Question 1: What was the rationale behind DBS’ recent acquisitions – Lakshmi Vilas Bank, Shenzhen Rural Commercial Bank and Citi Consumer Taiwan?

I have always maintained that in the long term, DBS needs to be more deeply embedded in one or more of our four markets outside of Singapore and Hong Kong, which include China, India, Indonesia and Taiwan. While we are relying on digital expansion in these markets, our experience has shown that a digital-only strategy has been difficult to monetise adequately, and a “phygital” (digital coupled with appropriate physical scale) approach results in better customer selection and path to profitability. Building such scale through inorganic transactions has always been a consideration; unfortunately, the regulatory environment made this difficult through much of the last decade. The discontinuities of the past couple of years have provided new opportunities in this regard, and we have been fortunate to be able to use this window to make meaningful advances through three transactions.

The three transactions we did over the last 18 months – amalgamating Lakshmi Vilas Bank (LVB) in India, acquiring Citigroup’s consumer banking business in Taiwan (Citi Consumer Taiwan), and investing in Shenzhen Rural Commercial Bank (SZRCB), will position DBS well for growth as we look out into the next decade.

India continues to be a very attractive banking market, especially in the SME and retail segments. The opportunity to serve as a “white knight” for LVB came to us because we had chosen to establish a local subsidiary bank as the operating entity, rather than operating through a branch. We found LVB attractive because of its deep presence in the five South Indian states, a part of the country that has attractive economic characteristics and historical connectivity to Singapore. At the same time, it gives us a presence in 42 of India’s top 60 cities, improves our funding base through retail deposits, and helps us broaden our product platform through offerings like gold loans and Loans against Property. The performance in the first year post merger has been good, and we are confident that we now have a platform that will allow us rapid growth in the coming years.

While we are cognisant of policy adjustments coming out of China, we remain committed to the market. Our strategy in China is anchored on three thrusts. First, we bank the large state-owned companies, particularly potential world-beaters with regional growth ambitions. In 2021, we added an investment banking capability through a securities joint venture so we can support these companies in their capital markets activities too. Second, in the Greater Bay Area (GBA), we want to go deeper and bank SMEs down the supply chain. Third, we are keen to expand into the consumer finance space through ecosystem partners. Acquiring a 13% stake in SZRCB allows us to accelerate our GBA strategy via Shenzhen, arguably GBA’s fastest-growing city. We also see mutually-beneficial collaboration between SZRCB and our franchises in Hong Kong and China. While the stake is a minority one, it is the largest held by a single shareholder. We may have the opportunity to increase our shareholding in future as well.

DBS has been in Taiwan since 1983, and while the franchise is a meaningful contributor to the Group today, adding Citi Consumer Taiwan is game-changing for a number of reasons.

The transaction will accelerate DBS Taiwan’s growth by at least 10 years, making it Taiwan’s largest foreign bank by assets. The combined entity will have the largest credit cards balance, investment AUM, loan book and deposit base amongst foreign banks in Taiwan. This will provide synergies from economies of scale, including reduction of global and regional overheads. Citi Consumer Taiwan’s strong low-cost deposit base will also support the expansion of DBS Taiwan’s institutional and SME banking business.

By 2024, we expect these transactions to add some SGD 1.2 billion-1.3 billion to our revenue base, and an incremental SGD 0.5 billion to our bottom line. They will strengthen our franchise, and position us well to ride the crest of a structurally rising Asia.

Question 2: How will digital monies and decentralised finance affect the banking industry? How are you responding to them?

Let me parse the question of digital currencies into the following:

• Are we likely to see a continued reduction in notes and coins, replaced by bits and bytes? The answer to this is a clear yes. Digital money is not a new concept, whether it be through use of credit cards or wire transfers. In fact, 97% of money in circulation is digital. With the ubiquity of the mobile phone, it is quite clear that e-wallets and electronic transfers will increasingly proliferate.

• Are we likely to see privately-issued digital coins (e.g. Bitcoin) take over the role of state-backed money? The answer to this is probably no. The reason for this is that money needs to have three attributes: be a unit of account, a medium of exchange and a store of value. Privately-issued coins find it hard to attain the first two of these. The reasons for this are several. These include a lack of ubiquity, absence of faith in the “issuer”, and large volatility in value, among others. While the technology used to issue these coins (blockchain) is indeed very powerful, and does form a basis for creating immutability and transparency, the truth is that it will still be a while before the common man will universally accept this when it comes to regular monetary transactions. I also expect that regulators (and politicians) will be loath to give up control of monetary policy and economic management tools, and will therefore be very circumspect about letting private money grow. Having said this, I do think that private money (crypto) will continue to grow as a meaningful store of value, much like gold is today.

• Are we likely to see more Central Bank Digital Currencies (CBDCs) in that case? I think this is a possibility, with 85% of central banks in the world currently studying and/ or piloting CBDCs – so the direction of travel seems clear. However, my suspicion is that the use case for cross-border settlements will be more compelling than for local settlements. When thinking of local CBDCs, central banks will wrestle with a critical question: to what extent do they want to disintermediate the extant banking system, and its role in credit creation? And if they go down an “intermediated” CBDC approach (i.e. use the existing banking system for custody of retail CBDC wallets), do they achieve meaningful improvement over existing banking solutions?

• Central banks are evaluating the potential impact of CBDCs on the efficacy of monetary policy, credit creation and availability, enabling greater financial inclusion, as well as the safety and stability of the financial system. We continue to stay close to these developments by participating in industry sandboxes and experimenting with the technology.

Beyond digital currencies, another key innovation that blockchain technology has enabled is Decentralised Finance (DeFi), where tokenisation and the use of smart contracts allow peer-to-peer financial transactions without the need for intermediaries, based on self-governance by the DeFi community. This will result in a rethink of the nature and construct of existing social and economic arrangements. I believe this creates several implications, of which three points stand out in my mind.

1. The programmability of smart contracts will allow us to reimagine workflows, such as processes pertaining to settlements, Anti-Money Laundering (AML) and Know Your Customer (KYC). This could dramatically change the structure of back-office operations by reducing costs and boosting overall efficiency and effectiveness.

2. There will be creation of new or modified roles in this alternate financial system for existing intermediaries. In this regard, we can draw parallels to the creation of the mutual fund industry, which disintermediated commercial banking, but led to the evolution of investment banking and wealth management. In the same way, I believe there will be an evolution of existing roles in the industry. There will also continue to be a role for client ownership and management of client experiences for banks.

3. The intent of DeFi is to democratise finance by replacing centralised institutions, including government bodies. In my view, this is unlikely to occur. Going down this path will require humanity to confront the intractable but important question around the roles of the nation state, and its responsibility for the safety and stability of the financial system. My belief is that the nation state will still be a critical organising principle and will not be diminished anytime soon.

We are keeping a firm pulse on these developments, and will continue to explore ways to harness its benefits and create new opportunities and revenue streams.

Question 3: DBS is among the first 100 banks globally to have signed the Net-Zero Banking Alliance commitment. Are you confident of meeting this enormous commitment, and what are the steps taken so far?

We strongly believe that the climate crisis is one of the biggest challenges for mankind, and that it will take commitment and effort from all of us – individuals, governments and corporations – to find solutions that safeguard our planet and our future generations. At DBS, we have been engaged with this issue over the past few years, and have made steady progress with respect to our lending policies and our portfolio development (notably, the commitments to exit coal, and the growth of our renewables financing portfolio).

That notwithstanding, we did not sign up for the Net-Zero Banking Alliance (NZBA) commitment till late last year, principally because we were reluctant to give assurances for 2050 without establishing some milestones along the way, and having some line of sight to what we can and would have to do to get there.

Our confidence in meeting this ambitious goal stems from five steps we took before our pledge that establish a clear line of sight over short and medium-term milestones.

The first step was to get a better handle on the carbon intensity of our existing portfolio. While we have been reporting under the Task Force on Climate-Related Financial Disclosures (TCFD) for a few years, this has been based on a sample size of 300 to 400 customers, covering around 10% of our base. In the course of the last year, we have been able to extend coverage to close to 3,000 customers, now covering over a third of the base. We have also worked with external consultants to create quantitative models that better allow us to estimate the residual portfolio.

The second step was to get greater confidence around possible transition pathways for different industries. In our modelling, we apply scenarios which are commonly used globally, such as those from the Network for Greening the Financial System (NGFS) or the International Energy Agency (IEA). To be fair, this is still work in progress, and will undoubtedly have different textures by country. However, these pathways help guide us with respect to how much we would need to do by when.

The third step was to establish a taxonomy that precisely categorises sustainable and transition activities by sector. We embedded this in our Sustainable and Transition Finance Framework and Taxonomy document that guides our engagement with customers as we help them establish transition strategies to reduce greenhouse gas emissions and build resilience to climate change. All of our efforts have already resulted in significantly enhanced client engagements. We made good progress in our sustainable finance business in 2021. For the year, we committed SGD 12.4 billion of sustainability-linked loans and SGD 6.9 billion of green loans. Cumulatively we have committed SGD 39.4 billion in sustainable financing transactions, against our sustainable financing target of SGD 50 billion by 2024. This was also the second consecutive year that we topped the Asia Pacific (ex-Japan) league table for arranging green and sustainability-linked loans.

Our fourth step was to integrate ESG into our risk management framework and strategic planning. We are developing quantitative models to assess climate-related risks in order to do so.

Our fifth step was to start actively reducing the carbon footprint in our own operations, which we will reduce to net zero by 2022.

In keeping with our commitment, we will enhance our reporting on the various measures in the coming periods to transparently update all our stakeholders on our progress.