Asia’s best bank 2021: DBS
DBS retains the award for Asia’s best bank for its outstanding response to the Covid-19 crisis.
Many banks demonstrated admirable resilience to the pandemic and generally the strongest got stronger. Several used it as a spur for digital acceleration. DBS did all that and then used the moment to acquire stakes in two banks and launch two brand new digital exchanges. It just never sits still.
It’s true that DBS was helped by the fact that its traditional international competitors for this award, HSBC and Citi, both announced new strategies that we need to see implemented before rewarding them again. Citi announced plans to move out of 13 Asian, European, Middle Eastern and African retail markets. But in any year and any competitive environment, DBS’s performance would stand out.
“I think the last 12 to 18 months allowed us to demonstrate our resilience and our difference,” says chief executive Piyush Gupta. “People often say: never waste a good crisis. We leveraged the opportunity to put more daylight between us and our competitors.”
The DBS of a decade ago would have been wiped out by the low interest rate environment. This time around, total income stayed steady and full-year operating profit before allowances actually rose 2% to a record S$8.43 billion ($6.37 billon) for financial 2020.
It managed this for two reasons. One was a far broader base of businesses than was previously the case. Consumer banking had a tough year, but it was counterbalanced by growth in wealth management. In that division, assets under management grew 7% to S$264 billion and the flagship DBS CIO Barbell Strategy Portfolio outperformed benchmarks, attracting S$1.9 billion of discretionary assets to it.
Similarly, where institutional banking obviously struggled with low rates, the treasury and markets business stepped up, growing revenues by 54%. DBS had built a proprietary government bond portfolio specifically for a scenario in which interest rates fell precipitously; gains from that portfolio tripled. SME banking and transaction services provided other diversified engines.
The other reason – and stop us if you’ve heard this before – was digital. Covid was something of a proving ground for DBS: after five years of talking the strongest tech game in banking, this, surely, was the moment to see if it worked. DBS is 99% cloud-enabled and has 18,000 employees who have completed comprehensive data training. So would it all work?
It did. DBS found there were elements of ‘last-mile’ tech that needed to be built in or refined, but it did that swiftly. When the onslaught of digital demand came, the bank was ready. Digital payments volume grew 95% in Singapore and 120% in Hong Kong. Digital collections were up 130% in both. Customer sign-ups for the DBS digibank mobile app rose 216% year on year between June and August 2020. Corporate transactions by DBS customers through PayNow rose six fold between January and October 2020 compared with the previous year.
There are a hundred other data points you could look at, but the key ones were that the cost-to-income ratio of the digital segment was 30 percentage points below the traditional segment and the ROE differential 11 percentage points better. This digital movement, unlikely ever to reverse, is very good for the bank.
To a point, this is what one would have expected. What we might not have foreseen is that the bank, having fortified and digitized, would use the moment as a launch pad for so much that was new. Gupta has long admired Jamie Dimon’s vision at JPMorgan through the global financial crisis and how the bank elevated itself at a time when others were just trying to stay afloat. Not wishing to waste the moment, Gupta set up two task forces, one to consider the future of work and another to build for the future.
Part of that effort was reflected in the launch of two new exchanges: one for digital assets, the other (although outside the review period) around carbon.
Also, by November DBS had amalgamated Lakshmi Vilas Bank, a troubled Indian lender, effectively creating a rare wholly-owned subsidiary for a foreign bank in India, one with 560 branches in five south Indian states in a deal that more or less happened for free, goodwill notwithstanding. One wouldn’t previously have imagined seeing Gupta so happy about gaining a vast bricks and mortar presence in India or anywhere else, but his thinking has evolved and he now believes this will give him retail funding in order to penetrate the mass market through the existing digital bank.
Then, although the deal didn’t formally get announced until two weeks after the review period ended, DBS bought 13% of Shenzhen Rural Commercial Bank, an institution running so well it will probably give Gupta a 25% return on allocated equity even if he never does anything else with it. It, like the newly-confirmed securities joint venture in China, speak of an assembly of mass in China and it will be interesting to see how it is developed.
None of this visionary stuff would matter much if DBS had found itself wiped out by poor risk assessment in its consumer and corporate customer base. But here DBS proved itself every bit as well managed as its local peers OCBC and UOB, neither of which has seen the slightest significant movement in their non-performing loan ratios and both of which are now considering when to release their generous provisions back into the bank.
In fact, the Singapore government turned to DBS and its tech in order to make S$31 billion of state payouts to stressed families and businesses through the pandemic. It turned to it again to lead the vital Singapore Airlines rights issue.
The bank made 10,000 collateral-free loans worth over S$5 billion to small businesses, extending 3,300 loan moratoriums in that group and relief worth S$11 billion for companies in Singapore and Hong Kong in 2020, plus S$5.2 billion of mortgage relief. It was a responsible bank and it will come out of the crisis stronger than it entered it.