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Profits of Japan’s megabanks expected to rise in 2022
Loan demand increased sharply because of the pandemic in the first half of fiscal 2020
CONSUMER CREDIT
The profitability of Japan’s three megabanks is expected to further increase over the next 12 to 18 months on the back of lower credit costs, according to a report by Moody’s Japan K.K.
The net income of Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group jumped 95%, 68.8%, and 78.9%, respectively over the first six months of the fiscal year ending March 2022 compared to the previous fiscal year. Credit costs declined after a spike due to the coronavirus pandemic.
Whilst the nonperforming loan (NPL) ratios of all three banks remained almost unchanged from the end of March 2021, these are well below the 10-year average of 1.4%.
“We expect the asset risks of
Cost-cutting efforts through digitalisation will start to translate into declines in base operating expenses
Japan’s three megabanks to remain low in fiscal 2021, given that the global economy will recover in 2021-2022, and the banks’ conservative approach,” says Tetsuya Yamamoto, a Moody’s Vice President and Senior Credit Officer.
Banks’ cost-cutting efforts through digitalisation will start to translate into declines in base operating expenses, Yamamoto added.
However, domestic net interest margins will remain under pressure because of excess liquidity and fierce competition amongst banks.
Notably, whilst Mizuho’s credit risk is one of the lowest amongst rated banks in Japan, Mizuho has relatively high operational risks, as highlighted by a series of system glitches in 2021, Yamamoto said.
Overall, Moody’s expects all three banks’ capital ratios to be stable as they steadily accumulate retained earnings, whilst controlling growth in risk-weighted assets (RWAs).
“Loan demand increased sharply because of the pandemic in the first half of fiscal 2020 but it has eased. As such, RWA growth at the three banks has normalised and will not change much from their current levels,” Moody’s wrote.
At the same time, banks’ liquidity will remain strong, backed by large amounts of cash and highly liquid securities holdings, the ratings agency added.
HONG KONG TO LAUNCH OWN DIGITAL CURRENCY: FINANCIAL SECRETARY
Hong Kong is looking to join the digital currency race, with Financial Secretary Paul Chan confirming that the city is looking to issue its own central bank digital currency (CBDC).
“The Hong Kong Monetary Authority (HKMA) is also studying the prospect of issuing our own central bank digital currencies, CBDCs, for retail use in Hong Kong, and I look forward to sharing the findings in the coming months,” Chan told attendees of the Hong Kong Fintech Week 2021, for which he delivered the welcoming remarks.
The HKMA recently released a whitepaper that studies the technical and regulatory aspects involved in issuing an e-HKD.
It first announced its intention to study CDBDs as part of its “Fintech 2025” roadmap. First unveiled in June, the roadmap seeks to strengthen the city’s fintech sector and push “all banks to go fintech.”
“The HKMA has been working with the Bank for International Settlements Innovation Hub Hong Kong Centre to research retail CBDCs and will begin a study on e-HKD to understand its use cases, benefits, and related risks,” the financial regulator stated in a press release.
Hong Kong’s regulator is collaborating with the People’s Bank of China (PBOC) to test e-CNY in the city to enhance cross-boundary payment services.
The HKMA and PBOC recently signed a memorandum of understanding for the Greater Bay Area FinTech supervisory cooperation. The new cooperation will reportedly allow financial institutions, tech companies and innovators from Hong Kong to test cost boundary financial applications via a one-stop sandbox, Chan said.
HKMA is studying the prospect of issuing its own CBDCs for retail use in Hong Kong
Trust is the basis of banking
The pandemic has reminded society that trust is the most crucial element that is needed from banks. How can the industry go to greater heights?
The ABS-commissioned Banking Trust Index for Singapore (BTIS) report found that there is high trust in banks in Singapore. In fact, the banking industry is trusted more than businesses and NGOs1 . The survey also reinforces that trust requires constant nurturing. Indeed, customers said they would trust banks more if greater accountability, transparency and customer and community focus was shown. So what else can banks do to maintain and build trust?
Embedding a customer-centric culture Customers’ best interests should be at the heart of everything we do. And there are several ways to achieve that. 1. Shift from a product-focused mindset to one that’s customer-focused. 2. Blend technology with empathy. We need to meet people where they are by providing digital or “human touch” servicing options based on their preferences. 3. Constant training and upskilling of our people to ensure they have the knowledge and confidence to guide customers on their financial needs. 4. Remunerate our people for demonstrating the right values and behaviours, instead of simply being focused on performance alone.
At HSBC, we have worked hard to improve on these key areas over the years. Our incentive scheme for our sales teams around the world is holistic and centred around meeting customer needs, without a product bias.
HSBC employees are assessed not only for performance, but also values and positive behaviours. The aim is to ensure each employee remains open, dependable and connected to our customers whilst in pursuit of performance excellence.
Banking with a purpose The pandemic has highlighted how truly connected we are, and that everyone has to play their part to help make the world a better place. Societies around the world now expect banks to help address social and environmental issues like gender inequality and climate change, and rightfully so.
As major engines of growth in the global economy, banks hold a variety of roles: asset owners, employers, financial market intermediaries and investors. This means that the industry as a whole can not only allocate financing to activities that can bring about positive change to societies, they can also help to encourage positive behaviours amongst their counterparts and customers.
One area that banks can help shape the future is on sustainability.
We now have the opportunity to build back better and help reboot our economies by transitioning to green, moving away from high-emission pathways and changing the behaviour of businesses and people. HSBC has proposed several new climate resolutions, including phasing-out the financing of coal and publishing annual progress reports2. Our efforts to develop partnerships and products that will bring finance at scale to create a
Anurag Mathur, Head, Wealth and Personal Banking, HSBC Bank (Singapore) more sustainable and resilient planet has similarly gained industry recognition.
We have also taken concrete steps to help reduce our environmental footprint – over 85% of our customers in Singapore use e-statements rather than paper statements, from H2 2021 we will be replacing both credit and debit cards with recycled plastic cards3 and we have significantly expanded the range of ESGthemed funds for our customers to invest in.
The BTIS report also highlighted that governments’ regulations contribute to the Trust perception of the banking industry. This highlights the importance of working with regulators to protect customers and encourage confidence in the financial industry. It has been a privilege for HSBC to chair the BTIS Taskforce and also contribute actively to the wider agenda for the ABS Culture and Conduct Steering Group.
HSBC is a member of the Veritas consortium4 sponsored by the MAS where we are one of the co-lead of the Fairness and Transparency work streams. The methodology and metrics developed would help the industry address challenges in the responsible use of Artificial Intelligence (AI) and Data Analytics (DA) as part of their business operations.
Putting it together The world is constantly evolving, and banks have to adapt; not only with their customers changing needs, but also society’s expectations.
That is why for banks to stay relevant, we cannot lose sight of their core purpose: to safeguard and responsibly look after other people’s money, and to continue to contribute to society in positive ways.
By Anurag Mathur, Head, Wealth and Personal Banking, HSBC Bank (Singapore)
1 https://abs.org.sg/docs/library/btis-2020-report.pdf 2“Very Satisfied Customers” are those who rate HSBC between 8 and 10, where 10 = Extremely Satisfied 3 https://www.hsbc.com/who-we-are/our-climate-strategy/hsbc-climate-plan-explained 4 https://www.euromoney.com/article/27g0tbzca93zph51zgjy8/awards/awards-for-excellence/worlds-best-bank-for-sustainable-finance-2020-hsbc 5 https://www.about.hsbc.com.sg/news-and-media/hsbc-switches-to-recycled-plastic-credit-and-debit-cards
Build it and they will come: How Bank SinoPac created its digital paperless service
The award-winning bank addressed problems such as long queues and arduous workflow.
The long queue, mounds of paperwork, and arduous process have always been a few of the biggest challenges for banks to address.
These problems have always been noted by top banks, who want to lessen friction for both customers and employees. According to Sarah Chen, Associate Executive Vice President of Operations Division of Bank SinoPac, the traditional branch service model, which uses paper and manual workflow, has pain points such as long waiting time for customers and long operation time for employees. A traditional bank would also have to deal with gargantuan amounts of paper that are not only a huge waste but could be harder to keep track internally.
In fact, back in 2017, Bank SinoPac used up to 12 million sheets of paper a year. This is about two times the height of Taipei 101, the highest building in Taiwan.
Leveraging technology to increase the level of their service and provide customers with a more satisfying experience, Bank SinoPac embarked on a digital transformation journey. It created the digital and paperless branch counter services, iBranch Sinopac.
The iBranch SinoPac enhances service efficiency and promotes O2O online and offline digital integration process that enables customers to digitise the entire process from branch number pickup, account opening application, form filling, transaction confirmation signature, identity verification, to customer receipts, and more. It even cut down the account opening time from one hour to 10 minutes with an estimated increase in customer service efficiency by 25%.
Irene Huang, Associate Executive Vice President of Digital Banking Division of Bank SinoPac said that since 2020, digital transactions—such as mobile payments, online shopping, and using online food delivery platforms—has increased, driving consumers to demand more digital alternatives in place of traditional physical methods.
To satisfy consumer behaviour changes and demands, the Bank SinoPac has switched from physical to online, providing contactless payment services so that consumers can seamlessly bind and link accounts, to fulfill the overall user experience friendly, to achieve innovative service thinking, and expand the scale of the financial market. By providing business-to-consumer applications in the four major fields of e-commerce payment, bills payment, identity authentication, and open banking through the application programming interfaces (APIs) platform of the Bank SinoPac, it has so far assisted more than one thousand companies in providing financial services, helping customers strengthen their online layout, and implementing the ubiquity of financial services with cross-industry cooperation,” said Huang.
To beef up its online to offline integration, Bank SinoPac also debuted the DAWHO APP, targeting customers they dubbed as “Henry’s” or high income, not rich yet. It is an all-in-one app that enables services such as deposit, transfer, credit cards, loans, foreign exchange, and investment anytime and anywhere.
Huang said they realised that the pivotal strategy lies in the customer-centric mindset. Bank SinoPac conducted studies revealing that the modern lifestyle is highly penetrated through online to offline integrated services.
“Consequently, DAWHO APP was born with the vision to smoothly combine every financial decision into our daily life. Therefore, functions like investing in a small amount, and enjoying a high rate of cash rebate through tailored credit card customised for digital
DAWHO Team & Irene Huang, Associate Executive Vice President of Digital Banking Division
lifestyle were launched to meet customer’s need at first hand, which not only require intensive cross-functional collaboration but also need to thoroughly monitor the latest consumer behaviour under the evolving economic circumstances,” Huang added.
The road ahead These initiatives are just some of the reasons why Bank SinoPac was given recognition for the Mobile Banking & Payment Initiative of the Year, the Open Banking Initiative of the Year, and the Branch Innovation of the Year at the Asian Banking & Finance Retail Banking Awards.
Bank SinoPac aims to further improve its services, especially with the DAWHO APP. The bank is working on strengthening its cybersecurity infrastructure as well as figuring out which of the latest techniques in verifying transactions and identities is best to apply in its online services.
“We appreciate and are honoured to win these awards. Bank SinoPac will keep on participating in open banking cooperation in line with government policies, developing various APIs for diversified financial scenarios, and aggressively create multi-channel, dedicated to providing seamless financial services and creating a high-quality digital experience for our consumers,” Huang said.
Bank SinoPac will keep on developing various APIs for diversified financial scenarios, dedicated to providing seamless financial services and creating a high-quality digital experience for our consumers
RHB Malaysia earns its 9th Domestic Foreign Exchange Bank of the Year trophy at the ABF Awards
The multinational regional financial services provider was recognised for its hassle-free digital FX platform assisting customers with simple, seamless, and convenient transactions.
Acknowledged for maintaining its position as a market leader in the Forex banking business in Malaysia, RHB Banking Group (RHB or the Group) received its 9th consecutive Domestic Foreign Exchange Bank of the Year trophy at the 2021 Asian Banking & Finance Awards. The group, headquartered in Malaysia, launched RHB Live FX @ Reflex, a digital platform that enables its customers to conduct online monitoring and booking of real-time FX rates and contracts combined with seamless straight-through transaction settlement. Through the system, users are in control as to how they wish to manage their settlements whilst providing them access to trade up to 34 currency pairs all in one place. “RHB Live FX provided the opportunity for us to embark on an effective product differentiation strategy in the FX market,” said RHB.
“Customers are now able to monitor and book real-time FX and time option contracts. Hassle-free straight-through processing is assured with declared beneficiary capabilities and the flexibility of early take-up and settlement,” they added. According to the group, the platform acts as an FX pricing and hedging tool comprising five main functions including Exchange Rate Inquiry to monitor real-time foreign exchange rates in 34 currencies, and Indicative Forward Swap Points to monitor Outright & Time Option FX swap points. The system also includes services in FX Rate Booking to book foreign exchange contracts, and Contract Rate Inquiry to view confirmed contract information, as well as Booking Status Inquiry to check booking status. These positive outputs were the product of the group’s response to economic uncertainties during the previous year and by listening to its customers. According to RHB, the group maintained a positive outlook despite the hurdles in the finance sector and focused its attention on providing meaningful solutions to its customers during these unprecedented circumstances. During that challenging period, RHB Live FX provided the chance for RHB to embark on an effective product differentiation strategy in the FX market.
“On the surface, launching new products during the Movement Control Order (MCO) may have been risky. However, we were able to achieve good results by riding on the prevalence of higher online usage by a broader and more geographically diverse customer base,” said RHB. Additionally, by further aligning its business strategy to the group’s digital transformation strategy RHB was able to refresh its Reflex payment platform to include FX transactions, which was based on thorough market research on related products within the industry. Furthermore, RHB sand-boxed their customers’ FX journey by applying digital permutations and data analytics to deliver competitive FX pricing and efficient execution.
“We leveraged customers’ higher online usage under work-from-home arrangements to market and conduct tutorials remotely. This allowed us to launch and operationalise RHB Live FX quickly and seamlessly. The success of RHB Live FX has been noteworthy, with 8,895 FX spot and forward transactions totalling MYR1.46b since its
Angus Salim bin Salleh Amran holds the position of Group Treasurer, Head-Global Sales & Markets at RHB Bank Bhd. launch in late 2020,” RHB explained.
The group attributes its position as a market leader in the FX banking business in Malaysia to its commitment to its core principle of putting customer interest as the top priority. According to RHB, especially during these uncertain times, this strong culture of engaging with customers had allowed them to understand their requirements better and in turn, providing them with the bestsuited products and solutions.
“We are proud to once again be named as Malaysia’s Foreign Exchange Bank of the Year and this drives us to be even more attentive to our customers’ changing needs. Customer behaviour is fast-changing and to anticipate and to address these shifts, the RHB Treasury team applies agile work practices that encapsulate deep collaboration amongst our various strategic business groups,” RHB said.
Moving forward, RHB plans to progressively refine the RHB Live FX to interface with other banking platforms and enable it to achieve higher operational efficiency and enhance the speed to market performance for a better customer experience. Ultimately, the group views this as an opportunity – an open window to further enhance its FX value proposition to its customers.
“As part of the group’s digital roadmap, our Internet Banking (IBK) and Mobile Banking (MBK) platforms will also be upgraded to provide more touchpoints for FX products and solutions,” said RHB.
“The team will continue to pursue agile business practices to foster even higher levels of customer centricity and we remain steadfast on our culture commitment of customer first, delivering above expectations,” RHB concluded.
RHB Malaysia will continue to pursue agile business practices to foster even higher levels of customer-centricity, remaining steadfast on our culture commitment of customer first
