Clearly no bank welcomed Covid, but one would imagine that DBS was better equipped to deal with it than most.
The enforced transition of ordinary people from mainstream to digital channels, which has been a fixture of customer behaviour all over the world, ought to play to the strengths of a bank that has been a pioneer in digital transformation and has set much of its strategy of the last seven years or so upon achieving it.
So, did DBS do better than the rest? Yes and no.
Clearly, it was well-positioned for the changes that came.
“Covid just allowed us to attract everybody in the world to accelerate the digitalization agenda,” says chief executive Piyush Gupta, speaking at a recent Euromoney LiveStream event. “It wasn’t a dramatic shift, but it was a massive acceleration.”
There was widespread take-up of digital products and platforms as one might expect, with a fourfold increase in people aged over 60 adopting digital channels, for example.
Three insights
Gupta noticed three things from the bank’s experience through Covid.
“In many cases, we thought we had complete digitization, but when you have a Covid, you realize you are not really 100% there, you are 90%,” he says. “The last mile proved to be quite challenging because it still meant that the customer could not complete everything, so we had to scramble for the first two weeks.”
So, for example, despite its image of digital enlightenment, there were some systems DBS had been unwilling to open up for remote access – and that had to change.
“That is going to have some profound consequences. I don’t think it is the end of the big office, but without doubt you’re going to see a lot of flexibility in the workplace… that’s an opportunity to reimagine the future of work,” he says, refining one of his most used catchphrases of recent years: reimagining banking.
The second thing he saw was that many companies that had been trailing in their digital transformations had to speed up.
“So, supply chain digitization has been happening at a pace.”
[Covid was] an opportunity to really double down on the data and AI agenda
Piyush Gupta
That has proved to be an opportunity across a host of industries, from construction to food distribution.
Third, he says, Covid was “an opportunity to really double down on the data and artificial intelligence agenda.”
This one, surely, was already underway, but again he felt Covid accelerated the effort.
And will all of this stick when Covid is over?
“I think you’ll get halfway back, is my view,” says Gupta.
He looks to the experience of demonetization in India when – much like Covid – people were forced into digital wallets because for a time they had no other option.
“As currency came back, people’s behaviour and habits started dialling back but did not get all the way back,” he says.
Looking at footfall in bank branches since Singapore’s lockdown measures ended in late May, he draws a similar conclusion: some reversion, but not all the way.
But no matter how technologically enlightened, no bank gets away from an economic impact like a pandemic unscathed.
DBS reported its third-quarter numbers on November 5, with net profit for the first nine months of the year down 24% from the previous year to S$3.71 billion ($2.76 billion).
This was principally down to much higher allowances: S$554 million in the third quarter alone, on top of the S$1.94 billion set aside in the first half. In aggregate, total allowances for the nine months quadrupled year on year and medium-term guidance is for S$3 billion to S$5 billion of allowances over two years.
‘Glide path’
Time will tell how much of this is needed. Singapore, like many nations, has set a moratorium on loan defaults and is trying to stagger the period over which they are called.
Gupta calls it “a glide path from a complete standstill to a place where you [borrowers] have to start servicing some of the debt; and then you work out how many people have the capacity to service anything at all, and take it from there.”
DBS considers its provisions conservative and says S$1.5 billion of those allowances are general – to fortify the balance sheet. So far, the non-performing loan ratio is up only 0.1 percentage point to 1.6%, while non-performing assets (NPA) overall climbed by 3% through the third quarter to S$6.52 billion, but nobody really expects it to stay that way.
“We expect new NPA formation to trend up in the coming quarters as loan moratoriums taper off,” says CFO Chng Sok Hui.
Still, Singapore is in better shape than many economies, and third-quarter net profit was up 4% on the previous quarter as economic activity began to recover. Net interest income was down – margins are ever tighter and there’s not much reason to borrow for growth right now – but fee income was up 17% as wealth management had its second-highest quarterly performance ever.
