We can bestow no higher praise on a bank than making it our bank of the year – and that’s what Euromoney did for DBS last year. Never before had our award gone to a bank outside the global US and European mainstream: DBS’s win was representative of Asia’s growing importance and of a bank that is set up for the modern digital world.
Since then, the bank’s financials have continued to look very rosy. Third-quarter net profit rose 15% year on year to S$1.63 billion ($1.2 billion), with income up 13% at S$3.82 billion. Without a revaluation of deferred tax assets in India, net profit would have been up 18%.
Return on equity is up to 13.6% and the cost-to-income ratio, although modestly up, is still more than healthy at 42%.
Better still, it is broad-based growth across the business. Cash management income grew 24% year on year in the first nine months of 2019 and wealth management was up 16%. So the numbers are more than solid given the circumstances.
“All in all, given the global environment and the interest rates headwind, we are still quite optimistic that we should be able to continue to deliver decent performance into next year,” says chief executive Piyush Gupta.
But our rationale for rewarding DBS has always been about more than it having hitched a ride on Asia-Pacific economic growth. The bank’s considerable digital advantages continue to progress.
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Piyush Gupta |
The last few months have included a new digital logistics solutions package for small and medium-sized enterprise customers; the launch of a new open-sourced blockchain trade platform with Trafigura and Infocomm Media Development Authority; a push to get 27 public hospitals and clinics onto a unified payment code; and an agreement to launch Google Pay services through the bank’s Singapore digital channel, DBS PayLah!, by early 2020. PayLah! itself is due to hit 3.5 million users by 2023 – out of a national population of 5.6 million.
Digital is also delivering in other areas. It is through digital that the bank’s acquisition of ANZ’s wealth business across five different markets became accretive within a year.
“One of our learnings from that is if you get a customer business and overlay it with digital, you can drive value very quickly, principally because you do not pay for the cost of customer acquisition,” says Gupta. “The customers are there, you just need to transform the customer experience.”
For some time, one of the most interesting things about DBS has been the progress of its digibank business in India and Indonesia, an experiment being closely watched by many. Gupta talks often about launching businesses as if they were tech beta roll-outs, being refined and improved along the way once they are already live, and so it has proved with digibank.
India, the first to launch, brought in a lot of customers but not necessarily the right ones.
“We have had to pivot,” Gupta says. “We were originally trying to acquire all kinds of customers, adding 100,000 a month.”
They scaled that back to 40,000 to 50,000 better-quality customers, and Gupta says it’s now doing better. “It’s around 80% to 90% of where we want it to be, so I am quite encouraged.”
He said from the outset that it would take time for the digital offerings to break even, but in Indonesia, which “did better than India from day one because we adopted a slightly different strategy… more targeted on the customer,” the consumer business should be marginally profitable this year, he says.
DBS has a big presence in Hong Kong, which, so far, seems to be weathering domestic storms. In the first nine months of 2019, constant-currency earnings were up 13% year on year.
“One of the uncertainties in Hong Kong is the flow of Chinese travellers,” Gupta says. “If that slows to a trickle, there will be headwinds because it will impact credit card spending and wealth activity. But we think there are opportunities in Hong Kong.”
DBS launched a new digibank offering there in October.
There is an odd rumour flying around that DBS is bidding for Indonesia’s Bank Permata, which would seem counter-intuitive. Gupta has long avoided bricks-and-mortar businesses and has been known to voice relief that an earlier bid for Bank Danamon failed. Permata has 317 branches, so it doesn’t seem a natural fit.
For the moment, with businesses well-positioned and an excellent bench of talent, DBS’s challenges are going to be the global macro environment, interest rates and some local thorns, like a declining Singapore mortgage market. Those headwinds notwithstanding, DBS remains a worthy holder of our bank of the year title.