Question

TRANSFORMATION OF DBS BANK

1. How DBS Bank transformed itself from a dominant government-backed bank into an aggressive regional bank and become the leading financial houses in East Asia.

2. How can Asian Crisis affect DBS Bank operations?

3. Discuss the advantages and disadvantages of Liberalization in Singapore banking industry.

4. Does the acquisition of Dao Heng is a good move for DBS Bank? Discuss in detail.

5. Give comments and opinion on the progress made by DBS Bank since 1968 to 2001

Answer 1

1. How DBS Bank transformed itself from a dominant government-backed bank into an aggressive regional bank and become the leading financial houses in East Asia.

The Development Bank of Singapore (DBS) was established by Singapore government in 16 July 1968. The main purpose to establish DBS provide loans and financial assistance to the manufacturing and processing industries in Singapore in order to assist the SME sector to develop and enhance their competitive. Also, DBS was providing the commercial bank services to customers which is saving and deposit, short-term and long-term loan, guarantee of loan, hire purchase loan, and others (ESTABLISHMENT OF THE DEVELOPMENT BANK OF SINGAPORE, n.d.).

In 21th July 2003, DBS Group Holdings Ltd (DBSH) announced that the legal name of its banking entity "The Development Bank of Singapore Ltd" has officially changed to "DBS Bank Ltd" with effect from today (The Development Bank Of Singapore Ltd is now DBS Bank Ltd, n.d.). The DBS has taken the move about to transform itself from a dominant government-backed bank into an aggressive regional bank with legal merger of DBS' Hong Kong entities, Dao Heng Bank Limited, DBS Kwong On Bank Limited, and Overseas Trust Bank, Limited. This movement successfully growth its size and become more dominance in Asia area, its branches distributed in Malaysia, Thailand, Taiwan, Hong Kong, India, Philippines, Indonesia and China. The strategies that implemented by DBS Bank to getting this achievement which is communicating the strategy internally, developing the people in the organisation, and putting technology infrastructure in place(DBS Bank: Transformation through strategy implementation, 2017). In February 2010, the CEO of DBS Bank, Piyush Gupta and his strategic team had listed out their statement of strategic intent which is “To be the Asian Bank of choice for the new Asia”.

Under this strategic intent, the strategic team firstly communicated with all country head about the plan to execute new strategic and the communication among internal and external organisation to understand the strategic. Furthermore, the strategic team revising the matrix management structure to develop the organisation and employees in order to determine who in the organisation be accountable for, best equipped to make, different types of decisions. Also, the regulation on existing businesses that were not in line with the strategy as a revise movement by the bank(DBS Bank: Transformation through strategy implementation, 2017).

For the part that develop the employees, the adoption of latest performance systems and structures to evaluate staff’s performance through applied the bank’s values of PRIDE which is ‘Passionate and committed, Value relationships, Integrity and respect, Dedicated to teamwork, Confidence to excel’ and “Triple E” framework—Education, Experience, Exposure to enhance the learning environment for bank workers(DBS Bank: Transformation through strategy implementation, 2017).

Last but not least, the strategic team achieve their strategic—‘putting technology infrastructure in place’ through conducted a consistent technology platform across the group to enhance the visibility over individual, business unit and country performance. The creation in the DBS balanced scorecard which is end-to-end measurement system had aligned all the way from the most junior level to the Board. At the end of the year, the management committee would use the scorecard that was agreed upon at the beginning of the year for evaluating the schedule of strategic achieve. These are the transformation from a dominant government-backed bank into an aggressive regional bank and achieved its strategic on April 2015 which is the DBS Bank is a bank that representativeregional bank in the Asian market(DBS Bank: Transformation through strategy implementation, 2017).

It is undeniable that the main reason that the DBS Bank can become the lead of financial institution in Asia is the successful in operate the digital banking services. DBS’ digital transformation programme first began in 2014. The DBS Bank take some steps to transform, the first step was eliminated waste customers time by introduce ‘Asian service.’ Asian Services define to respectful, easy to deal with and dependable with the acronym ‘RED’ Paul Cobban, the Chief Operating Officer, Technology and Operations for DBS Bank explains. This RED is a process improvement through five-day cross-functional workshops focused on eliminating wasting customer time(Bloomberg, How DBS Bank Became The Best Digital Bank In The World By Becoming Invisible, 2016).

Second step is the customer services shifting to Customer-Centered Design. This new idea able the banker knowing more detail about the customer needs and problems. First, the bank gets the advisory from customer, then knowing the problem, thus giving the suggestion and lastly giving the phone number or take customer phone number to further information(Bloomberg, How DBS Bank Became The Best Digital Bank In The World By Becoming Invisible, 2016).

Third step is making banking invisible. In order to improve the bank productivity andconvenience, the bank improve their online apps and services become automated, it will let the bank doing well in Test faster – User Acceptance Test (UAT) and API testing also focus on their customer’s job-to-be-done(Lim, How DBS Transformed into a Digital Powerhouse, 2017).

The last step for digital transformation is driving innovation. The strategic team encourage their organization to change the thinking culture from conventional wisdom to innovate. As the result, DBS Bank has launched the Digibank in Indian which is an entirely mobile-centric banking service without any branches. This bank basically will run their banking business through using the artificial intelligence-driven automation and small group of bankers for the back-office purpose. The efficiency and convenience have been increasedcustomer satisfaction also scale across the subcontinent with virtually no additional investment can be done by Digibank for its millions of customers (Bloomberg, How DBS Bank Became The Best Digital Bank In The World By Becoming Invisible, 2016).

For the successful digital transformation, DBS was named the ‘World’s Best Digital Bank’ in 2016 and 2018 and the ‘World’s Best SME Bank’ in 2018 by Euromoney. Also, DBS bank has named the honourable award "Safest Bank in Asia" by Global Finance for nine consecutive years from 2009 to 2017. In 2018, DBS Bank getting the prestigious top award which is World’s Best Global Banks 2018 Awards by Global Finance. Because of the wonderful performing, the banking industry peers recognised the digital transformation program by DBS Bank was the one of the most comprehensive through several decision: culture change, encompassing being digital to the core, journey thinking and a methodology to quantify the financial impact of digitalisation.

2. How can Asian Crisis affect DBS Bank operations?

Asian crisis has affected some of the investment DBS Bank made in collateralised debt obligation, but according to DBS Bank the impact wasn’t that bad. During the Asian crisis DBS Bank did not withdrew from lending to people. DBS Bank has turned this crisis into an opportunity to expand. Even during the Asian Crisis DBS Bank still lend money to the people while there is so many banks stop lending money. According to DBS Bank, they believe that if they don’t step in to provide financing some of the business would in trouble. Regardless of the crisis, DBS Bank believe in the ability of Asia to recover and its growth potential. Due to the Asian Crisis, DBS Bank had gone through a transitional period. DSB Bank were trying with different growth strategies such as joint ventures, taking minority stakes in banks and buying a bank in Hong Kong to help the Singapore banks to evolve and develop. When the Asian Crisis hit, DBS Bank make sure that the customer know that DBS Bank is there for them and today their strong sense of purpose is to go on this journey of growth with their customer and provide financing to customer to help to expand their business. When DBS Bank has grown their digital capabilities, going more toward the technology, many customers have come to them to be adopted and adapted to their technology for their financial needs. DBS Bank has also expanded their new industry coverage sector including healthcare, auto, oil and gas and commodities. DBS Bank also evolved their coverage to adapt to its customer changing landscape. DBS Bank had taken their energy industry coverage in power generation. DBS Bank financing expertise has now advance to include renewable like solar and wind, including offshore wind. This has enabled them to give advice to their customer in many countries as they believe that Asia’s energy need change. DBS Bank not only focusing on Singapore but also on Asia. According to DBS Bank, they will continue to provide financing toward the development of the next generation of Asian multinational companies. DBS Bank operation has changes since the Asian Crisis and has becoming better and better(Standing by our customers during the global financial crisis, n.d.).

3. Discuss the advantages and disadvantages of Liberalization in Singapore banking industry.

The Monetary Authority of Singapore (MAS) has introduced deregulatory initiatives from 1997 to encourage innovation and dynamism through the development of a liberalization of the financial sector and the conducive regulatory environment. The initiatives include the merger of the cash and derivatives exchange to form the Singapore Exchange, the first phase of the banking liberalization programme, and the liberalization of the insurance industry.

This liberalization had brought some advantages to Singapore banking industry which includes the capital markets have deepened and broadened. The debt market which matured significantly has provides an alternative cost-effective funding source to a diverse range of local and foreign borrowers. Some statutory boards have even issued bonds up to 20 years in tenor. Besides, as Singapore remains one of the established leading global FX trading centres, treasury markets have also stayed buoyant. The creation and hedging of structured products have boosted turnover in derivative markets. Singapore now ranks 6th globally, in OTC FX and interest rate derivatives. Moreover, there have also a substantial growth in the financial advisory industry. A diversity of business and firms models now cater to different market segments. Service and conduct standards of financial advisers have gone up. In insurance industry, a formerly closed industry has been substantially deregulated. They have tightened up sales practices, enhanced disclosure requirements of products, and raised the overall professionalism of insurance advisers. The financial system of Singapore is robust, and their supervisory, legal, and institutional framework is sound, as the IMF's recent Financial System Stability Assessment of Singapore affirmed.

However, there are also some drawbacks of liberalization in Singapore banking industry. MAS do not seek to prevent institutions from taking risks. It is the business of financial institutions to take on an intermediate risk. But institutions can face substantial losses if events turn out unfavourably or risks are not well managed. No amount of supervision or regulation can totally prevent losses. Liberalization can lead to increase in unemployment, loss to domestic unit, increased dependence on foreign nation, and unbalanced development of sectors. One of the major issues that being influenced by the liberalization is human capital which related to the increment of unemployment. A distinguishing characteristic of a successful financial centre is that it attracts dynamic and talented professionals from a broad range of disciplines and experiences. This will indirectly affect the job opportunity of Singaporeans as a success financial centre is attracting even the foreign employees to work in the country. MAS will work with financial institutions to preserve able Singaporeans while continue to attract talent.In addition, liberalization makes the country increased dependence on foreign nation. Since the Crisis, countries in Asia have recognized the importance of developing their bond markets. While individual countries have made significant progress, their markets remain fragmented and small by international standards.

4. Does the acquisition of Dao Heng is a good move for DBS Bank? Discuss in detail.

Development of Bank Singapore (DBS Bank) is a Singapore-based bank and it is the Southeast Asia largest bank. In 2001, it acquired Dao Heng Bank which was a Hong Kong based bank. Dao Heng Bank was the fourth largest bank in Hong Kong which had US$18.2 billion in assets. It was the subsidiary of Guoco Group which was controlled by Malaysian tycoon Quek Leng Chan. DBS spent HK$45 billion in order to acquire Dao Heng Bank (Swire, 2001). It makes a general offer to the Dao Heng shareholders by giving them two choices either the shareholders can accept cash option or cash and share option. If the shareholders choose cash option, they can accept HK$60.14 per Dao Heng share. However, if the shareholders choose cash and share option, they can receive a package of HK$43.26 dollars in cash and one new DBS share(DBS Group in Deal to Acquire Controlling Stake in Dao Heng Bank, 2001).

Dao Heng Bank was sold to DBS because the number of global institutions was increase and the banking sector need to have heavy investment in technology. This will cause a lot of small bank cannot compete with major banks, because they diversify their services to provide wealth management for the rich. Moreover, the banks also needed to face the problem that the mortgages and corporate lending which was their traditional source of income was under huge competitive pressure due to the slow-moving property market and weak corporate demand. Hence, these reasons caused   Dao Heng Bank was sold to DBS Bank. Through the deal, Guoco Group sold its 71.30% of stake in Dao Heng to the DBS Diamond Holdings Ltd, a subsidiary of DBS Bank in 2001(DBS unveils $5.4bn bid for Dao Heng, 2001).

The objective of DBS Bank was to become the best bank in Asia. The merge and acquisition and strategic alliances with different sectors of the financial service industry was very important to DBS Bank as it intends to grow its geographic footprint in the region especially in Hong Kong and the emerging China market in North Asia, Thailand and Indonesia in Southeast Asia. The action of acquisition of Dao Heng by DBS Bank could help to achieve this goal because this deal gave DBS Bank an opportunity to expand its operations in Hong Kong and Greater China. It was very beneficial for DBS Bank to acquire Dao Heng Bank because Dao Heng had US$18.2 billion in assets and 75 branches with more than 600,000 clients. It also was the third largest credit card franchise in the market with more than 700,000 cards issued(Prins, 2001). From this, DBS Bank can expand its operations to Hong Kong and Greater China easily and faster.

Moreover, the combination of Dao Heng and DBS Bank made DBS Bank become the only bank to have a significant corporate and retail presence in Hong Kong and Singapore markets. By acquisition of Dao Heng Bank, it could also help to create the first truly Asian Bank with a pan-Asian presence. This can be proven by Philippe Paillart who were the Vice Chairman and CEO of DBS said that, “In many respects, this is an historic event in Asia and in financial services, because the acquisition of Dao Heng by DBS effectively creates the first Asian regional bank."Hence, the acquisition of Dao Heng was one of the important efforts of DBS Bank to become a pan-Asian bank. Moreover, through the acquisition of Dao Heng, DBS Bank could combine with the firm focus on serving banking customer, individual and corporate locally and across borders. Besides, it could also combine the knowledge and technology which can increase its competencies and capabilities.

Furthermore, the acquisition of Dao Heng Bank shows that it was the biggest banking takeover that took places in Hong Kong. Through the acquisition of Dao Heng Bank, the assets of DBS Bank showed an increase to a total of US$81 billion. Hence, this caused DBS Bank became the fourth largest bank in Hong Kong in term of assets after HSBC, Bank of China and Standard Chartered.

Besides, the acquisition of Dao Heng was a good move for DBS Bank also helped to expand the revenue of DBS Bank. After DBS Bank acquire Dao Heng Bank, the revenue of DBS recorded S$3.5 billion which showed an increase of 21% from 2000.Besides, the fee income of DBS Bank which was important for new business growth was also rose 26% and the operating profits before goodwill chargers also increased 7%.Because DBS Bank raised the provisions to S$379 million, hence, the net income of DBS Bank showed a drop of 28% to S$999 million.However, DBS Bank tooka goodwill charge of S$131 million for our acquisitions of Dao Heng Bank and Vickers Ballas. After that, Dao Heng was merged with DBS Kwong On Bank by DBS Bank and it was expected to gain HK$275 million per year in DBS Bank’s revenue. Because of the acquisition of Dao Heng, the operations of DBS Bank and Dao Heng would be combines and this caused the bank expected to save HK$265 million per year.

As a conclusion, although DBS Bank spent a lot of money to acquire Dao Heng, the acquisition of Dao Heng is good for DBS Bank. This is because it not only helps to expand DBS Bank’s operation, but it also brings a lot of advantages to DBS Bank in terms of assets and revenue and others.

5. Give comments and opinion on the progress made by DBS Bank since 1968 to 2001.

In 1968, DBS was established with SGD 100 million capital which comprise of SGD 49 million invested by government, SGD 25 million invested by commercial banks and other financial institutions, while other companies and the public contributed SGD 26 million.Mr. Hon Sui Sen was the first DBS Chairman and President. His joining in DBS in 1968 helped the expanding of DBS Bank’s services beyond development financing to a fully-fledged financial institution. DBS Bank was only provided development financing when it was founded, but the customersdo not satisfy, and they wanted more services such as overdrafts, short-term facilities, foreign currencies, and other banking services. Thanks to Mr. Hon, DBS Bank successfully make the transition into a fully-fledged financial institution.

In 1971, DBS Bank helped to finance Rollei, a German company that produced camera in Singapore. The financing given to Rollei created thousands of jobs for Singaporeans. The labour costs in German were too high, therefore Rollei came to Singapore to reduce their production costs to help their business survive longer. DBS Bank took a huge risk on Rollei. This is because if Rollei had collapsed, there was almost no security except the physical factories that built using DBS Bank money. This may bring losses to DBS Bank if Rollei shut down. However, this help to create job opportunity to Singaporeans.

DBS Bank logo makes its appearance in 1972. DBS Bank logo was modelled after the caissons of the DBS Building foundation. Some of the people said that DBS Bank pinched the edges of the logo closer together to symbolise that the wealth will not slip through the bank. The logo may lead to more people to recognize DBS Bank. In the same year, DBS opens the first branch in Jurong. Jurong was the largest industrial estate in Singapore and a fast develop residential area. DBS Bank opened their first branch at Jurong may help them to be close to customers.

In 1975, DBS Building was completed. It was the tallest building in Singapore when it was completed. DBS Bank then extend their banking hours on Saturday for 3 branches which is Katong, Toa Payoh and Orchard Road. This make the customers of DBS Bank more convenient especially for those who are working on Monday to Friday. However, this will increase the cost of DBS Bank. In the same year, DBS Bank opens Plaza Singapura. Plaza Singapura was the first multi-storey shopping mall in Singapore and was one of the most successful shopping malls. This help DBS Bank to earn more income and also help the economy growth of Singapore through the increasing of job opportunity.

DBS Bank teamed up with Singapore Economic Development Board in 1976 to launch the Small Industries Finance Scheme. The scheme aimed to help small industries expand, modernise and diversify their business. The profit earned from the loans given to small industries was less, but the scheme helped Singapore’s manufacturing sector keep expanding. DBS Bank then opens first overseas representative office in Tokyo. DBS Tokyo Branch had officially opened on 21 April 1977. The challenges for DBS Bank open branch in Tokyo was in terms of the language difficulties. The reason of DBS Bank chose to open first branch in Tokyo, but not other countries is because DBS Bank had more connections with Japan clients than with any other foreign investors in Singapore.

In 1977, DBS launches Pandan Valley condominium. This provide private housing to middle-income families at prices comparable to those of public housing. DBS Bank offered loans for up to 25 years to help home buyers. At the same time, DBS Bank taking the risk that the lenders will not pay back the loans. In 1979, DBS Bank opens Thomson Plaza and it was one of the first public buildings to be designed with barrier-free features from the onset. In 1980, DBS Bank introduced Autosave to its customers. With Autosave, customers’ funds will remain in their savings accounts to earn interest and be automatically transferred to their current accounts whenever cheques were issued. This make other banks had to follow DBS Bank which pay interest on current account to customers in order to maintain their customers. Although this will increase the cost of bank, but it is good for the Singaporeans.

In 1983, DBS Bank opened first Taiwan branch in Taipei. The Taiwan branch is their seventh office internationally. This would help DBS to enlarge their banking business internationally. In 1985, DBS Bank became lead manager for Singapore Airlines (SIA) IPO. The offer of 100 million SIA shares at SGD 5 per share that DBS Bank lead managed in 1985 was the largest public issue in Singapore. In 1986, DBS Bank launches Raffles City. It took DBS Bank 17 years to plan and build Raffles City and it was the largest commercial development when it opened. DBS’s purpose is to bring life back to Central Business District (CBD) area after working hours and grow tourism in Singapore. This will increase the economic growth of Singapore and improve the lifestyle of Singaporeans.

In 1989, DBS Bank opens representative office in Jakarta. DBS Bank obtained approval to establish a joint-venture bank in Jakarta. This will help DBS Bank continue to expand across Asia and increase the profit of DBS Bank. In 1993, DBS Bank lead manages Singapore Telecom (Singtel) IPO. In 1994, DBS Bank act as the first Singapore bank to set up representative office in India and upgrade it to a formal bank branch after a year. This mean that DBS Bank once again expand its banking business across Asia.

In 1997, DBS Bank became the first bank in the region to launch comprehensive internet banking. The services that offered on that time included funds transfer, bill payments and online loan applications. This make the customers to be more convenience when they want to transfer their money or make some bill payments especially for those who are working. In 1998, DBS Bank acquires POSB. This is due to the government’s call for local banks to merge in order to become larger and stronger that able to compete on the international stage to solve the issue ofAsian Financial Crisis in 1997. In 2001, DBS Bank acquires 100% interest in Dao Heng Bank and its subsidiary Overseas Trust bank. This help DBS Bank to expand their retail presence in Hong Kong, moving them into fourth position in terms of assets among Hong Kong banks.

From the progress of DBS Bank within 1968 to 2001, we can see that DBS Bank is growing bigger and better compared to its origin with the establishment of SGD 100 million. Although the profit earned through the product and services is small, but the products that DBS Bank offered were increased the welfare of the Singaporeans. This will help Singapore to become a developed country.