A resilient performance in the face of crisis

Humanity faced the crisis of a generation in 2020, with the Covid-19 pandemic roiling lives and livelihoods. At the time of writing, the virus has infected over 100 million people and claimed over two million lives. It has also wreaked carnage on the global economy. Despite governments rolling out trillions of dollars in stimulus packages, almost every country – bar China – fell into recession. Singapore, DBS’ home market, shrank 5.8%, while Hong Kong – already hit by protests in 2019 – suffered a deepening recession. The geopolitical rivalry between China and the United States also intensified, adding to the uncertainty.

Against this backdrop, DBS’ franchise demonstrated remarkable resilience. With central banks slashing interest rates to bolster economies, DBS’ net interest margin fell 27 basis points to 1.62%. Despite this, total income remained stable at SGD 14.6 billion, as the quality of our broad-based franchise, a well-constructed balance sheet and our nimble execution cushioned the impact of interest rate headwinds. In particular, loans grew 4%, fee income was stable and Treasury Markets (TM) had a record year. Like the rest of the bank, TM has been on a digital transformation journey in recent years, improving pricing capabilities and competitiveness, enhancing processes and application resiliency, helping the business deliver outsized results.

Our record operating performance of SGD 8.43 billion in one of the most challenging periods on record attests to the quality of our franchise and nimble execution.

While DBS’ top-line held steady, net profit fell 26% to SGD 4.72 billion as we conservatively frontloaded general allowances in anticipation of rising defaults in 2021. Specific allowances increased with a general deterioration in credit quality that was to be expected in such an environment. We estimate that credit costs could rise to between SGD 3 billion-5 billion in 2020-2021. Having prudently addressed the better part of this in 2020 by conservatively setting aside total allowances of SGD 3.07 billion, we expect total allowances to decline in 2021, back to what we would set aside in a normalised year.

In a turbulent time, DBS continued to be recognised for being a safe and trusted bank. This was exemplified by the record SGD 99 billion in current and savings account inflows into the bank. Our capital and liquidity positions remain strong, and Global Finance named us “Safest Bank in Asia” for the 12^th consecutive year.

Lending Covid-19 support

We believe that as constructive members of society, banks have an integral role in supporting real people, real lives, real economies, and sharing the pain in a downturn. Amid the trying times, DBS was quick to provide cashflow support, lower the cost of lending, provide new kinds of lending to marginal borrowers, and help customers do their banking digitally.

Through the year, we approved SGD 11 billion in loan moratoriums for companies in Singapore and Hong Kong, and another SGD 5 billion in moratoriums for residential mortgages in Singapore. We also disbursed SGD 5 billion in government risk-sharing loans for SMEs in Singapore as well. We are pleased that this forbearance helped several customers tide through difficult times, so that only small percentages of them are still on moratorium at this time. We also offered free Covid-19 insurance to all five million DBS/ POSB customers and their families, which was widely appreciated in the early days of the crisis.

During the lockdown, our extensive digital offerings enabled customers to bank with us in an uninterrupted manner from the safety of their homes. In some cases, we expedited the rollout of services ahead of schedule. The launch of a comprehensive suite of digital “contact-free” trade financing capabilities is an example. We also fast-tracked our multi-year digital roadmap to bridge gaps in a couple of last-mile processes.

These efforts were well-recognised. In 2020, DBS won the “Best Bank in the World” accolade from Global Finance, making it the third year in a row we have been recognised on the world stage. In its citation, Global Finance said: “This year, a worldwide pandemic has upended commerce and made forecasting even more difficult, yet business must continue. DBS Bank is exemplary of a bank that was ready for the sharp rise in demand for digital banking services during the pandemic. Over the past decade, it invested heavily in all things digital and created a culture for banking that is inclusive and efficient. Those investments are paying off at a time of economic uncertainty. They have strengthened the bank’s resilience and helped it to serve its customers in their time of need.”

On the employee front, DBS’ leadership in digitalisation enabled the bank to pivot quickly to a work-from-home model for the vast majority of employees, while still maintaining business continuity. To ensure employee morale remained strong, we launched a series of programmes under the TOGETHER movement aimed at addressing the physical, emotional and mental well-being of our people. In a difficult year, employee engagement scores remained strong. In addition, not only did we pledge not to cut jobs during the course of the year, we also hired 2,000 people in Singapore, including many fresh graduates.

To support the community, DBS launched the SGD 10.5 million Stronger Together Fund, providing 4.5 million meals and care packs, in addition to medical supplies, across the region. The bank and DBS Foundation also disbursed a record SGD 9 million, including SGD 2 million in grants, to help social enterprises tide through the pandemic.

Becoming a technology company

Over the past five years, DBS’ transformation strategy has been focused on three pillars: being digital to the core, embedding ourselves in the customer journey and thinking and acting like a startup. While we have seen rising digital adoption over the years, Covid-19 accelerated these trends. In 2020, almost three in four customers applied for a mortgage online, compared to over one in three the previous year. DBS PayLah! usage also saw exponential growth.

Being digital to the core
In recent years, we have invested in cloud infrastructure and rearchitected our applications to be cloud ready. In 2020, we continued to push ahead of this front, with more than 99% of our applications now cloud-enabled, giving us greater efficiency and nimbleness. Through a focus on Site Reliability Engineering practice, we also improved system and application resiliency, enabling us to handle surges in digital traffic volumes without incident during the pandemic.

We made headway in becoming more data-driven. To optimise value from data to improve the customer experience and create new products and services, it is important that we have a data-driven culture, a centralised data source and clear governance around the use of data. Today, over 18,000 DBS employees have completed data training; 60% of relevant data is accessible from a single source; and a strong governance framework is in place to ensure responsible data usage.

We are also making progress in tapping emerging technology trends, such as in the areas of 5G, Internet of Things and public cloud.

Embedding ourselves in the customer journey
Another longstanding focus has been to embed ourselves in the customer journey, so that banking is simple, seamless and effortless. Work in this area continued unabated, and 2020 delivered some iconic wins. As an example, today, new-to-bank customers in Singapore can open a banking account with us digitally in just 15 clicks, or less than three minutes, which is best-in-class for the industry.

Recognising that financial planning can be seen as complex and tedious, we sought to make the process insightful and actionable, yet simple and accessible. In April 2020, we launched DBS NAV Planner to help customers make more informed decisions about their money. In a short eight months, DBS NAV Planner delivered more than 30 million financial planning insights to customers. These capabilities were further supercharged in December with the launch of SGFinDex, the world’s first public-private open banking initiative, allowing us to reach a wider pool of customers in Singapore.

Thinking and acting like a startup
DBS has been successful in our digital transformation over the years because of a pervasive culture of experimentation, agility and innovation.

In 2020, we established an innovation framework and process to allow us to innovate at scale. Within the bank, we ran more than 40 experiments which will allow us to take advantage of big megatrends that will shape the future. We also continued to encourage a culture of intrapreneurship among our employees, both to bring innovative ideas to life and drive real change for business.

In addition, we continued to democratise technology skillsets among our employees, training more than 3,000 of them in the fundamentals of Artificial Intelligence/ Machine Learning through Amazon Web Services (AWS) DeepRacer, a gamified learning platform.

Scaling our business in large Asian markets

As an Asia-focused bank, it is important that we build a meaningful presence in the big markets of China, India and Indonesia. In India, where DBS operates as a wholly-owned subsidiary, we did a bolt-on transaction, giving us enlarged scale. This arose after the Reserve Bank of India approved the amalgamation of Lakshmi Vilas Bank (LVB) with DBS Bank India Limited (DBIL). The amalgamation which took effect from 27 November, complements DBS’ digibank strategy with an expanded network of 600 branches and 1,000 ATMs, an additional two million retail and 125,000 non-retail customers, as well as a strengthened deposit franchise. Overlaying DBS’ digital capabilities on LVB’s customer base and network will accelerate our business in India. We expect to be profitable within one to two years.

Interim DBS branding at the former LVB branch in Chembur, Mumbai, Maharashtra

In China, we are preparing to launch DBS Securities (China) Limited, a joint venture securities company. The Chinese capital markets are nascent, so as China integrates with global capital markets, there will be opportunity to build out our business in this area.

In spite of the US-China trade war, we made good progress on our Greater Bay Area strategy, inking a number of innovative, ground-breaking digital partnerships with platform companies. These include being the first foreign bank to partner Haier to provide digital financing to its distributors within 24 hours. We are also the first bank to partner JD Logistics on a digital platform to finance SMEs in the cross-border e-commerce import business.

Igniting new growth areas

DBS has been studying and experimenting with emerging technologies over the years. We believe some of these have reached a tipping point, presenting new opportunities for growth.

One area is asset digitalisation, which has seen burgeoning growth, and has the potential to reshape capital markets. To ensure that DBS is ahead of the curve in welcoming the mainstream adoption of digital assets and currency trading, we commenced operations of a digital exchange in December. The DBS Digital Exchange offers tokenisation, trading and custody services of digital assets to institutional and accredited investors. It is 10% owned by the Singapore Exchange.

Advancing the sustainability agenda

For a few years now, DBS has been committed to advancing the sustainability agenda around the three pillars of responsible banking, responsible business practices and creating social impact.

In 2020, DBS continued to embed sustainability into the fabric of the business. We closed about SGD 9.6 billion in sustainable financing transactions, up 81% from the previous year. Importantly, we also published the Sustainable and Transition Finance Framework and Taxonomy – a first in the world by a bank – which serves as a transparent reference to guide clients on adapting and building resilience in the face of global challenges such as climate change and resource scarcity. DBS also became the first Singapore bank to offer transition financing to help companies implement long-term changes to become greener.

DBS is also focused on financial inclusion – bringing the unbanked or underbanked into the formal banking sector. From April to June, we accelerated the opening of almost 60,000 bank accounts for migrant workers, so that they could bank digitally including remit money home from their dormitories amid the pandemic.

As a testament to the strides we are making in sustainability, DBS was named to the Dow Jones Sustainability Index (Asia-Pacific) for the third consecutive year, as well as the Bloomberg Gender-Equality Index and the FTSE4Good Global Index for the fourth consecutive year.

Acknowledgements

We would like to express our gratitude to Euleen Goh, Andre Sekulic and Ow Foong Pheng, who are stepping down as board members in March 2021, for their invaluable contributions over the years. Euleen served as the Board Risk Management Committee chairperson at DBS for over 10 years, and her extensive knowledge and experience in the risk environment for banks has been instrumental in helping DBS navigate the complex, challenging and a constantly evolving risk landscape. She also served as the chairperson of the Board of the DBS Foundation since its establishment in February 2014. Although she is retiring as a Director of DBS Group Holdings and DBS Bank, she has graciously agreed to carry on serving as the Chairperson of DBS Foundation. Andre has made significant contributions to the Board with his expertise and insights in the payments and consumer credit sector since his appointment to the Board in 2012 and served as the chairman of the Compensation and Management Development Committee since November 2018. As a senior Singapore civil servant, Foong Pheng has provided invaluable insights and perspectives from the public sector since her appointment to the Board in 2012.

Dividend

The Board has proposed a final dividend of SGD 18 cents per share for approval at the forthcoming annual general meeting. This will bring the dividend for the financial year to SGD 87 cents per share. In August 2020, DBS moderated its dividends in line with the Monetary Authority of Singapore’s call for banks to preserve capital in these uncertain times. Given DBS’ strong capital position, the bank will revisit dividends paid out if and when permitted.

Going forward

We will look back at 2020 as a seminal year and Covid-19 as a major inflection point.

For one, the pandemic dramatically accelerated digital consumption demand. Given this, we could start finding winners and losers in respect to banks who can cater to the new digital world and banks who can’t.

In addition, it has underlined the importance of the environmental, social and governance agenda. Issues around inequity, the rich-and poor-divide and climate change, will be on the minds of governments and people in the next five to 10 years. All businesses, including financial institutions, will be under pressure to focus more greatly on stakeholder capitalism and not just shareholder capitalism.

At the same time, we must continue to invest in building digital capabilities, championing the sustainability agenda, and in finding new avenues of growth.

The early downpayment we made in digital transformation, our broad-based franchise and focus on being a purpose-driven bank, position us well to ride these challenging times. With the grit and gumption of our people, and the support of you – our shareholders – and customers, we are confident of emerging from this storm as one of the winners.