It was a completely different world the last time Euromoney met with John Laurens, global head of transaction banking at DBS.
Back in September 2019, thousands of people had gathered at London’s ExCel Centre for Sibos: four days of transaction banking speeches, panel discussions and seminars.
Today, the convention centre has been transformed into an emergency 4,000-bed hospital for Covid-19 patients as infection rates in the UK continue to grow.
“The human and social impact the virus is having on the world puts everything we discuss today in perspective,” says Laurens over the phone from his family home in Jersey, where he has been since the middle of March.
“But amid all of this tragedy and destruction, there are some good things going on,” he says.
Laurens says that individuals and communities aim to create some semblance of normality where there is none and prop up services that may have otherwise fallen by the wayside. Banks have an essential role to play in this collective effort.
“Maintaining supply chains is essential right now, banks are central to this process and this is our priority” he adds.
We should be focusing on how our customers can reduce physical contact points, access liquidity and financing, and stay afloat. And this is all consuming- John Laurens
The lockdown has forced factories across China and the rest of Asia to close. Companies in desperate need of cash to pay suppliers and employees have turned to banks for flexible supply chain finance.
“We have been working on digital solutions to take all of our on-boarding and KYC [know your customer] systems online, but the onset of the virus accelerated the transition,” says Laurens.
“Now we have eradicated all physical paper in these processes and our corporate clients can fill in all paperwork digitally in two main ways – through DBS IDEAL, which can be accessed via web browser, or through partner platforms enabled by our API suite. Whichever is more convenient for them.”
The updated on-boarding process has three main benefits. First, it allows existing DBS customers to add new suppliers to their supply chains where existing ties have been cut. Second, following due diligence processes, DBS is able to offer financing to new small and medium-sized enterprises within their clients’ supply chains in order to support the entire ecosystem. And finally some purchase orders come with interest benefits that are passed on to distributors within the supply chain – something that DBS hopes to flex as needed.
One company that DBS has worked on this with is Haier Group, a consumer electronics and home appliances company in China, on-boarding 30 distributors in a week. “One of those distributors was even able to receive financing within 30 minutes of filing paperwork online,” says Laurens.
“This is a scalable solution that we hope more of our anchor clients will be able to adopt going forward,” he adds.
DBS has introduced a number of liquidity and relief measures to support SMEs in Asia struggling with the impact of the virus.
In Singapore, the bank has introduced a six-month principal repayment moratorium for SME property loans and has extended import facilities of up to 60 days, giving supply chains more flexibility.
On April 6, the bank will begin to distribute collateral-free business loans of up to S$100,000 to SMEs within 24 hours of approval for cash flow support. Rates are said to be “competitive”, with DBS unwilling to disclose exact numbers due to industry sensitivities.
In China, the bank has cut all cross-border remittance fees for qualifying customers and has also introduced a programme to allow micro, small and medium-sized enterprises to extend existing loans with them.
But what consequences will this have on banking sector? Despite the buffers that banks have put in place since the global financial crisis, some corporates will inevitably fail and non-performing loans will rise, eating into banks’ excess liquidity and capital. Higher NPL rates in the banking system overall will make it much more difficult for corporates – and in particular SMEs – to access finance at lower rates in the medium to long term.
So, will the bank be willing to absorb all of these costs and take a financial hit to keep corporates going or will the burden fall on corporates?
For Laurens, that’s not the question banks should be focusing on. “Instead, we should be focusing on how our customers can reduce physical contact points, access liquidity and financing and stay afloat. And this is all consuming,” he says.
“Once we get a hold on the pandemic – whenever this will be and whatever it will look like – that is when the focus will shift and corporate performance will be front and centre one again.”
For now, however, priorities for bankers have completely changed; unlocking finance and support for day-to-day management will be the main issue for some time.“Without this, all future issues around finances are simply academic,” he says.