When Euromoney catches up with Piyush Gupta, he is keen to discuss the second great financial challenge of the 21st century through both a wide and a narrow lens.
Before we speak, the chief executive of Singapore’s DBS Bank asks his media team to email a file detailing all of its Covid-19 relief measures.
It’s almost, but not quite, as long as one of those iTunes user agreements. To pluck three at random, DBS is offering: 50 free electronic transfers a month to Singapore firms (up from 30); grace periods on personal loans to Chinese clients; and, in India, co-branded insurance products that pay out first and fast to coronavirus victims.
Its complexity and reach testify to the geographic and systemic nature of DBS – and to the parlous state of the banking sector as it grapples to contain the fallout from coronavirus. Twelve years on from the global financial crisis, most banks are highly capitalized and think hard about how their actions affect themselves, their clients and society. They have mental bandwidth – DBS is no exception.
Gupta starts small and circles up. He points out that in DBS’s key markets his first instinct is to help not the large corporates, with their credit lines and cash buffers, but cash-poor small and medium-sizedc enteprises and retail customers. It is there, he says, “that our measures will have the biggest impact”.
On April 16, the bank’s ‘Stronger Together’ fund donated S$10.5 million ($7.4 million) to communities hit hardest by coronavirus, delivering medical supplies and care packs to families in China, India and Indonesia.
Each amplification of an existing service, or introduction of a new one, is designed to help clients and make good financial sense.
So, on the one hand, DBS is letting holders of credit cards roll repayments into a single high-interest loan that slashes rates from 20%-plus to the high single digits.
On the other, it has cut rates and fees on forex transfers in China and rolled out 11 new trade finance products in Singapore, helping small business owners to work digitally and from home.
DBS's decision to keep its fixed rate deposits high in Singapore is a calculated one.
“[I]t isn’t time for people to be squeezed,” Gupta says.
But it is when talk turns to the wider issues the pandemic presents – not just to DBS but to all banks – that he becomes animated.
Coronavirus is a clearly a “moment in digital development”, Gupta says. “It is breaking through people’s inhibitions to go online and work and do [their] banking."
He also points to an inevitable and “massive shift across the region toward people working from home, using technology in its many forms”.
But this presents challenges too. Most people, he says, “haven’t worked out the long-term consequences of working from home, not just in productivity terms but in the impact on mental health: How lonely do people get, how do they feel being at home all the time, about being part of a team, about company loyalty and culture? The vast majority of DBS employees we surveyed feel more productive working from home – but will that remain true after four or five or six more weeks?”
Employees are encouraged to take part in training sessions and webinars, and many are. But will productivity go on rising? Gupta wonders if coronavirus will bring people and teams together – or cause the interpersonal bonds that comprise any strong corporate community to fray at the edges.
“It’s not clear if, two months from now, people will say it’s better to be together or not,” Gupta says.
He is also looking down the line, to challenges all banks will face. The dividend question has divided the industry. Banks such as Santander, HSBC, UBS and Credit Suisse have postponed payouts at least until later this year. Others, including Australia’s four biggest firms, have pledged to continue to pay out, despite pressure from the regulator, arguing that not to do so sends all the wrong kinds of bearish signals.
For his part, Gupta says cutting dividends now is “nonsensical” and “a bit of a red herring”. He notes that years of Basel reforms have left banks with “enormous capital reserves” and a clear protocol: to dip first into buffers, then counter-cyclical buffers, and finally into capital reserves.
If this is a multi-year problem... banks will likely get to the point where they can’t pay dividends. But promising now to not pay them is, to me, illogical- Piyush Gupta, DBS
He points to the number of retirees who own a handful of treasured DBS shares, which they use to leaven their pension pot, noting that eliminating dividends “doesn’t just hit the fat cats but people who just want to supplement their pensions a bit”.
The same is true for the likes of HSBC in Hong Kong and the UK.
Gupta doesn’t rule out shelving payouts in due course. His point is that no one yet knows how bad losses in the banking sector will be.
“If this is a multi-year problem, then they will be more significant, and at that point banks will likely get to the point where they can’t pay dividends,” he says. “But promising now to not pay them is, to me, illogical.”
Role to play
Coronavirus has again shed light on the role of banks. So far at least, the industry has seen its image enhanced not tarnished. But what responsibility must a bank feel toward not just customers but wider society?
Gupta walks a measured line here.
“As a constructive member of society, we have a role to play,” he says. “We are a living entity, we have a life and a role to play in society, and everyone is part of that. So, we need to share the pain and continue to support real economies.”
But should banks willingly take losses in the interest of communities, by crossing the line into sacrificial self-abnegation?
No, he says. “That is a step too far.”
While the long-term impacts of coronavirus have yet to be fully understood, they will be long-lasting. On the macro side, Gupta says the coming downturn will be the greatest since the long recession of the 1930s, adding that if positive signs don’t emerge in the next two to three months, we “may be looking at a multi-year recovery”.
The financial industry will be hit too, though later rather than sooner.
“You will see not only bank mergers but also job losses,” he says. “This crisis didn’t start in the financial sector, but it will spill over into it. That shoe will only drop next year. In 2021, you will see a second round of losses flow through the banking sector.”