DBS CEO Piyush Gupta says more to come from digital banking push

DBS ATM in SingaporeDBS ATM in Singapore

DBS is planning to offer more details annually to put the expenses for its technology transformation in better context with its benefits amid continued spending for digital banking, Piyush Gupta, the CEO of Singapore’s largest bank, said on Thursday.

“We’re convinced the digital expenditure pays off very rapidly,” Gupta said a press briefing following second quarter earnings which some analysts saw as on the light side of expectations.

The less robust quarterly earnings hit sentiment on Thursday. Intraday, DBS shares had dropped as much as 2.9 percent to S$26.14, their biggest fall in nearly a month. DBS shares ended down 1.63 percent at S$26.50 on Thursday. The stock was down another 1.32 percent at 10:50 A.M. SGT on Friday at S$26.15.

Digital banking-related costs will remain around S$1.1 billion (US$807.6 million) annually “up or down” for years to come, Gupta said. However, the impact on operations is rapidly changing as well, with expectations that “digitizing credit markets” using algorithmic trading tools will see a drop in fees, but will bring higher volumes to compensate.

Volumes in other segments, such as consumer and small business (SME) segments, will also drive earnings, Gupta said, noting application programming interfaces (APIs) under a program dubbed RAPID internally, will lead digital transformation on a “big scale,” not just in the home market of Singapore, but also in emerging markets, such as India.

Gupta said that as DBS waits for a full subsidiary license for the bank in India to come at “any time” now, its digital arm is signing up 70,000 to 75,000 customers a month.

“In the consumer and SME businesses in Singapore and Hong Kong, where the impact of digitalization is most visible, digital customers formed 42 percent of the base in 2017, but accounted for a larger 63 percent of total income and 72 percent of profit before allowances,” DBS said in an email.

“The return of equity (ROE) of digitally engaged customers was 27 percent, a significant nine percentage points higher than for traditional customers. We believe we are the only bank to have developed a methodology for measuring the financial value created by digitalization.”

In November of last year, DBS provided analysts with a methodology for working digital impacts into models and the full-year numbers were included in the 2017 annual report. DBS said it would update the 2018 figures at the full-year earnings announcement in February of 2019.

Michael Wu, senior equity analyst with Morningstar said in a post-earnings note to clients that DBS appears ahead of rivals on digital transformation.

“The bank is already benefiting from its investments in customer experience and client acquisitions, which are occurring at lower cost through its online platform. The former has led to improvements in survey rankings against peers, while the cost/income ratio for its digital channel is 45 percent compared with 53 percent for its traditional channel,” Wu wrote.

“Scalability of the platforms means they can be deployed across the bank’s geographies,” Wu said.

At the earnings briefing, DBS CEO Gupta did flag lower growth than expected in the property sector this year, with consumer mortgages about “half a billion” Singapore dollars less and other lending likely down to overall miss a S$4 billion target by S$1 billion.

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