There’s change afoot at DBS Bank.
Earnings from the firm’s wealth management arm rose to new highs in the third quarter, and a major acquisition is on track to deliver an even bigger bottom line in 2018.
What’s more, the bank is getting ready to usher in a new era of fintech and to drive further growth in its key markets. For Tan Su Shan, managing director and group head of consumer banking and wealth management at DBS, these are exciting times.
Year-on-year, the Singapore-based bank’s total earning assets have jumped by 22%, hitting an impressive S$240 billion.
Meanwhile, income has risen by 21% to S$546 million, and assets under management (AUM) have increased by 23% to S$195 billion – thanks in part to DBS’ acquisition of ANZ.
The decision to acquire its rival’s wealth management and retail banking businesses in five markets – Singapore, Hong Kong, China, Taiwan and Indonesia – was announced last October, and will cost the bank approximately S$110 million.
In 2016, the portfolio of businesses that DBS acquired from ANZ consisted of total deposits of S$17 billion, loans of S$11 billion and total revenue of S$825 million. The former ANZ businesses serve approximately 1.3 million customers, of whom more than 100,000 are affluent private wealth customers. The remaining 1.2 million are retail customers.
Following the full integration of ANZ, DBS expects to add S$23 billion in AUM to its books, with high-net- worth clients alone accounting for around S$6 billion. So far, the bank has completed the migration of three markets. In July, it finalised the transfer of ANZ’s wealth management and retail banking business in China, followed by Singapore in August and
Hong Kong in September. The process has seen DBS’ relationship manager (RM) headcount swell to about 300.
For Tan, looking from a top-down perspective, this has been a very good deal for DBS. It provides the group access to businesses at a scale that would have taken a long time to build.
‘We are now busy with Taiwan and then next February we will do Indonesia,’ she explains. ‘It’s very complicated because it’s five countries, five different regulations, five different systems, five different sets of clients and five very different businesses.’
The ANZ acquisition will add a large customer franchise to DBS in Indonesia and Taiwan, which are key markets for the bank. In Indonesia, DBS will gain about 410,000 customers, effectively increasing its base by six times. In Taiwan, DBS will add around 530,000 customers, expanding its base by 2.5 times. A significant portion of these are credit card customers.
‘In Taiwan and Indonesia, we don’t have a cards base. ANZ’s credit card base is largely high-net-worth, high-end clients. It’s an excellent business and a great franchise, which would have taken me years to build,’ Tan says.
According to the executive, both Taiwan and Indonesia are tough markets because the credit card systems are very different. DBS will have to build new systems from scratch and then integrate them with its existing systems. Then, there are the mobile banking, internet banking, wealth management, and dry -un procedures to consider. In every country, DBS tries to do at least five dry runs.
Despite the teething problems, the acquisition is a smart move for DBS. ANZ’s wealth business is largely offshore, and Tan describes how this complements DBS’s 80% onshore market share in Hong Kong and Singapore.
‘So has it been complicated? Yes. Has it been hard work? Yes.’ At least it seems to be worth the effort.
Private banks in Singapore and Hong Kong are dealing with a whole host of new regulations, many of which will be implemented from 2018 onwards. This includes the OECD’s Automatic Exchange of Information – a measure designed to prevent tax evasion – and the Markets in Financial Instruments Directive (MiFID II), a pro-transparency reform from the EU that is due to come into effect in January.
What’s more, wealth managers dealing with US clients are already struggling with the reporting burdens of the Foreign Account Tax Compliance Act (Fatca) – a US law that targets non-compliance with the tax laws by American citizens using overseas accounts.
Another set of OECD tax regulations, the Base Erosion and Profit Shifting (BEPS) guidelines, are also going to impact the way Asia’s high-net-worth individuals structure their busines ses. The BEPS guidelines aim to prevent tax evasion by those who exploit gaps and mismatches in the tax rules of different countries.
As a result of this growing regulatory burden, private banks in the region have been expanding their compliance teams and spending extensively on compliance technology, including tools for Know Your Customer (KYC) checks.
‘There are so many players in the market and you have got to have rules that everyone abides by. Both KYC and anti-money laundering are important private banking codes of conduct, plus obviously channel supervision,’ Tan says. ‘I think we have evolved over the years,’ she adds.
‘What is tricky now is that the fintechs are coming in, meaning the big tech companies. One day Amazon will start doing financial services – it could do wealth management services tomorrowif it wanted to.
‘Alipay and WeChat are already doing it. These guys already have their customers and for them to layer on wealth management services is very easy. They sell virtually, through the phone.
‘So then, do they have the same regulations as banks?’ she wonders. ‘I think the rules will have to change with the use of AI [artificial intelligence], robots and robo advice.’
Thanks to the rise of the internet and new technologies, banking has become a lot more convenient, not to mention more digital. Deloitte estimates that the majority of the population will be technologically adept by 2025.
As such, DBS has transformed its wealth management business with the latest enhancement to its wealth platform, DBS iWealth. The improved application allows clients to conduct their banking transactions, manage their wealth and make trades on a single platform.
The bank has also adopted usability testing, human-centred design and Uber-like ratings to solicit constant feedback from its wealth clients.
‘Now it’s all automated, even for our RMs,’ Tan says. ‘In the past, before an RM went to see a customer they had to pull data from four different cylinders: the customer relationship management for KYC, the portfolio itself for the portfolio, the banking system for the banking staff and the research for research.
‘This took about 45 minutes, and then you had to set an agenda. Today, RMs have iPads with an app called RM Mobility. The AI picks all the research that is relevant to you. You don't have to lift a finger,’ she explains.
‘It puts an agenda together for the meeting, puts your portfolio together for the meeting, puts your research together for the meeting. Not only that, but we also have something called Project Cycle, which is all the data analytics on the client.’
However, this impressive technology raises a big question for the industry: will AI make RMs obsolete?
'I don’t think the role of an RM will go away because people still want that human-to-human interaction,’ Tan says. ‘You will still need RM assistance for some segments of the population, especially the elderly.
‘In fact, RM assistance is a business that’s doing very well. It has gone from half a billion to two billion dollars for us in the past five years, so we will keep growing that because that’s organic wealth being created in Asia.
'But the younger ones, the really young ones like generation Z, are quite happy to never have a human-to-human relationship. So as a wealth manager you need both,’ she adds.
The world of finance is becoming more and more interested in how millennials spend their money, with several studies finding that they are more likely to make new investments and explore alternative ways to generate income than the baby boomers.
Tan says the next generation of wealth investors is particularly aware of environmental, social and governance (ESG) issues, and thinks of investing as an attempt to do some good in the world. In practice, this means millennial investors will sometimes refuse to invest in companies they think will cause environmental damage.
‘They are all about leaving an impact. If you tell them we were the first to do a women’s livelihood bond, they are very supportive of that. They are also more prepared to say “I’ll try a bit of private equity, I'll try bonds and I’ll try different kinds of equities.” So they are a little bit more diverse than their parents and they are able to have multiple focuses.’
Three big pillars
Beyond the acquisition of ANZ, DBS is keen to grow its global Chinese and global non-resident Indian (NRI) footprints. For example, the bank is looking to grow its presence in China through new partnerships, as the country’s domestic and offshore markets have already proved to be valuable. Another key focus is continuing to grow the bank’s footprint in Southeast Asia, and particularly in Indonesia, where ANZ has been a game-changer for the bank.
According to Tan, Indonesia has been one of the group’s fastest growing countries, and is a market with yet more scope for growth.
‘Its domestic wealth management has been fantastic. We have been doing really well there on the domestic side for high-net-worth. And with the Common Reporting Standard coming in and more monies going back onshore, we must be there to receive our customers who go back home,’ she says.
‘We launched our digital bank in Indonesia about a month ago. It has surprised us with the uptake and the funding. It has been very good. I am very optimistic on Indonesia. Chinese global, NRI and Indonesia are the three big pillars for us in this region.’
Out of the office
Currently reading: Homo Deus by Yuval Noah Harari
Life lesson: ‘Don’t take life for granted. When it’s good, appreciate it for what it gives you. But when it’s bad, remember that it’s
not that bad.’
Idols: Lee Kuan Yew (pictured) and Margaret Thatcher
If you weren’t doing this, you would be... A teacher
May 1997 to May 2005: Executive director at Morgan Stanley
May 2005 to May 2008: Managing director at Citi
June 2008 to May 2010: Managing director at Morgan Stanley
July 2010 to March 2013: Managing director and group head of wealth management at DBS
February 2012 to August 2014: Nominated member of parliament, parliament of Singapore
April 2013 – Present: Managing director and group head of consumer banking and wealth management, DBS
This article appeared in the November issue of the Citywire Private Wealth magazine.