| Peter Seah | ||||||
The First step in building a strong bank is to have a strong, defined franchise. Each of Singapore’s banks can claim some success in one or two areas. Keppel TatLee is the strongest in small- and medium-enterprise banking, DBS has the most account holders and dominates the local capital markets, UOB has done well in unit trusts, OUB in stockbroking, OCBC in insurance through its Great Eastern subsidiary. But none has a really strong franchise worthy of a domestic, let alone regional, leader. And this is largely the result of complacent neglect of customer needs.
The consumer business offers the best example. Each Singaporean has, on average, three, if not four, bank accounts. Part of the reason is that banking services are free. The banks have historically done nothing to stop their account holders from shopping around.
DBS had a retail franchise before it merged with the state savings bank, POSBank, in 1998. After the merger there were over 4 million accounts registered with DBS, more than there are people living in Singapore. “Customers would only do their basic banking with us, and would go elsewhere for the higher-margin business,” says Greg Seow, DBS’s head of the Financial solutions group. “And that would often be not to our local competitors but to international banks such as Citi and Standard Chartered.” What’s more, Seow continues, DBS Finds itself in a position where it “has many accounts with S$1 million or more sitting in them, but where we have traditionally done nothing with them”. The money simply sits on deposit, and stands as a liability on the bank’s balance sheet.
The state of unit trusts in Singapore suggests an opportunity has been missed. A grand total of S$8.5 billion (US$4.9 billion) has been invested in unit trusts, says Seow, “and that’s after 15 years. And yet there is over S$200 billion in cash in individual and corporate accounts just sitting there.”
Perhaps the stereotype that Asians prefer to hold cash has some truth to it, or that conglomerates tend to fund themselves either from the house bank or internally across businesses. Perhaps the main government pension fund, the Central Provident Fund, is viewed by Singaporeans as the only place where they need to invest for the future.
That does not explain why the bank that has the dominant market share in selling unit trusts is not a local bank, but Standard Chartered, which simply distributes funds without running them. The local banks are now catching on. UOB is the largest among them, and has been a player for some time, whereas DBS only started in earnest two years ago, and has so far gathered S$1.5 billion in assets.
It’s an obvious business line to tap into. It has room to grow, it takes liabilities off the balance sheets of overcapitalized banks while retaining customers as well as increasing the bank’s fee income. So DBS, for example, has linked up with US broker Frank Russell to offer funds, and OUB has an arrangement with Dutch bank ING.
One analyst argues that the banks are not necessarily going about this new business in quite the right way. Thus far, says Steven Chan, Hong Kong-based banks analyst with GK Goh, “although all the local banks have realized that they need to strengthen their fee-income bases, the mindset of management has been to rely on product innovations and new technologies to enhance cross-selling activities. They have not shown the initiative to have more direct contact with customers, something that was used to raise the cross-selling ratios of Hong Kong banks in early 2000.”
Chan is also concerned about the extensive branch closures all the banks are pursuing. DBS has closed nearly 100 branches to reach its target of roughly 80 in Singapore; Overseas Union Bank closed 20% of its branches last year. Chan says: “Most banks view the development of e-banking as a means to replace branches rather than as a new delivery channel to make banking more convenient for customers. Many banks have already reduced their branch networks, instead of converting them into sales centres to increase cross-selling activities, as happened in Hong Kong.”
He would appear to be right. Overseas Union Bank’s CEO, Peter Seah, says: “We reorganized our branches so that they didn’t feel like you were in a bank. We don’t want customers to go to branches.”
But OUB has had some success as well, selling 18% of its housing loan programmes over the web in 2000. And, says Seah, “although we closed 20% of the branches last year, we have turned the others into either sales or servicing centres. And we have 200 mobile bankers, who travel around Singapore with laptops to see customers.” According to CSFB banks analyst Roger Lum: “Although there is very little differentiation between the banks on the whole, OUB has a more hip image, stays open an hour later than the others, and has shorter queues. They also claim to be ahead in customer relationship management but that’s really diffcult to substantiate from the outside.”
