REVIEW BY BUSINESS UNITS

CONSUMER BANKING / WEALTH MANAGEMENT

INTRODUCTION

Consumer Banking / Wealth Management (CBG) provides individual customers with a diverse range of banking and related financial services. Our customers can take comfort that we have been consistently named “Safest Bank in Asia” by Global Finance magazine since 2009. We have deep roots in Singapore, where we serve all parts of the community through our extensive network of more than 2,300 DBS and POSB branches, ATMs and self-service banking machines.

Our Wealth Management franchise offers a full suite of products and services. Affluent individuals are served in the DBS Treasures customer segment while high net worth individuals with assets of more than SGD 1.5 million are served in the DBS Treasures Private Client and DBS Private Bank segments. In addition to offering customers the safety that comes from being well-capitalised and having one of the highest credit ratings, we are differentiated by our insights on Asia and access to investments that tap into Asia’s growth.

FINANCIAL PERFORMANCE

CBG’s total income rose 10% to SGD 2.54 billion. Net profit increased at a faster rate of 17% to SGD 603 million, as a result of productivity gains and stable credit costs. The pace of growth in both income and earnings was higher than the previous year.

The stronger performance was led by a 19% increase in non-interest income to SGD 1.04 billion as contributions from investment and bancassurance product sales grew 27%, demonstrating the strength of our wealth management franchise.

Net interest income rose 5% to SGD 1.50 billion driven by loan and deposit volume growth, partially offset by lower interest margin.

In Singapore, loans grew 10% from housing and other secured consumer loans. Drawdowns of housing loans approved in previous years contributed to 32% of the growth in our Singapore housing loan portfolio. However, applications for new Singapore housing loans declined 20% compared to 2012 following a series of government measures to cool the market. On the other hand, housing loan yields have been firming. The proportion of applications for fixed-rate loans increased as more borrowers became amenable to paying a premium to lock in rates for mostly up to three years while interest rates are low. The proportion of applications for public housing loans also increased from 2012 as we introduced a product to attract buyers who would otherwise have borrowed directly from the public housing authority.

Deposits grew 6% mainly from SGD current and savings accounts, in which we maintained our leading market share. SGD deposits costs were stable during the year.

We continued to manage operating costs tightly while investing in technology to enhance our digital capabilities. Expenses rose 9% to SGD 1.74 billion. Allowances continued to be low as asset quality remained stable in a benign credit environment. Around 90% of our Singapore housing loans, which account for the majority of our housing loan exposure, are to borrowers with only one housing loan. The average outstanding Singapore housing loan in our portfolio is only 56% of the property’s market value. We also adopted debt servicing standards long before they became regulatory requirements to ensure that borrowers did not overstretch themselves.

STRATEGIC INITIATIVES

We achieved the franchise development goals we set for ourselves in 2013. They were to improve our online platforms, cement our leading position in wealth management and make further strides in customer service.

Digital initiatives
With consumer transactions rapidly shifting online, we continue to enhance our Internet and mobile platforms to make them seamless extensions of our physical branch footprint. The revamp incorporates an improved engine to pull together customer and product information, a refreshed and consistent look and feel for all our online and mobile channels, and the introduction of innovative applications. Once the full revamp is completed, our Internet and mobile platforms will be simpler and more intuitive to use, offer a higher degree of customisation to individual needs, and enable customers to interact in real time with relationship managers or branch staff. Customers will be able to make everyday transactions such as payments, receive assistance for making investment decisions, call up information on lifestyle activities such as dining and shopping, and check on their bank accounts – all at their convenience, 24 x 7.

Among the specific enhancements we introduced during the year was a mobile app, DBS Home Connect, enabling Singapore home buyers to find out the valuation of a residential property as well as recent transaction prices in the vicinity by pointing their mobile device at the property. In addition, applicants for credit cards and unsecured loans can download our Optical Character Reader to reduce the time for completing their online applications. Customers can also use our online platform to remit funds; transfers to India and Indonesia can be completed in a matter of minutes.

We also partnered Alibaba’s e-commerce payments site Alipay to allow our Singapore, Hong Kong and China customers to purchase items on Taobao, a popular online market. We tapped social media to enhance brand awareness and launch products, including a crowd-sourcing deposit-gathering programme called uGoiGo™ that was launched in Hong Kong with great success and subsequently replicated in other markets.

We have been meticulous in our efforts to build a secure foundation around our electronic platforms. During the year, we completed the roll-out of additional security features, including a new-generation log-in token for customers and a system to alert customers when transaction sizes cross a threshold or when they are not routine. These changes have contributed to a safer and easier experience. As a result, channel usage increased over 40%, driven primarily by mobile. We now have more than 2.4 million online and 800,000 mobile users across the region. On an average day there are more than 300,000 logins, with mobile accounting for close to 40% of the total. To reduce paper usage and go green, we have enabled our customers to receive statements in electronic form. In Singapore, over 50% of our customers now do so.

Wealth management
In Wealth management, we continued to make changes to improve the effectiveness of our client interaction. We increased the number of relationship managers across the region by 13% and equipped them with customised tools that make them more effective in helping clients to make investment decisions. We up-tiered qualifying clients in order to serve them better. In Hong Kong, we completed the integration of our middle and back offices to improve the quality of support for front-line staff.

Our wealth management online platforms were re-designed based on clients’ feedback. They asked for products and services that were relevant to their investment needs and risk appetite, information and execution that are delivered at speed, and simple processes. The revamped platform empowers clients with quick and intuitive access to services, product information and research. Insights and analysis can be customised according to clients’ preferences. Equities and funds trading have been incorporated into the platform, enhancing the range of asset classes that are available online.

These efforts, coming on top of those in recent years, enabled us to continue achieving strong growth in our wealth management business. Total earning assets rose 15% during the year to SGD 134 billion, bringing growth since 2010 to 47%. Wealth management income grew 18% during the year to SGD 924 million; since 2010, it has grown 83%. The number of wealth management clients grew 5% during the year.

Customer experience
Making continuous improvements to deliver a superior experience for all our customers remained a key strategic objective. In previous years, we successfully cut queue times at our branches, improved the speed at which calls to our customer hotline were answered, and increased the availability of our ATMs. In 2013, our distribution channels were expanded by a partnership with 7-Eleven, a convenience store chain, to enable our customers to withdraw cash from its 500 outlets across Singapore. This built on the partnership with SingPost that was launched in 2012, which enabled our customers to carry out basic banking transactions at 56 post offices in Singapore.

We used data analytics to strengthen our ability to respond to and pre-empt customers’ needs. A voice analytics programme has improved the efficiency of our call centre operations. The technology has enabled us, for example, to identify calls requiring longer handling times as well as the underlying causes for repeat calls from a customer. Propensity models were developed using advanced statistical techniques to improve customer targeting. This has reduced frictional costs for the customer and improved our operating efficiency. We also launched real-time marketing and service offers using our new complex event processing technology. For example, when a customer makes an airline purchase online, he will receive personalised complementary hotel and travel insurance offers within seconds. This new capability has improved both customer satisfaction and conversion rates.

We also continued to improve customer experience. For example, the new onboarding process for upgraded DBS Treasures customers in Singapore now takes one day instead of seven days previously. We are now working on similar initiatives across other markets to similarly differentiate the customer journey. Our efforts are being noticed and appreciated by our customers and the industry. We received the following accolades: “Best Local Private Bank in Singapore” by Euromoney magazine, “Best Wealth Manager in Indonesia” by The Asset magazine, “Best Consumer Bank (Foreign) in China” by Global Finance and “Best Wealth Management in Hong Kong” by Global Banking & Finance. We were also given numerous awards in Singapore, including “Best Use of Social Media/Mobile” for the DBS Traveller Shield campaign by Marketing Magazine. Customer engagement results for Singapore’s DBS Private Bank and DBS Treasures Private Client registered significant progress with both segments achieving 75th percentile scores in an industry survey carried out by Gallup, a management consultant. DBS Treasures customer engagement satisfaction scores increased in all our markets, with Hong Kong and Indonesia achieving significant improvements. DBS and POSB customer engagement satisfaction scores also increased significantly.

OUTLOOK

We remain optimistic about our operating environment, barring any unforeseen shock. While recent regulations are likely to affect the short-term growth of housing and car loans in some markets, we are fortunate to be operating in a region with promising demographics and a rapidly growing middle class that will provide continued opportunities for growth. We will grow sensibly while managing asset quality.

We will continue to fundamentally reshape the customer experience and our value proposition by leveraging technology and our wealth management capabilities. We will focus on reinforcing our leadership position in wealth management with differentiated offerings, driving digital innovation with specific emphasis on mobility, payments and e-wealth, using big data analytics to provide customers with timely offers, and enhancing the customer experience across all segments and touchpoints.

INSTITUTIONAL BANKING GROUP

INTRODUCTION

Institutional Banking (IBG) provides financial services and products to over 200,000 institutional clients, including bank and non-bank financial institutions, government-linked companies, large corporates and small and medium-sized enterprises (SMEs). We offer the complete range of credit facilities from short-term working capital financing to specialised lending. We also provide transaction banking services such as cash management and trade finance, treasury and market products, corporate finance, advisory banking and capital market solutions. Building leading transaction banking and SME businesses are two of the Group’s strategic objectives.

FINANCIAL PERFORMANCE

IBG posted another strong year. Total income grew 13% to SGD 4.68 billion from strong asset growth and non-loan activities across most markets, underpinned by robust demand in Asia. Improved non-loan activities contributed to an 18% increase in non-interest income to SGD 1.65 billion as we continued to deliver holistic solutions to customers. Non-loan activities accounted for 50% of IBG’s total income. Net interest income rose 10% to SGD 3.02 billion. Customer loans grew 20% to SGD 179 billion from strong broad-based demand across the region, but the impact was partially offset by a lower net interest margin. We also grew deposits from both existing clients as well as our growing customer base of western multinational corporations and institutional investors.

While investing for the future, we remained disciplined on costs and improved the cost-income ratio to 29% from 31% in 2012. Profit before allowances grew 14% to SGD 3.30 billion. Total allowances amounted to SGD 544 million as general allowances increased in line with loan growth and specific allowances rose from exceptionally low levels. The non-performing loan ratio remained low at 1.4% despite uncertainties in some growth markets, such as India. We continued to be vigilant and actively managed risks during the year.

Net profit grew 5% to SGD 2.32 billion.

STRATEGIC INITIATIVES

Global Transaction Services (GTS)
GTS achieved another strong year as fee activities propelled total income to a record SGD 1.48 billion, up 5%. While earnings were affected by industry-wide margin pressure on trade finance loans, our investment in higher-value working capital solutions enabled us to continue making gains in several product segments. Since 2010, GTS has added over SGD 700 million of annuity income streams with high return on capital, contributing to improving the Group’s profitability and earnings quality.

Over the past three years, we launched high value-added products ranging from sophisticated liquidity management solutions and supply chain structures, to new payment technologies that provide ease of use and the ability to handle massive volumes. We also expanded our capabilities to serve established multinationals as well as SMEs building out their Asia franchise. We have become a key relationship bank for large Asian companies establishing regional treasury centres in Singapore and Hong Kong.

The sophistication of the products we offer is as good as any in the world. Combined with our strong balance sheet, it has resulted in new mandates from the world’s leading companies. We offer solutions to assist clients to generate free cash flow, a critical and highly valued activity. In the past 24 months, we have won 190 deals in excess of SGD 1 million of income.

The technology we invested in has allowed us to acquire clients, provide state-of-the-art customer service, and deepen wallet share without a corresponding increase in staff cost.

The combination of new products, expanded client servicing capabilities and more efficient technology has led to record levels of GTS assets and deposits. In 2013, deposits grew SGD 24 billion to SGD 119 billion while trade assets grew SGD 11 billion to SGD 63 billion. Growth in deposits outpaced growth in assets for the third straight year, strengthening DBS’ liquidity further.

With interest rates at historical lows, margins for both trade and cash products have been compressed. As such, we believe there is significant intrinsic value embedded in our recent deposit and asset growth.

As the driver of the global economy in the next decade, Asia will continue to lead the world in the rate of growth of both manufacturing and domestic consumption. As companies invest in Asia to capitalise on these opportunities, we are well-positioned with our extensive range of products and services to support them.

SME Banking
With the building of the SME regional platform architecture completed in 2012, our efforts in 2013 were focused on acquiring new clients and on increasing wallet share across the markets we operate in. Total income rose 11% to SGD 1.37 billion, exceeding the target we set for the year, from broad-based growth. Loans grew 14% to SGD 40 billion while deposits increased 11% to SGD 35 billion. Non-loan income accounted for 63% of total income from 60% in 2012, helped by strong treasury product sales, particularly in Hong Kong, and debt and equity issuances.

The performance was the result of upgrades we made to our operations. We enhanced our credit process by building local programmes in each country to approve mid-sized exposures with a clear set of rules and parameters. The programmes have reduced the time taken to assess and approve credit applications across all our markets. We incorporated technology into our efforts to improve customer experience. Our online account opening was extensively automated with a new engine that pulls together customer data from public sources. This has reduced the time taken for clients to open an account to 15 minutes, compared to the industry average of one to two hours. We also revamped our website to give a simplified and consistent look and feel for easy navigation. Our relationship managers now use iPads to receive updated client and product information, enabling them to evaluate customer requirements and propose solutions on the go.

While Singapore and Hong Kong currently account for a significant proportion of our SME business, we are able to provide high-value services in treasury, cash management, trade facilities and advisory services to SMEs in China, Taiwan, India and Indonesia to support their regional expansion.

Treasury and capital market products in particular led our non-loan activities with SMEs during the year. While large corporates dominated debt raising in 2012, it was SMEs that were active in embracing the debt capital market in 2013 as an alternative source of funding for expansion. In Singapore, we were the market leader in advising SMEs on bond issuance and had a market share of 45% in 2013. In a securitisation deal that won two awards from International Financing Review magazine, we helped TG Master, a property developer, raise SGD 200 million of unencumbered capital secured against future payments from committed bookings of a property project it had launched. The transaction improved its cash flow by enabling it to finance other ongoing projects. We also supported Soilbuild Business Space REIT in its initial public offering and provided advisory services to Frencken Group for its acquisition of Juken Technology.

Our success has been reflected in the awards we won during the year. The Asset magazine named us “Best Bank for Emerging Corporates in Asia”, we were recognised as “Best SME bank in Hong Kong” by Global Banking & Finance Review, and we were named “Best Small Business Lending Bank” at Global Finance’s Stars of China Awards.

Customer experience
During the year, we continued to strengthen our operating systems and streamline our processes, which are instrumental to our ability to introduce innovative customer solutions. We launched a one-stop customer service call centre called DBS Business Care to provide a prompt response to customer needs. For a start, we rolled out Business Care in Singapore and Hong Kong.

We improved the customer on-boarding experience with a simplified documentation process. Our account opening documents were awarded the Crystal Mark for being written in plain English. We launched an online appointment system so that waiting time can be reduced when customers visit a branch to complete their account opening.

We improved client engagement by using a disciplined approach to account planning. Clients have cited their appreciation for the regular strategic dialogues we conducted with them and noticed the increasingly advisory approach we have been taking to address their business needs. We also organised Asian Insights industry forums for industry participants to exchange insights, outlook and trends, and the forums have been well received. The improvement in customer satisfaction is evident from the increased number of clients across all countries who cited DBS as their core bank in the latest annual customer surveys.

OUTLOOK

The investments we made in recent years to improve regional connectivity, product expertise and customer engagement are reaping strong results. We are winning new mandates across multiple customer segments and business lines.

Our strategy remains unchanged. We will work with clients across the region, leveraging on our regional network, product capabilities and technological innovation. We will develop our western multinational and institutional investor client base, grow our SME franchise regionally by driving customer acquisition and offering innovative holistic solutions, use our cash and trade product capabilities to help customers manage their working capital needs, and maintain leadership in capital markets and syndication.

Treasury

We are an Asian leader in treasury and offer a broad range of products and services to individuals, companies and financial institutions. We offer cash and derivative products in foreign exchange, interest rates, equities, commodities and fixed income securities. We carry out activities related to market-making, risk warehousing and investment activities. We also help customers raise funds through debt issuances. Our nimbleness in structuring products for customers in response to changing market conditions sets us apart from competitors. Our sales and structuring teams work with relationship managers and other product specialists across the Group to offer total risk management solutions to customers.

We are the acknowledged leader in Singapore, with dominance in SGD across various asset classes. We are the leading market-maker for SGD foreign exchange and cross-currency options. With one of the biggest foreign exchange and derivatives teams in Singapore, we have been able to offer superior pricing capabilities to customers. In Hong Kong, we are a major market-maker with an estimated market share of about 10% for the RMB spot and forward markets. We offer a full suite of RMB and HKD derivative products to customers. We are committed to extending our leadership in market-making, structuring and distribution capabilities, and strengthening our fixed income origination capabilities in Asian currencies.

We are the leader in SGD rates. As a dominant participant in the interbank swap market, we are a significant provider of liquidity in the interbank SGD swap market. We are a primary dealer of Singapore Government Securities and are one of the largest and most active participants in the market.

Our expertise enables us to offer structured products to individual customers seeking yield or manage sizeable transactions for corporates and institutions. We provide innovative solutions on long-dated or large-sized interest rate swaps and cross currency derivative transactions, benefiting both foreign and domestic customers seeking to match liabilities. We can also develop alternative funding solutions for corporate customers to optimise their capital structure and balance sheet.

FINANCIAL PERFORMANCE

Treasury segment income fell 8% to SGD 1.03 billion. The decline was due mainly to lower gains from interest rate and credit activities. Income from customer activities rose 19% to SGD 1.04 billion from higher sales to institutional and individual customers. This brought total Treasury income to SGD 2.07 billion, a 4% increase over 2012.

Over the past four years, income from customer activities has grown while treasury segment income has generally remained flat. As a result, the proportion of total Treasury income from customer activities has doubled from 27% in 2009 to 50% in 2013. The shift reflects our ability to respond to market opportunities arising from our extensive product expertise and understanding of customer needs. We also invested in regional expansion, particularly in Greater China where we built an extensive RMB business spanning foreign exchange, bonds, structured products and hedging solutions. Taiwan, China and Hong Kong posted the highest compounded annual income growth during the period.

STRATEGIC INITIATIVES

Commodities
During the year, we expanded our product range with option pricing capabilities for over-the-counter energy products. Since 2011, when we started with copper, we have expanded our product range to aluminium, copper, lead, nickel, iron ore, crude oil and refined oil products, cotton, soybean and bean oil. Customer income from commodity products has grown five-fold since 2011.

Fixed income
Our fixed income capability has been expanded beyond SGD, our traditional stronghold, to regional and G3 currencies.

While SGD debt issuances slowed during the year, we maintained our long-standing leadership with 55 transactions worth SGD 6.1 billion.

We also powered ahead with foreign-currency bond transactions. We completed 23 USD bond transactions as a book-runner, a new benchmark for us, compared to 16 in 2012. Some of the biggest USD deals we were involved in were inaugural issues. They included San Miguel Corp’s landmark USD 800 million issue, which was the largest corporate bond out of the Philippines; Dutch-based Trafigura Beheer BV’s debut USD 500 million perpetual bond, for which we were the only Asian book-runner; and a debut USD 450 million seven-year transaction for Mersin International Port, a joint venture between PSA, Singapore’s port operator, and Akfen, a Turkish infrastructure company. The deal was the first Turkish bond arranged by a Singapore bank. We were also book-runner for the first corporate USD high-yield bond from India, a USD 200 million five-year bond for Rolta LLC. We will continue to grow our USD franchise to serve the global funding needs of our clients.

During the year, we were ranked fifth in underwriting league tables for CNH bonds (excluding financial institutions issues), a marked improvement from 2012. We executed our first CNH bond transaction for a Taiwanese issuer and successfully priced our inaugural CNH bond of RMB 500 million settled in Singapore.

Digital initiatives
We enhanced our online infrastructure as part of efforts to make continuous improvements to customer experience and reach.

DealOnline, our full-fledged online treasury platform, offers auto price streaming and auto-dealing in spot foreign exchange, swap, forward and non-deliverable forward contracts. The platform offers corporate and financial institution customers flexibility to conduct a range of banking activities and services with a secure login. In Singapore, 2,000 SMEs have also signed up.

Corporate customers are able to enquire, book their foreign exchange and manage their cash and trade transactions over a highly customisable dashboard, receive real-time updates via email and SMS on all banking activities and always stay informed. With the same platform, corporate customers can utilise their foreign currencies for either remittance or trade financing purposes. DealOnline also offers individual customers in Hong Kong a 24-hour foreign exchange pricing engine.

OUTLOOK

Regulatory developments could have an impact on our business. They include reforms for the over-the-counter derivatives market, which would involve regulations on central counterparty clearing, trade repository reporting, the US Dodd-Frank Wall Street Reform and Consumer Protection Act, and the European Market Infrastructure Market Regulation.

We will stay the course with our strategy. Our initiatives for 2014 include maintaining the momentum for customer activity with institutional, corporate and individual clients, and strengthening our electronic platform.