DBS Banks on Mega Trends in Pursuit of Growth
“I read all the news feeds to keep up-to-date with what’s happening with my entire circle of friends, those from my growing-up years to college and uni,” he said with a grin.
“But instead of posting on Facebook, I message them. That’s how I stay connected.”
Gupta, 55, is a “big believer” in relationships. The elder brother to two sisters, who are in their 50s, returns to Delhi every year to spend time with his octogenarian parents.
He and his wife, a 53-year-old physiotherapist, face an empty nest. His son, 22, is an investment banker in New York, while his 26-year-old daughter recently left investment banking to pursue her Master of Business Administration (MBA) degree in Boston.
Nonetheless, the assembling of all the members of the family in India for their annual holiday remains an important fete.
“We’ve taught our kids the importance of family, and to focus on the basics. They have been raised to be sensible, to have a sense of rootedness,” he added.
Bird Buff
Apart from focusing on family and friends, Gupta, who was appointed CEO of DBS Group in November 2009, enjoys birdwatching.
The wildlife lover takes to his rooftop to observe the more common species of birds – listening to the flute-like whistles of the black-naped orioles, watching the graceful, long-billed bee-eaters, and the Asian glossy starlings with their iridescent plumage.
He also spends half his holidays pursuing different breeds in far-flung places like Africa and Iceland, with bird books and binoculars in tow.
“I am a bird person, but my wife is a tree person. She loves plants and works extensively to grow stuff in her garden,” he said.
Apart from nature, Gupta enjoys yoga and meditation, listens to Woodstock-era music, does crossword puzzles, reads and plays golf.
“I do manage to put a lot of stuff into my day, because you have got to have fun along the way. Life is a journey, not a destination.”
Game Changer
Gupta, who graduated with a Bachelor of Arts Honours degree in Economics from Delhi University’s St Stephen’s College, is passionate about making his life count.
“Having a sense of purpose is very important to me as an individual. You’ve got to have a sense of true north – how or why you are doing something, and what is the impact on others,” said the holder of a Post-Graduate Diploma in Management from the Indian Institute of Management in Ahmedabad.
“I want to make a difference, and play a meaningful role.”
Innovation is also crucial to progress, he added. “I hate status quo. We have to constantly strive to change for the better. The difference between managing and leading is how to take things to a better place.”
This philosophy is reflected in how DBS is building a culture of change, said Gupta, who is known for being “scary smart”.
“Traditionally, innovation or change hasn’t been one of DBS’s strengths; we tend to be somewhat bureaucratic, but over the last few years, we’ve worked very hard at creating a differentiated culture, a culture around customer journeys and rapidly embracing innovation.”
And it’s encouraging that this ethos is finally beginning to seep through the bank, giving DBS some of the flexibility that Internet companies have. “I think this is going to be a big game-changer for us going forward,” he added.
Shifting Tides
DBS has also maintained a consistent strategy over the last few years, one that is “architected around the appreciation of mega trends in Asia”, such as the region’s rapidly growing middle class and increasing wealth creation.
And greater integration among Asian countries means the establishment of deeper capital markets, particularly the bond markets, which is a focus area for the bank.
“It makes sense to be a large commercial, corporate institution to bank a large number of Asia’s new MNCs,” said Gupta, who began his career with Citibank in India in 1982. Over the years, he has held various senior management roles across Citigroup’s corporate and consumer banking businesses.
“We want to help them not just with lending, but a suite of banking activities, including risk management, transaction banking, cash management, trade finance, as well as capital raising.”
The rise of the region’s small and medium enterprises also offers opportunities, he pointed out.
“We want to build a large regional platform to bank SMEs on an industrial scale. Most people bank SMEs like cottage industries. We’re trying to commercialise the scale of that.”
Other targets include creating wealth management and debt capital market platforms, which play into current trends in the region.
“We think there’s a lot of runway in all these activities. We’ve made extremely good progress in the last few years, but our market shares are still small. The opportunity to grow organically is very, very good,” Gupta added.
In terms of geography, DBS is focusing on Greater China, Southeast Asia and India, unlike other Southeast Asian banks, which are intent on building an ASEAN footprint.
“Our belief is that the big game is between China, Southeast Asia and India. So we try to play across these three sub-segments instead of just one,” he said.
While the bank prioritises organic growth, it is also open to “bolt-on deals”.
“For example, we bought SocGen’s Asian private banking business in Singapore and Hong Kong, and RBS’s retail and commercial banking assets in China, which supplement and complement that strategy,” he added.
Brave New World
Looking forward, the bank’s biggest challenge in the short and medium term is managing the new Internet world.
“The value chain in finance is increasingly getting disrupted and dislocated. Alibaba, WeChat, Apple, Tencent, Google – these new providers are coming into every part of the business, whether it’s lending, payments or risk management.”
This is the “clear and present danger” facing the banking industry.
“If we don’t respond suitably by digitising our own offerings, by re-imagining the customer’s journey, and leveraging new technology to give them a differentiated experience, we are going to die,” Gupta said.
Unfortunately, this particular challenge comes with extra twists.
For one, banks and other legacy companies may not be agile or reactive enough, which in turn raises the question of how to create the right culture that allows them to emulate start-ups.
The next problem is cybersecurity.
“We want to digitise everything, but in this business, we are guardians of people’s money. We need to be very careful about cybersecurity as hackers are a big, big issue,” he said.
Needless to say, managing the technology challenge is at the top of DBS’s agenda. “If we don’t get this right, we can be completely irrelevant to our clients in the next five to seven years,” he added.
Regulatory Dilemmas
Regulation is another complex issue.
“The whole regulatory artifice got reconstructed on the back of the financial crisis, and it’s something that’s still being worked on. The changes are rapid and arbitrary – one step forward and one step back, and nobody knows where we’re going,” Gupta said.
It has been difficult to navigate within the plethora of rules. “Some of these rules are also creating a bias towards ring-fencing and protectionism. That creates its own set of problems for running a bank.”
But in many respects, DBS has what it takes to come out on top, Gupta said.
“We are very, very strong financially. Our pedigree – because of the 29 per cent shareholding by the Singapore government – is very good, and we have a lot of liquidity.”
And in a world of heightened uncertainty about counterparty risk, DBS’s financial wherewithal is a big competitive advantage.
Another plus for the bank is its “Goldilocks” size. “Not too hot, not too cold,” Gupta quipped, displaying one of his flashes of dry wit.
“We are big enough to matter, ranking among the top 50 banks in the world. We have clout, with a S\\$400 billion balance sheet. At the same time, because we operate in only seven to eight countries of any size, and our businesses are very simple, we operate nimbly and respond swiftly,” he said.
“We saw that when China opened up the offshore renminbi and its bond markets. We sensed the opportunities early and organised for them very quickly. ”
Sweet Spot
DBS is also operating in a sweet spot where its net interest margins (NIMs) are concerned, Gupta added.
“The largest driver of our NIM is Sing dollar interest rates, and by and large, Sing dollar rates tend to follow US rates policy. Last year, Sing dollar rates started rising ahead of US rates due to how the local swap markets operate,” he said.
“So are we getting NIM improvement in the Sing dollar book? The reality is that we are.”
And despite headwinds in Asia, DBS is based in the right place. Even with slower growth, the region is still expanding three times faster than any other economy in the world, Gupta said. “We can still build a good business with that kind of growth.”
What is important is the ability to look or think through cycles.
“You cannot architect your strategy based on quarterly, or even annual cycles. All emerging markets go through cycles. If you change your strategy every time the region has a slowdown, you would not have the consistency and continuity you need to build a long-term franchise.”
Overall, the outlook remains bright, he noted.
“The principal premise is that the underlying demographics of Asia are long-term durable – the large populations, the growing middle class, the need for investment and infrastructure. All of that is not going to go away.”
Financial results
| Year Ended 31 Dec (S\\$ mln) | FY 2014 | FY 2013 | FY 2012 | FY 2011 |
| Total Income | 9,618 | 8,927 | 8,064 | 7,631 |
| Profit before tax | 4,700 | 4,318 | 4,157 | 3,733 |
| Net Profit | 4,046 | 3,672 | 3,809 | 3,035 |
| Net interest margin (%) | 1.68 | 1.62 | 1.70 | 1.77 |
| Non-performing loan ratio (%) | 0.9 | 1.1 | 1.2 | 1.3 |
Source : Company Data
Quarter ended June 30 (S\\$ mln)
| 2Q FY2015 | 2Q FY2014 | % change | |
| Net interest income | 1,743 | 1,557 | 12 |
| Total income | 2,690 | 2,313 | 16 |
| Net Profit | 1,117 | 969 | 15 |
| Net interest margin (%) | 1.75 | 1.67 | - |
| Non-Perfoming loan ratio (%) | 0.9 | 0.9 | - |
Source : Company Data
Outlook
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DBS Holdings Ltd
DBS Group Holdings provides various commercial and consumer banking/financial services in Singapore, Hong Kong, the rest of Greater China, South and Southeast Asia. With over 280 branches across 18 markets, it offers a full range of services, including Consumer Banking/Wealth Management, Institutional Banking and Treasury. The bank's capital position, as well as its "AA-" and "Aa1" credit ratings, is among the highest in Asia Pacific. DBS Group Holdings was founded in 1968 and is based in Singapore.
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