Top and emerging risks

The Board and senior management drive a robust process to identify and monitor our top and emerging risks.

In 2019, we focused our attention on the following areas (i) Credit risk and portfolio management, (ii) Environmental, social and governance (ESG) risks, (iii) Outsourcing and ecosystem partners management, (iv) Financial crime risk, (v) Data governance risk, and (vi) Cyber security and data protection.

In recognition of our risk management efforts, we were awarded Gold in the inaugural “Best Risk Management Award” at the 2019 Singapore Corporate Awards.

Credit risk and portfolio management

In 2019, we saw an economic divergence between the US and the rest of the world. The US economy held up, evident by its resilient services sector as well as housing and job markets, while the rest of the world was affected by the global trade and manufacturing downturn. Key risk events that emerged included the US-China trade tensions, a potential no-deal Brexit, and geopolitical concerns in the Middle East and Hong Kong.

We conducted thematic portfolio reviews on the impact of possibly protracted US-China trade tensions on the supply chain and the technology industry, as well as the Hong Kong geopolitical situation. Other reviews included the slowdown in global trade growth, China’s liquidity situation, US interest rate cuts and the headwinds faced by the shipping industry, among others. Our portfolios were assessed to be resilient with the relevant risk mitigation strategies in place.

Given the ongoing macroeconomic challenges, we continued to exercise prudence in our client selection and credit underwriting criteria. Our portfolio was diversified across industry and business segments, with approximately 80% of corporate and institutional exposure to investment-grade borrowers. A significant portion of our portfolio relates to real estate. The Singapore residential real estate market held up well with private home prices rising, underpinned by pent-up demand. With our exposures being primarily to well-established developers, the real estate portfolio quality is healthy, with an average loan-to-value ratio of less than 60%.

Growth in prices for the Hong Kong real estate market slowed towards the second half of the year, in line with the geopolitical tensions in Hong Kong. While the retail and hospitality sub-sectors were adversely affected by the decline in tourist arrivals, housing demand stayed strong due to the lack of supply. While our Hong Kong real estate portfolio remained stable with an average loan-to-value ratio of less than 50%, we continue to closely monitor the situation in Hong Kong as prices can become relatively more volatile given the social unrest.

To further strengthen our portfolio management capabilities, a dedicated credit portfolio risk assessment and monitoring team was established to detect and assess systemic and emerging risks to our portfolio on an ongoing basis. The team performs portfolio reviews and scenario analyses from a holistic perspective. An automated portfolio assessment process was developed, reducing the level of manual intervention. We also experimented with new data to improve our capability in detecting early warning signals. These resulted in better response time in taking portfolio actions and the ability to mitigate potential credit risks. The team also works with businesses to manage overall credit risks via loan selldown and risk diversification measures.

In the ongoing pursuit of our digital strategy, we continue to focus on analytics-based lending (ABL) which leverages traditional and non-traditional data sources for enhanced credit underwriting. During the year, we rolled out ABL in India targeting the small and medium-sized enterprise (SME) segment as well as worked with new data partners in Indonesia to enrich our unsecured consumer lending credit models.

A multi-year credit architecture programme, with focus on Institutional Banking Group (IBG), was embarked on with the goals of having more efficient and streamlined end-to-end credit processes, strengthening internal controls and enabling better credit risk management. This included putting in place a robust credit risk data infrastructure and workflow management system, underpinned by modern technology architecture. In 2019, we successfully launched a new credit workflow in Hong Kong. The credit workflow will be progressively rolled out to the rest of the markets in 2020. This re-engineered credit process also sets the foundation for further incremental credit risk management capabilities.

Notwithstanding the headwinds in the global environment, our overall portfolio grew by 4% during the year. While we remain comfortable with our portfolio quality, the Covid-19 virus outbreak has impacted certain industries such as hospitality, transportation and retailing in Singapore and Greater China. We also expect to see further impact on construction, shipping, logistics as well as supply chain disruptions in several industries. Assuming that the outbreak lasts one or two quarters, our initial assessment is that most of our exposures in the affected industries will be able to weather the downturn. We will continue to closely monitor the impact of the outbreak, macroeconomic developments and maintain vigilance over our credit portfolio.

Environmental, social and governance (ESG) risks incorporated into credit risk management and sustainable finance

In 2019, we undertook a pilot study aimed at measuring the social and environmental impact of our lending to selected industry sectors. We adopted the Equator Principles for project financing as well as the Green Investment Principles for the China Belt and Road Initiative (BRI) projects. Both are risk management frameworks to help financial institutions assess and manage ESG risks in project finance-related transactions.

We concluded 35 transactions relating to sustainability-linked loans, renewable and clean energy related loans and green loans totalling about SGD 5 billion. We also lead-managed and underwrote five green/ social bonds for customers.

Read more about “Responsible financing” in the Sustainability Report.

Outsourcing and ecosystem partners management

Outsourcing arrangements and ecosystem partnerships are third-party relationships whereby adequate and effective risk assessment and monitoring are important.

Frameworks were established to provide clarity, consistency and governance in managing the risks over the lifecycle of these relationships. The frameworks take into account customer value propositions, strategic and commercial alignment, financial strength, capability, and operating model. They also incorporate operational risk assessments, including legal, regulatory, information technology, and data security considerations. We conduct regular reviews of the performance of the relationships to ensure their continued relevance and alignment with our frameworks.

Financial crime risk

We continue to invest in technology to help manage financial crime risk, such as leveraging artificial intelligence models to enhance prioritisation processing for potentially higher risk alerts and identify unusual changes in corporate profiles. We also enhanced our network analysis capabilities to sift out accounts which could be linked to suspicious counterparties. In addition, we improved our customer surveillance/ transactions monitoring instrumentation and dashboards to better manage financial crime risks.

To foster greater private-public sector collaboration, we worked with law enforcement agencies and regulators on anti-scam initiatives, Know-Your-Client techniques as well as shared information on emerging risk trends.

Data governance risk

Recognising the need to continue to build customer trust in our ability to manage data and artificial intelligence, we established a framework around the responsible use of data. We started with a baseline of hygiene and compliance, including data lineage, data quality, and compliance with laws and regulations. This was supplemented with our PURE framework for the ethical use of data. The PURE framework is underpinned by four principles – Purposeful, Unsurprising, Respectful and Explainable.

Cyber security and data protection

We continue to strengthen our multi-layered cyber security defence with cyber security solutions, such as web isolation and content disarm and reconstruction, to protect our users from advanced cyber threats through the internet and email channels. We also enhanced the cyber security hygiene and control baselines of systems supporting essential banking services through stronger authentication, micro-network segmentation, and database monitoring.

Cyber security subject matter experts have been engaged to validate our control environment and key processes, and provide assurance on our cyber security programme and controls.

We will continue to invest in innovative security with our digital transformation.