Wealth Management Explore the potential of Secured Wealth Lending

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1 Wealth Management Explore the potential of Secured Wealth Lending sc.com/sg

2 The fi nancial fl exibility to meet your needs Our Secured Wealth Lending Facility is an overdraft facility obtained against financial assets held with, and acceptable to the Bank up to a percentage of their prevailing market value. 1 It is a credit facility that can provide you with greater liquidity by securing against multiple fi nancial assets held with the Bank. 2 With the fl exibility to choose what you use the facility for, you can use it to explore new investment opportunities or increase liquidity for your personal needs*. 3 It is available across a wide range of currencies, including SGD, USD, HKD, JPY, EUR, GBP, AUD, NZD. Your available credit limit under this facility will be determined based on a range of factors such as the type of financial assets you use as a security pegged together with its prevailing market value and the concentration of the financial assets within your portfolio held with the Bank. The credit limit available to a Borrower is subject to the Bank s internal assessment and valuation, and may be reviewed from time to time. * It is important to note that it will also magnify any losses. 1

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4 Enjoy the Power of 8 with Secured Wealth Lending Our Secured Wealth Lending Facility has no restrictions on the usage of fi nancing. Its versatility allows the potential for increased liquidity benefi ts for your personal needs. 8 Benefits to Secured Wealth Lending 1. It can unlock the value of your long-tenor assets (E.g. Structured Deposits, Stocks, Bonds, Time Deposits). 2. It can aid capitalising on under-performing assets. 3. It provides flexibility and has no restrictions on the usage of financing. You can utilise your overdraft for both your personal or investment needs. 4. It provides cost savings as you only need to pay for the portion of the facility you utilise. 5. It provides attractive lending interest rates. 6. It can enhance your yields. 7. It can help grow your portfolio of investments with us at a faster pace. 8. It can help hedge your risks. Accepts 8 types of collateral^ 1. Cash Deposits 2. Time Deposits 3. Exchange-traded Funds 4. Stocks 5. Unit Trusts 6. Bonds 7. Structured Products 8. Universal Life Insurance Policies Available in 8 credit loan currencies 8 loan currencies are available for borrowing against acceptable collaterals which market value is priced either in the same or a different currency (SGD, USD, HKD, JPY, EUR, GBP, AUD, NZD). To fi nd out more, speak to your relationship manager today. ^ The types of collateral acceptable to the Bank may be reviewed from time to time. 3

5 A Secured Wealth Lending example (Illustration 1) Investment without Secured Wealth Lending Capital Dividend Capital gain Annual return S$100,000 4% p.a. 2% 6% Let us assume that you have invested S$100,000 into a Unit Trust. The Unit Trust pays an approximate dividend of 4% per annum and achieves a capital gain of 2%. Your annual return on capital would be 6%. Base Scenario 1 Dividend S$4,000 4% of S$100,000 Capital gain S$2,000 2% of S$100,000 Annual interest S$0 Not applicable Net return S$6,000 * This diagram is for illustrative purposes only. 4

6 Investment with Secured Wealth Lending Capital Dividend Capital gain Interest S$100,000 4% p.a. 2% 2.5% Through Secured Wealth Lending, assuming the invested Unit Trust has an Loan-to-value (LTV) of 70%, a credit facility of S$70,000 can be secured against the investment (at an interest rate of 2.5% per annum for the purpose of illustration). You can use the credit facility of S$70,000 to invest into the same or into a diff erent investment. Assuming you proceeded to purchase the same Unit Trust that pays an approximate dividend of 4% per annum. You could have: a. S$100,000 of Unit Trust; b. S$70,000 of Unit Trust which is expected to pay an approximate annual dividend of 4%. Subject to market conditions, Secured Wealth Lending may increase your potential gains or magnitude of loss as compared to investing without Secured Wealth Lending, as illustrated in the scenarios below. Scenario 1A Dividend S$6,800 4% of S$170,000 Capital gain S$3,400 2% of S$170,000 Annual interest S$1, % of S$70,000 Net return S$8,450 Scenario 1B Dividend S$6,800 4% of S$170,000 Capital loss -S$3,400-2% of S$170,000 Annual interest S$1, % of S$70,000 Net return S$1,650 * This diagram is for illustrative purposes only. 5

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8 Risks of Secured Wealth Lending Leverage risks Depending on market conditions, the value of your collateral may fall. You may then be called upon to top up your account by substantial amounts or to repay your outstanding credit facilities at short notice. If you fail to do so, the Bank may have to liquidate your collateral at a loss to repay any amount outstanding and you would be liable for any amounts still owing subsequently. Interest rate risks The interest rate of your credit facility may increase, resulting in a higher interest payment amount for the facility. An increase in interest rate will in turn reduce the return on any investment. Foreign exchange risks Your credit facilities may be subject to additional foreign exchange risks if they are taken in a diff erent currency other than that of your collateral. If the exchange rate moves against you, the repayment amount of the facilities may be aff ected. Change in credit Loan-to-value (LTV) ratio LTV ratios are subject to periodic review and may change within a short period of time. When the LTV of your collateral is reduced, you will need to have suffi cient liquidity to repay your outstanding credit loan or pledge additional collateral as security for the credit facility. Please note that the above-mentioned risks are non-exhaustive. You should evaluate each risk carefully and assess if it matches your risk appetite. 7

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10 Leverage Financing Let your money work harder Leverage Financing is a Secured Wealth Lending credit facility where your initial fi nancing is leveraged upon for the purchase of an investment product. Leverage is available upon your application and subject to meeting suitability requirements. Benefits of Leverage Financing: Having potential for capital growth acceleration Leverage Financing can provide you the potential to grow your wealth at an accelerated pace. This approach, however, involves risks and is subject to market conditions. Taking up a leveraged loan to fund an investment entails greater risks than funding the investment outright with your own cash. Additional risks of Leverage Financing: In addition to the non-exhaustive risks of Secured Wealth Lending, Leverage Financing carries the following risks: Magnified risks in potential losses While using Secured Wealth Lending with leverage to invest provides a platform to amplify your potential earnings, it too can magnify your potential losses. You may even sustain losses that exceed the value of the original investment amount and the value of your collateral. You should ensure that you do not commit yourself to investments beyond your means. You should consider your appetite for losses before requesting for Leverage Financing. Please note that the above-mentioned risks are non-exhaustive. You should evaluate each risk carefully and assess if it matches your risk appetite. 9

11 A Secured Wealth Lending example, through Leverage Financing (Illustration 2) Investment without Leverage Financing Capital Dividend Capital gain Annual return S$100,000 4% p.a. 2% 6% Let us assume that you have invested S$100,000 into a Unit Trust which pays an approximate dividend of 4% per annum and achieves a capital gain of 2%. Your annual return on capital would be 6%. Base Scenario 2 Dividend S$4,000 4% of S$100,000 Capital gain S$2,000 2% of S$100,000 Annual interest S$0 Not applicable Net return S$6,000 * This diagram is for illustrative purposes only. 10

12 Investment with Leverage Financing Capital Leverage Financing Dividend Capital gain Interest S$100,000 S$200,000 2 x capital amount 4% p.a. 2% 2.5% You should ensure that you do not commit yourself to investments beyond your means. You should consider your appetite for losses before requesting for Leverage Financing. Scenario 2A At the end of the year 1, your Unit Trust achieves a capital gain of 2% and also pays out a dividend of 3%. Dividend S$12,000 4% of S$300,000 Capital gain S$6,000 2% of S$300,000 Annual interest S$5,000 of S$200,000 Net return S$13,000 Scenario 2B At the end of the year 1, your Unit Trust sustains a capital loss of 2% but still pays out a dividend of 3%. Dividend S$12,000 4% of S$300,000 Capital loss -S$6,000-2% of S$300,000 Annual interest S$5,000 of S$200,000 Net return S$1,000 * This diagram is for illustrative purposes only. 11

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14 Margin Triggers As Secured Wealth Lending is a credit facility secured against the value of your portfolio of collateral with the Bank, any fall in its value would result in a reduction of the available credit limit under your credit facility. If the market value of the collateral falls below what the Bank considers to be adequate, a shortfall, top up or sell down Margin Trigger may occur depending on the extent of the fall, and your account needs to be rebalanced within a given time frame. Assuming, for illustration purposes, that your portfolio is fully invested in a product with a Loan-to-value (LTV) of 70%. The top up and sell down thresholds would be as follows: Original value: 100 % Top up trigger: 88 % Sell down trigger: 79 % Shortfall zone Top up zone Sell down zone Value of collateral Rebalance account within: 30 Days 3 Days 24 Hours Your Margin Triggers will be determined based on the aggregate LTV of your portfolio, which depends on the composition of your investments portfolio. Speak to your relationship manager for a more detailed explanation of your portfolio s LTV affects your Margin Triggers. * This diagram is for illustrative purposes only and is not drawn to scale. 13

15 Applying Margin Triggers to your portfolio of holdings If you have a portfolio of various investment products and deposits, you may be able to include it as collateral for a portfolio lending credit facility. Let s use the below portfolio example to illustrate the three types of Margin Triggers mentioned earlier: Original scenario Scenario 1: Shortfall S$1,000,000 S$1,000,000 S$1,000,000 S$200,000 S$980,000 S$180,000 S$600,000 S$600,000 Rebalance difference of S$10,000 S$600,000 S$600,000 S$590,000 S$600,000 S$200,000 S$200,000 Investments market value Credit facility limit utilised Investments market value Credit facility limit utilised Unit Trust Bond Time Deposit Assuming the value of the Unit Trust holdings fall whereas the value of the Time Deposit and Bond holdings remain unchanged, and the overall value of the investments has fallen below what the Bank considers to be an adequate security margin. Under this situation, you will be notified of the shortfall in the security margin and be required to rebalance the account within a stipulated time frame. Methods to rebalance your account include making a repayment of S$10,000 or providing additional collateral to the Bank. * This diagram is for illustrative purposes only and is not drawn to scale. 14

16 Scenario 2: Top up Scenario 3: Sell down S$1,000,000 S$1,000,000 S$800,000 S$600,000 S$100,000 Rebalance difference of S$100,000 S$600,000 Rebalance difference of S$200,000 S$100,000 S$500,000 S$500,000 S$400,000 S$300,000 S$200,000 S$200,000 Investments market value Credit facility limit utilised Investments market value Credit facility limit utilised Assuming the values of the Unit Trust and Bond holdings fall, whereas the value of the Time Deposit remains unchanged, and the overall value of the investments has fallen below what the Bank considers to be an adequate security margin. Under this situation, you will be notified of the need to top up your collateral to maintain an adequate security margin and rebalance the account within a stipulated time frame. Methods to rebalance your account include providing additional collateral to the Bank or to rebalance with a payment of S$100,000. Assuming the values of the Unit Trust and Bond holdings fall sharply while the value of the Time Deposit remains unchanged, and your overall liabilities to the Bank exceed the market value of your investments. Under this situation, you will be notified to rebalance the account within the stipulated time frame and you may be required to provide additional collateral in addition to repaying your outstanding liabilities. Methods to rebalance your account include providing additional collateral to the Bank or to rebalance with a payment of S$200,000. If you are unable to do so, the Bank may sell your collateral to pay off your outstanding credit facility with us. * This diagram is for illustrative purposes only and is not drawn to scale. 15

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18 Mitigating the risks of Margin Triggers Balance the risk and return of your portfolio, and better manage the possibility of shortfall, top up or sell down Margin Trigger calls through: Limiting the usage of your credit facility to ensure that you do not commit yourself to investments beyond your means. Maintaining a steady income stream independent of the collateral and to utilise it on short notice to meet any requirements of a Margin Trigger call. Diversifying your investment portfolio. Servicing your interest charges regularly. 17

19 Disclaimer: This document is being distributed in Singapore by, and is attributable to, Standard Chartered Bank (Singapore) Limited ( SCBSL ). Recipients in Singapore should contact SCBSL in relation to any matters arising from, or in connection with, this document. SCBSL is a subsidiary of Standard Chartered Bank, which is licensed to conduct banking business under the Singapore Banking Act, Chapter 19, and Standard Chartered Bank is a foreign company registered in Singapore under the Companies Act, Chapter 50. Investment products and foreign currency deposits are excluded from the coverage of Singapore s Deposit Insurance And Policy Owners Protection Schemes Act This document is being distributed for general information only and does not constitute an offer, recommendation, solicitation to buy or sell any products or services such as securities, regulated investment agreement or collective investment scheme, amongst others. SCBSL will not accept any responsibility or liability of any kind, with respect to the accuracy or completeness of the information in this document. This document is for general evaluation only and has not been prepared to be suitable for any particular person or class of persons. SCBSL makes no representation or warranty of any kind, express, implied or statutory regarding this document or any information contained or referred to on the document. Copyright: Standard Chartered Bank Copyright in all materials, text, articles and information contained herein is the property of, and may only be reproduced with permission of an authorised signatory of Standard Chartered Bank. Copyright in materials created by third parties and the rights under copyright of such parties is hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of Standard Chartered Bank and should not be reproduced or used except for business purposes on behalf of Standard Chartered Bank or save with the express prior written consent of an authorised signatory of Standard Chartered Bank. All rights reserved.