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Presentation on theme: "Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to."— Presentation transcript:

1 Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Yield Enhancement Products Teo Kang Heng Global Financial Markets

2 2

3 3 Agenda Investment Parameters Products SOR Forecast

4 4 Investment Parameters Risk Parameters: Higher Risk = Higher Return Type of Risk (Interest rate, equity, FX…) Amount of investment in each category of Risk Principal Protection Guaranteed Return Rate of return Tenure - short term or long term

5 5 Yield Enhancement Products Short Term Products FX Based: Fixed Deposit Currency Linked Investment (CLI) Digital Range Deposit (DRD) – Principal Protected Credit Based: Credit Linked Note FTD Credit Linked Note Equity Based: Equity Linked Note Longer Term Products Principal Protected- Rainbow Equity Linked Note Callable Daily Range Accrual Deposit

6 6 Fixed Deposit Assumption: Client has excess funds in SGD to place out. 1 Month Deposit: 0.35% p.a. 2 Month Deposit: 0.50% p.a. 3 Month Deposit: 0.52% p.a. 6 Month Deposit: 0.60% p.a. 1 Year Deposit: 1.00% p.a.

7 7 Currency Linked Investment (CLI) Description This deposit offers higher interest rate than a regular fixed deposit but the principal returned may be in either the original currency or an alternate currency on maturity date. Minimum tenor 1 month How it works Customer deposits SGD 1,000,000 Fixed Deposit with the Bank Customer selects alternate currency; conversion price (strike); tenor Normal 3 months SGD deposit rate :0.52%p.a (92 days) Spot USD/SGD: at inception Conversion Price:1 USD = SGD CLI SGD 3 months deposit:3.8000%p.a.

8 8 Currency Linked Investment (CLI) Conversion Condition On Fixing date (two business days prior to maturity of deposit): At 2 p.m. Singapore time, if the spot USD/SGD is above , customer will receive SGD 1,009,578.08(P + I). If spot USD/SGD is at or below , conversion takes place at Thus, customer gets USD 721, (P + I).

9 9 Currency Linked Investment (CLI) Benefits Higher interest rates than a standard term deposit regardless of the currency returned on maturity (3.80%p.a. vs. 0.52%p.a.). Customer decides on the currency pairs, tenors and FX conversion rates. Risks Deposit repayment will be in the weaker of the currency pair. Potential capital losses in base currency term but partly cushioned by the higher interest rates. Early redemption of deposit may affect the Principal amount of the deposit.

10 10 At Expiry Digital Range Deposit Description A Principal protected deposit that allows customers to earn higher than normal fixed deposit interest provided that the pre-determined FX rate do not trade out of the pre-determined range at expiry date of the deposit. How it works: Spot AUD/SGD : Range: Upper Barrier ( spot ) Lower Barrier (spot – ) Tenor: 6 months (184 days) Normal 6 month deposit rate : 0.60% p.a. DRD yield: 3.20% At 2pm SGD time, expiry date: a) If spot AUD/SGD is in the range, Customer gets principal plus 3.20% p.a. interest b) If spot AUD/SGD is out of the range, Customer gets back only the principal.

11 11 On Expiry Digital Range Deposit Benefits Potentially higher interest rates than a standard term deposit if range is intact 100% principal protected Client decides on the currency pairs, tenors and FX range Risks Minimal / (opportunity costs) if exchange rate breaches Range on expiry Early redemption of deposit is not permitted

12 12 Credit Linked Note Description Credit Linked Note allows investors with risk appetite for good quality investment grade financial credits and looking to benefit from current wide CDS spread on these names. How It Works: 100% redemption of Note amount at maturity (applies only if held to maturity and no Credit Event on the underlying reference obligation. Tenor:1.5 years Ref Entity:Standard Chartered PLC Interest :2.75% p.a. payable quarterly Settlement date:T + 5 days Credit Event :Bankruptcy Failure to Pay Restructuring Non payment of Dividend/Coupon

13 13 Credit Linked Note Benefits Higher yield pick up over cash market Exposure to good quality investment grade credits. Able to access risks of different markets and currencies Accessing short term yield pick up on desired tenure Risks Potential loss of principal and coupons on default in the underlying reference entity. Credit risk of the underlying reference entity. Credit risk of the note issuer – DBS Bank rating Aa2/A+ from Moodys/S&P Correlation risk of issuer and underlying reference obligation.

14 14 FTD Credit Linked Note Description FTD Credit Linked Note allows investors with risk appetite for a basket of good quality investment grade financial credits and looking to hold for medium term. How It Works: 100% redemption of Note amount at maturity (applies only if held to maturity and no Credit Event on any underlying reference obligations.) Tenor:3 years Ref. Entities:ICIC Bank (S&P rating BBB-) Hyundai Motor Co (S&P rating BBB-) Capital Land Ltd (S&P rating BBB+) Bank of East Asia (S&P rating A-) PCCW-HKT Telephone Ltd (S&P rating BBB) Interest :6.15% p.a. payable quarterly Credit Event :Bankruptcy (on any of the ref.Failure to Pay obligations)Restructuring Non payment of Dividend/Coupon

15 15 FTD Credit Linked Note Benefits Yield from FTD CLN is higher than a single name CLN For example, FTD is 2.4 times (6.15%) the spread on the widest single name in the basket (2.60%) Exposure to good quality investment grade credits. Able to access risks of different markets and currencies Accessing short term yield pick up on desired tenure Risks Potential loss of principal and coupons on default in the underlying reference entity. Credit risk of the underlying reference entity. Credit risk of the note issuer – DBS Bank rating Aa2/A+ from Moodys/S&P Correlation risk of issuer and underlying reference obligation.

16 16 Equity Linked Note Description An equity-linked product that may offer a higher return than traditional Fixed income investment but with the downside risk that noteholders might receive equivalent amount of shares if the Final Share Price on the Determination Date is below the Strike Price How it works (Assume 3 months placement, 90% strike) Capital Land Properties Ltd:Payout 14.00% p.a. Singapore Airlines Ltd:Payout 4.70% p.a. Sembcorp Industries:Payout 3.50% p.a. On expiry date, if price of underlying counter is > the strike price, customer receives P+I. On expiry date, if price of underlying counter is <= the strike price, customer receives underlying shares (P+I will be converted to shares at the strike price).

17 17 Equity Linked Note Benefits Qualifying Debt Security subject to 10% tax rate. Flexibility in choice of reference share counter, tenor and currency denomination. If conversion occurs, the customer receives the underlying shares at target conversion price (Strike price) Risks If converted, the customer receives shares that are valued at lower than the market price. Unable to take advantage of potential gains below strike price.

18 18 Rainbow Equity Linked Note Description: A principal protected product that provides a higher rate of return than a fixed deposit and it is depended on the performance of the selected shares. How it works: 100% Principal protected (applies only if held to maturity or redeemed by the Bank). Maximum Period : 3.5 years. Fixed Interest :1.00% p.a. (Year 1) 1.20% p.a. (Year 2) 1.40% p.a. (Year 3) Interest at Maturity:80% x (Average Return + 5%), subject to min. 0.50% Performance of 5 shares : Singapore Telecommunication Limited Overseas-Chinese Banking Corporation Limited United Overseas Bank Limited Keppel Corporation Limited Sembcorp Marine Limited Interest payout : Annually; Deposit Maturity Date

19 19 Rainbow Equity Linked Note Benefits Qualifying Debt Security subject to 10% tax rate. Flexibility in choice of reference share counter, tenor and currency of denomination. Principal Protected Structure Risks If lower than range, customer will have no interest for the period. Early redemption not advised.

20 20 Callable Daily Range Accrual Deposit Description: A simple Principal Protected product that provides a potentially greater rate of return compared to a normal deposit. How It Works: 100% Principal protected (applies only if held to maturity or redeemed by the Bank). Max Period:3 Years. Interest :Payable Quarterly. Callable:Quarterly. Interest :3.10% * N1/N2 where Range:0% < if 3M SGD SOR < 4.00% ( Year 1 ) 0% < if 3M SGD SOR < 4.25% ( Year 2 ) 0% < if 3M SGD SOR < 4.50% (Year 3 ) N1 means in relation to a Coupon period, the number of calendar days in respect of which the 3M SGD SOR trades above the relevant lower barrier and below the relevant Upper Barrier set out. N2 means the total number of calendar days in the Coupon Period corresponding to the relevant N1

21 21 Callable Range Accrual Deposit Description: A callable principal protected product that provides a higher rate of return than a fixed deposit with a step up coupon. How it works: 100% Principal protected (applies only if held to maturity or redeemed by the Bank). Maximum Period : 5 years. Interest :3.90% p.a. (Year 1) 4.15% p.a. (Year 2) 4.40% p.a. (Year 3) 4.65% p.a. (Year 4) 4.90%p.a. (Year 5) Range : 0% < if 3M SGD SOR < 4.00% ( Year 1 ) 0% < if 3M SGD SOR < 4.25% ( Year 2 ) 0% < if 3M SGD SOR < 4.50% (Year 3 ) 0% < if 3M SGD SOR < 4.75% ( Year 4 ) 0% < if 3M SGD SOR < 5.00% ( Year 5 ) Interest payout:Coupon x N1/N2; Quarterly Callable :Quarterly

22 22 Callable Range Accrual Deposit N1 means in relation to a Coupon period, the number of calendar days in respect of which the 3M SGD SOR trades above the relevant lower barrier and below the relevant Upper Barrier set out. N2 means the total number of calendar days in the Coupon Period corresponding to the relevant N1.

23 23 Benefits 100% principal protected (applies only when called or held to maturity). Possibility of early termination. Earn higher interest if 3 months SGD SOR stays within the range Risks Possibility of early call back if rates moves lower which would affect the yield of reinvestment of deposit. Early termination of deposit by client might negatively affect the principal amount of the deposit. No interest paid should 3 months SGD SOR move out of the range. Callable Range Accrual Deposit

24 24 DBS Interest Rate Forecasts End Fed Funds 3m LIBOR 3m SOR SGD IRS 3Y SGD IRS 5Y 28 Aug Q Q Q Q Q Q Q Q

25 Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Thank You.


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