Banks face two main dangers in 2021, says the CEO of Singapore's largest financial institution, DBS

SINGAPORE – Global banks will face two major headwinds over the next year: rising defaults and extremely low interest rates, said Singapore’s largest bank executive director, DBS, Piyush Gupta.

Government support around the world has cushioned the economic damage from the pandemic, but so has it "Actual size masks" the problems businesses and households are facing, Gupta said on Monday. Such problems will emerge when the support measures are withdrawn, he added.

"So I think that defaults and arrears will increase worldwide in the next year," Gupta told CNBC's "Squawk Box Asia".

This is not the first time Gupta has warned of rising failure rates around the world. But he said that DBS – like many banks around the world – has been increasing its reserves in recent months in anticipation of possible credit losses.

I think if the rhetoric between the US and China cools down a bit with the new US administration, it will calm the nerves of the market and could help too.

From January through September, DBS allocated a total of 2.49 billion Singapore dollars (approximately $ 1.87 billion) for write-downs – more than four times the amount in the same period last year, the bank said in its earnings release for the third quarter last month with.

"Nobody can guess whether the amount of the reserve is adequate. I am calmly confident that we have done enough," he added.

"Helpful" developments

The CEO also said banks will continue to struggle to increase their credit margins as interest rates are expected to stay lower around the world for longer. However, an increase in economic activity in the third quarter and a possible cooling of tensions between the US and China could help offset the risks of lower interest rates, he added.

Gupta pointed out that activity in North Asian economies such as China, South Korea and Taiwan is almost back to pre-Covid levels.

Piyush Gupta, CEO of DBS Group Holdings.

Bryan van der Beek | Bloomberg | Getty Images

"If business resumes it should help," he said. "I think if the rhetoric between the US and China in the new US administration cools down a bit, it will calm the nerves of the market and it could be helpful too."

According to Gupta, DBS could further increase its market share in the bank's home market in Singapore, even if the banking landscape is prepared for a change with the entry of four new digital banks. He added that Singapore sales were "high single-digit" growth.

DBS is an "integrated" bank with a presence across virtually the entire banking value chain, including payments, remittances, financial planning, corporate finance 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.

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