Singapore banking: OCBC creates a successful chimera

Can two quite different international private banking cultures be successfully subsumed into one rather old-fashioned retail and commercial bank – and thrive?

That is the question often asked about Bank of Singapore, created by Singapore’s OCBC a decade ago.

OCBC bought ING Asia Private Bank from its bailed-out Dutch parent in 2009, bolstering the subsidiary with the purchase of Barclays’ wealth businesses in Singapore and Hong Kong in 2016. It was an ambitious plan given the competition.

Singapore is an important centre for the top private banks – UBS, Credit Suisse, Citi and others – and is brimming with private bankers. How can Bank of Singapore compete with its domestic rival DBS, let alone such international names?

Another global crisis notwithstanding, the bank has been successful by some measures. It had assets under management of $113 billion on June 30, roughly double the level usually considered to constitute critical mass in this compliance-driven and tech-heavy, low-margin environment.

Total wealth management income – which, strictly speaking, covers Bank of Singapore and some other businesses in the broader OCBC empire such as insurance income and brokerage – amounted to $1.59 billion, accounting for 31% of group income in the first half, and 34% in the second quarter.

Because of the Covid-19 pandemic, assets and income are both down from December, although they have bounced a bit in the second quarter.

The top private banks don’t yet see Bank of Singapore as a competitor on a global scale, but they respect its position at a regional and local Singaporean level.

“We look at them as a serious local player who have done well,” says one figure at a leading global house.

But that, it seems, is not enough, for the bank appears to be going not only regional but global – and that’s a very big step for a southeast Asian name.

Chief executive Bahren Shaari highlights two strengths when asked how Bank of Singapore is differentiated from the highly competitive herd of Asian wealth managers.

One clear strength, he says, is the heritage of being part of the OCBC group, which gives it a presence and brand not only in Singapore but other important markets as well, including China, Indonesia and Hong Kong; that provides an entry to onshore opportunities and the ability to combine investment advice with, say, real estate services.

A second strength, related to this, is the product platform, with a particular differentiation on Asian asset classes and emerging-market bonds.

“OCBC has close to 100 years in Asia,” Shaari says. “It has a long history of supporting business owners in their growth.”

And business owners – or entrepreneurs, often first or second generation – have long been the main game in Asian private banking.

Bank of Singapore’s decade in existence has been a period of intense competition, when several big multinationals appeared to be staking more than ever on successful wealth businesses.

Shaari doesn’t see the competitive environment getting any more intense, except for the fact that “the market has become more difficult, in that opportunities for investments are really not as abundant as they used to be, given the very low interest rate environment,” plus the constant pressures of increasing costs of doing business and compressing margins.

“But the advantage we have is that wealth is still growing in all our key markets and especially in Asia,” he says.

Note that he says ‘especially in Asia’. Under Shaari’s watch, the bank has also expanded into offices not only in Hong Kong but in London, Dubai and, most recently, continental Europe.

In April 2019, BOS Wealth Management Europe was formally launched in Luxembourg with a UK branch. It is led by Anthony Simcic, former managing director of HSBC Private Bank in Luxembourg.

While there are plenty of European investors scouring Asia in search of growth, flow in the other direction is less common.

Clearly, Bank of Singapore’s particular edge here is to find clients in Europe who want greater exposure to Asia, or to help existing Asian clients who need on-the-ground support in Europe – and not to pile into Europe expecting to steal UBS’s European clients on their home turf.

The bank also wants to expand outside southeast Asia. In Greater China it has two strategies: serving Chinese offshore wealth in Singapore and elsewhere; and making the most of longer-term onshore possibilities, leveraging OCBC’s 20% stake in Bank of Ningbo.

Another market where it wants to expand is India; for this, Bank of Singapore is using the India Gateway, a programme that began about 18 months ago whereby it ties up with local Indian partners including Kotak, JM Financial and – most formally, with a strategic partnership signed in February 2019 – Edelweiss Group.

“We will not set up onshore business in India, because the market is too complex,” says Shaari. “And there are many onshore institutions like Edelweiss who are strong onshore but have no interest in developing offshore products. That’s where the mutual relationship will be beneficial.”

If there’s a weak point at Bank of Singapore, it is perhaps regarding technology. This is feedback one hears both inside and outside the bank.

“There are very dynamic people in the bank, but they are playing catch-up on digital,” says one person familiar with Bank of Singapore.

A competitor adds: “They are doing pretty well, hiring and expanding. The only thing I hear is that their systems are outdated. It’s hard for them to compete with DBS on that front.”

Shaari himself acknowledges that more needs to be done. “We still have some way to go, but we have made good progress in the last two years,” he says. “If there’s an area we could have done faster, better, earlier, it was probably the platform side. But we successfully upgraded the core banking system in March, so the foundation is in the right place for us to build on.”

Now, he says, data is absolutely the focus. “We want to be a data-driven organization so that our knowledge and understanding of clients and behaviours are captured and so that our bankers can better advise them. We have started that journey.”

Covid-19 has emphasized the need for improvement: more than 70% of client accounts have signed up to digital services, up from 50% at the end of January.

Shaari is adamant, though, that technology is “just an enabler” and not a substitute for quality of advice and product.

“You can have Netflix,” he says, “but if the content of the shows on it is not good quality, over time you will not keep the audience.”

Similarly, in private banking, “you can have the slick platform, but if your advice and content are not relevant, over time you will not be able to continue.”

Shaari’s not going to pretend BOS is a stand-out differentiator on the tech front, but is quite prepared to stand by the product and advice as leading edge.

This brings us to culture.

OCBC is a storied but conservative institution, and it would be a stretch to call it innovative. On OCBC’s quarterly earnings calls, CEO Samuel Tsien – more than any other chief executive in the city-state – exudes a clear sense of frustration at the fact that Covid-19 is keeping people at home.

At OCBC, most staff are already back at their desks, working in the office on alternating days so as to preserve social distancing – whereas other banks are still telling most staff to stay at home. While many executives speak glowingly about what can be achieved through Zoom, Tsien seems to be a traditionalist who feels that there is no substitute for meeting in person.

Asiamoney asks Tsien about this during a conference call to discuss the bank’s first-half results.

“Straightforward products, where the structure is not complex, could be very effectively done through online and video communication,” Tsien says. “But if you’re talking about a portfolio review that involves complex products and the future movements of those complex products depending on multiple vectors – not just interest rate but political risk and industry risk – we still believe it is a relationship business. It is still better if you have a face-to-face meeting.”

Shaari has some similar concerns and frets about being able to hold onto clients if there is less frequent contact. He normally sees clients face to face twice a year, whether they’re in London, Dubai or somewhere else.

“It’s only been five months since Covid, so no trouble,” he says. “But I’m not sure in another five or six months, if I can’t see clients face to face, what is the strength of that relationship?”

Like many others, he believes that the impact on new client relationships will be particularly significant.

Bank of Singapore naturally exhibits some of its parent’s culture, but the institution was also born out of foreign houses, first ING and then Barclays, with the second of those acquisitions, in 2016, said to have involved a particular culture clash in integration.

That’s well behind them now – insiders say there’s no longer any sense of ex-Barclays versus locals versus anything else, and hasn’t been for years – but it’s still an interesting mix of influences, and the bank is said to retain a combination of dynamic people and more conservative figures.

One banker who has worked at Bank of Singapore says they have never worked harder anywhere else in the industry, and that the cost-to-income ratio for the bank – which is not publicly disclosed for Bank of Singapore in isolation – is strikingly low: “They definitely squeeze a lot out of the stone.”

This person says new arrivals are surprised how much is done with a relatively modest headcount: “Staff punch above their weight.”

Certainly the bank has no difficulty attracting strong names. There have been several big-name new hires, in particular Lim Leong Guan, who was hired from UBS as global head of products in June and given a slot on the bank’s management committee.

Others include: Mansoor Mohi-uddin, hired from Natwest Markets to be chief economist; Joanna Ho, an ex-HSBC banker named head of wealth planning for Greater China and North Asia; Kelvin Teo, hired from Credit Suisse to be head of bespoke investments for Greater China and North Asia; and Richard Hu, founder of Avenue Asset Management, who was hired as market head for Greater China.

“Where we are now, there’s a lot more that we can do,” says Shaari, when asked about these hires and why people join. “We can be the flag-bearer of what wealth management is in Singapore. That’s very important. We don’t want to be another wealth manager. We want to be able to create something, to be part of the process of building a truly Asia-based global wealth manager in a very strong jurisdiction. That is exciting.”

By segment, Shaari reports that one of the biggest areas of growth is in family office and ultra-high net-worth global investors – exactly the same hunting ground that many of the leading international banks occupy.

“They have very different demands and service expectations,” he says. “They are more semi-institutional in nature, with a professional team managing the investment activities.”

BOS defines this segment as sophisticated clients with at least $250 million net worth.

A second area of growth is what Shaari describes as B2B, which refers to arrangements like the one with Edelweiss, where one partner provides the advisory service and the other books the clients. He expects to see more of these partnership arrangements in private banking, and Covid-19 will only accelerate it.

“With Covid, if you’re trying to do things alone,” he says, “you will probably not be as successful as if you collaborate with others.”

A third is Bank of Singapore’s traditional high net worth segment. “That continues to mature and grow,” he says.

Inflows are particularly strong for discretionary portfolio mandates, perhaps because clients are more inclined to seek professional advice in an uncertain time. Inflows into these mandates for the first five months of 2020 were almost three times that for the same period in 2019; there were even inflows in March in the middle of a market rout.

But, nothing can really be taken for granted at such moments.

“For me, what’s happening now is an opportune time to reflect on what the landscape is going to look like: the role of private banks in supporting the growth of the economy, in employment, in partnering businesses,” Shaari says.

What’s particularly interesting is “whether the services of a private bank will go beyond what has traditionally been offered,” he adds.

“But we don’t assume we have the answer,” he says.

The bank will try to roll with the changes, improve its data and tech capacity, and be ready.

“The role of bankers, what’s expected of them in the future, the role of middle management: all of these things need to be revisited,” he says. “The model has to be recalibrated.”