Piyush Gupta, DBS chief executive, is positive about the bank’s prospects for 2014, despite the gathering economic headwinds, ranging from Singapore's frothy property market to slowing growth in China.
Gupta, an ex-Citi banker who has helmed the bank for over three years, is behind its push to increase non-interest income as banks in Singapore struggle with low rates and weak growth at home.
DBS’s total income grew 11% year-on-year to S$8.9 billion (US$7 billion) in 2013, due to higher loan volumes and non-interest income, including fees from private wealth and cash management. The bank's net profit (before one-time items) rose 4% to S$3.5 billion for the full year.
Amid concerns over a potential default in trust products in China as the economy cools, Gupta told reporters on Friday that DBS had “zero exposure” to such wealth management products.
At DBS's results briefing, he said that the bank is focused on short-term lending and providing working capital and that it is comfortable with its China loan portfolio. "We are not seeing stress in the China book," Gupta said.
DBS full-year net profit from Hong Kong rose 19% to S$851 million but its net profit for the rest of China fell 16% to S$92 million.
The biggest weak spot, though, was India, where DBS has targeted medium-sized companies. Unsurprisingly, given the volatility India faced last year, that business has struggled. "India is challenged…We have really taken the foot off the pedal in terms of growing our top line ,” said Gupta.
DBS does not break down its net profit from India but its overall net earnings for South and Southeast Asia fell 32% to S$198 million for the full year.
Amid concerns over a frothy property market in Singapore, where house prices have more than doubled in recent years, stretching affordability, Gupta expects prices to fall this year.
“My own sense is you’re looking at a correction of 10% to 15%,” he said, while adding that the bank had “stress tested” its portfolio and as a result felt able to withstand a drop of up to a 30% in Singapore property prices.
Gupta likened Singapore’s property market to those of New York and London, where prices stayed resilient after the global financial crisis of 2008, aided by foreign buyers. “The demand for housing [in Singapore] is global demand...notwithstanding some of the constraints on foreign buyers,” said Gupta.
Digital ambitions
DBS is embarking on an ambitious plan to build out a digital platform to penetrate regional retail banking markets. It is set to reinvest S$200 million from the sale of its 9.9% stake in Bank of the Philippines Islands on the digital build-out over the next three years.
“Today our ability to grow in markets like China, India and Indonesia in [the] retail mass market space is contingent on building a distribution network, which is bricks and mortar…which is why we tried to buy a bank in Indonesia,” said Gupta. But maybe another way of skinning the cat, by using a digital agenda to tap these markets, he added.
DBS was thwarted from buying a majority stake in Indonesia’s Bank Danamon due to a lack of regulatory approval and walked away from the acquisition last year.
The bank is hoping to tap into changing customer habits, as more consumers move away from visiting a bank branch to doing transactions online and through mobile banking. “If we are going to compete with the Paypals and Squares and Alibabas of the world, we just have to reinvent in a very fundamental way,” Gupta said.
