DBS: A Leading Light in Banking
Global Finance: Best Bank in the World 2020
The largest bank in Southeast Asia, DBS is Global Finance’s 2020 Best Bank in the World. Establishing a core competence in technology, DBS has taken the lead in the digital transformation that is reshaping the world of banking and finance. The Covid-19 pandemic has made clear the pivotal role technology will play going forward, giving DBS an important competitive advantage.
DBS has taken savings from its earlier technological advances and reinvested them in more technology. The aim is to make banking all but seamless so corporations can concentrate on what they do best: running a business.
In the difficult operating environment of the first half of 2020, DBS’ profit before allowances rose 12% from the same period a year earlier to a record $3.5 billion. However, it raised total allowances fivefold to fortify the balance sheet against risks arising from the pandemic, pushing headline earnings down 26%.
“The strong operating performance we reported amidst severe macroeconomic headwinds in the first half attests to the resilience of our franchise,” says CEO Piyush Gupta. “Our solid balance sheet was further fortified by the significant increase in allowance reserves, strong liquidity inflows and healthy earnings. Notwithstanding the uncertainties, we are in a good position to continue supporting customers and the community through the difficult months ahead of us.”
—Piyush Gupta, CEO
DBS Group CEO Piyush Gupta Q&A
Piyush Gupta: In the past five years, our transformation strategy was based on three pillars. The first was the technology architecture, which essentially meant a heavy reliance on building and on-premises cloud architecture; on using an API architecture for easy connectivity both internally and externally. The second pillar of our strategy was to focus on the customer-journey thinking, and really learning how to embed ourselves in the customer’s processes. And the third part of our transformation was really trying to create a culture of a startup—so being agile, being a learning organization, experimenting at scale, et cetera.
Truth be told, Covid revealed that our strategy and the progress we made was extremely helpful. But it has also proven to be an opportunity to a double down on many parts of the strategy and other things we need to do, as well.
Now, one thing we realized is that even though we had a lot of technology in place, in many cases we were about 90% there. But when it comes to a Covid kind of situation, you realize 90% is not good enough.
Gupta: From a pure health and economic or macroeconomic standpoint, I think North Asia has actually handled the pandemic well. China got the pandemic under control, and the Chinese economy is recovering more strongly than any other economy in the system. Taiwan has been very strong. In fact, Taiwan did not see a slowdown at all, partly because it’s a tech-dominated country. Korea had a little bit of an up and down. But IT has recovered, and Korea’s numbers are looking very good, so that’s very strong. The problem is Southeast Asia and South Asia. First of all, the capacities of the various healthcare systems were not that strong. The capacity to test and trace was not that strong. And unfortunately, the fiscal positions are not that strong.
The other issue is sectoral differences. Many cross-border sectors—tourism, hospitality, leisure, business travel, conventions—are going to suffer for a fairly extended point of time, even in North Asia.
The governments have thrown a lot of money at the problem, so they’re maintaining jobs and they’re protecting people. A large swath of small and medium-size enterprises have been given lifelines, but the lifelines won’t last. You’ll see the cliff effect when the government largesse runs out.
It isn’t going to be a quick recovery. Next year might look good in the GDP aggregate because the year-to-year comparison will look good. But I don't see the region recovering to all levels of demand—and therefore GDP levels—for at least another two years.
Gupta: We’re not changing our geographic strategy. We are an Asian commercial bank, which means that we have to be in China, we have to be in Indonesia, we have to be in India, we have to be in the big countries in our region. And you have to recognize that you have to play the long game. This is the reality of emerging markets. If you have the capacity, the risk appetite and the fortitude to play the long game, you’ll do okay. But if you go in and out of the market every time there’s a short-term problem, you can’t build a franchise.
Many Western institutions, particularly European banks, do a stop/start. They come in, run through a two-year cycle, and when things are bad, they exit. Three, four years later, they want to come in again. That's a hard way to build a business. So we’re not changing our geographic agenda.
Gupta: I’m convinced that one of the big things coming out of this pandemic is a much greater focus on ESG [environmental, social, and corporate governance factors]. And within ESG, there’s going to be a much bigger focus on the S part of ESG, the social issues. Because anybody has seen, through the pandemic, that inequality issues all come to the fore. So the issue of trust is going to be big.
Something else that sort of came from Covid but not entirely, is much greater reliance on distributed ledger. Right in the middle of the Covid, there were some really large cases of trade-finance fraud. Blockchain technology and distributed ledger can actually resolve that. So we are now doubling down on our efforts to use blockchain for these kinds of use cases—authenticity and verification.
There are some other changes that are not directly linked to our digital strategy, but came out of Covid. One is geopolitics: China/US issues are going to be a big game-changer, especially in our part of the world. If you’re sitting in Southeast Asia, you’re sort of caught between two elephants dancing. You’ve got to figure out how you play with both of them without getting trampled.
GF: What about the future of work? Do you see significant numbers of people continuing to work remotely, even after the pandemic?
GF: DBS has made a large commitment to data analytics. How has big data and AI made a difference during the pandemic?
Gupta: Internally, we used data analytics to figure out contact tracing within the company. When we had our first infection on February 13, we immediately put in place—within four hours—an AI tool to predict employees’ first degree of contacts, second, third degree of contacts, etc.
A second example: Governments in most of our markets implemented moratorium schemes during the pandemic, like suspending small-business loan repayments. But at some stage, this will come to an end and then we will see a big cliff effect when people suddenly have to start paying again. We are using big data and analytics to predict which customers are most likely to have trouble at that point—then we can hand-hold and help these customers ahead of time.
Gupta: The rich/poor divide is going to be uppermost in the minds of governments and people over the next five, ten years. We have to make sure we’re being responsible and doing the right thing. In the pandemic, for example, Singapore generally did a good job controlling Covid, except for its migrant worker population—about a million people from Indonesia, Myanmar, India and Bangladesh who live in dormitories. As widely reported, Covid went viral in those dormitories, and when it did, the government locked them down. But when they did, there was suddenly no way for many workers to access cash and transfer money back to their families in Indonesia or Bangladesh. Many didn't even have bank accounts—they were receiving cash payments.
We put ATMs in all the dorms for the people who still needed cash. We opened 40,000 accounts over a single weekend, and with those 40,000 accounts, we also provided a simple digital tool for workers to transfer money easily into their home country. Life suddenly became a lot more convenient.
GF: You’ve said that bridging the rich/poor divide can also be a business opportunity. Can you provide an example?
Gupta: The public sector, like it or not, is going to get bigger. Governments have pumped so much money into the system that taxpayers will insist that the government have more say in the economy. As a business, you have got to start thinking about how to make yourself more valuable to governments—to work with them, bringing more efficiency to the public sector.
In Singapore, the tax authority and the [state-owned] Central Provident [pension] Fund needed to make two million payments overnight to all the citizens around the country. We helped them digitize that payment operation, converting a check-based process to a digital process. Opportunities like these—helping a government to digitize its operations—will be available in many of our markets.
Euromoney: Asia's Best Bank 2020
DBS is a bank at the top of its game. For the second year in a row, it not only wins the best bank in Asia award but canters away with it at high speed.
Every conversation about the Singapore lender starts and ends with its digital transformation journey, and for good reason. DBS describes it as “one of the most comprehensive for a bank anywhere in the world” – and it is hard to argue the point.
It was the first bank anywhere to clearly articulate how much it earned from digital and traditional customers, and each year it rolls out a host of new services that extend its reach in the digital realm.
Everything is built with disruption in mind, as well as with care and forethought. Rarely do these services overlap – there is never a sense that DBS is doing something for the sake of it.
Take last year’s launch of DBS DigiPortfolio, a hybrid human-robo investment service that allows retail customers with as little as S$1,000 ($720) to invest and to access analysis and advice provided by the bank’s best wealth management strategists.
In short, DBS is using its digital strength to democratize financial services.
Or take the multi-tier financing facility it unveiled last year in mainland China. Built on blockchain foundations, it gives small and medium-sized enterprises better and faster access to trade financing.
It’s an invaluable service for SMEs, who often struggle to have their trade finance needs met by traditional lenders.
There is a nice balance too in its digital platform. DBS doesn’t just throw up a new tool or service and hope for the best. Its self-service tool Wreckoon, which tests the resilience of applications in development and draws its inspiration from Netflix’s original chaos engineering concept, is testament to that.
But digital is also a means to an end. Fundamentally, it is used to make the bank work better and to help its clients, from retail customers to SMEs to corporates and sovereigns, live easier and better financial lives.
Beyond digital, there is so much to admire. Financially, it has never been healthier. The DBS group posted net profit of S$6.39 billion in 2019, up 14% year on year. Total income rose 10% to S$14.5 billion, with return on equity hitting a record high of 13.2%.
Net profit unsurprisingly dipped in the first quarter of 2020, as it set aside S$1.09 billion to cover potential pandemic-related losses, but some data continued to shine. Its cost-to-income ratio hit a record low of 38.6% at the end of March 2020, against 42.2% a year earlier.
And there is a feeling that DBS is just getting started. When Euromoney met Piyush Gupta in February 2020, the topic of its regional ambition came up.
DBS’s chief executive highlighted six economies he deems essential to the bank’s future, noting: “We are putting our chips on China, Indonesia and India, three markets with 40% to 50% of combined global growth,” along with Taiwan, Singapore and Hong Kong.
This level of ambition extends to sustainability and environmental, social and governance (ESG) principles. In November, DBS became the first bank in southeast Asia to sign up to the Equator Principles; during the full year 2019, it completed 35 sustainable financing deals, collectively worth S$5 billion.
And when the Covid crisis hit, Gupta tasked POSB, a division of the bank, to bring as many of Singapore’s financially excluded migrant workers into the banking sector as fast as possible.
In April alone 41,000 labourers signed up to open a POSB Jolly account, which allows account holders to remit money overseas and to top up pre-paid Sim cards via SMS.
Euromoney: Excellence in Leadership in Asia 2020
When Singapore suffered a second spike in coronavirus cases in April, attention turned to the city state’s migrant labourers, an army of essential workers described by a former head of the National University of Singapore’s Saw Swee Hock School of Public Health as society’s “most invisible” members.
Most of the new Covid cases were clustered around the workers’ cramped dormitories. Historically, although most workers used basic remittance services to transfer earnings home, many remained excluded from mainstream financial services.
Keen to find a solution, DBS, which provides financial services to more migrant workers than any local lender, set out to bring as many as possible into the financial fold.
“The challenge was clear,” says DBS chief executive Piyush Gupta. “There were 50,000 migrant workers, but most were paid in cash, didn’t have a bank account and were unable to pay for goods in a shop or remit money home during lockdown.”
Gupta tasked POSB, a consumer lender DBS bought in 1998, with the job.
“We wired POSB up to the manpower ministry and made the whole account opening process seamless and instantaneous,” he says.
In April alone more than 41,000 labourers signed up to open a POSB Jolly account, a simple setup that allows account holders to remit money overseas and to top up pre-paid Sim cards easily via SMS.
“Our aim is for all 750,000 migrant workers to have bank accounts by the end of the year,” Gupta adds.
This is only possible for a bank structurally and technologically at the top of its game – and DBS certainly fits that bill.
DBS has been busy across Asia during the pandemic, placing a six-month principal repayment moratorium on small and medium-sized enterprise property loans, introducing frictionless digital trade financing services and – through its Stronger Together Fund – distributing 4.5 million care packs across six key markets, including China, India and Indonesia.
Euromoney: Asia's Best Bank for Transaction Services 2020
DBS takes the award for Asia’s best bank for transaction services this year.
In 2019, revenues generated by the bank’s global transaction services (GTS) team, under the leadership of group head of global transaction services John Laurens, jumped 8% year on year, to S$2.6 billion ($1.9 billion), with income generated by the division up 12% year on year in 2019, against an Asia-Pacific average of just 4%, according to data from Crisil’s Coalition Index.
The Singapore lender clearly benefits from its formidable digital strength, as do its customers. By the end of March 2020, it had implemented 184 corporate and institutional banking application programming interfaces; corporate API call volumes rose more than 11-fold in 2019, to 7.4 million from 658,000 a year earlier.
DBS is ranked number one for PayNow receipts in Singapore, controlling more than 50% of the market: 48,000 individuals and companies signed up in 2019.
It was the first bank in the city state to implement cheque repricing, and in February 2020 the bank completed its first trade finance transaction on Singapore’s Networked Trade Platform, a $3.5 million letter of credit issued by two local corporates.
As you would expect from an institution that wins this year’s award for Asia’s best bank, DBS is also a regional powerhouse in transaction services. Its GTS division posted a 10% year-on-year increase in revenues in India in 2019, a figure that rises to 12% in Hong Kong and Indonesia, and 17% in Singapore.
And it continues to innovate, rolling out services that make life more frictionless and that blur the line between bank and customer.
DBS Rapid enables firms to integrate instant payments directly into their business processes, by piggybacking on local payments systems: Bersama in Indonesia, UPI in India, CUP in China and Hong Kong’s Faster Payment System.
DBS Max allows companies in India, Hong Kong and Singapore to settle and receive payments using QR technology, a programme also adopted by Singapore Airlines.
And last year, the bank teamed up with City Developments, a Singapore based property firm, to create an application that enables tenants to pay a range of bills – from rent to car-parking fees – more conveniently and efficiently.