increased due to lower funding costs and a more conducive trading environment. These businesses mitigated the impact of lower interest rates, enabling bank’s 9M2025 profit before tax to continue growing.
“There’s a debate. Are you going to have new opportunities to deploy capital with higher returns than you would get from buying back your own shares? If returns continue at these levels, you could make an argument that there are going to be opportunities to deploy capital in investments that are better than the rate of return you can have from share buybacks,” Lord suggests.
For an acquisition, a bank’s return on invested capital (ROIC) depends on the target’s valuation and P/E ratio. A rough rule of thumb is that the acquirer’s P/E and P/B ratios should be higher than the target’s. While economists estimate that US interest rates will be lower next year than this year, the “pass-through” no longer holds: the Sora (Singapore Overnight Rate Average) interest rate benchmark has dropped sharply this year, even as US rates have remained stable. Morgan Stanley assumes that US rates fall to 3% next year.
Local banks may invest or make acquisitions to further their wealth management and investment banking capabilities. OCBC has not made a meaningful acquisition since Wing Hang Bank in 2014. UOB made a relatively large and complex acquisition, which was announced in 2022 and completed this year.
“Your return on invested capital depends on the P/E of your acquisition. How much does it cost you to buy back your shares? What are the incremental investment opportunities available?”
In 3QFY2025, OCBC’s P/E ratio, P/B and ROE are 12.97 times, 1.45 times and 13.4%, respectively. In 3QFY2025, DBS’s P/E and P/B ratios and ROE are 13.1 times, 2.2 times and 17.1%, respectively. DBS is reportedly studying a stake in Alliance Bank.
“We think there’s still plenty of capital out there in the system and the banks have the potential to continue to pay back capital. The banks have set out their capital return programs that last for two or three years,” Lord says.
Investors have been attracted to local banks for their generous ordinary dividends. Unlike property and other sectors, which report non-cash mark-to-market gains and losses, banks’ net profits are primarily driven by core earnings. With these structural drivers, and before a second AFC takes hold in the far future, banks’ shareholders are likely to continue receiving generous dividends and capital returns.
“We forecast that the local banks will continue with pretty decent amounts of capital, both through the ordinary dividend and other capital management tools. We have dividend forecasts in line with management guidance for the banks. On our forecasts two to three years down the road, we think the banks will continue to accrete capital, which would suggest there is more that they can do over time,” Lord says.
“We’re overweight on financials because we like the capital distribution and the dividend yield is about double the market’s. We think returns are sustainable,” he concludes.
