Singapore banking: Inside UOB’s new era

Illustration: Barry Downard

“My father always said: ‘Don’t be too boastful,’” says Wee Ee Cheong, chief executive of UOB. “‘Do what is right, do what is good for your customer and your customer will stay with you.’

“It’s not in my DNA to shout. We just want to be a little bit more low-key.”

These statements combine the themes that have characterized UOB, one of Singapore’s oldest and southeast Asia’s biggest banks, for generations. There is a sense of humility and conservatism, which can seem lacking in zest but also appeals to investors who want a stable bank that isn’t going to surprise them. The basic focus is on customer relationships, best expressed by the bank’s historic leadership in the small to medium-sized enterprise sector. And, more than anything: “My father always said...”

It comes up constantly during our 75-minute interview in an airy meeting room in the bank’s Raffles Place head office, just around a corner from a bronze bust of his grandfather.

UOB is the most famous family business in Asian banking, founded by Wee Kheng Chiang, the man whose statue sits on that sixth-floor lobby, then passed to Wee Cho Yaw, who retains a title as chairman emeritus and honorary adviser at the age of 90, and whose shadow still looms large over the bank. (Euromoney interviewed him at length in 1980.) There is a fourth Wee at the bank now.

UOB’s stately, family reserve has felt a little different over the last year, however. First, there is a bold digital strategy that has gradually been unfurled, quite at odds with the way the bank used to look. It aims to gain as many as five million new customers across southeast Asia, through the roll-out of a youth-focused digital campaign and using methods of credit assessment honed not through traditional look-them-in-the-eye personal relationships but through data and a partnership with a Chinese fintech firm.

One partnership after another has been announced, from Israeli artificial intelligence specialists to private investment syndication platforms.

Something else is happening too. The bank is becoming far more open.

Sitting in an office in a rare interview with chief executive Wee is a far cry from the time, just a few years ago, when Euromoney was denied permission to attend an annual results briefing because there supposedly weren’t enough chairs.

The bank holds open days for analysts and journalists now, lines up interviews across the business and puts its tech and operations heads on stage to lift the lid on their work on data.

Those who know the bank well believe that it’s only now that Wee Ee Cheong – at the age of 66 – is truly running the bank on his own terms, as his father finally stepped down from the board last year at 89. The 2018 AGM was the first in 60 years not to feature Wee Cho Yaw; Ee Cheong teared up at the resonance of the moment.

Shifts in the composition of the board and management, the rise of outsiders who joined from Standard Chartered and elsewhere, snazzy brands in Thailand and mainland Chinese tech partnerships; what’s happening at UOB?

UOB’s history predates that of Singapore as a sovereign state. Wee Kheng Chiang and a group of friends established it in August 1935 as United Chinese Bank, and from the outset it based its business on the Hokkien Chinese population in Singapore.

This provenance didn’t do it a lot of favours when Singapore was invaded by Japan in February 1942; the occupation lasted until 1945 and the Chinese came in for particularly appalling treatment. But the ban and Wee survived this, and the institution went on to witness the departure of the British, the foundation of Malaya, Singapore’s expulsion from that federation and its arrival as a sovereign state, race riots, the Asian financial crisis and the global financial crisis.

Wee Ee Cheong, chief executive of UOB

Experiences like this make it easy to understand why the bank has always prioritized caution, loyalty and stability. Not only has it endured turmoil around it, it has done so as a private enterprise built on family money, not backed by the state like DBS, which was formed by the government to take over the financing activities of the Economic Development Board in 1968.

“My father always taught me: ‘We have to be careful,’” Wee says. “We are not a government-linked company, we are private sector. When we are in trouble nobody’s going to help us.”

Its private-sector roots led it to a focus on SME coverage, which continues to this day. It is consistently among the biggest in Singapore in this segment and, since Singaporeans lead the field in taking SME business across borders, is therefore also a leader in Asia.

This was in some sense a historical necessity.

“You’ve got to understand, DBS is a government-linked company,” Wee says. “For another government-linked company to bank with UOB 20 years ago was very difficult. They would rather deal with government banks, no questions asked. Why would they come to UOB?”

This, he says, is the reason UOB developed such expertise in SME needs: “We have no choice. So the DNA of UOB is small and medium-sized customers.”

The executives who run those businesses – Eric Tham, head of group commercial banking, which focuses on medium-sized clients, and Lawrence Loh, head of group business banking, which takes the smaller end (up to S$20 million ($15 million) annual turnover) – are strongly aware of this tradition.

“If you ask most people on the ground about what they think of UOB, a lot of them would say it is strongest in the SME space,” says Loh. “Because the bank grew from an SME ourselves and we are owner-run, a lot of us think like entrepreneurs.”

Throughout its growth, this sense of being a family business is something the bank has ever felt proud of, rather than as something anachronistic. Wee stresses that UOB is a listed company with multiple shareholders; it doesn’t just do what the family wants.

“But deep down, every time I go on a roadshow to meet some of my institutional investors, they know that the family put their money where their mouth is,” he says. “We persevere. And we have a set of customers who are willing to take a longer-term view with us.

“I always tell them [investors] there are many plays,” he says. “They can choose some bank which is more aggressive. But if you want something that is a little bit longer term, it’s part of the portfolio diversification.”

Indeed, this does seem to connect with investors who see in it a dependable investment that won’t give them unpleasant shocks.

“Lots of investors follow them because the chief executive has got more skin the game than they do,” says one regional bank analyst at an international house.

“It is very easy for us to sit here and say they are conservative, that they do what the 20% shareholder wants,” he says, referring to the Wee family, which holds slightly over 20%. “But plenty of other shareholders want the same thing.”

Analysts don’t tend to see it as particularly visionary – DBS, with its digital innovation standards, is more frequently cited for that – but it does fill a specific portfolio role, they say.

Tham says the same principles resonate with customers.

“There is the understanding that when you are there through the generations, trust is very important,” he says. “Every business has its ups and downs. It’s when you are down that the bank will stand behind you.”

Loh agrees: “That trust element comes in a lot.” While they speak, a sequence of UOB television ads, which are particularly ubiquitous on Singapore Airlines flights, scrolls past on a screen behind them.

In it, a child in a bookstore runs after someone who has donated a highly valuable first edition without realizing its value, because it’s the right thing to do. A young boy on a paper delivery round on his bike goes back to check on an elderly woman, because it’s the right thing to do. A young man gets his date back home seconds before the curfew he has agreed with her father, because… well, you get the picture. “Right by you,” runs the bank’s slogan.

Some who have worked there find the whole modesty angle somewhat grating.

“They wear this cloak of humility that they don’t boast about themselves,” says one. “But that is just an excuse not to change things. The old guard don’t trust the new people. There is a lot of insecurity.”

Some have found themselves frustrated within UOB, unable to effect change because the culture of stability is so suffocating. But are things really changing now?

The first visible sign of a dramatic shift in UOB’s thinking came in April 2018 when UOB held a press conference to announce the launch of a new business called Avatec, a joint venture with the Chinese data specialist Pintec Technology Holdings. The whole occasion felt somehow very un-UOB: a mixture of executives from the bank and the fintech stood on stage, some in green T-shirts under jackets and none of them wearing a tie, and they spoke in bracing terms about tech themes to a room of local, Chinese and western journalists.

The idea of the venture was to bring Chinese big-data expertise to UOB’s southeast Asian banking operations. Pintec runs a digital lending platform in China called Dumiao, which uses third-party credit information and e-commerce transactions to make credit decisions. It is a specialist in artificial intelligence and machine learning; its clients include China Telecom and Sichuan’s online financial services group XWBank.

The theory of the tie-up was to take those lessons and apply them to potential UOB customers; increasing their retail banking reach without having to rely on traditional methods of due diligence.

It was the first of many partnership announcements that year.

Next came a deal with Israel-based fintech Personetics in July 2018, aiming to improve AI capabilities further. A partnership with Grab – usually considered a threat to banks at the retail end – followed in November.

Others have included a regional alliance with Qoo10, an e-commerce platform with three million buyers in Asia, through which small businesses will be able to apply for UOB financing directly on the Qoo10 site; OctoRocket.asia, a business to business e-commerce platform that allows cross-border trade between suppliers and buyers in Asean nations; Synagie Corporation, helping SMEs expand into and manage multiple online sales channels more effectively; and most recently global private capital platform CapBridge, to offer private capital solutions to high-growth companies in the region, matching UOB clients with anchor investors and accredited private capital co-investors.

CapBridge is an affiliate partner of 1exchange, Singapore’s only regulated private securities exchange platform.

Among all these partnerships came the biggest announcement of all. In August 2018, during its first-half results briefing, UOB unveiled a new digital bank to be rolled out across five Asean markets, through which it said it would seek to gain up to five million new customers. In February, the bank took the first visible step in that digital bank, when it opened in Thailand under the name TMRW, targeting young, savvy and potentially affluent retail customers.

In June, Euromoney visited Bangkok to see the new venture in operation. There are 350 colourful TMRW kiosks around the city and Greater Bangkok, through which customers can sign up for a bank account in minutes using their national Thai ID. They download the app, key in information, verify their documentation at the kiosk and are done in minutes (when the Thai ID system is developed further, those in the database won’t even need the kiosks).

At one kiosk, in the Siam Paragon mall, we watch as a young man in slim jeans and a smart open-necked shirt with a carefully distressed haircut is guided through the process by a woman in a blue T-shirt saying: “Make TMRW yours”. (UOB branding is utterly incidental at these kiosks; it’s all about TMRW.) This young man, and the constituency he represents, is the future of UOB retail growth in Asia.

We see other kiosks carefully placed next to a cosmetic shop at the entrance to the Siam Skytrain station and another in an Au Bon Pain coffee shop. It seems important that the man who talks us through this process, head of retail digital Natee Srirussamee, who joined UOB after 16 years in the consumer banking division of Citi, found UOB the more alluring opportunity.

TMRW is in what’s called a sandbox system in Thailand, in which regulators allow it to set up and demonstrate its use case. So, for the moment, it can only perform fingerprint authentication in the Greater Bangkok area. The Bank of Thailand will eventually decide when the brand can come out of the sandbox – probably later this year – at which point it will go nationwide. Similar initiatives will then be unveiled across Asean.

“We want to use Thailand as a test,” says Wee. “If it is going well, we will use that to replicate some of its success in different countries.”

Part of the reason for this is that UOB simply has to expand overseas and this is a good way of doing it. This has been apparent ever since a S$10 billion merger with OUB in 2001, part of a series of deals that concentrated banking power between three Singapore institutions (the others being DBS and OCBC) and limited opportunities for organic growth at home.

“Then, we realized our market share in our domestic market, the concentration risk was too high,” Wee says. “Today our market share is 35% to 40%,” he says, referring to SME banking specifically. “We asked ourselves: ‘Where is the future growth?’”

It is the method of expanding that is striking.

UOB is far from an ingénue in the region. It opened its first overseas branch in Hong Kong in 1965, followed by Jesselton – now Kota Kinabalu – in Malaysia the following year. It has been growing by acquiring other businesses, often with international operations, ever since it bought Chung Kiaw Bank in 1971.

It has bulked up across Asean and Greater China in the years since. Outside southeast Asia, it opened its first representative office in Beijing in 1984 and was incorporated as UOB (China) in 2007, becoming one of the first foreign banks to gain a local mutual fund licence there in 2013. All told, it is in 19 countries and territories, and about 40% of group operating profit is now derived outside Singapore.

The bank’s acquisition of ABN Amro’s stake in Thailand’s Bank of Asia in 2004 is a useful study of how acquisitions and international expansion have typically worked for the bank. OUB notwithstanding (that merger has to be seen in the context of a state desire to cut the five banks of the time to three), most modern UOB acquisitions are small and slowly bedded in, as much a method to learn as to gain scale.

“I must learn how to swim,” Wee says of the Bank of Asia acquisition. “I don’t speak Thai, I can’t even pronounce the words, how am I going to go there and pretend I can do business with you?”

He sets great store in patient learning. Even after 16 years in Thailand UOB only has a 3% to 4% market share.

“It takes time to build scale. But this is where we like to take a longer-term view. If you want to build fast, obviously you can. You can buy a finance company, but that is very localized. I want to buy a business with a customer base that wants to go outside its own country.”

His Thai customer base is dominated by housing-loan and privileged-banking customers, people who will travel in the region; that benefits the group’s consumer and credit card businesses.

This has typically been how the bank’s Asean expansion has worked – targeting customers who will need cross-border services, customers who fit the bank’s offering.

Wee thinks of this as a way of “creating stickiness. If you are good in Singapore and I help you with Malaysia and Thailand, for you to exit the relationship is very difficult. It’s like a husband and wife. If you’re married with no children, it’s easy to get divorced. Once you have children, you’ve got to think very hard.”

In this context, five million new customers with a new method of assessing their risk is clearly quite a departure.

Present at the Pintec announcement and all the digital bank initiatives was Dennis Khoo, a managing director who is regional head of the TMRW Digital Group, although his title has changed a bit over the years. Khoo joined UOB in 2013, initially as head of personal financial services, after 12 years at Standard Chartered, where he worked all over the retail, consumer and wealth management businesses.

“Dr Dennis Khoo,” as they respectfully refer to him internally in deference to his PhD and his background in electrical engineering, is seen as the main driver internally of UOB’s digital transformation.

He is an interesting fit: in a sense he is an outsider (six years is really nothing compared with the longevity of some UOB executives), but he is also a considered and unassuming presence, and the combination of experience, drive and a suitably low-key personality seems to have worked well in the UOB culture.

From the outset Khoo has argued that banks just haven’t been doing tech properly. More than anything else, he talks about engagement. When we asked him at the initial launch how UOB’s digital bank would differ from those already out there, he said: “The difference is, this will be digital banking with a relentless focus on customer engagement.

“In my experience in 17 years in the banking industry, looking at tech for 13 years… there is very little focus on engagement. It’s hard to do.”

What exactly does this mean? The point appears to be that while banks have succeeded in getting a lot of customers through digital banking, they haven’t necessarily got profitable ones. This seems a reference to DBS’s digibank initiative in India, which has brought in more than two million customers but isn’t yet profitable.

DBS chief executive Piyush Gupta has openly stated many times that the bank then took the lessons from that in setting up their second digibank in Indonesia, which has fewer but more carefully selected customers on its books and an apparently clearer path to profitability.

In Thailand, UOB has created videos and YouTube ads for the digitally savvy, which have been viewed 100 million times already. One runs under the line “If tomorrow Gen Y rules” and subverts various Thai social norms.

“The message is: you are a different generation, you need a different solution,” Khoo says. It tries to present an alternative to the paths people’s parents have taken. “I’m different. I don’t want to be like you.”

Getting these customers, so the logic goes, will not only make them stick and transact but also become advocates for the brand in their own right. This is essential to the venture’s economics.

“If the lifetime value [of a customer] is X, the cost of acquisition cannot be more than one third of that, otherwise you can’t make money,” he says, briefing Euromoney and others at a UOB corporate day in May. Consequently, he says, the bank will focus on young professional families in southeast Asia with high lifetime values for the years ahead.

“The key is: how are we going to make them stay?”

The answer, he says, is: “Advocacy. That’s the crux of it. It’s as simple as that. We’ve designed everything around advocacy.”

Asean millennials, he says, are the perfect target market. There are 400 million potential customers in the region, where 60% of people are aged under 35.

“A lot of them are not even banked yet. There is enormous potential. Potential that a bank like UOB – the only bank with a true Asean footprint – must address.”

This group, he says, is characterized by widespread ownership of smartphones and a sense of suspicion around banks.

“They find banks confusing and not transparent. They want a friend, not a bank.”

Khoo says that 70% of the profit pool from this group is in unsecured credit, which is where the Avatec venture from Pintec comes in.

“If you don’t underwrite them, you can’t make money.”

So Khoo’s pitch is to use data, with help from Pintec, Personetics and so on, to work out and acquire the best prospects.

The demographic opportunity is not really in dispute, but what of the risk involved? Wee speaks of the bank’s double-A rating as if it were lifeblood, something immensely precious. It is the very first thing he says in our interview: “For us to continue to move overseas, obviously the opportunity is there, but the potential of being downgraded can be quite real.

“So how to do it? How to capture opportunity and yet to maintain a double-A rating? This is a challenge – for all the banks. There is always a trade-off between risk and reward. But we are trying to grow and be disciplined.”

Wee points out that the bank is locally incorporated in Malaysia, Thailand, Indonesia and China, but tries to put in as little capital as possible to support the operations there: “We are generally quite cautious and measured how much we want to put into one country; enough to generate business and connect the dots.”

Can these careful principles – which have helped UOB boast a non-performing loan ratio of just 1.5% as of the first quarter of 2019 – be preserved in such a bold expansion, with a third party at the crux of credit assessment?

Euromoney asks CFO Lee Wai Fai if he is nervous about five million new customers acquired through a credit assessment model different from anything the bank has done before.

“Some people want credit but have got no money,” he says. “In the old days, you would not touch this. We called it microfinancing: I give you $1,000 and that is where we get into trouble. That is the microfinancing part we are not comfortable with.

“But the model we are going for is transactional financing. We understand your profile. If you want a handphone, I give you a loan to finance that transaction, rather than being unsecured. Traditionally we just looked at income; today we look at other behaviour that will supplement your [credit] strength. That will reduce the risk.”

He adds: “Our approach is not to get the lower mass market. That is where your credit will kill you. Young professionals are our target – get them right, and the ability to pay later will be there.”

Not everyone is convinced by the method. Partnership is useful to bring in further expertise. But does it perhaps reflect the fact that it just takes too long to build anything in-house? That the bank can’t recruit innovators because of its cultural reputation? Or even that it is easier to blame a partner if things go wrong?

“They seem to be doing everything in partnerships so they can say that’s why it didn’t work out,” says one former employee.

For any bank setting great store in partnerships, there is also a reputational risk. In the SME segment, Loh says, there is something of an internal clearing committee to go through.

“It’s important for us to make sure we curate those names properly,” he says. “If we want to go and partner with someone, we first have to go to the clearing committee, which is chaired by senior leaders, to make sure this is the right name to partner with.”

Digitization isn’t just about retail. Wee says he spent 14 months getting all of his operations onto a single system before launching the digital bank and the consequences of that wash over into all the bank’s areas of business, from SME lending to regional cash management.

In these businesses digital innovation has to find common ground with what the bank is traditionally good at, which brings us back to that idea of trust.

“Digitalization is not about trying to replace that trust but to cement the importance even more, making it more relevant in the current age,” Loh says.

Tham adds: “Digitalization and technology helps us to bring value to the customer, but without forgetting the human touch.”

Here too, there is hope that better use of data helps with credit assessment.

Data, says Loh, tells the bank not only about an SME client’s financial position but also whether the company’s products or services are well liked by its buyers, its return rates, its product concentration. Information like that “may give insights that are even better than a bank statement,” he says.

Loh’s business has tried this model out in Vietnam for small businesses and says it has lent for two years with zero delinquency.

Underlying all of this is what has changed at UOB to allow Khoo and others to bring about such a daring change in approach. There is a widespread view in the industry that Wee Cho Yaw’s retirement from the board has made it easier for Wee Ee Cheong to make big changes.

It’s not just Wee senior who has stepped aside. When his retirement was announced, the bank also said that independent non-executive chairman Hsieh Fu Hua, the first chairman of the bank from outside the Wee family, would retire. In 2018, Francis Lee left after 39 years at UOB, most recently as head of group retail, as did head of group human resources Jenny Wong.

Wee takes pride in the fact that the senior management at UOB have been with him for 20 to 30 years each.

“That to me is important,” he says. “Without the stability, it is very difficult to talk about changes, about succession planning. I must say we are quite proud of that.”

When he talks of young rising stars in the bank, he says they are “hopefully people with the right values, the right culture, that will bring the bank to the future.”

But it doesn’t seem unreasonable to suggest that UOB’s sense of new horizons must come in part from modest renewal in leadership.

Some think Wee Ee Cheong a reluctant leader, lacking his father’s dominant personality and wiliness; a more introspective figure who might have been happier without the burden of a family dynasty obligation. But with succession finally complete after decades of waiting, he’s truly in charge now.

Time will tell how effective his changes will be.

Wee Ee Cheong has been the chief executive for 12 years, but it is only in the last 12 months that he has done so without his father, Wee Cho Yaw, as chairman. Wee senior joined the board in 1958 and was named managing director in 1960, succeeding his own father as chairman in 1974.

Presumably taking over a dynasty like that, especially with his father still at the top, brought challenges in setting his own course?

“Of course, of course,” Wee Ee Cheong says. “I’m used to it.”

When younger, he did a master’s degree in applied economics, in a programme designed for Asian students to work in the World Bank. Then he came back in 1979 to work for his father.

“Obviously the feeling is not so good,” says Ee Cheong, “because people always think that if you work in an organization where your father is the boss, no matter how good you are, people always think you are just not good enough.

“That was the first 10, 15 years.”

Fifteen years is a long time to live with doubt like that.

“Sometimes internally it’s not so easy. But I think you overcome it,” he says. “You create peace for yourself. This [running the bank] is part of the legacy: if you don’t do it, who is going to do it? That’s why I persevere.”

A fourth generation is in the wings.

Wee’s son Teng Chuen is now at the bank.

“In fact, I told him not to join me,” Wee says. Instead he went to HSBC. “But he said: ‘I don’t learn anything out of Hongkongbank’, because they know he is my son.”

Teng Chuen, bored and frustrated, proposed to come back to UOB.

“I said: ‘Yes, you can come back to the bank and probably you will learn more, but this is the price you have to pay.’”

By “this”, he seems to mean the sense of being in the old man’s shadow, history repeating itself.

Teng Chuen is in corporate banking.

“It’s very difficult for father and son, we all know that,” says Wee. “Whether ultimately he likes the bank or doesn’t like the bank, ultimately I want him to feel there is a certain emotional attraction; this is something built by your grandfather and great grandfather.

“If you can be part of the team, good – because otherwise, my father is 90, I am not a young man anymore, what are you going to do? You are going to lose that legacy.”

Initially, however, Wee Ee Cheong wasn’t that keen on the legacy himself.

He recalls the conversation he had with his own father when he started out: “I said: ‘What do you expect me to do in the bank? Do you want me to be a professional banker?’ He told me: ‘If you own a hospital does it mean that you have to be a doctor?’ He just wanted me to be a business person, to be humble, to work with people.”

Asked about his first day as chief executive in 2007, he says: “I know on that day when my father made the announcement… well, he didn’t actually make the announcement, he thought that he was still the chief executive.”

His father seemed to find it difficult to let go and to announce the son’s elevation. The two worked out of separate wings on an executive floor, separate, with totally different style and décor, yet unavoidably connected.

“Anyway, the burden is there,” Wee says, without being quite clear about what the burden is. “When you do all the right things, nobody says anything; when you do something bad, people will say: ‘Why have you done this?’ That’s life, I just have to persevere.”

The global financial crisis arrived shortly after his elevation, an instant test.

“This is something we have weathered,” he says matter-of-factly. “It just makes us a little bit more sensitive and measured as we moved forward,” although it is hard to imagine an institution more measured than UOB.

“The lesson I learned is you have to have peace of mind,” Wee says.

He tries to do qigong, a Chinese system of body movement and meditation, for two hours each morning, if time permits.

“I try to have peace, because otherwise a lot of things are beyond your control. When people make mistakes, they will point to you and you have to answer for it.”

What disturbs his peace of mind?

“Of course we are all human beings and we have our ups and downs. But generally I would say of my temperament that I am able to withstand things.”

Does it take time to learn that peace?

“Working on it is one thing, but you must also have the character,” he says. “This is the last part of my journey. My colleagues here know that sometimes I want to have peace. I haven’t been tested yet. But so far my temperament is quite positive. You cannot be too paranoid.”

UOB is distinctive for its attitude to private banking.

“I am focusing more on mass affluence, not so much private banking per se,” says Wee Ee Cheong, the bank’s chief executive. “I may be speaking a little bit different from my peers.”

He certainly is. Asia is a place where every bank tells you it wants to be top five in private banking and expects the business to be a lynchpin of profitability.

Wee sees it different.

“Money is coming in because Singapore is a triple-A country, and they [investors] want to feel safe and secure. Then, what do you do with the money? You’re not going to put the money on deposit for half a per cent return, so you go to a private bank.

“But the Singapore market is small; we don’t have enough products, so the money flows out. So what purpose are you serving? Do you want to attract money coming in, pay an arm and a leg for all your wealth managers, and then have all the money flowing out? You don’t manufacture the product. It doesn’t make sense.”

It is fair to say UOB won’t be following DBS and OCBC in buying foreign private banking businesses.