Asian Banking & Finance (October - December 2019)

Issue No. 97

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DISPLAY TO 31 DECEMBER 2019

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It’s our widely anticipated awards issue! Head on over to page 52 where we celebrate the achievements of over a hundred banks with outstanding retail banking, wholesale banking, and corporate and investment banking initiatives. This edition also features event coverage from our recently concluded Digital & Open Banking Conference in Singapore and the Digital Payments Summit in Hong Kong.

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As virtual banks take Asia by storm, we gain an insider insight into the success story of South Korea’s kakaobank straight from its business strategy head. This edition also features an interview with McKinsey’s Olivier Denecker who explores how banks can retain their dominace in payments even as BigTechs enter the fray. UnionBank’s chief human resource officer also outlines its people-centred push even as it goes all out in digital, whilst UOB shares milestones in its digitisation journey.

Our sector report on forex digs deep into Singapore’s efforts to retain its dominace as Asia’s leading FX centre, whilst our Islamic banking report examines the digitisation efforts of the region’s two leading Islamic banking markets. Our sector report on SME explores how banks are embracing data-powered tools to plug the funding gap.

This issue also brings you analysis stories on several prominent trends shaping today’s banking industry such as the rise of virtual banks, the push towards cashless and the shifting role of branch banking. In this issue, you will also find our Vendor View article tackling the top IT priorities of banks across the region.

Start flipping the pages and enjoy our year-ender edition.

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ASIAN BANKING AND FINANCE | DECEMBER 2019 7

CONTENTS

52

COVER STORY ASIAN BANKING & FINANCE AWARDS RECOGNISES RECORD NUMBER OF OUTSTANDING COMPANIES

12 Why small, struggling banks pose a

16 How banks can win in a rapidly

34 Who’s winning in ASEAN’s cashless race?

shifting global payments arena

38 Will bank branches remain relevant?

18 UOB beefs up digital defenses

big threat

13 Cards dethrone cash as king

against virtual bank upstarts

42 Virtual banks race to serve Asia Pacific’s

20 How UnionBank is future-proofing

22 Singapore steps up efforts to boost

FX ecosystem as Hong Kong closes in

24 Malaysia’s Islamic banks pull ahead of Indonesia in the digital curve

disruptions

help SMEs achieve the next level of growth

COMMENTARY 90 How can banks WOW the next

EVENT COVERAGE 46 Banks race against time to shake up payments as tech firms enter fray

48 Incumbent lenders rethink business

26 Singapore banks use analytics to

underbanked and overbanked segments

its workforce against digital

SECTOR REPORT

32

VENDOR VIEW FUTURE READY: HOW CAN BANKS BUILD A CHECKMATE-PROOF IT STRATEGY IN 2020?

ANALYSIS

INTERVIEWS

FIRST

12

INTERVIEW HOW KAKAOBANK SUCCESSFULLY CRACKED THE PROFITABILITY CODE TWO YEARS AFTER ROCKET LAUNCH

generation of wealth?

92 China’s dual banking system:

consolidation as the solution to

weak small banks 94 LINE Securities, a New Mobile

models to compete against virtual

banks

96 Indian Banking: Rappeling down

50 How are banks reinventing themselves

Investment Service in Japan the NPA wall

as fintech rivals flex their digital muscle?

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ASIAN BANKING AND FINANCE | DECEMBER 2019 9

News from asianbankingandfinance.net Daily news from Asia MOST READ

FINANCIAL TECHNOLOGY

Singapore fintech investments hit record-high of $735m in 9M2019

RETAIL BANKING

Massive mergers are no fix for Indian banks’ near-term challenges Under a plan announced in August, The total value of fintech deals the number of state-owned banks in Singapore jumped to a record in India will be reduced from 27 in $735m in the first nine months of 2017 to 12 in the third instalment 2019, up 69% YoY from $435m of the state’s consolidation agenda in 2018, according to a report by although this offers no quick fix for Accenture. Investors made larger the banking sector. The move comes bets but closed fewer deals as of 30 September, as deal count fell 29% to after Bank of Baroda’s merger with 94 compared to the 133 transactions Vijaya Bank and Dena Bank in April, recorded in 2018 as investors shifted and State Bank of India’s merger with its five associate banks in 2017. capital to more-mature companies.

10 ASIAN BANKING AND FINANCE | DECEMBER 2019

FINANCIAL TECHNOLOGY

Indonesian P2P lenders to disburse $30.63b in loans by 2024 P2P lending in Indonesia is set for rapid growth as the operators of such platforms are expected to disburse $30.63b (IDR430t) in loans by 2024 which represents four times the amount in 2018, according to a report from Ken Research. As customers embrace e-commerce, demand for working capital funding will also increase, effectively fuelling the P2P expansion.

THOUGHT LEADERSHIP ARTICLE

How AI Technology is Supercharging Reconciliations and Other Back Office Processing effectively

Massive data volumes and inflexible legacy systems make reconciliations prime for AI disruption.

W

hen capital market firms in AsiaPacific are asked what their key focus area will be in the coming years, chances are that shorter processing times will bubble up near, if not at, the top of their lists.

The evolution of the trade life cycle has only intensified the need not only for quicker posttrade processing, while also keeping errors and expenses down to a minimum. This dual demand to improve performance and prune costs has put firms firmly at a crossroads: Do we start to embrace AI technology to keep these business pressures at bay?

Two of the biggest challenges organisations in the region face when adopting AI technology across the back office is a lack of knowledge about the technology and its business use-cases, and also insufficient internal competence in AI technology.

These hurdles have emerged as financial institutions see a strong potential for AI to bolster back-office performance. According to a SmartStream survey, nearly 44% of respondents either already have AI live in their operations or are currently trialing AI at a proof-of-concept stage. For now, these same companies valued AI less for its ability to improve straight-through processing, and more for increasing the accuracy, transparency and speed of processing.

Given these prevailing views on AI technology, it was not surprising that three-

fourths of financial institutions identified reconciliations as the business function that could benefit most from AI technology, edging out accounting, cost and expense management, and corporate actions. The popularity of reconciliations as a target for AI technology initiatives stems from its inherent challenges: it handles a large volume of data and is hobbled by inflexible legacy systems.

For capital market firms, AI technology represents a significant leap towards executing previously impossible tasks in the reconciliations process.

Due to their lack of internal expertise, financial firms are partnering with global technology firms like SmartStream Technologies to develop AI-driven solutions that optimise their workflows not only in reconciliations, but also in cash management and fees and expenses management.

SmartStream, for one, has focused on evaluating optimal AI modelling, running tests and implementations, and analysing how AI processes best work with the current production environment by monitoring achievements and optimisation of processes.

In Sibos in September, SmartStream launched SmartStream Air, its dedicated AI solution for reconciliations. “SmartStream Air is a complete game changer for reconciliation and transaction control. Our innovative machine learning models incorporate over 20

“Nearly 44% either already have AI live in their operations or are currently trialing AI at proof-of-concept stage.”

Radha Pillay

years of experience and have been optimised to auto-configure complex scenarios. Secure and globally accessible, the new cloud product requires no installation or configuration,” said Radha Pillay, head of sales for APAC at SmartStream Technologies. “This AI-enabled, standalone application is infinitely scalable, multi-tenanted, and allows you to carry out reconciliations in an instant.”

At its most optimal implementation, SmartStream Air eliminates a significant amount of time and effort, as well as contains costs by reducing the reliance of business users on operations and IT support, according to Pillay. “The use cases focused on ad hoc reconciliations demands as opposed to the long cash domains that needed to be computed for two weeks. SmartStream looked at simple reconciliations needs, with two sets of rather complex data and in different formats, for example, that needed to be reconciled within minutes and find out if there are any disputes within those files,” he said.

“Just to put things in perspective, for a similar task on a non-AI enabled reconciliations platform, it would typically take two or three working days to sometimes even a week. And it has to be done by the IT department.”

By using AI algorithms to auto-configure reconciliations, SmartStream Air uncovers the reconciliation matches almost instantaneously, producing a robust battery of results, statistics and disputes within seconds.

“With this new technology, financial firms in APAC and globally can instantly see where the exceptions are, releasing them from a lengthy iterative process of trying to work out where the data mismatches lie,” said Pillay.

To cut down the set-up time and complexity, SmartStream Air employs a simple user interface with drag- and-drop capabilities, onboarding or training. Existing users of the SmartStream’s market-leading reconciliations solution, TLM® Reconciliations Premium, can implement the same AI technology that underpins Air to set up a powerful and stable day-to-day reconciliation system, Pillay noted. “SmartStream Air ultimately empowers business users to look after the own reconciliations needs. It also frees up IT departments and operations people to focus on more strategic tasks.”

ASIAN BANKING AND FINANCE | DECEMBER 2019 11

FIRST bank with assets of RMB94b ($13.32b) at the end of 2010 to a midsized bank with assets of RMB846b ($119.85b) at the end of 2018. From accounting for 12% of China’s total banking assets in 2010, the share of regional banks correspondingly rose to 23% in 2018.

Moreover, these entities supplied 24% of overall bank credit in 2018, up from 18% in 2014, data from Moody’s show.

Despite their growing economic importance, cracks have long been forming at the regional bank level. The non-performing loan (NPL) ratio of regional banks outpaces that of joint stock banks, city commercial banks and large banks. The share of bad loans held by the regional banking sector hit 40% by end-2018 from 23% in 2014.

FOREIGNERS STRUGGLE TO CRACK CHINA OPEN CHINA

Two titans command 93% of the market.

Although China has been gradually opening its financial services sector, foreign players will find it hard to expand into the country due to the dominance of Alipay and WeChat Pay which collectively command 93.7% of the domestic fintech market, according to Fitch Solutions.

In September, US company PayPal became the first foreign entrant in China after successfully acquiring local payments company GoPay and securing central bank clearance.

However, its entry is unlikely to herald any significant change to the existing market dynamics in China where the two well-capitalised companies are fighting head-to-head to outdo one another in payments, microloans, business financing, and wealth segments. According to Fitch Solutions, PayPal is unlikely to launch a consumer-focused offering that will put it in direct competition with the two entrenched incumbents as it is more likely to provide payments and clearing services for companies by leveraging GoPay’s ability and license to offer online, mobile, cross-border renminbi payments.

Despite fierce competition in verticals where Alipay and WeChat Pay operate, the P2P lending segment represents a possible market opportunity for foreign entrants especially after the central bank introduced new requirements for companies to set aside general risks reserves, and provisions for bad loans.

However, it is unlikely to hit the same numbers in its heyday, according to Fitch Solutions, which peaked in 2015 with over 3,000 P2P lenders.

As economic pressure mounts, the Chinese government introduced several measures to liberalise the financial sector including a pledge to end ownership limits for foreign investors in the sector by 2020, removing the foreign ownership cap for banks and asset managers and lifting the foreign ownership cap to 51% for securities companies, fund managers, futures companies, and life insurers.

12 ASIAN BANKING AND FINANCE | DECEMBER 2019

Regional bank assets as a share of total assets rose to 23% in 2018.

Why small, struggling banks pose a big threat CHINA

B

rewing trouble at the regional bank level poses systemic risk to China’s fragile financial services sector especially after a spate of credit events highlighted the vulnerabilities of such institutions, according to Moody’s.

In June, the central bank provided credit enhancement for the issuance of interbank negotiable ceritificates of deposit (NCDs) to regional player Bank of Jinzhou, a month after taking over troubled Baoshang Bank in its first bank seizure in nearly two decades. In August, there were reports that sovereign wealth fund Central Huijin Investment Limited and the Shandong provincial government were weighing an investment in regional lender Hengfeng Bank’s equity to boost its capital buffers.

Regional bank assets have grown rapidly over a short period of time.

Baoshang Bank grew from a small bank with assets of RMB115b ($16.3b) at the end of 2010 to a midsized regional bank with assets of RMB576b ($81.60b) by Q3 2017. The Bank of Jinzhou grew from a small

The share of bad loans held by the regional banking sector surged to 40% by end-2018 from 23% in 2014.

Spillover risk The potential for spillover risk may be magnified in the effect on interbank funding markets, especially since smaller regional banks and NBFIs are net borrowers in the market and heavily rely on wholesale funding (27.5%) compared to other banks.

The interbank NCD (threemonth) issuing rate for city and rural commercial banks has increased by 15 bps and 11 bps, respectively in the first two weeks of June, compared with May. During the same period, the share of failure in NCD issuance of city and rural commercial banks rose by 13.4% and 11.5%, respectively.

Spillover risk may also hit credit markets since smaller regional banks and NBFIs hold roughly 15% of corporate bonds traded on the interbank market. Distress at the regional bank level may also tighten credit supply, especially since lenders have a relatively high proportion of loans to entities with the same shareholders like SOEs and LGFVs.

Small regional banks have grown at a rapid pace

Source: Moody’s

FIRST The frequency of payments by credit cards in the country is much higher than developed markets like France, Canada, the US and UK.

Credit card payment value is tipped to hit $820b by 2022.

Cards dethrone cash as king

C

SOUTH KOREA

ards are expected to surpass cash in terms of payment volume to become the dominant payment instrument in South Korea by 2020, according to a report from GlobalData.

South Korea is characterised by high card penetration and frequency of card payments. The frequency of payments by credit cards in the country stands at 132 times in 2019, much higher than in developed markets such as France, Canada, the US and the UK. Credit card payment value in

South Korea steadily increased from KRW551.9t ($495.7b) in 2015 to KRW717.1t ($644b) in 2019. This is projected to swell to KRW914.1t ($820.9b) by 2022. “The high use of credit cards is largely due to various government measures, including promotional events, tax incentives and the mandatory acceptance of credit cards at merchant stores,” Nikhil Reddy, payments analyst at GlobalData, said in a report.

At present, a 15% tax exemption rate is offered on credit card expenditure for individuals earning KRW70m

($0.1m) or less a year.

“Tax incentives and reduced merchant service charges will drive card payments further, resulting in card payments overtaking cash in the near future,” added Reddy.

Debit dominance Debit cards are also being used for payments as the government tries to rein in growing card debt. Debit card holders can enjoy a tax deduction of 30% on debit card expenditure – double that of credit cards.

In a move to lower credit card acceptance costs amongst smaller merchants, the Financial Services Commission (FSC) announced new reforms which took effect on February 2019. This includes lowering the merchant service charge on credit cards by 0.65 percentage points (pp) to 1.4% per transaction for smaller merchants with an annual revenue of between KRW500m ($0.4m) and KRW1b ($0.9m). For larger merchants with annual revenue of between KRW1b and KRW3b ($2.7m), the fee was cut by 0.61 pp to 1.6%.

Card payment transaction value (KRW trillion)

Source: GlobalData

THE CHARTIST: MALAYSIAN BANKS FEEL THE HEAT AS MARGINS AND LENDING CONTRACT Malaysian bank loan growth is likely to drop to half the level it was four years ago and profit will likely disappoint, according to S&P Global Ratings. Bank loans are projected to expand between 3-5% in line with slowing economic trends. Despite banks’ limited exposure to the exports and electronics manufacturing sectors, the trade dispute is tipped to have a meaningful spillover effect to the domestic economy where lenders have a significant stake. As a result, nonperforming loan (NPL) rates may hit 1.7% over the next 12-18 months from 1.5%.

Net interest margins (NIMs) are projected to shrink by 5-10bps in 2019 in response to rate cuts and fierce competition for deposits. A separate report from Maybank Kim Eng expects return on equity to average 10.5% in 2019 compared to an estimated 10.4% in 2018.

Loan growth has dropped steadily

Source: S&P Global Ratings

Margins have been shrinking

Source: S&P Global Ratings

ASIAN BANKING AND FINANCE | DECEMBER 2019 13

INTERVIEW

How kakaobank successfully cracked the profitability code two years after rocket launch In the first half of the year ended June 31, kakaobank hauled net income of KRW10b ($8.58m), booking a net profit for the first time following a protracted loss-making period.

L

aunched in 2017, South Korea’s kakaobank has grown at a breakneck pace, amassing over 10 million customers and nearly KRW20t ($17.18b) in deposits, issuing over nine million debit cards and extending KRW13.6t ($11.68b) in loans as of September 2019.

Cashing in on the strong brand recall from the country’s most popular messaging app kakao, the internet-only bank found its niche in the country with a tech-savvy consumer demographic and effectively set the stage for virtual banks to follow.

Under its regulatory banking license, kakaobank offers a wide range of services that directly compete against incumbent banks, including loan, deposit, debit card and overseas remittance entirely on the consumer’s smartphone.

Deposit products include time-deposit and installment savings account where the maturity and the installment amount can be adjusted by the customer. kakaobank’s loan line-up consists of prime credit loan, secured and unsecured credit loans for mid-and-low credit holders, overdraft loan, micro loan and housing deposit loan. The entire journey of applying for a loan is done online, doing away with the need to go to a physical bank.

Beyond conventional banking services, kakaobank also provides group account service, loan platform service and credit information service.

Ease is the name of the game for kakaobank. With no branches to maintain, the company is investing heavily in the app experience. Through the mobile platform, users seeking to open security accounts with its sister company and majority shareholder, Korea Investment & Securities, can breeze through the application process via a simplified authentication process. In the first ten days since its launch, over 350,000 security accounts were opened. Users can also check on their credit score information, balances of credit and debit cards and loan balance for free in order to manage their credit status.

Together with fellow internet-only player K bank, the two tech-powered companies have captured around 0.6% market share in Korean won-denominated loans by end2018, data from Moody’s show. Despite making significant headway with two years in the market, kakaobank booked a cumulative net loss of nearly $60m in September 2018 as it made heavy investments in infrastructure and manpower to take its operations to the next level. In the same vein, K 14 ASIAN BANKING AND FINANCE | DECEMBER 2019

kakaobank looks to save the cost by leveraging on branch operation and also adopting new IT systems. kakaobank uses the saved cost in waiving most of the fees that can be generated at dometsic remittances, cash withdrawal from ATM and even early redemption charges.

Su-young Lee

bank recorded a similar loss of $35.14m in the first half of the year owing to intensified spending in IT infrastructure.

Profitability has also been a challenge, especially as the two internet-only banks relied heavily on an aggressive pricing strategy to gain market share early on in the game, which manifested particularly lower lending rates and higher deposit rates. Return on average assets hit -0.9% in 2018 from -7.2% in 2017, according to Moody’s, although the two players have wound down heavy promotions and stabilised profit.

As South Korea prepares to grant a third virtual bank license, Su-young Lee, head of strategy at kakaobank, shares the company’s milestones and way forward as the bank tries to achieve the next level of growth.

Competitive pricing and convenience have been identified as key strategies that kakaobank deployed to gain market share early on from incumbent lenders.

How is this displayed in your operations? kakaobank looks to save the cost by leveraging on branch operation and also adopting new IT systems such as Linux X89 and using open sources when we build up IT system and app development. kakaobank uses the saved cost in waiving most of fees that can be generated at domestic remittances, cash withdrawal from ATM, and even

INTERVIEW office. What are your plans to further boost efficiency?

As a virtual bank, kakaobank does not run branches.

However, we have a sizable back office including customer service part. It is too early to control cost as kakaobank keeps hiring in efforts to develop new products and services. We would not focus on cost saving in short term as we know we have to invest more to make better and innovative services.

kakaobank HQ

early redemption charges. In interest rate side, we have maintained lower interest rates for loan and higher interest rates for deposit, compared to those of competitors.

Speaking of convenience, the kakaobank app is made as a native app, which resulted in its flexibility and fast speed. kakaobank’s app also adopted an easy and simplified self-authentication process, including the biometrics, so customers can log-in swiftly. kakaobank’s intuitive UI/UX became a target to be emulated by competitors.

As one of the players that successfully cracked the digital banking code, what would you say are the best practices in banking for millennial demographic? For instance, there’s the bank’s core design and easily recognisable characters. How did you craft the bank’s UI/UX with that in mind?

It is true that collaboration with Kakao Friends characters by using those on our app and debit card is a part of things that have helped in attracting immense reaction at the early stage. Additionally, simplified authentication process, easy and fast operation, intuitive UI/UX, adopting fun and sharing function in banking activity are also important success points. 26-week-maturity installment saving account is clearly proving it.

Customers can select initial amount among KRW 1,000, 2,000, 3,000, 5,000, 10,000 then it will be deposited every week by increasing as much as the starting amount such as KRW 1,000 in the first week and KRW 2,000 in the second week. Customers also can see the installment status on the app with Kakao Friends characters being collected once the deposit is made. And customers can share the status on their social network.

We would not focus on cost saving in short term as we know we have to invest more to make better and innovative services.

What are your plans to boost returns? kakaobank has earned net income of about KRW10b for the first half ended June 31, booking net profit for the two consecutive quarters. It is expected that we continue generating net income in the second half. Making money is less important to kakaobank at this stage as we are well aware of the necessity of investment to create innovative financial services as we have been doing so far. We will seek both net income and investment.

The rapid pace of lending has weighed on virtual banks’ capital buffers. What are your plans to boost capital in line with regulatory requirements? How do you plan to access external capital to further unlock growth ceilings?

In such regard, kakaobank is mulling another round of capital raising by rights offering within this year. After the IPO preliminarily scheduled at the end of next year, it is believed that kakaobank will be having enough capital that we can stand alone.

What targets are you seeking to achieve this year and what are your long-term plans? What can we expect from kakaobank in the future?

Our initial target we set in late last year was becoming the no.1 mobile banking app by MAU. And we already achieved the goal as we outtopped another banking app in South Korea by MAU from June. Other than that, we will focus on book yearly-based net income, marking the first year of making net profit in the second year of launching our business. The most important goal for long term is evolving into a financial platform, a hub that customers and even financial companies join to buy and sell all kinds of financial products such as Amazon.

You’re using e-KYC heavily. Up to what extent of kakaobank’s processes is automated?

From the registration stage to be a kakaobank member to the final stage of the loan execution, all of the process in using kakaobank carries on online. This resulted from API networks between kakaobank and outside credit rating bureau and government arms.

Internet-only banks are cashing in on their branchless advantage as they do not have to worry about the costs associated with maintaining a bank branch and back

kakaobank cards

ASIAN BANKING AND FINANCE | DECEMBER 2019 15

INTERVIEW

How banks can win in a rapidly shifting global payments arena

Incumbents are building up capabilities and forging partnerships with former foes to stay competitive.

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fter a spike in the previous year, the growth of APAC payment revenues stabilised to 6% in 2018 to signal a more moderate pace of expansion, according to McKinsey. Balances and the rapid evolution of interest margins drove headline figures upward although the healthy pace of growth is unlikely to hold against increasing economic uncertainties, said Olivier Denecker, partner in the Brussels office of McKinsey.

“Our forecast is that growth will remain relatively stable at 6% driven by continuous growth of balances and number of transactions,” he said. “If external events create major economic issues and GDP strongly decreases, that would have an impact on the growth forecast for payments. Based on previous analysis, we estimate that if we get a 50% change in GDP growth, this would impact on the three to one level on payment growth rates. So 50 basis points GDP growth would have an impact of 1.5% on payments growth.”

Against the dimming economic outlook, banks are stepping up partnerships, building capabilities and leveraging new technologies to retain their dominance in the payments space, especially in the service of big corporates with massive transactional needs and where BigTechs have yet to penetrate.

In an interview with Asian Banking & Finance, Denecker outlines how banks can continue to create value in a rapidly evolving payments arena.

As BigTech companies look to set up payment ecosystems of their own, how can banks stay competitive when more agile players enter the fray?

If you look at what happened in the Dotcom era in the 2000s, a lot of the disruptors ended up being absorbed or cooperating with banks. The big difference between then and now is that there are not the nimble FinTechs but BigTechs like Alipay, Amazon, and Google that have deeper systems and very strong systems which not only claim payments as a part of their user journey.

What this means for banks is that there is a need to look at the FinTech world and see who you would work with as a provider or as a technical partner.

If you look at Europe, it’s more of an element where ecosystems have a lot of participants already on the commerce side and banks have a bigger chance of being part of the organizers of the ecosystem rather than just participating for market share within that ecosystem.

It’s not between banks and FinTechs, because coopetition (cooperation + competition) is the name of the game there, but between banks and BigTechs. This will 16 ASIAN BANKING AND FINANCE | DECEMBER 2019

BigTechs have not discovered the corporate side yet. One of the benefit for banks is that the ability to move large slabs of liquidity is still something that is uniquely reserved for banks.

Olivier Denecker

depend on whether the regulators opt to do the same thing to the BigTechs as they do for banks. As regulators force banks to open their system to BigTechs, will they compel BigTechs to also open their systems to banks?

However, BigTechs have not discovered the corporate side yet, I would say. If you want to serve large corporate clients, you have to be able to move large amounts of liquidity. To make a payment of a million dollars, you need a different balance sheet as a provider. One of the benefits for banks is that the ability to move large slabs of liquidity is still something that is uniquely reserved for them, which helped banks retain their position very strongly in the corporate space. But in terms of digital experience, it’s not enough to keep people tied to the existing systems as you also need to upgrade the experience into one that is fast, transparent, open and integrated.

How do you see this interaction developing especially when there are spaces where they need to be in direct competition with one another?

That’s the reality - every competitor is a potential partner, and every partner is a potential competitor. I think that the lines are not as tightly drawn as you would like them to be. As a bank, it’s very likely that you can compete with

INTERVIEW Global payments revenue picked up steadily in 2018 (USD trillions)

Source: McKinsey Global Payments Map

a FinTech on most dimensions like distribution and client retention but you have to also absorb the fact that this will attract alternative offers into the system which may compete with yours. I think exclusive partnerships are very rare in this space.

The one critical factor that would break any cooperation is if somebody claimed full customer ownership and full customer interface which would relegate somebody else to just being a product provider.

That’s when you will have a competition that is no longer compatible with cooperation on different fronts.

If you have a partnership with a FinTech that also becomes a bank, you have to understand that they’ll not always be a partner but sometimes will be a competitor, and at some point you may have to push your product against theirs.Those are demands of the open model.

The moment you go ‘open’, you have to accept the fact that the customer will not necessarily stay captive of your products only, across the entire journey, even if you provided the initial customer interface!

What are the strengths of the banking-as-a-service model and how does this shift reflect the growing trend towards outsourcing development efforts to external providers?

The banking-as-a-service or software-as-a-service type offers are not new. You’ll get a balance between the players that will build their own transaction components and payment platforms, and those that will source the entire service from go-to providers that can get the entire service component and not software components.

This is not going to be the only model but this is going to help a large set of banks keep up with the pace of change at levels where the capex is not crippling, and at the same time creates the opportunity for a new segment of service to emerge in the industry.

As traditional sources of growth for retail payments change due to stringent regulation, how can players continue to create value in this space?

If you look globally at the number of payments, you will see that it is still growing very healthily - electronic

The moment you go ‘open’, you have to accept the fact that the customer will not necessarily stay captive of your products only, across the entire journey, even if you provided the initial customer interface!

payments globally still grow at 10%. To capture that growth, you need to make sure that as more transactions happen, you can find yourself in a position where you are the one capturing those transactions, including the data, insight and the experience linked to that. At the moment, one of the big fears for banks is if somebody captures the interface between them and their client. The payments fees, you probably don’t care as much, but the fact that your client doesn’t interact with you anymore is concerning for a bank.

The payment value chain is rapidly disaggregating.

The other important element is the way in which people actually start diversifying very slowly. We come from a situation where all transactional experiences are very siloed: at the Point of Sale (POS) you use your card, for bill payments you use transfers or direct debits.

Where we are going now, the customer experience is no longer connected to the payment instrument, but to the interface. In some cases this means transfers work better at the POS than cards while for some bill payments the credit guarantee of cards, adds real value. As the customer interface for credit transfers is being adapted to the POS (often using the phone as a channel), we will see more substitution of cash payments at POS by transfers. You can start your account payment in a way that is is more suitable for the POS experience although the experience might be the same at the POS. Players that are best equipped to use the diversity of features that payments products offer will be able to develop a better customer experience.

The bank that can use these instruments to deliver the best customer experience will be able to benefit from it.

What we mean to say is that this is a high and stable growth market but there are quite substantial challenges. There are big differences between regions, countries and segments. Despite this positive outlook, the biggest concern you should have is that the value is distinct and that the growth is potentially vulnerable to external factors.

To deal with that shifting value, you really need to act as an incumbent. You need to act on the transformation, systems and analytics parts. That is not something that is incremental anymore but something that is requiring a rethinking, a mentality shift in a lot of operations.

APAC and account-related liquidity revenue will fuel growth

Source: McKinsey Global Payments Map

ASIAN BANKING AND FINANCE | DECEMBER 2019 17

INTERVIEW

UOB deepens digital capabilities as Singapore gears for virtual banks The bank has invested over $1.6b to enhance its technology capabilities from 2014-2018.

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s part of its broad-based digital transformation, UOB shelled out $1.6b to deepen its capabilities in data, mobility and connectivity, regulatory technology and cybersecurity segments in 2014-2018 in an effort to hold its ground against agile fintechs seeking to capture a slice of the city’s overbanked market. In 2011-2013, UOB invested around $500m to set up a standardised platform across its network enabling the bank to scale new products and solutions rapidly, said Susan Hwee, Head of Group Technology and Operations at UOB. In 2018, UOB invested over $26m in employee training programmes to deepen its people’s knowledge and digital skills as the composition of its workforce increasingly mirrors the tech shift, a report from Moody’s show. The bank’s data management workforce increased six times over three years with digital and cybersecurity teams growing by 12x and 14% respectively over 2016-2018.

In an interview, Hwee shares some milestones in the bank’s continued tech investments ahead of the central bank’s plan to hand out banking licenses to virtual players.

What specific digital initiatives have you introduced or enhanced in the last 12 months?

In retail banking, we launched TMRW, ASEAN’s first digital bank built for the digital generation, in March 2019 in Thailand with other ASEAN markets to follow. We have also enhanced our mobile banking app, UOB Mighty, in Singapore to make it even easier and more engaging for customers to bank and to pay on the go. Our consumer banking customers in Indonesia, Malaysia and Thailand will also be able to experience our mightier mobile banking app as we roll out the enhanced version progressively.

In 2018, we leveraged our standardised IT platform to launch a new Customer Relationship Management (CRM) system simultaneously across 16 countries. The new CRM system enables our relationship managers to have a comprehensive view of their clients’ businesses across the region. At UOB, our technologists not only work directly with the businesses but also in cross-functional teams to turn business ideas into solutions for our customers.

How can banks stay competitive and what innovative strategies can they deploy to stay ahead?

Incumbents cannot be complacent and we must constantly innovate to ensure that we engage our customers in ways which matter to them. Through leveraging machine-learning and artificial intelligence (AI) technologies, we can harness deeper insights on each customer’s specific needs and create solutions that are customised for them. Many financial 18 ASIAN BANKING AND FINANCE | DECEMBER 2019

UOB integrates digital engagement solutions from Israelibased FinTech firm Personetics and Icelandicbased firm Meniga into our IT infrastructure to drive TMRW.

Susan Hwee

technology (FinTech) firms also offer valuable solutions that could contribute to a bank’s digital strategy. For example, UOB integrates digital engagement solutions from Israelibased FinTech firm, Personetics, and Icelandic-based firm, Meniga, into our IT infrastructure to drive TMRW. Three of the five virtual bank licenses are wholesale bank licenses designed to serve SMEs and non-retail segments.

What programmes do you have for SME clients?

Knowing that companies in certain industry sectors face specific cross-border connectivity needs, we set up a dedicated team of industry specialists to provide customised solutions for clients’ end-to-end needs, covering sectors ranging from consumer goods to building and construction.

These solutions include loans, cash management and financial supply chain management. We are also the first ASEAN bank to set up a dedicated Foreign Direct Investment (FDI) Advisory team to provide business and market insights to help customers tap growth potentials.

We offer UOB BizSmart, an integrated suite of cloud-based business solutions to help them digitalise key operating processes such as payroll, sales, accounting and inventory management. With UOB BizSmart, small businesses can automate their business processes and cut the time spent on administrative tasks from the current four to just 2.5 days.

THOUGHT LEADERSHIP ARTICLE

ASIAN BANKING AND FINANCE | DECEMBER 2019 19

INTERVIEW

How UnionBank is future-proofing its workforce against digital disruptions In anticipation of the future of work, it launched UnionBank University about a decade ago to stay ahead.

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ith a commitment to invest over PHP500m ($9m) every year as part of its broad-based digital transformation programme, UnionBank has marked multiple milestones in its digitisation journey: setting up a paperless bank branch, creating an end-toend logistics platform, rolling out a stablecoin to enhance payment execution and embarking on a project to bring the country’s underbanked to the traditional financial system through blockchain technology.

As the ninth largest Philippine bank by assets builds its digital capabilities, it is also working overtime to equip its workforce with the necessary skills to stay on top of changing ways of doing business.

In an exclusive interview with Asian Banking & Finance, Michaela Sophia Rubio, chief human resources officer at UnionBank, outlines how the bank is preparing its workforce for the future.

To build on its commitment to technological innovation, the bank launched UnionBank University.

What other initiatives do you have to enhance the skills of your workforce?

Launched about a decade ago, UnionBank University provides a variety of courses such as design thinking, blockchain, data science, robotics and AI, mobile and web, software development, UI/UX design to name a few. These courses fuel our communities of practice and ensure we build centers of excellence. Our courses are offered through physical and digital channels.

The effectiveness of the programmes offered has improved employee engagement. We have realized an increase in the number of innovations, better products and services as well as the ability to perform in new roles and jobs as a result of digitismmation.

We identified and categorized the capabilities of new ways of working into core digital programs. We have chapters or communities of practice headed by Chapter Leads who are considered domain experts in the bank.

Chapters do regular meetups for sharing of best practices, tools and emerging trends in their domain. Our Centers of Excellence have launched the Blockchain Institute and the Data Science and AI Institute.

There are also internal solutions being built to create the best employee experiences. We created an employee lifestyle app called 1UHub where HR services can be accessed through mobile anytime, anywhere.

20 ASIAN BANKING AND FINANCE | DECEMBER 2019

The combination of a ‘build,’ ‘buy,’ ‘borrow’ talent strategy has accelerated the assimilation of new learning and adoption to new technologies and new ways of working from legacy to a transformed organization.

Michaela Rubio

What are the challenges in future-proofing one’s workforce and how does UnionBank go about overcoming these hurdles?

For functions affected by digitization, we have offered opportunities for retooling and have successfully deployed retooled talents for our vacancies and to new jobs. We have long prepared our people for digital by offering programs such as coding, web development and design.

One successful story on talent transformation involves the people in Branch Operations. The shift from transaction to interaction, manual to digital, high touch to personalised touch, operational to relationship building, from tellers to Branch Ambassadors, is transformation personified.

What is UnionBank’s HR strategy? How important is the people component for the bank?

The combination of a ‘build, buy, borrow’ talent strategy has accelerated the assimilation of new learning and adoption to new technologies and new ways of working from legacy to a transformed organisation.

We also encourage internal transfers among the UnionBank Group. Most of the senior management of CitySavings, our thrift bank, came from UnionBank, while close to 50% of the team of UBX, our new fintech subsidiary, also came from UnionBank.

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SECTOR REPORT: FOREX

The race is close as Singapore’s FX volumes in April only beat Hong Kong’s by $1b.

Singapore steps up efforts to boost FX ecosystem as Hong Kong closes in fast

Citi launched a pricing engine that cuts the time it takes to route a trade between Singapore to Tokyo.

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hen the Monetary Authority of Singapore (MAS) sounded a call for banks, startups and liquidity providers as part of efforts to cement its status as a leading centre for price discovery, liquidity and transparency, Citi was one of the first players to heed the call after it announced plans to set up an electronic FX pricing and trading engine in March.

Scheduled to launch in October, Citi’s platform promises to significantly cut latency or the time in takes to execute an FX transaction by doing away with the need to route trades elsewhere.

“Prior to establishing this platform, clients would have to connect via Tokyo or one of our trading engines outside of the region. This round trip latency

Average daily FX trading volume (April 2019)

Source: Bank of International Settlements

22 ASIAN BANKING AND FINANCE | DECEMBER 2019

Prior to the establishment of Citi’s platform, clients would have to connect via Tokyo or one of its trading engines outside of the region.

between Singapore and Tokyo is approximately 70 milliseconds, which is a huge difference for price discovery,” Mark Meredith, Global Head of Electronic Trading for FX and Local Markets, Citi told Asian Banking & Finance.

The engine, built in-house by Citi, includes a proprietary pricing and hedging algorithm and will initially offer 23 spot currencies (G10 and 13 deliverable EM currencies), as well as two precious metals (Gold and Silver). It marks the bank’s fourth trading location in addition to its London, New York and Tokyo infrastructure and signifies its commitment to support price discovery and trade execution during Asian trading hours.

“To support our efforts, we are also investing in a new data centre that will be focused on FX colocation, which will enable us to offer improved price transparency and facilitate more efficient price

SECTOR REPORT: FOREX Growth of FI volumes and level of cross-border activity in Asia markets

Joo Seng Wong

Mark Meredith

Source: KPMG

discovery in the region’s time zone for our clients,” said Meredith.

The latency challenge The latency to London/New York is about 180 milliseconds (ms) and 85 ms to Tokyo, said Wong Joo Seng, CEO of currency platform provider SparkSystems. To ascertain whether the order was successfully executed would take another 180 ms or 85 ms return trip, bringing the total to 360 ms and 170 ms respectively.

“If FX matching capability were to be developed in Singapore, this timing will drop to a mere 1 or so millisecond,” Wong said. “That’s an order magnitude improvement one cannot obtain by just writing a new and more optimised programme.

This takes both optimisation in programming as well as infrastructure design to achieve.”

In the past 18 months, UBS, JP Morgan Chase and Standard Chartered have joined Citi in setting up similar matching engines to cater to the growing wealth in the city state. UBS’ platform has already gone live in Q2 2019 whilst JP Morgan and Standard Chartered are expected to launch in early 2020.

Through a series of grants and tax incentives, MAS is hoping to lure another three to five major players, including non-banks and multidealer platforms, that can set up electronic trading platforms enabling it ‘to achieve critical mass’ over the next year, a MAS official was quoted in a Bloomberg interview.

Having multiple players set up shop is of critical importance as Tier 1 FX banks that worked on securing

the necessary internal approvals and made the necessary investments would be standing still without any institutions to trade with, highlighting the challenge associated with first-mover advantage.

“Who does the institution trade with if they are first? They need to wait for the second and third etc.

Hence, it needs a cluster to banks to set up matching engines here almost simultaneously for it to make any economic sense,” he said. “I think the ‘hard yards’ will be just another two to three Tier 1 FX banks. Then the floodgates should open and Singapore should develop into a major FX matching centre. This means the entire region will use Singapore as an FX hub i.e. Thailand, Malaysia, Indonesia, Philippines, Vietnam.”

Playing catch-up Trailing only behind the UK and US, Singapore retained its position as the world’s third largest FX centre with a market share of 7.6% after average daily FX trading volumes rose 22% to $633b in April from $517b in April 2016, data from the Bank of International Settlements (BIS) show.

Spot and FX swaps turnover surged 26% and 35% respectively, offsetting a 6% decline in forwards turnover.

OTC interest rate derivatives market posted robust growth, with average daily volumes surging 87% to $109b from $58b three years ago.

Despite broad-based growth across G10 and emerging market currencies, Singapore’s lead over close regional competitor Hong Kong narrowed as the SAR saw

average daily FX trading volume pick up at a faster clip to close at US$632b in April to rank as the fourth largest FX hub by trading volume and pulling ahead of Japan “The share of FX trading in the leading Asian financial centres, namely Hong Kong SAR, Singapore, and Tokyo, declined slightly to 20% in April 2019. This was mainly driven by relatively slower growth of activity in Singapore and Tokyo. Turnover in Hong Kong SAR grew at a higher rate than the global aggregate, raising its share in global turnover by one percentage point,” BIS said in its triennial central bank survey.

Making headway As Hong Kong closes in, regulators are working overtime to incentivise big players to anchor their matching and pricing engines in Singapore as they bank on the city’s low tax rates and world-class business appeal to enhance the FX ecosystem.

“Singapore is strategically positioned at the centre of Southeast Asian nations for which trade plays an important engine of economic growth. Coupled with its conducive environment that’s highly favourable to e-commerce activities, all these have enabled Singapore to attract a larger share of global investment flows and in turn helped to boost trade,” said Citi’s Meredith. Coupled with its conducive environment that’s highly favourable to e-commerce activities, all these have enabled Singapore to attract a larger share of global investment flows and in turn helped to boost trade.”

In addition to established players, non-bank market makers like XTX and Jump Liquidity have grown their Singapore footholds in apparent recognition of the wealth of opportunity in the market.

For Wong, some of the benefits of this initiative can already be seen in recent developments. “The strategy is to help in defraying some of the costs the first few banks experience when deciding to move FX matching capabilities here. There isn’t a need to do so for the entire banking community. That would be far too costly and it’s not necessary. This only needs to be done for the first half a dozen or so movers. This [is what] the MAS has done and we are seeing the success of this initiative already.”

ASIAN BANKING AND FINANCE | DECEMBER 2019 23

SECTOR REPORT: ISLAMIC BANKING

The Malaysia central bank released guidelines on value-based intermediation in October 2018.

Malaysia’s Islamic banks pull ahead of Indonesia in the digital curve

CIMB Group has pledged to invest $477m over the next five years to strengthen its digital platforms.

O

nce limited by their small physical presence, Asia’s Islamic banks are digitising rapidly to narrow the gap between conventional lenders on the back of strong regulatory support. The pace of digitisation, however, will not be equal between the two largest Islamic markets in the region, as Malaysia pulls ahead of Indonesia in the digital curve and sets the pace for the rest of Asia. “Digitisation of Islamic banks will be faster in Malaysia than in Indonesia, because in Malaysia, Islamic operations are a more integral part of the country’s banking groups and are at the centre of the banks’ growth strategies,” Simon Chen, Vice-President – Senior Analyst at Moody’s Investors Service told Asian Banking & Finance.

Banks are facing fierce competition from more agile fintechs who are also starting to recognise the opportunity in the segment and taking advantage of gaps in the formal financial system.

24 ASIAN BANKING AND FINANCE | DECEMBER 2019

There are as many as 20 companies offering shariahcompliant solutions in Malaysia but Indonesia takes the cake in having the largest number of fintech startups offering Islamic products.

Incumbents need to act fast as Chen noted that the digital investments of Islamic banks are still in their ‘early stages’ with improvements largely focused on boosting technology and data analytics capabilities for consumer needs as opposed to a broad-based digitisation of operations and internal processes.

Fitch Solutions noted that there are as many as 20 companies offering shariah-compliant solutions in Malaysia but Indonesia takes the cake in having the largest number of fintech startups offering Islamic products ranging from peer-to-peer financing, equity crowdfunding, remittances, personal finance and wealth management, according to a report cited by Moody’s. HelloGold in Malaysia and Blossom Finance in Indonesia are some of the companies leveraging on blockchain technology to provide shariah-compliant smart solutions. “Whilst the emergence of fintech will intensify competition, it

will also facilitate the expansion of Islamic banking, instead of stifling it, by driving the banks to increase investment in digitisation and keep up with evolving consumer demand for financial services,” said Chen.

Keeping up Despite being in the nascent stages of digitisation, Malaysia’s dominance in the Islamic banking space remains clear. Unlike major banks in Indonesia, Moody’s noted that its two biggest Islamic banking groups, Maybank and CIMB, have adopted an ‘Islamic-first’ approach where they offer Islamic products to all new and existing customers across business lines, which have helped boost the share of Islamic banking assets.

On its part, CIMB Group earmarked MYR2b ($477m) to strengthen its technology and data analytics capabilities from 2019-2023 and cater to a digital userbase which grew 23% to 4.9 million in 2018,

SECTOR REPORT: ISLAMIC BANKING Islamic financing as a share of total financing

Source: Moody’s

data from Moody’s show. Maybank’s proactive digital approach is also bearing fruit as it accumulated 7.9 million digital users and saw online banking transactions surge 37% to 5.9 billion over the same period.

Standalone Islamic banks in Malaysia have also been beefing up their digital capabilities more aggressively than their Indonesian counterparts, according to Moody’s.

Bank Islam Malaysia Berhad has committed MYR300m ($71.70m) for its digital transformation in 2019-2021 and MBSB Bank Berhad is planning to shell out nearly MYR250m ($60m) on a new platform that will support its digital ambitions and converting five out of its 45 branches into smart branches.

As a result of this approach, Islamic banking accounted for 59% of Maybank’s total financing in 2018, up from 57% in the previous year. In comparison, Bank Mandiri Syariah, Indonesia’s largest Islamic bank, accounted for only 8% of overall group financing.

Regulatory boost A significant reason behind Malaysia’s lead could be traced to comprehensive legal, tax and regulatory frameworks for Islamic banking that date as far back as the 1980s. To promote the sector’s growth and cement its regional dominance, the central bank issued guidelines on value-based intermediation (VBI) in October 2018 which, amongst other initiatives, encourages Islamic banks to explore new segments like social financing, SME financing and green

financing.

Designed as an intermediation function, VBI sets out a financing and investment framework on how banks can incorporate environmental, social and corporate governance values into their business strategies, risk governance and operations.

“The Islamic finance industry today faces a strategic choice - to either continue on a path that largely ignores the stark social and environmental realities that confront humanity, or to thoughtfully chart a new path that fully embraces the idea and philosophy of finance beyond profits,” central bank governor Datuk Nor Shamsiah Mohd Yunus said in a keynote address during the Global Islamic Finance Forum 2018 (GIFF2018).

Although not mandatory, the VBI reflects the country’s ambition to become a regional hub for socially responsible investing and green financing. The launch comes years after the implementation of the sustainable and responsible investment (SRI) sukuk framework in 2014, which led to the issuance of the first green Islamic bond in Malaysia in 2017, according to Moody’s.

As of March 2019, the credit rating agency notedthat there have been six green sukuk (bond) offerings to finance environment friendly buildings as well as solar and hydropower projects.

“Regulators in the two countries [Malaysia and Indonesia] are not just promoting growth. They are steering the banks to tackle emerging environmental, social and

Simon Chen

corporate governance (ESG)-related risks, whilst pursuing growth; a development which is credit positive,” said Chen. “Whilst it remains to be seen whether VBI will lead to better risk-adjusted returns for Islamic banks, it will help Islamic banks become more resilient to environmental, social and governance (ESG)-related risks, such as the banks’ exposure to industries or customers affected by climate change, ecological disasters, social unrest or poor corporate governance, which could in turn hurt the banks’ asset quality, profitability and liquidity,” he added.

On its part, Indonesia is seeking to increase the proportion of Islamic banking assets to 20% by 2024 from 6% in 2018. Demand for Islamic financial products and services is expected to increase as the government seeks to accelerate the halal economy in the next five years by strengthening the value chain of halal industries - for instance, making halal certification mandatory for all consumer products.

“Indonesia has made headway in improving coordination among various regulatory authorities to develop the Islamic financial sector.

Among other policy priorities, efforts to improve public awareness and knowledge of Islamic finance, are also underway,” said Chen.

Taking a page out of Malaysia’s playbook, Chen said that Indonesia similarly unveiled bold plans to expand Islamic banking by making it mandatory to spin off Islamic window operations into standalone subsidiaries by 2024 and allowing Islamic operations to use the existing infrastructure – either physical or digital – of their parent banks, mimicking the strategies of Malaysia’s Maybank and CIMB. In August, the Philippines also enacted a new law to regulate Islamic banking as part of efforts to cater to the Muslim community, which accounts for around 6% of the country’s total population.

Chen noted that the Philippines only has one Islamic bank which is government-owned. “[T]here needs to be greater efforts to boost market awareness and knowledge about Islamic financial services before commercial banks begin to invest resources to develop their Islamic banking capabilities.”

ASIAN BANKING AND FINANCE | DECEMBER 2019 25

SECTOR REPORT: SME BANKING

UOB BizSmart

Singapore banks use analytics to help SMEs achieve the next level of growth

By analysing massive data volumes, UOB is able to reduce the week-long loan processing time by 60%.

B

anks in Singapore are relooking at ways to both grow their customers and lending to the unserved and underserved SME segment especially with a study from McKinsey noting that lending to small and medium-sized businesses account for over a third of all bank loans in Asia Pacific.

In 2018, SMEs accounted for nearly three-fourths (72%) of employment and contributed 47% of the $445b in nominal value-add to the Singapore economy, data from the city’s statistics department show.

Despite their significant economic contribution, small businesses still fail to get the support they need from the traditional financial system as most banks lack the necessary information to accurately assess their creditworthiness and be able to make informed lending decisions.

SMEs are typically deemed riskier than large corporations due to their lack of credit history, poor financial 26 ASIAN BANKING AND FINANCE | DECEMBER 2019

As many as 60% of Singapore SMEs use bank loans for their financing needs.

banking, limited business experience and low business diversification, according to Deloitte. As a result, APAC banks’ risk costs for the SME segment are double those of the large corporate segment, data from McKinsey show.

Digital boost Against a backdrop where SMEs struggle with a series of financing challenges especially around cash flow and delayed payments, UOB is seeking to unlock more data from customer accounts and monitor the kind of business their clients are doing, almost in real time, in an effort to grant loans faster and in situations where they normally would not have.

With as many as 60% of Singapore SMEs using bank loans for their financing needs, according to a 2015 report from Deloitte, UOB knows that cutting processing time is critical to bridge the funding gap. A

business loan typically takes at least a week to process and requires several documents from applicants but UOB claims that its analytics engine reduces this week-long process by 60% as it leverages governmentenabled service MyInfo which supplies the necessary data.

Unleashing funding to SMEs does not come without risks, especially as small businesses are particularly vulnerable to a weakening macroeconomic environment. The ratio of new problem loan formation has started to rise modestly after hitting multi-year lows in 2018, with SMEs driving the uptick in stressed assets, Moody’s said in a research note. The systemwide gross NPL ratio for loans to Singapore-based SMEs rose to 5.1% in June 2018 from 4.6% in 2017 and 2.8% in 2016.

With this risk in mind, UOB is hoping to gain deeper insights into the credit behaviour of small businesses through its enhanced

SECTOR REPORT: SME BANKING Limited funding options hound SMEs across emerging Asia

Christie Chu

Mervyn Koh

Source: McKinsey & Company

credit engine which complements existing sources of information and includes new pools of data, such as a company’s day-to-day operations, said Mervyn Koh, managing director and country head of business banking for Singapore.

UOB also digitalises processes such as accounting and payroll to enable small businesses to gain greater visibility of their day-to-day operations and financial position.

“Through the enhanced credit underwriting engine, we are able to help more small businesses access financing through products such as our flagship collateral-free loan, UOB BizMoney,” Koh said.

To support customers seeking to grow their online presence, the bank integrated the digital capabilities of Shopmatic, an e-commerce solutions provider, into its cloudbased solution UOB BizSmart in May 2019. The integration enables small businesses to list their products and services on multiple marketplaces and social channels such as Amazon, Lazada, Qoo10 and Facebook easily.

“With the sales data generated on Shopmatic, UOB is able to draw insights from it and use them alongside other more traditional information such as the company’s latest financial statements to determine the business’ credit profile more accurately. This has made it easier for small businesses to apply for UOB business loans, especially if they do not have the track required, thereby improving their access to bank financing,” Koh said.

Businesses seeking to expand sales channels and grow their customer base can also leverage on the Shopmatic partnership to set up an e-commerce website even without the technical know-how in areas such as coding, online payments and user experience design.

Serial entrepreneurs OCBC is also turning to data to better serve small businesses but has zeroed in on a particular customer segment—serial entrepreneurs or individuals running more than one business. By leveraging data, the bank aims to extend financing support to their new ventures as it aims to capitalise on a growing market. A third of businesses incorporated in 2015-2017 belong to an entrepreneur that’s already running at least one business, according to figures cited by OCBC. In January, the bank launched its Serial Entrepreneur credit scheme following a year-long pilot programme where more than $100m in business loans had been approved.

Christie Chu, OCBC’s head of emerging business, global commercial banking, said, “We realised that we should focus on the serial entrepreneur and recognise his or her journey of successes and failures, rather than assessing a business solely on its financial track record. From taking a serial entrepreneur’s track record in Singapore into account for a loan for his first overseas business, to facilitating takeovers of other companies and otherwise providing

assistance toward their goal of becoming a listed company – the pilot has been very meaningful and yielded many successes so far.”

The business is centred on the bank’s new credit approach that takes into account the entrepreneur’s experience, business track record and overall business strategy across his or her group of companies. “This focus on the serial entrepreneur greatly improves upon the prevailing industry model which evaluates each business on a standalone basis based on their track record and financial credibility which makes it difficult for startups less than two years old to obtain financing – even if the founder has operating businesses and a proven track record,” OCBC added.

The serial entrepreneur business has teams comprising specialists in cash management, mezzanine capital and wealth management, with a relationship manager to form an integrated support network for serial entrepreneurs. OCBC noted how its cash management specialists guided a select group of serial entrepreneurs to become one of the first in Singapore to start using the funds transfer service, PayNow, for their businesses. “Exclusive economic and equity outlook events with the bank’s wealth management specialists were also organised for the serial entrepreneurs,” it added.

On its part, DBS has an online portal that gives SMEs access to web-based business tools and services such as accounting, human resources and payroll, digital marketing and cybersecurity solutions, in an effort to strengthen their digital capabilities.

In November 2018, the bank launched DBS MAX, a mobile-based QR payment collection solution that aims to improve cash flow for SMEs, which has been progressively rolled out to Hong Kong and India following strong take-up amongst the F&B and retail segments.

More recently, DBS unveiled a digital solutions package for SMEs in the logistics sector, which includes solutions for supply-chain financing and traceability, real-time trade financing applications and funds settlement through the SME’s enterprise resource planning or internal systems.

ASIAN BANKING AND FINANCE | DECEMBER 2019 27

RANKINGS: SINGAPORE BANK RANKINGS

UOB at Holland Village

Bank headcounts rise with tech talent boosting numbers

Banking staff at Singapore’s 18 largest commercial banks grew 5.47% in the last two years, with the growth spurred by digitisation initiatives.

T

he search for tech talent has boosted the workforce numbers of Singapore’s banks. With MAS officially joining the virtual banking race, and each bank requiring hundreds of mainly tech related new hires, this trend is only likely to accelerate over 2020. Overall banking staff employed at Singapore’s 18 largest commercial banks grew 5.47% in the two years since our last survey, from 58,409 to 61,604. DBS retained the top position with 11,693 employees as of end-March, up from 10,460 in 2017.

UOB followed in second place with over 9,000 employees and Citi rounded out the top three with a 9,000-strong workforce. OCBC and HSBC came in at 4th and 5th place with 6,700 and 3,391 employees, respectively. Overall, the banks in the list have a total of around 61,604 staff in Q1 2019, from 58,409 in 2017.

Virtual banking race Months after Hong Kong granted eight virtual banking licenses, the Monetary Authority of Singapore (MAS) announced that it will grant two digital full bank licenses and three digital wholesale bank licenses that will cater to SMEs. With licenses

28 ASIAN BANKING AND FINANCE | DECEMBER 2019

The five digital banks will still remain small and could collectively command only 2% of domestic banking system assets after they become operational and carry a leverage ratio of around 10x.

that are expected to be handed out by mid-2020, digital banks can open for business a year later. However, they are only limited to receiving $50m of deposits with $75,000 per account. Its potential customer base is also limited to business partners, staff, related parties and selected customers.

What this means, according to Maybank Kim Eng’s analyst Thilan Wickramasinghe, is that underserved segments such as the youth and new startups/SMEs are likely to find better access to financial products.

“Traditional banking has generally focused on large, established businesses which require less risk capital deployment,” he said.

“Assessing credit quality for these customers is cumbersome, costly and often do not justify the return.

However, virtual banks using lower cost operating models and data/AI enabled asset quality management, may be able to generate better returns from this segment. Supporting SMEs with deeper capital access will become an important driver,” he added.

Although the savings from having no branch network to maintain may not be enough to pose a formidable threat to incumbents,Wickramasinghe

suggests that “in Singapore, the domestic banks have been leaders in technology infrastructure investment regionally, and the gap between virtual and traditional is narrower.”

So far, gaming hardware manufacturing company Razer, fintech startup InstaReM and wealth management platform iFast have expressed plans to join the digital banking race. Bloomberg also reported Grab and Singtel are considering the opportunity and OCBC is in talks with firms including Singtel. iFast, in particular, is aiming for a retail banking licence. The firm boasts of having administered over $9b of customers assets as at end-June.

Lim Chung Chun, CEO of iFast Corp, said that given a license, they will work on making the whole investment and transaction process a lot more seamless for their clients, from allowing them to earn better returns on their cash solutions, to lending to the companies. Lim also plans to look into partnerships with various companies in the payment and e-commerce space, to help meet the payment and related cash management requirements.

“As we have previously applied for the virtual banking licence in Hong Kong, we also have a team ready to work on the digital bank operation if we are granted the licence,” Lim added.

Cementing dominance Even with five new banks set to enter the market, analysts don’t foresee any significant competition for the existing big 3 domestic banks.

Moody’s estimates the five digital banks will still remain small and could collectively command only 2% of domestic banking system assets after they become operational, adding that the overall virtual banking sector could potentially dilute just 1.3% of incumbent bank earnings in 2021.

When going up against the big three banks, the credit agency’s analyst Simon Chen said that the virtual banks’ impact will be quite manageable.

“The wave of new digital banks will increase competition and is credit negative for small foreign-owned incumbent banks in Singapore because these banks’ modest domestic franchises will face the greatest disruption risk by digital bank

RANKINGS: SINGAPORE BANK RANKINGS entrants,” he said.

Wickramasinghe expects that virtual banks would only account for less than 1% of the SGD loan market, with the two digital retail banks accounting for 0.3% of the market whilst the three wholesale challengers snapping up 0.9%. In comparison, DBS is expected to account for around 20% of the SGD loan market followed by UOB and OCBC. Standard Chartered, Maybank and HSBC are tipped to account for less than 5%.

Since 2009, the big three banks have embarked on extensive digitalisation programmes and have been actively seeking partnerships with fintechs.

All three banks have open application interface (API) platforms that enable them to integrate third-party services with their technology infrastructure and create offerings.

In 2014, DBS began setting up a cloud-based technology infrastructure, pushing up the number of its cloudbased applications to nearl double to over 60 by end-2018. Around 80% of its open systems have been deployed into the cloud last year, up from 66% in 2017, data from Moody’s show. The bank also has over 350 APIs, the largest number for a single bank globally, On its part, OCBC was the first bank in Singapore to launch digital innovations such as biometric access for online banking, artificial intelligence-based chatbot, voice banking, and robo investment platform.

Their profitability around retail and SME banking is said to have improved as well. According to SGX, the average return on equity (ROE) for the three banks stood at 12.5% in H1, up from 12.1% in H1 2018.

UOB and DBS have launched virtual bank offerings outside of Singapore in the form of TMRW which is available in Thailand and digibank in India (2016) and Indonesia (2017). In an interview with Bloomberg, DBS DBS CEO Piyush Gupta downplayed the impact of new entrants to entrenched players which have long upgraded their digital capabilities.

Standard Chartered is also investing in digital, and executed a pilot transaction for a state-owned oil and gas company in Thailand with the first cross-border Letter of Credit (LC) issued over the Voltron blockchain

platform for the oil industry. In January 2019, they have also completed its first blockchain-enabled cross-border supply chain financing in Singapore for Agrocorp, an integrated agricultural commodity and food solutions provider. “Our trade finance capabilities and global footprint made it possible for this first blockchain-enabled transaction to be completed within 24 hours, significantly reducing the time it could otherwise have taken (5-7 days),” a bank spokesperson said.

The impact from new entrants will be hardest felt for small and foreign lenders given their modest domestic franchise, Moody’s said in a report. “[T]heir Singapore operations are small and less strategically important to the overall group. This means they are unlikely to benefit from ready access to new digital investment,” the credit rating agency said.

Chatty bots Banks have been setting up innovation labs, promoting chatbots/ mobile portals to enhance customer experience, and boosting the digital infrastructure. Such efforts, according to Robert Half’s managing director Matthieu Imbert-Bouchard, will be will be growth areas for tech hiring amongst banks.

As technologies increasingly reshape job functions, banks are actively retraining their workforce to handle the changes associated with the job.

Standard Chartered introduced a $2m programme to retrain 3,000 employees by 2020 as part of an effort to future-proof its workforce against digital disruptions. In 2017, the bank embarked on the Professional Conversion Programme (PCP) and recruited 50 external PCP candidates since then. They have also offered PCP training and placement to 270 of its employees in 2018.

Since the launch of eXellerator lab in 2016 and SC Ventures in 2018 which aims to harness innovation from within the bank, invest in fintech start-ups, and establish new partnership and solutions, Standard Chartered has hired a diverse group of specialists in big data, data science, open banking, APIs and AI etc.

Following MAS’ announcement regarding digital banks, demand for

Lim Chung Chun

Shinjika Shukla

Thilan Wickramasinghe

Matthieu ImbertBouchard

functions related to software engineers, the demand for API integration architects, security, cloud specialist and UX/UI designers spiked, according to Shinjika Shukla, associate director at Michael Page Singapore.

“Tech hiring is on a rise as it has been in the last two years especially in Singapore. The demand of tech professionals with experience on emerging technologies is on an all time high as these are transferable skills and every industry needs such professionals to meet the needs of digitisation,” Shukla said.

Shukla mentioned that local banks, in particular, have been more actively searching for tech talent.

“The local banks continue to be the top technology hiring employers in the banking industry. Foreign banks are conservative in their hiring strategies and spends in Singapore due to various issues that impact at a global scale.

Further, the foreign banks are still continuing to invest in their low-cost location strategy for roles that can be worked remotely,” Shukla said.

Imbert-Bouchard added that local banks tend to approach hiring with more optimism and have increased the number of mid-level hires.

And because of increasingly fierce competition for tech talent, hiring firms have noticed “extremely innovative and attractive” salary packages being rolled out in the last few months.

“Tech professionals with strong background in software programming and security have been able to command as high as 50% increment in their base salaries. Especially the local talent with strong technical software programming skills and problem solving abilities are being lured with attractive fixed monetary packages, high performance based/driven bonus structures as well as stock options, etc,” Shukla explained.

Tech professionals with skills in programming or security can command 50% pay bumps, noted Shukla, with an eFinancialCareers report noting banks offer $250,000 for director-level positions and $64,000 to $90,000 for analyst-level tech positions.

Imbert-Bouchard added employers are giving higher grade titles such as Vice President for talent they want to retain.

By Nathanielle Punay ASIAN BANKING AND FINANCE | DECEMBER 2019 29

RANKINGS: SINGAPORE BANK RANKINGS NUMBER OF EMPLOYEES

2019 RANKING

BANKS

1

2017 RANKING

2019

2017

DBS BANK

1

11,693**

10,460

SHEE TSE KOON

2

UNITED OVERSEAS BANK

3

>9,000

>8,500

WEE EE CHEONG

3

CITI SINGAPORE

2

9,000*

9,000

AMOL GUPTE

3

STANDARD CHARTERED BANK

4

9,000*

>8,000

PATRICK LEE

4

OVERSEA-CHINESE BANKING CORP

5

6,700*

6,400

SAMUEL TSIEN

5

HONG KONG AND SHANGHAI BANKING CORPORATION

6

3,391

3,077

TONY CRIPPS

6

J.P. MORGAN CHASE & CO.

7

3,000***

3,000

EDMUND LEE

7

BNP PARIBAS

9

<2,200**

2,050

PIERRE VEYRES

8

MALAYAN BANKING (MAYBANK SINGAPORE)

10

2,000*

1,800

JOHN LEE

9

CIMB BANK BERHAD

11

1,270

1,200

MAK LYE MUN

10

CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK

15

1,178

306

JEAN-PIERRE MICHALOWSKI

11

AUSTRALIA & NEW ZEALAND BANKING GROUP

8

800

2,200

VISHNU SHAHANEY

12

RHB Singapore

12

722

750

DANNY QUAH

13

MIZUHO BANK

13

700***

700

SEIJI IMAI

14

BANK OF CHINA

14

580***

580

GUO NINGNING

15

STATE BANK OF INDIA

16

140

144

KISHORE KUMAR POLUDASU

16

ICICI BANK

17

111***

111

ANUPAM VERMA

17

BANK OF INDIA

77

77***

77

C G CHAITANYA

18

UCO BANK

19

42

54

RAJEEV GUPTA

91,005

85,981

TOTAL

LEGEND: *ESTIMATED FIGURES **AS OF DEC 31, 2018 ***FIGURES RETAINED FROM 2017

30 ASIAN BANKING AND FINANCE | DECEMBER 2019

CEO OR COUNTRY HEAD

ASIAN BANKING AND FINANCE | DECEMBER 2019 31

VENDOR VIEW: IT PRIORITIES

Open API, big data, cloud and machine learning are top priorities.

Future Ready: How can banks build a checkmate-proof IT strategy in 2020?

Heavy investments in technology will mean nothing without investing in manpower, according to experts.

A

s banks build up their IT capabilities and set up intricate albeit expensive multi-year investments in the hopes of outmanoeuvring competitors, a few key pieces will define their winning strategy in 2020. Asian Banking & Finance asked eight IT vendors on what banks should prioritise in the coming year, and most recommended embracing innovations that pamper the customer like royalty.

The King: Customer Experience Unsurprisingly, the majority of IT vendors is calling on banks to push for initiatives that have the highest impact on improving transaction efficiency and customer experience.

“This can be done with technology that facilitates real-time cross-border payments and enables mobile payment services, and APIs that can integrate the bank’s system with 32 ASIAN BANKING AND FINANCE | DECEMBER 2019

enterprise resource planning (ERP) systems to facilitate transaction processing,” said Navin Gupta, managing director, South Asia and MENA at Ripple.

Open APIs are an especially promising technology, according to Gupta, since they enable banks to participate in the data-sharing ecosystem, and effectively keep pace with the aggressive influx of new FinTech players. “By migrating to more agile architectures and sharing data with external developers via their APIs, banks can co-create solutions to drive customercentric designs and omnichannel experiences that will enhance customer experience.”

Banks should “think bigger and bolder” with open APIs as recently seen in the success stories of financial and technology giants, reckoned Wissam Khoury, senior vice president and general manager for

Adam Judd

George Lee

Jonathan Tan

MEA and APAC at Finastra.

“Enterprises across the globe, from Ping An to Salesforce, Microsoft and Apple, recognise the value to be gained in creating connected experiences that offer a holistic customer journey, and all are thriving as a result,” Khoury said.

The critical challenge of the digital economy is providing a consistent customer experience across networks, including brick-and-mortar branches that remain important in Asia Pacific even as digital banking gains traction, noted Steve Wood, vice president, Asia Pacific Japan at Aruba, a Hewlett Packard Enterprise company.

The Queen: Cloud Technology As the customer sits on the throne as the most important piece in banks’ IT strategies, cloud technology is emerging as the powerful backbone on which all other application services can be implemented and

VENDOR VIEW: IT PRIORITIES scaled. “First and foremost, banks need to invest in building stronger IT infrastructures to support the load of the application services being rolled out—after all, any form of outage will inevitably result in customer dissatisfaction,” said Adam Judd, senior vice president, APAC at F5.

Aside from the customer, cloud technology also provides more accessibility and convenience to employees, enabling them to work remotely, and most solutions are affordable and save businesses expensive physical space since they do not require on-site infrastructure, reckoned Jonathan Tan, managing director, Asia at McAfee.

Gupta cited an IDC report that Asia Pacific spending on public cloud services and infrastructure will hit $26b in 2019, up almost 50% from the prior year, with the banking industry a chief contributor to this growth. “The prevalence of cloud subscription services allows banks to pick and choose only the services they need and the capacity at which they need them. This also sets them up for flexibility and scalability, allowing banks to request for more or less resources as and when they require them,” he said.

Khoury warned that it is fast becoming a survival imperative for banks to run open ecosystems via the cloud. “Rising superapps like Alipay and WeChat, together with the growing reach of big tech firms like Google, Amazon, Facebook and Apple in payments and other areas of finance, continue to challenge incumbent banks at their own game,” he said. “This means working in isolation with ‘closed’ systems is simply not an option anymore.”

The Knight: Big Data, AI and Machine Learning Banks must also spend 2020 learning how to ride the technology trends of big data, AI and machine learning, which are driving the big leaps in customer experience and product development. “From frictionless authentication processes and chatbots to personalised insights and recommendations, banks are training AI models to provide consumers with round-the-clock services today,” said

Mani Gopalaratnam

Navin Gupta

Stephan Neumeier

Steve Wood

Wissam Khoury

Judd, citing the mobile application of Singaporean bank DBS that provides users with personalised insights on monthly expenditures and shares financial planning recommendations.

“Making the process of engagement and integration better through intelligent automation enables banks to provide efficiency and agility towards how it handles the customer and their transactions be it financial, content or offers,” added Mani Gopalaratnam, chief technology officer at Resulticks.

The Bishop and Rook: Fraud and Customer Data Security As banks accelerate their digital and data-driven capabilities, they must also build up their security tools against fraud and customer data theft to keep client trust and meet increasingly stringent regulatory regimes. Like the bishop and rook pieces in chess, these tools can be very powerful in deterring incoming threats, but they have blind spots, especially if the rest of the IT pieces do not work together to reduce the overall risk. “The lack of faceto-face verification heightens the possibility of online fraud, making it more challenging for banks to authenticate legitimate customers,” said George Lee, vice president, Asia Pacific & Japan at RSA RSA, about one fast-rising security trend. “Banks need to proactively double down on implementing next-generation fraud risk and intelligence tools.”

Accordingly, banks must spend enhancing their security operations with an integrated view of risk, which Lee reckoned will require banks to determine the distinct roles of each department and collectively develop a plan to combat digital risk and respond to breaches. “Tearing down the information silos between teams such as security and risk management, will equip the bank with greater visibility to the risk at hand and ultimately enabling them to determine how responses can be prioritized, to take appropriate and timely action,” he said.

Stephan Neumeier, managing director, APAC at Kaspersky, warned that banks should be on guard against the increasing sophistication and

frequency of cyber-attacks targeting financial institutions for their valuable data, citing his organisation’s latest financial cyberthreats report. “From cyber-robberies which focus on breaching the corporate network through an unknown device smuggled into a company building to attacks on ATM using a direct connection, such threats highlight how the financial threat landscape has evolved in just a year, with new infiltration techniques, attack vectors and extended geography.”

Market sophistication is also not a great indicator of preparedness, according to Neumeier, citing how close to half or 42.6% of surveyed enterprises in Singapore admitted they lack sufficient intelligence on the business threats. “Such statistics underscore the need for banks to better understand how cyberthreats that are constantly evolving in complexity can affect them.”

The Pawn: IT Education Last but certainly not the least, the people in the organisation represent the pawns that play a crucial role in all IT-powered initiatives. Training employees at all levels is essential to executing the enterprise’s IT strategy.

“A bank’s cybersecurity system is only as strong as its weakest link,” said Neumeier. “Most cybersecurity incidents often arise from human errors such as an employee opening a phishing email or plugging in an unauthorised storage device into the company network, he said, citing a worrying trend of poor data management in recent years, characterised by employees not adhering to cybersecurity standard operating procedures when handling data. Tan reckoned there needs to be a concerted effort within an organisation to create a culture of security, resulting from collaboration between leadership, IT and HR. “There is a human aspect to cybersecurity that businesses need to invest in,” he said. “Highly skilled teams which specialise in cybersecurity and risk analysis will provide foresight and enhance planning capabilities for banks that wish to overhaul their organisation with disruptive technology.”

ASIAN BANKING AND FINANCE | DECEMBER 2019 33

ANALYSIS: CASHLESS PUSH

Who’s winning in ASEAN’s cashless race?

According to Standard Chartered, cash and cheques still reign supreme although evolving customer expectations are prompting incumbents to rethink of more efficient ways to handle transactions.

T

he availability of instant payments systems around the world has transformed the payments landscape and customer behaviour. Today, consumers, merchants, corporates, and financial institutions can make P2P, C2B, and B2C payments at the drop of a hat.

As consumers and corporates expect faster settlement time, instant notifications, and automated consolidated reporting, their attitude towards traditional payment methods such as cheques, credit, debit, prepaid, and other e-payments will change.

Instant payments systems offer an instantaneous, 24/7, interbank electronic fund transfer service that can be initiated through one of many channels - smartphones, tablets, digital wallets, and the existing web internet banking platforms. When a real-time payment request is initiated, an interbank account-to-account fund transfer is initiated and a transaction notification is posted instantaneously.

Real-time payments also enhance visibility throughout the payment process. All parties involved, including financial institutions, merchants, corporates, and consumers, can benefit from better cash management.

Improved liquidity can in turn help corporates better manage their day-to-day operations. This makes a big difference for companies with long settlement cycles, and create a positive impact on their cash flow and Days sales outstanding (DSOs). The implementation of

Instant payments clearing infrastructure is fast becoming the base for a number of innovative use cases across industries.

instant payments across most markets in ASEAN makes fund transfers faster, simpler, and more efficient. Instant payments clearing infrastructure is fast becoming the base for a number of innovative use cases across industries.

Payments ‘Just-in-time’ payments: The ability to make payments instantly simplifies payment processes. For instance, there is neither a cut-off time nor the need to build clearing time into payment schedules. Just as many corporations adopt ‘just-in-time’ supply chains, this solution can also now be applied to payment processes, working capital enhancements, more-precise funding, costs reduction and maintenance of facility headroom. These all significantly improve the efficiency of supply chains.

Supplier reach: To be able to pay in real-time, companies can access a wider supplier base without incurring additional supplier risk.

Customer service: Companies can provide a more responsive service to customers, including faster refunds, incentive payments, or insurance pay-outs.

Collections Fewer debtors and enhanced working capital: Real-time payments can make credit collection processes more dynamic and effective, shorten collection cycles, and facilitate faster collections (including disputed cases after

Cash and cheques remain widely used in ASEAN despite the electronification of payments

Source: Morgan Stanley

Source: Standard Chartered citing data from the World Bank, aCommerce and the countries’ central banks 34 ASIAN BANKING AND FINANCE | DECEMBER 2019

ANALYSIS: CASHLESS PUSH from cheque issuances. Bank Indonesia unveiled a direct debit feature in their national clearing system in 2016, and is in discussions to launch additional payment options to provide digital alternatives to cheque/bilyet giro.

Digitising cash and cheque collections Whilst efforts are being made to move from paper to electronic, cash and cheques remain the status quo and will not be eliminated overnight. As consumers and corporates become more receptive towards electronic payments, technology is leveraged to provide more innovative solutions to make cash and cheque handling more efficient.

Mobile transactions are gaining ground, says Standard Chartered

they are resolved). This process enhances working capital by reducing funding costs and increasing investment returns.

New business models: One of the biggest advantages of real-time collections is the ability to develop and engage in new digital business models to access a wider customer base without taking on additional credit risks from customers.

Lower transaction costs and potential higher sales: Compared to credit card payments, real-time collections generally incur a much lower cost per transaction. On top of that, being able to collect funds faster, credit lines can be released faster to drive more sales.

Cash digitisation: Is cash still king?

Although there is a rise in alternative electronic means of payments in the region, cash still dominates. Cash usage accounts for more than 70% of transactions each in the Philippines and Indonesia, and 43% in Singapore.

Whilst the region may not be turning cashless at the snap of a finger, technology can help deliver features to attract consumers to embrace digital channels.

Apart from Singapore that holds a ‘stand out’ position in the Digital Evolution Index 2017 by Tufts University and Mastercard, the more traditional means of banking and payments remain more popular for the rest of ASEAN. Whilst the penetration of bank accounts has improved numbers in some countries, card penetration is relatively low (<50%). And in most of ASEAN, the preferred way to pay for online purchases is cash on delivery.

Other than cash, cheque payments remain widely used in some ASEAN countries. Cheque usage in the Philippines and Thailand has remained relatively stable even as its use has decreased in Indonesia by 32% in the past five years. In Singapore and Malaysia, governments have made the reduction of cheque usage a priority in their effort to move towards a digital economy. Singapore aims to lower the use of cheques to 15% in 2020 and be cheque-free by 2025, while Malaysia targets to reduce its cheque volume to 100 million per year by 2020, half the usage in 2012.

Markets like Indonesia are also trying to move away

Cash usage accounts for more than 70% of transactions in each in the Philippines and Indonesia, and 43% in Singapore.

a. Cash deposit machines The use of cash deposit machines is one way of balancing consumers’ demands for a prompt and seamless service and corporates’ objectives to become more efficient.

Many FMCGs, distributors, logistics, and retailers still handle many cash collections and face challenges such as delayed funds realisation and reconciliation as well as inherent operational risks. The availability of cash deposit machines provides these companies with a more efficient process of collecting payments.

Through cash deposit machines, we bring the “bank teller” to our clients’ office and enable companies to receive real-time updates of the amount deposited on the same day. While these machines do not represent new technology, the real-time connectivity with feeds into the Corporate Enterprise Resource Planning (ERP) platforms leverages new-age technology such as API (Application Programming Interface) banking. b. Remote cheque scanning solution The remote cheque scanning solution is supported by the electronic image clearing processes at the clearing house, an operation approved by regulators. This eliminates the need for physical cheques to be transported from presenting banks to paying banks. Instead, cheques are picked up by the vendor from the clients’ premises, scanned, and sent for clearing on the same day, reducing the clearing time from 3-5 days to only one day. Within a few hours after the cheques are scanned, bank clients are alerted of the cheque deposit. After the credit facility is approved, funds are immediately credited into the clients’ bank accounts.

Mobile wallets – the new and rising payments method According to a survey by PayPal Asia Research on Digital Payments in 2017, familiarity with e-wallets/mobile wallets in Asia is around 49%, with the highest awareness in China (around 83%). The success of mobile wallets acceptance in China is driven by its mobile-first consumer mindset, innovative social commerce model, and a robust and trusted digital payments infrastructure.

In India, the government’s decision to demonetise Rs. 500 and Rs. 1,000 notes in November 2016 led to the rapid adoption of mobile wallets. One year after the demonetisation, digital payments transactions rose to 53% (by value) and 33% (by volume). Statistics from the ASIAN BANKING AND FINANCE | DECEMBER 2019 35

ANALYSIS: CASHLESS PUSH Reserve Bank of India shows that UPI (UnifiedPayments Interface) grew at a compounded monthly rate of over 100% within six months of the demonetisation move.

Different types of e-wallets have emerged, targeting different segments to serve different purposes.

Enhance convenience for customers in a closed-loop ecosystem – Some companies create their own close loop e-wallets that allow their customers to make electronic payments, view past transactions, and collect rewards for transactions or the exclusive use of their products and services.

Cater to consumers’ new lifestyles – New tech companies are creating e-wallets that fi rst connect to their main business and subsequently expand to include other merchants. AirAsia’s Bigpay, Singapore-based Grabpay, Indonesia’s Gopay by Go-jek are some examples.

While these payments gateways let users pay for their transportation services, they also partner with other merchants to provide additional payments options to the users and increase the usage of their e-wallets. Banks have also capitalised on the e-wallet technology by making it easier for customers to conduct transactions at smaller stores, such as enabling customers to make payments at smaller shops with the scanning of a QR code. While some banks mandate their customers to top up their e-wallets, others allow digital payments to be made directly from the customers’ bank accounts.

Increased cross-border activities, from travel to payments, have encouraged operators to enable regional mobile financial services. Alipay and WeChat Pay entered the market to accommodate their Chinese users travelling to ASEAN. With the aim of unifying Asia’s fragmented payments scene, Singapore’s Singtel in October 2018 partnered with Thai telecommunications operator AIS and Kasikorn Bank to form an alliance named ‘VIA’, a partnership claimed to be Asia’s first cross-border mobile payments tie-up. This offers QR code-based mobile payments for users of Singtel Dash, AIS Global Pay and Rabbit Line Pay e-wallets. Payments can be made at VIAapproved merchants located in Singapore and Thailand.

Improve financial inclusion by giving access to the unbanked and those located in remote areas – With the network infrastructure that spans across countries, telecommunications companies have played a more active role in reaching the unbanked and those located in remote areas. Their services began with a simple feature of allowing members to top up their e-wallets for the purpose of transferring funds to other members. This was followed by other capabilities such as bill payments, movie ticket purchases, payments via QR codes, as in the case of the Philippines’ GCash and PayMaya.

What it means for corporate treasurers and consumers Not only is digitisation changing the way businesses interact with their customers, suppliers, and markets, digital innovation is reshaping the day-to-day operations of corporate treasury and how treasurers interact with financial markets. Treasurers need to embrace technology to drive a more efficient treasury function and become a 36 ASIAN BANKING AND FINANCE | DECEMBER 2019

Corporate treasuries have to adopt new technologies to manage liquidity both overnight and over the weekends.

Critical to achieving this is real-time cash visibility via an API that instantly advises of a credit/debit to the account.

value-added adviser to their business. Instant payments have the potential to enhance corporate treasuries’ ability to optimise liquidity management.

From a payments perspective, instant payments offer corporate treasury the following capabilities: • Fund and pay “just-in-time” instead of 2-3 days in advance, as is often the case today. This will potentially improve working capital metrics • Pay suppliers more quickly and take advantage of early-payment discounts under the dynamic discounting arrangements • Ensure completion of urgent and time-sensitive payments, with immediate rejection notices • Generate accurate liquidity forecasting, with no cash in transit or trapped in clearing accounts From a collections perspective: • Collect from customers more quickly with faster cash reconciliation – this will enable a faster release of goods to customers and reduce inventory or in-transit costs • Refresh credit limits sooner, allowing distributors customers to place more orders • Leverage the captured liquidity to recycle into the business or generate higher returns Corporate treasuries have to adopt new technologies to manage liquidity both overnight and over the weekends.

Critical to achieving this is real-time cash visibility via an API that instantly advises of a credit/debit to the account.

Similarly, Robotic Process Automation (RPA) tools will need to be developed to operate around the clock, and thus enabling a “24hr Treasury” function.

The various digitisation initiatives are creating significant opportunities for corporate treasurers to increase operational efficiency across the domains of cashand liquidity management, optimise working capital, and strengthen the risk and controls environment. Corporate treasuries will need to undertake their own transformation to embrace and leverage new technologies and ultimately align with the evolving needs of the business and the markets in which they operate. From Standard Chartered: Cash Digitisation in ASEAN

Singapore and Malaysian banks to benefit after accounting for cost efficiencies

ASIAN BANKING AND FINANCE | DECEMBER 2019 37

ANALYSIS: BRANCH BANKING

DBS branch at Plaza Singapura

Will bank branches remain relevant?

Property costs over total revenue for major banks represent around 10% of overall operational expenses in recent years, highlighting the necessity of more cost-efficient ways of maintaining branch networks.

M

ajor global and regional banksâ&#x20AC;&#x2122; earnings in Asia Pacific have recovered well in recent years, supported by steady revenue growth, restructuring and operational enhancements. However, most banks remain cautious and are exploring opportunities to achieve cost savings, such as via reducing property expenses.

Although property costs over total revenue for major global and regional banks slightly declined from 7.1% in 2016 to 6.6% in 2018, such costs have accounted for circa 10% of overall operational expenses in recent years.

Retail banks continue to pay higher property charges than non-retail banks due to the necessity of operating physical branches in prime locations. In 2018, real estate costs accounted for 15.2% of major retail banking groupsâ&#x20AC;&#x2122; operational costs, more than double the 7.0% for nonretail banks.

Branch network consolidation strategy Over the past decade, many major retail banking groups have sought to consolidate their branch networks by closing underperforming branches, a strategy that has helped them to mitigate property costs.

Another key driver of network consolidation has been the rise of digital distribution channels. These have helped many retail banks to move routine transactions and services online, thereby reducing the need for front-line 38 ASIAN BANKING AND FINANCE | DECEMBER 2019

In 2018, real estate costs accounted for 15.2% of major retail banking groupsâ&#x20AC;&#x2122; operational costs.

operations.

While the overall number of physical branches across Asia Pacific has declined, the scenario differs across markets. The reduction of banking branches has been brisk in mature Asia Pacific locations such as Korea, Hong Kong and Australia, where traditional banking networks are well established but still vulnerable to the emergence of online distribution channels.

In contrast, selected emerging Asian countries such as China and India have continued to see an increase or stabilisation in the number of branches due to retail banks opening branches in lower tier cities and rural areas. In China, restrictions preventing city commercial banks from opening new branches in other cities was removed, enabling small-to-medium scale banks to grow their national networks.

In Japan and Taiwan, where consumers prefer to visit branches in-person to avail of teller services, the number of retail banks has been relatively steady.

The digitalisation of financial services in emerging Southeast Asian markets is expected to see steady growth in the coming years, underpinned by technological innovation and increasing mobile penetration. In Thailand, leading local group Siam Commercial Bank closed 200 or around 1/6 of its physical locations in 2018 as part of a shift towards digital transformation.

Optimising branch networks to achieve cost savings

ANALYSIS: BRANCH BANKING The number of bank branches have largely been on a decline

Source: CBRE citing data from regulators across the region

is just one aspect of the transformation now underway in the retail banking sector. Equally as important is how traditional retail banks are responding to the challenge posed by emerging players such as virtual banking.

Virtual banking in asia pacific The virtual banking industry has grown rapidly in Asia Pacific in recent years. Several large technology and e-commerce companies have leveraged their large consumer base, high traffic and digital know-how to launch virtual banks.

The disruption to the retail banking industry has been visible in China since 2014, when several â&#x20AC;&#x153;pure online banksâ&#x20AC;? were established. Most of these have been backed by tech giants and include MyBank by Ant Financial, Tencentbacked WeBank, aibank by Baidu and Alibaba-backed Suning Bank. Expansion has been rapid, with WeBank recording RMB10 billion in revenue in 2018, four times that in 2014.

Potential risks facing virtual banks include difficulty in absorbing deposits. Failure to do would mean their cost funding would be much higher than that for traditional banks Other challenges include regulatory and compliance barriers, cyber-security issues and customer acceptance of pure online channels.

The response of traditional banks In response to the rise of virtual platforms, traditional retail banks are expanding and augmenting their digital offerings to improve convenience, enhancing the integration of omni-channel banking with seamless online and offline cooperation, reducing transaction fees and enhancing transparency.

Several institutions in Japan and Hong Kong have recently formed their own virtual banking platforms which, although technically separate operations, utilise the resources of their parent banks.

Other initiatives introduced by retail banks include strengthening their value proposition by introducing products and services that differentiate from what virtual bank can offer. In 2019, a global bank introduced a new super premium offering for its high net worth clients on

Ada Choi

Cynthia Chang

George Wang

top of the current premium services. Several retail banks in Hong Kong recently announced plans to waive fees for accounts with balances below minimum requirements to retain their customer base.

Retail bank branches are here to stay Whilst the rise of virtual banking undoubtedly adds to the pressure on retail banks, traditional retail branches remain an important component of banking networks.

Traditional banks cannot be replaced by pure online platforms. Traditional banks provide comprehensive services to a broad range of customers whilst virtual banks cater to small-and-micro businesses and digitally savvy younger consumers. On the product side, traditional banks offer a full range of banking services, whilst virtual banks focus on small loans and deposits.

Retail branches remain critical components of banking operations, not only due to regulatory requirements for specific banking services such as account opening and closure, but also because they play a key role in helping banks target certain customer segments and projecting a strong brand identity.

Most importantly of all, many customers still visit branches because of the trusted relationship that physical branches can facilitate via services such as professional financial advice with face-to-face interaction or particularly complicated transactions According to a survey conducted by Deloitte, more than 60% of customers prefer to go branches to handle complex or advisory services such as mortgages, personal loans and wealth management.

Retail bank branches must also establish a connection with a younger client base such as millennials and Gen-Z, as these emerging consumer groups have higher expectations related to customer experience and bank design. Organisations reviewing their retail banking networks should focus on optimising branch networks and redesigning interior layouts to facilitate a smoother, simpler and personalised end-to-end customer journey.

Optimising retail rank networks The retail bank branches of the future will emphasise the client experience and convenience over transactional services. CBRE foresees radical changes to retail banking branches to enhance online and online service integration.

Rather than simply reducing the number of branches they operate, CBRE advises banks to optimise the combination of different branch formats in each market.

Banks must strive to achieve a balance between keeping operational costs in check and creating attractive and essential physical spaces to build customer relationships and maintain local market share.

The next generation of banking networks will have to adopt formats to make banking visits more pleasant for the public whilst utilising a range of designs to target and cater to different client groups.

Self-service centres mainly host Automated Teller Machines (ATM) to process simple transactions. This format is expected to see flat growth as it is still important to provide customers in nearby locations with the ASIAN BANKING AND FINANCE | DECEMBER 2019 39

ANALYSIS: BRANCH BANKING Four retail banking formats for the future

Source: CBRE

convenience of self-service banking. However, certain simple transactions currently conducted by ATMs will gradually move online, with many banks now developing more convenient digital tools such as P2P money transfers and mobile payment apps.

Standard branches located in business and residential areas will continue to see consolidation. These locations play a key role in building relationships between branch staff and clients. While many banks have already carried out extensive catchment area analytics to eliminate underperforming branches, any closures must be carefully evaluated to ensure branch coverage remains optimised across the entire portfolio.

Flagship branches provide a comprehensive set of products and services. These branches effectively sent as brand experience hubs and are a critical component of the retail banking network, identity and presence, meaning that banks will continue to maintain such branches in prime areas.

Recent years have seen an increasing trend for banks to partner with malls, public transportation companies, co-working spaces and universities to set up temporary booths to promote certain services such as loans to startups and credit cards.

The coming years will see more banks increase their use of pop-up branches and booths, not just to promote certain services, but to refresh their image and connect with new client groups, particularly younger consumers who do not typically visit branches.

The Evolution of the Retail Banking Branch Journey With a visit to a branch now forming part of a much more diverse ecosystem of banking channels and platforms, retail banks must rethink branch design, configuration and rollout to ensure they stay relevant in the digital era.

CBRE believes retail banking branches will need to expedite the consumer journey. The branch lookand-feel must also impress clients upon arrival. Banks are also advised to do away with the closed-off and compartmentalised interior designs of the past and introduce more open space enabling them to more effectively showcase their range of products and services to consumers.

Dedicated priority lounges can be provided to high net 40 ASIAN BANKING AND FINANCE | DECEMBER 2019

Customer experience will be at the heart of the retail banking branch of the future.

worth and other VIP clients to relax while waiting to be served and can also provide an opportunity for banking staff to introduce other services.

Space in standard branches and flagship stores can be allocated to semi-private meeting areas for customised services between relationship managers and clients.

As flagship stores have an important role to play as brand experience hubs, they should offer non-banking features such as communal space and cafes to enhance customer experience or host client events and seminars.

In Thailand, a commercial bank has partnered with co-working operators and converted some of its branch space to co-working areas for startups to foster business networks.

Retail banking branch design must also incorporate the most advanced digital technology and introduce self-service features and zones to enhance efficiency.

Rather than providing services, the role of the bank teller will be to manage relationships with consumers and provide guidance for using self-service technology.

Banks will therefore need to train frontline staff to enhance their digital skills.

Several banks in Asia Pacific have already introduced and expect to further adopt digital features in their retail branches. These include but are not limited to virtual reality tools enabling clients to visualise the home/cars they offer loans for, the use of smart tablets enabling clients to view real-time analytics of their portfolios, and video conference rooms to host meetings between clients and remote customer service representatives.

In Singapore, Oversea-Chinese Banking Corporation (OCBC) has created an innovation lab to develop technology such as Al, which is already being used in its branches and ATMs. As of the end of 2019, the bankâ&#x20AC;&#x2122;s AI-powered tools had handled 143,000 queries and increased the relevance of real-time product offerings to clients times three-times over.

Conclusion As competition from virtual banks intensifies and customersâ&#x20AC;&#x2122; expectations evolve, traditional retail banks must review and refine their real estate portfolios to meet these new challenges and requirements.

Although CBRE believes branches will remain important components of retail banking operations, it is critical for retail banks to optimise branch networks and rethink interior layouts to ensure their flagship, standard, self-service and pop-up offerings are designed, configured and sized according to the markets, catchments and purposes they serve.

Whilst many simple products and services will be streamlined and transferred to self-service, customer experience will be at the heart of the retail banking branch of the future, which will need to be formatted to suit its contemporary role as a location to build and maintain relationships, provide advice and create brand awareness.From CBRE: The Future of Retail Banking: Transforming Networks and Branches For the Digital Age by Ada Choi, Cynthia Chang, George Wang.

Right by every generation of forward thinkers Every generation wants to discover their own path. We support the courage and passion of those who seek a better way. uobgroup.com/rightbyyou

United Overseas Bank Limited Co. Reg. No. 193500026Z ASIAN BANKING AND FINANCE | DECEMBER 2019 41

ANALYSIS: VIRTUAL BANKS

Virtual banks race to serve Asia Pacific’s underbanked and overbanked segments According to S&P Global Ratings, profitability may be a challenge although regulators will provide support.

V

irtual banking is fanning the competitive flames in Asia-Pacific banking.

Newly licensed indigenous digital banks, global digital-only banks, and digitised traditional banks are all vying for their share across the region’s lucrative markets. To date, this development has not caused any noteworthy changes to our outlooks for banking sector country risks across the region. Our current base case is that virtual banking may not lead to rating or outlook changes for Asia-Pacific banks over the next two years. Over a longer time horizon, however, as virtual banking strategies take hold and further disrupt the traditional bank sector, the potential for ratings differentiation is greater.

New indigenous entrants in many Asia-Pacific countries—including in China, Hong Kong, Taiwan, Australia, Singapore, Japan, Korea, and India—have either already begun operations or are expected to become functional in the next year

or so. As more bank regulators across the region develop the infrastructure to manage and supervise virtual banks we expect this trend will continue.

In addition, ex-regional players are expanding in Asia-Pacific, such as London-based Revolut Ltd., which is now operating in the region. Further, and perhaps most profoundly, traditional banks are accelerating electronic and digital banking strategies in the race for digital supremacy and a competitive edge.

Two key factors are driving the growth of digital banking in APAC: • Serving the underbanked: Primarily a factor in emerging markets, virtual banking facilitates the introduction of simple banking products through accessible means other than branches.

• Serving the overbanked: Primarily a driver in developed markets, virtual banking mainly seeks to provide customers with greater

Korea’s kakaobank offers loan, deposit, debit card, overseas remittance services.

42 ASIAN BANKING AND FINANCE | DECEMBER 2019

Further facilitating the foothold of virtual banks is the sheer size of underbanked populations across AsiaPacific.

convenience at a lower cost The Hong Kong Monetary Authority (HKMA) defines a virtual bank as a bank that primarily delivers retail banking services through the internet or other forms of electronic channels instead of physical branches.

A playing field of opportunities Governments in emerging markets globally are driven by the allure of the financial inclusion agenda that virtual banks can offer. Emerging market nations in Asia-Pacific are home to vast numbers of “underbanked” consumers, providing opportunities for virtual banks to gain a foothold and scale up their business models.

Further facilitating the foothold of virtual banks is the sheer size of underbanked populations across Asia-Pacific. China and India alone account for over 47% of the world’s population, with a combined population of about 2.8 billion people. Furthermore, of

ANALYSIS: VIRTUAL BANKS the eight most populous countries globally, a further three are in AsiaPacific—Indonesia, Pakistan, and Bangladesh—and all are significantly underbanked.

Current and future trends impacting demographics, urbanisation , and customer behaviour across Asia-Pacific are supportive of virtual banking. A young demographic pool, greater openness toward adopting new and innovative technologies in banking services and increasing consumerism provide tailwinds for the success of virtual banks.

Technological improvements provide impetus Ongoing technological improvements are a key enabler for the success of digital banks.

We expect added stimulus from increasing mobile penetration and migration to faster internet speeds to make the environment more conducive for digital-only banks.

According to GSMA Intelligence 2019, Asia-Pacific’s smartphone adoption is set to increase to 82% in 2025, compared with 54% in 2018.

In addition, the speed of about 95% of internet connections will be above 2G by 2025 (45% in 2018).

Asia-Pacific regulatory landscape is in transition We are seeing significant variability by country in the evolution of the regulatory landscape for virtual banks in Asia-Pacific. To what extent banking regulators across the region encourage innovative competition but at the same time balance the need to provide protective regulation for traditional banks and bank Access to Faster Internet Speeds

Source: S&P Global Ratings

Virtual banks are expected to carve out a niche market in Greater Bay Area of Hong Kong, Macau and Guangdong that could spur growth in the industry.

Asia Pacific underbanked population

Source: S&P Global Ratings

customers will shape the environment for the development of virtual banks.

Hong Kong: The HKMA has granted eight virtual banking licenses in Hong Kong between March and May 2019 as part one of its smart banking initiatives. The diverse background of the licensees, which include traditional banks, insurance companies, fintech, as well as technology companies, is likely to facilitate financial innovation in the banking industry. We expect the virtual banks to carve out a niche market in the Greater Bay Area of Hong Kong, Macau, and Guangdong that could spur growth in the industry. In our opinion, the increased competition in the retail segment will eventually benefit customers and small and micro enterprises, and promote financial inclusion.

China: WeBank is the first internet bank to operate in China and was granted its private bank license by China’s Banking and Insurance Regulatory Commission (CBIRC) in 2014. China’s internet banks are mainly represented by four banks that are associated with the big techs: WeBank (Tencent), Mybank (Alibaba), XWBank (Xiaomi), and aiBank (Baidu). Big tech firms have hoarded a substantial amount of data from their social network, e-commerce, e-payment, and search engine businesses, which enables them to perform algo-lending with their own credit scoring mechanisms. These online competitors currently account for a minimal portion of the banking system which is partly due to their asset-light strategy. That is, these banks tend to use their fintech capabilities

and big data to serve the consumer and small and midsize enterprise (SME) sector to acquire customers, then to co-lend with traditional banks for a fee.

Taiwan: In Taiwan, the regulator is set to grant the first virtual bank licenses by end of July 2019 and this should allow the first virtual banks to launch banking services by the end of 2020. The upcoming virtual banks will be subject to the same regulatory compliances and risk management requirements as ordinary commercial banks, though they will be much smaller in scale in comparison. Therefore, we expect the initial setup costs and lack of scale economies could constrain profitability for virtual banks in their early stage of development amidst the market’s competitive and highly price-sensitive characteristics.

Singapore: The Monetary Authority of Singapore (MAS) recently announced plans to issue up to five new digital bank licenses, as part of a push to liberalise the city state’s banking sector. Digital banks would likely compete actively with traditional banks in the mass retail space and SME space, and offer basic products that do not require face-to-face customer interaction.

The regulator is managing undue disruption by requiring digital bank applicants to focus on underserved segments and provide clear value propositions on how they can complement the existing ecosystem. The rollout of the digital bank licenses indicates a measured approach on the regulator’s part. For ASIAN BANKING AND FINANCE | DECEMBER 2019 43

ANALYSIS: VIRTUAL BANKS Malaysian banks are pinching pennies on tech investments

Source: S&P Global Ratings

example, the full digital bank licenses will be implemented in stages and come with restrictions on product offerings and deposit taking. These will slowly be relaxed only when the digital bank has proven that it can manage the risks involved, and if it is delivering on its value proposition.

S&SEA ex-Singapore: Regulatory developments are at an earlier stage. We believe that a virtual banking framework in Malaysia will eventually be announced; and that the announcement by MAS may have a catalytic effect in Malaysia.

India: With one of the world’s largest fintech markets, India has a large ecosystem of traditional banks as well as startups and partnerships that are investing heavily in digital banking.

These could help provide workable solutions to the problems facing traditional financial institutions in India, such as low penetration, scarce credit history, and a cash-driven transaction economy.

India does not allow any virtual banking licenses, though banks like DBS Bank Ltd. offer a digital-only product offering through their Indian subsidiaries. The RBI continues to place emphasis on physical networks and recently ensured that purely digital loan companies operating through mobile apps have at least one physical presence for customers to reach out to.

The RBI had also highlighted earlier in its 2014 Guidelines for Licensing of “Payments Banks” that it does not envisage payment banks to be “virtual” or branchless banks.

44 ASIAN BANKING AND FINANCE | DECEMBER 2019

Japan: Japan has seen no major developments on the regulatory front. However, a recent joint venture between LINE, a social media company, and Mizuho FG, one of the largest Japanese banking groups, suggests some movement in the virtual space. Since the parents of “LINE Bank” already have a broad customer base, there are many who expect a certain level of success.

Korea: The special act on the establishment and operation of onlineonly banks took effect on Jan. 17, 2019, which allows for nonfinancial companies focusing on information and communication technology businesses to own up to 34% stakes in online-only banks (previously 10%).

We believe the traditional banks will continue strengthening their digital platforms against growing online-only banks though the market share of the two online-only banks is fairly small.

Australia: In Australia, the Australian Prudential Regulation Authority (APRA) has not issued industry specific guidance on digital banks.

APRA has, however, established a new pathway—a restricted deposit taking institution licensing framework—to assist small firms with limited financial resources. Some digital banks in Australia have already made use of this avenue, such as Xinja Bank Ltd., and our expectation is that other digital banks will explore this option in the future. The regulator acknowledges the benefits of such services but has cautioned banks that it will not tolerate compromise in risk management

A virtual banking framework in Malaysia will eventually be announced and that the recent announcement

by MAS may have a catalytic effect in Malaysia and elsewhere across S&SEA.

practices in the pursuit of technology enabled cost savings.

Will Banks Need Branches?

While most traditional banks in Asia-Pacific are scrambling to digitize and trim their physical footprints, we believe that branches will continue to play their part. The rate of change impacting branch networks varies quite markedly, however, by country and by bank; and in some cases is quite dramatic. For example, in Thailand, Siam Commercial Bank Public Co. Ltd. has set aggressive targets to significantly rationalize its branch and employee count to drive its transformation toward a digital strategy. In South Korea, Citibank Korea Inc. made significant cuts to branch networks in 2017, focusing more on its digital strategy.

Traditional banks tend to carry the weight of legacy infrastructure and systems, including a significant portion of operations conducted through brick-and-mortar branches. They are challenged to diversify away from their physical infrastructure and digitize their operations in a comprehensive, all-embracing manner including frontend as well back-end operations. By contrast, virtual banks are nimble and carry no legacy baggage. They tend to be fully digital from inception from front-end customer interface through to back-office operations.

To improve competitiveness, branch outlets of traditional banks are benefiting from a major makeover to incorporate digital-friendly technologies and customer-friendly environments. In our view, the trend toward smaller numbers of more digitally-advanced physical branch outlets will inevitably increase. From S&P: The Future of Banking: Virtual Banks Chase the Dream in Asia-Pacific.

DBS has a purely digital offering in Indonesia and India

ASIAN BANKING AND FINANCE | DECEMBER 2019 45

EVENT COVERAGE: DIGITAL PAYMENTS SUMMIT

Banks race against time to shake up payments as tech firms enter fray In China, nearly half of the 17 privately-owned lenders are digital banks, signalling the changing landscape.

B

anks must race against time to retain their dominance in the payments space and retain lost ground as tech upstarts with formidable data capabilities threaten to rapidly erode their market share.

The rise of virtual banks in Hong Kong, Taiwan, Australia, Vietnam, Indonesia and Thailand underscore the importance of getting payments right as they jostle for market share in the contested SME and retail segments, Ken Lo, Head of Strategic Partnership at Zhong An International said at the Asian Banking & Finance Digital Payments Summit in Hong Kong, which was held on 28 August 2019 and graced by over 100 attendees.

In China, eight of the 17 privatelyowned lenders are digital banks such as WeBank, MyBank and Baixin Bank.

With Hong Kong issuing licenses to eight players and Singapore set to issue five licenses, Lo expects to see intensified “co-opetition” as virtual banks forge partnerships with fintechs and

traditional lenders in order to survive.

Fintechs are not the only problem.

Commerce first ecosystems like Alibaba and Amazon have generally entered the payments space after achieving 15-20% share of the digital commerce market in their bid to strengthen their position as ecosystem players, observed Arthur Shek, Associate Partner, McKinsey & Company.

“Ecosystems have core advantages, especially in areas where fintechs have struggled, positioning them to disrupt banks who are more limited by regulation and shareholder focus on ROE,” he added.

To stay competitive, Lo believes that players are expected to embrace open banking models as data exchange and omnichannel schemes enhance the overall customer experience. This will also open customer information to third-party service providers and enhance KYC capabilities to reinforce security protection. Against the possibility of open API to be extended to

Panelists discuss the next level of growth in the payments arena.

46 ASIAN BANKING AND FINANCE | DECEMBER 2019

Commerce first ecosystems have generally entered the payments space after achieving 15-20% share of the digital commerce market.

other service areas, revenues could receive a potential 20% uplift by 2020 although the availability of testing environment as well as TSP and API standardisation may pose a challenge in implementing open API. “API functions as a B2B product, API platform evolves from being for financial and IT services to becoming platform for innovation,” Eiichiro Yanagawa, Senior Analyst, Celent said in his presentation.

Policy changes are also driving fintech adoption in Hong Kong including a lower profit tax rate of 8.25%; $10b university research funding; a $500m Technology Talent Scheme designed to attract talent; $50b for technology development allocated to HKSTPI and Lok-Ma Chau Loop, outlined Musheer Ahmed, General Manager, FinTech Association of Hong Kong.

It is against this backdrop, according to Rajesh Mehta, Managing Director, Treasury and Trade Solutions

EVENT COVERAGE: DIGITAL PAYMENTS SUMMIT Region Head, APAC, Citi, that client expectations are rapidly changing as end-users come to anticipate 24/7 availability, immediate settlement and reconciliation, instant processing and real-time information as the norm.

This will be powered by the shift from data as a byproduct to data-driven intelligence, prompting banks to rethink their fundamentals.

This entails a shift to a data platform that provides direct or indirect access via APIs, analytic tools or scoring methodologies for data offerings and use cases for insurance processes and various lines of business.

“In the next 10 years, the banking industry will change more than in the past 100 years,” Avril Rae, Head of Fintech at KPMG said in her presentation, noting widespread changes to data, business models, technology and regulation.

The next frontier for banks, according to Rae, is lifestyle integration as lenders try to be automated, intuitive, proactive, forward thinking whilst still imbibing context, sensitivity and pioneering trust and security.

“The new value is not being a bank,” Ajay Mathur, Managing Director, Head of Consumer Banking Group & Wealth Management, DBS Bank said in his presentation. “It is to understand the role of product & services in the life of a customer.”

Regardless of the winner, overall business efficiency will be achieved as lower transaction fees bring savings of up to $10b. Release of trapped cash can generate savings of up to $20b, whilst reduction in resource cost can bring savings of up to $10b, contributing around 10% to the Hong Kong GDP, according to Michael Ho, Principal, Financial Services Practice, Oliver Wyman.

McKinsey’s Arthur Shek

However, the adoption of powerful digital tools also serve to amplify the risk of fraud but banks can plug gaps in their defenses through global shared intelligence, according to Cameron Church, Director, Market Planning Fraud and Identity at LexisNexis Risk Solutions. For instance, a unique digital identity that makes use of extensive web and mobile device intelligence, true location analysis, trust score and benchmarks the data against industry peers will be useful to track fraudsters across the banking network.

As Hong Kong prepares for the nationwide roll-out of digital personal ID cards by 2020, there were some versions of a previous eKYC solution designed to boost economic growth, such as TransUnion’s IDVision which was launched in late-2017, said Victor Yim, Global Product Owner, Fraud & ID Solutions, TransUnion. Yim shares plans to develop on the IDVision which will support documentation authentication module, feature detection algorithms that use short video clip of the ID instead of relying on images. It also comes with an overall confidence score to allow and will soon feature a China citizen ID verification.

Speakers and panelists at the summit include John Wong, Head of Global Liquidity & Cash Management, Hang Seng Bank; Jimmy Chan, Chief Operation Officer & Head of Operations Management Department, ICBC (Asia); Josh Heiliczer, Asia-Pacific Financial Crime Compliance Leader, EY; Jayant Kulkarni, Head of Domestic Payments, HSBC; Joel Yarbrough, VP, Asia Pacific, Rapyd; Erin Murphy, Global Affairs Officer, KBZ Bank; and Jessica Lam, Head of Strategy, WeLab.

Rajesh Mehta

TRANSACTION BANKING

How Citi plans to win in payments Although the retail business accounts for a slightly larger share of 2018 global payments revenue than corporate ($1.02t versus $930b), according to McKinsey, corporates will form an increasingly important role in the shifting payments arena. Even though individual transactions are low in volume, they are significantly higher in average value at roughly $200,000 compared with $3,500 for an automated clearinghouse credit transaction and only $60 for a debit card transaction, the management consulting firm estimates.

Rajeh Mehta, APAC Head of Treasury and Trade Solutions, at Citi is at the forefront of this growth. Split into cash management and trade finance businesses, Citi processes a whopping $4t in payments a year across 98 countries where it has a banking license.

Over the years, a gradual shift in the business model can be observed, Mehta said at the Asian Banking & Finance Digital Payments Summit in Hong Kong. “Ten years ago, we were a B2B business. We would help Unilever pay suppliers in other countries and realise sales proceeds from wholesalers to distributors to local mom-and-pop shops,”he said. “Increasingly, this is getting a lot more consumer-facing. The world is re-engineering its models to focus on the consumer at the center.”

Powering through In March, Citi unveiled plans to develop a business line that will enable consumers to make digital payments to institutions. The planned service will offer institutional merchants the ability to collect from payment methods like cards, e-wallets as well as new and innovative bank transfers such as Request to Pay and Open Banking. At the same time, consumers can gain similar access to a wide variety of payment options.

Mehta estimates that around 70% of its large corporate customers have enterprise wide digital strategies in which payments form a critical component. “We bring in payments into the ecosystem. We don’t have to change the backend or distribution mechanism, because of these new emerging payment types. Within our ecosystem, we have proprietary banking solutions then we’re going to bring in partner solutions from the outside,” he said.“Because we have this network, and we have this platform, right, we can continually provide proprietary and partner solutions of new types.”

Drawing inspiration from the approaches of Amazon, Facebook and Apple appears to be working for Citi. In Q1 2019, Citi Asia Pacific saw a 60% rise in net income across its Institutional Clients Group in Asia.

ASIAN BANKING AND FINANCE | DECEMBER 2019 47

EVENT COVERAGE: DIGITAL PAYMENTS SUMMIT

Incumbent lenders rethink business models to compete against virtual banks

ZhongAn International, one of the city’s virtual banks, weighs in on the opportunities and challenges ahead.

D

ominated by three to four major players, Hong Kong’s retail banking sector is set for a major shake-up with the entry of eight virtual upstarts with formidable technological capabilities. To keep the threat at bay, Ken Lo, head of strategic partnerships at ZhongAn International makes a case for the open API business model as a way to level the playing field.

As they have no need to set up branches, virtual banks can deliver the full suite of retail banking services which can range from extending loans, operating savings account, issuing cards and offering payment services through an app or a website. Eight virtual banking licenses have been issued by the Hong Kong Monetary Authority (HKMA) and ZhongAn Virtual Financial was one of the first three financial institutions to score such license.

Despite the benefits of opening up their data vaults to third party providers, open banking has yet to gain full momentum, Lo said at the Asian Banking & Finance Digital Payments Summit. “A lot of the infrastructure is not yet there for them to flourish,” he lamented. “I think that there should be a lot more discussions around how to implement open API in Hong Kong. I think this is something that is still lacking momentum.”

For open API implementation to work successfully, Lo suggests that Hong Kong and other APAC countries need to set clearer guidelines especially for VBs to encourage healthy market player participation. A March 2018 survey from ACI Worldwide stresses this critical component as it notes that the lack of regulatory frameworks is hampering ASEAN banks from deploying strategies that will lead to the creation of open APIs for third party use.

Although the HKMA released the Open API Framework in July 2018 as part of its Smart Banking Agenda, this might not be enough to sharpen the city’s competitiveness. Despite pulling ahead of the Lion City in issuing virtual bank licenses, Hong Kong lags behind Singapore in terms of open banking readiness, according to a report from Finastra. Hong Kong still “needs to extend efforts on utilisation of APIs for banking networks.” On the other hand, Singapore received an ‘intermediate’ score in data monetisation and ‘advanced’ score in the adoption of APIs, fintech/third-party ecosystem, state of data-based transformation, and innovation.

Lo warns against looking at other banking markets in deploying VB models. “Hong Kong is a different ‘animal’ to the other banking markets,” he said, sharing that a lot of people have been looking towards the UK which has been doing virtual banking for 45 years. “The landscape is different. If you look at UK, retail banks contribute to 48 ASIAN BANKING AND FINANCE | DECEMBER 2019

Despite the benefits of opening up their data vaults to third-party providers, open banking has yet to fully gain momentum in Hong Kong.

With the backing of ZhongAn Online P&C and Sinolink, ZhongAn is ready to challenge established players.

Ken Lo

around 60% of private banking. In Hong Kong, four or three banks attribute to 86% of retail banking.”

Friend and foe Unlike fintechs with only one service offering, VBs carry the burden of having several services in one offering-making it harder for online banks to promote or package their product, especially against fintechs whose simplicity has won over a customer base.

“How [do] they rebundle or proposition, how [do] they... not just focus on one specific segment like payment, lending and loans? How do they rebundle all the offerings? Do they have one specific product they’re going to launch in the market people get it, or they want to rebundle everything as a proposition to have a customer?” said Lo to punctuate the complexity of launching virtual banks to the market.

In an apparent response to the threat, HSBC, Bank of East Asia, Hang Seng Bank and Standard Chartered earlier waived or reduced account fees as part of an effort to adjust their business models. Although banks are on the defensive, analysts believe that the fee move is unlikely to deal ‘any meaningful revenue impact’ on conventional players with diversified income streams like credit cards, securities brokerages, loans commission and insurance. “[T]his will not significantly dim earnings prospects for the established banks as they are well-positioned for the challenge,” Fitch Ratings said in a report. By Frances Gagua

ASIAN BANKING AND FINANCE | DECEMBER 2019 49

EVENT COVERAGE: DIGITAL & OPEN BANKING CONFERENCE

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Banks have to accept that they can’t do everything in-house.

How are banks reinventing themselves as fintech rivals flex their digital muscle?

To ensure their sustainability against tech rivals, incumbents are reinventing old ways of doing business.

A

s the financial services pie increasingly shifts into a free-for-all playground, banks are opening up their data vaults and forging partnerships with former foes as they come to terms with the demands of the open model in an attempt to regain lost ground to agile competitors.

“To forge ahead, banks must strengthen their core, capture pockets of growth, and reinvent themselves,” Ervin Ng, Associate Partner, McKinsey & Company said at the Asian Banking & Finance Digital & Open Banking Conference in Singapore. The event was graced by over 130 executives from top banks and companies across the region.

The task of rewiring the organisation is especially critical as banks grapple with declining profitability, said Ng. The pre-tax profit pools of the region’s banks slowed to a CAGR of 3% in 20142018 from 12% in 2010-2014, data 50 ASIAN BANKING AND FINANCE | DECEMBER 2019

Instead of opening channels, banks keep closing opportunities.

from McKinsey show. Return on average equity has also been trending downwards and closer to the global average to around 10.1% in 20102018 compared to 9.5% for the global average.

The sentiment was echoed by Charamporn Jotikasathira, Member, Board of Executive Directors, Bangkok Bank Public Company Limited, who stressed that even the most established incumbents are facing growing challenges from multiple fronts, leading to a compression in profit pools as well as a loss of data exclusivity and primary customer relationships.

Fintechs have been able to successfully integrate themselves into a consumer’s day-to-day life, with WeChat being the prime example and Grab and GO-JEK trying to mimic its success, suggested Varun Mittal, Associate Partner, Global Emerging Markets FinTech Leader, Ernst & Young.

Jakub Zakrzewski, General Manager, APAC, Revolut shared how to scale a fintech unicorn as he shares milestones and opportunities in disrupting the financial services sector.

Although the threat is real and the business impact quantifiable, much of the response from incumbent banks increasingly appear to be lip service.

“Most retail banks assert that they are “open” to open banking but what counts for being open, varies,” Anand Chawra, Principal at BCG echoed in his presentation. “Instead of opening channels, banks keep closing opportunities.”

To successfully compete against upstarts, Chawra cites three winning strategies. By integrating third party functionality, banks can reinforce their core. A savvy bank can also become a partner of choice by offering top-end financial products, rich functionality and critical integration support. This would lay

EVENT COVERAGE: DIGITAL & OPEN BANKING CONFERENCE Making smarter decisions is increasingly driving competitive success.

Bangkok Bank’s Jotikasathira

the ground for the bank to launch innovative ventures and disruptive business models that could enable the bank to build sticky relationships that increase total lifetime value.

Banks fight back Growing adoption of open banking gives rise to different business models that banks can adopt depending on their strategy and priorities, suggested Shrikant Patil, Associate Partner, Digital, Technology and Analytics, Asia Pacific, Oliver Wyman.

On its part, Citi has been actively offering digital experiences powered by open APIs through a thriving partnership ecosystem in Singapore, Hong Kong, Indonesia, Australia, Thailand, Taiwan, China and Malaysia that counts partners like Facebook Messenger, WeChat, Alipay, and tokopedia. “Banks that want to be successful in the future will have to consider opening up their transactional data to thirdparty developers and consume third party capabilities via APIs,” Himanshu Shrivastava, Managing Director and Head of Digital Technology, APAC and EMEA, Global Consumer Technology, Citi.

In the same way, Singapore’s DBS is able to offer instant payments and collections, real-time information and workflow optmisation through DBS RAPID (Real-time APIs at DBS). “DBS has a proven track record of 93 live business API use cases and to date, we have engaged a total of 19 unique customer and partner consumption,” Trevor Cheung, Managing Director,

Ecosystems, Group Technology & Operations, DBS Bank. For corporates, this could reduce claim settlement TAT and cheque-related costs whilst improving operational efficiency, and end-customers can benefit from instant claim receipts and improved customer experience.

OCBC Bank embarked on its API journey in 2016 where it was the first in Southeast Asia to launch an open API platform and a developer portal called Connect2OCBC, allowing the bank to make significant milestones in its open banking journey, said Dilip Krishnan, Vice President, Digital Transformation, OCBC Bank Global Consumer Financial Services.

OneConnect Financial Technology, the fintech unit of Chinese insurance giant PingAn, makes the case for forging partnership with ecosystem players to add value. With over 30,000 tech staff, more than a thousand patents and 25 research labs, OneConnect is banking on its track record to enhance the operations of its partners, suggested Rohit Chowdhry, Vice President and Head of Business Development and Channel, OneConnect Financial Technology.

Joining forces As part of an effort to deepen collaboration across sectors, the Monetary Authority of Singapore (MAS), World Bank Group’s IFC and the ASEAN Bankers Association set up the ASEAN Financial Innovation Network in 2018. Through its flagship product, APIX, financial institutions and fintechs can get the chance to work together, design and trial experiments and deploy solutions at a more

affordable cost. Manish Diwaan, Managing Director at ASEAN Financial Innovation Network makes a case for APIX as it offers a global fintech marketplace, an API catalogue, ready-to-use integrated development environment and private sandbox. By Q1 2020, the network is aiming to launch common use APIs. Open API is just the begining as the traditional model gives way to a new and modular paradigm that shifts contact points and UX to TPPs, leaving little functions for the bank, according to Eiichiro Yanagawa, Senior Analyst at Celent. “Making smarter decisions is increasingly driving competitive success. Data platforms provide a way for almost any insurer to gain competitive equity, or possibly competitive superiority,” he said in his report. “All platform sponsors have to increase their use of AI and related advanced analytic tools — and migrate to the cloud, if they are not already there.”

Ecosystem banking An ecosystem that leverages on fintech integration will be more able to cover the full scope of the underserved SME segment as players go beyond onboarding to offer core banking services to value-added services like tax and accounting, travel and entertainment, e-commerce integration, financial data, invoicing and expenses, CRM, corporate loyalty programmes, HR, communications and networking and social media, Guillaume Rico, Director, Chappuis Halder & Co. “How can we harness the power of partnerships to enhance our propositions, acquire new customers, improve transactions, and raise customer engagement?,” McKinsey’s Ng stressed.

Speakers and panelists Christopher Wooldridge, Head of BSG Infinity APAC, Temenos; Arapat Sangkharat, Advisor to the President, Head of Transformation, Krung Thai Bank; Pintuwan Kleijssen, Vice President, Bangkok Bank Public Company Limited; Jason Loughnane, Head of Digital Credit, Yoma Bank; Stefano Virgilli, Chief Executive Officer, Pocket Money; Namita Bhide, Managing Director, Denim Consulting and Vasant Chaudhry, Head of Management Consulting, Singapore, BearingPoint.

ASIAN BANKING AND FINANCE | DECEMBER 2019 51

COVER STORY

Asian Banking & Finance Awards recognises record number of outstanding companies

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ore than 270 senior banking executives graced the event.

Over a hundred exceptional banks from 37 countries were recognised at the 2019 Wholesale Banking Awards, Retail Banking Awards and Corporate & Investment Banking Awards held at the Shangri-La Singapore on 18 July. The event beat last year’s record after gathering 276 executives and guests in one roof and giving out 259 awards.

“There are many opportunities to grow in the region especially as technology changes the way everybody works and the expectations that go along with it. Tonight’s awards programme recognises that level of service excellence, ” said Tim Charlton, publisher of Asian Banking & Finance magazine.

Below is a list of all the winning companies. Congratulations!

WINNERS OF THE RETAIL BANKING AWARDS 2019 ACBA-CREDIT AGRICOLE BANK CJSC Advertising Campaign of the Year - Armenia Consumer Finance Product of the Year - Armenia Affin Bank Berhad Website of the Year - Malaysia Alliance Bank Malaysia Berhad Financial Inclusion Initiative of the Year - Malaysia AmBank Group SME Bank of the Year - Malaysia Axis Bank Financial Inclusion Initiative of the Year - India Baiduri Bank Domestic Retail Bank of the Year - Brunei Bangkok Bank Public Company Limited Website of the Year - Thailand Bank for Investment and Development of Vietnam JSC. (BIDV) SME Bank of the Year - Vietnam Bank Mandiri Domestic Retail Bank of the Year - Indonesia Bank of Ayudhya PCL (Krungsri) Mobile Banking Initiative of the Year - Thailand Mortgage and Home Loan Product of the Year - Thailand Branch Innovation of the Year - Bronze Bank of China (Hong Kong) Limited Mobile Banking Initiative of the Year - Hong Kong 52 ASIAN BANKING AND FINANCE | DECEMBER 2019

2019

Bank of Guam Corporate Social Responsibility Program of the Year - Bronze BANQUE POUR LE COMMERCE EXTERIEUR LAO (BCEL) PUBLIC Financial Inclusion Initiative of the Year - Laos Mobile Banking Initiative of the Year - Laos Corporate Social Responsibility Program of the Year - Silver BDO Foundation Corporate Social Responsibility Program of the Year – Gold BDO Nomura Securities, Inc. Online Securities Platform of the Year - Philippines BLOM BANK Domestic Retail Bank of the Year - Lebanon Advertising Campaign of the Year - Lebanon Credit Card Initiative of the Year - Lebanon BRAC Bank Limited Mid-Sized Domestic Retail Bank of the Year - Bangladesh Cambodian Public Bank Domestic Retail Bank of the Year - Cambodia CB Bank SME Bank of the Year - Myanmar Citibank India Debit Card Initiative of the Year - India Mobile Banking Initiative of the Year - India Citibank N.A., Indonesia Wealth Management Platform of the Year - Indonesia Citibank Singapore Limited International Retail Bank of the Year - Asia Pacific Credit Card Initiative of the Year - Singapore Mobile Banking Initiative of the Year - Singapore Citizens Development Business Finance PLC Finance Company of the Year - Sri Lanka Social Media Initiative of the Year - Sri Lanka Commercial Bank of Ceylon PLC Mobile Banking Initiative of the Year - Sri Lanka New Consumer Lending Product of the Year - Sri Lanka DBS Bank Wealth Management Platform of the Year - Singapore Website of the Year - Singapore Digital Banking Initiative of the Year - Singapore DBS Bank (Hong Kong) Core Banking System Initiative of the Year - Hong Kong SME Bank of the Year - Hong Kong DBS Bank (Taiwan) International Retail Bank of the Year - Taiwan Employer Award of the Year - Gold East West Banking Corporation Automobile Lending Initiative of the Year - Philippines Consumer Finance Product of the Year - Philippines FE CREDIT VPBANK FINANCE COMPANY LIMITED Finance Company of the Year - Vietnam Consumer Finance Product of the Year - Vietnam ForteBank JSC Domestic Retail Bank of the Year - Kazakhstan Digital Banking Initiative of the Year - Kazakhstan Golomt Bank of Mongolia Automobile Lending Initiative of the Year - Mongolia Consumer Finance Product of the Year - Mongolia HDFC Bank Limited Service Innovation of the Year - India Digital Banking Initiative of the Year - India Social Media Initiative of the Year - India

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ASIAN BANKING AND FINANCE | DECEMBER 2019 53

COVER STORY

2019

Ho Chi Minh City Development Joint Stock Commercial Bank Mid-sized Domestic Retail Bank of the Year - Vietnam

OJSC Optima Bank Domestic Retail Bank of the Year - Kyrgyzstan

Hong Leong Finance Ltd ASEAN Finance Company of the Year Mortgage and Home Loan Product of the Year - Singapore

Ping An Bank Domestic Retail Bank of the Year - China Gold and Precious Metals Bank of the Year - China

HSBC BANK (VIETNAM) LTD International Retail Bank of the Year - Vietnam

PNB Savings Bank Service Innovation of the Year - Philippines

HSBC Bank (China) Company Limited International Retail Bank of the Year - China

PrimeCredit Limited Finance Company of the Year - Hong Kong

HSBC BANK (VIETNAM) LTD International Retail Bank of the Year - Vietnam

PT Bank Commonwealth Social Media Initiative of the Year - Indonesia

HSBC Bank Australia Limited Credit Card Initiative of the Year - Australia

PT Bank OCBC NISP Tbk SME Bank of the Year - Indonesia

HSBC India Advertising Campaign of the Year - India

PT Bank UOB Indonesia Advertising Campaign of the Year - Indonesia

HSBC Sri Lanka International Retail Bank of the Year - Sri Lanka

Qatar National Bank (QNB) Domestic Retail Bank of the Year - Qatar Digital Banking Initiative of the Year - Qatar Mortgage and Home Loan Product of the Year - Qatar

ICICI Bank Mortgage and Home Loan Product of the Year - India Domestic Retail Bank of the Year - India Wealth Management Platform of the Year - India Website of the Year - India Islamic Finance and Investment Limited Finance Company of the Year - Bangladesh Jibun Bank Corporation Domestic Virtual Bank of the Year - Japan JS Bank Mid-sized Domestic Retail Bank of the Year - Pakistan Consumer Finance Product of the Year - Pakistan SME Bank of the Year - Pakistan KASIKORNBANK PCL. Domestic Retail Bank of the Year - Thailand Advertising Campaign of the Year - Thailand KBZ Bank Financial Inclusion Initiative of the Year - Myanmar Mobile Banking Initiative of the Year - Myanmar Krungsri Auto - Bank of Ayudhya Social Media Initiative of the Year - Thailand Lao Viet Joint Venture Bank Digital Banking Initiative of the Year - Laos Maybank Advertising Campaign of the Year - Malaysia Domestic Retail Bank of the Year - Malaysia Digital Banking Initiative of the Year - Malaysia Online Banking Initiative of the Year - Malaysia Mobile Banking Initiative of the Year - Malaysia Maybank Singapore Limited Advertising Campaign of the Year - Singapore Branch Innovation of the Year - Gold Maybank Investment Bank Berhad Online Securities Platform of the Year - Malaysia National Development Bank PLC Domestic Retail Bank of the Year - Sri Lanka Consumer Finance Product of the Year - Sri Lanka SME Bank of the Year - Sri Lanka Digital Banking Initiative of the Year - Sri Lanka OCBC Bank ASEAN SME Bank of the Year OCTO by CIMB Bank Philippines Digital Banking Initiative of the Year - Philippines Mobile Banking Initiative of the Year - Philippines 54 ASIAN BANKING AND FINANCE | DECEMBER 2019

RHB Bank Berhad Service Innovation of the Year - Malaysia Credit Card Initiative of the Year - Malaysia Social Media Initiative of the Year - Malaysia Saigon-Hanoi Commercial Joint Stock Bank Debit Card Initiative of the Year - Vietnam Online Banking Initiative of the Year - Vietnam SCB Abacus Company Limited New Consumer Lending Product of the Year - Thailand SDB Bank Rural/Cooperative Bank of the Year - Sri Lanka Advertising Campaign of the Year - Sri Lanka Financial Inclusion Initiative of the Year - Sri Lanka Security Bank Corporation Advertising Campaign of the Year - Philippines Financial Inclusion Initiative of the Year - Philippines Mortgage and Home Loan Product of the Year - Philippines Wealth Management Platform of the Year - Philippines Social Media Initiative of the Year - Philippines Standard Chartered Bank (Hong Kong) Limited International Retail Bank of the Year - Hong Kong Digital Banking Initiative of the Year - Hong Kong STANDARD CHARTERED BANK NEPAL LIMITED International Retail Bank of the Year - Nepal Taishin Bank Domestic Retail Bank of the Year - Taiwan Automobile Lending Initiative of the Year - Taiwan Credit Card Initiative of the Year - Taiwan Mobile Banking Initiative of the Year - Taiwan Open Banking Initiative of the Year - Taiwan The Hongkong and Shanghai Banking Corporation Limited Wealth Management Platform of the Year - Hong Kong Credit Card Initiative of the Year - Hong Kong TMB Bank Service Innovation of the Year - Thailand Trade and Development Bank of Mongolia Online Banking Initiative of the Year - Mongolia Service Innovation of the Year - Mongolia Union Bank of the Philippines Core Banking System Initiative of the Year - Philippines SME Bank of the Year - Philippines Employer Award of the Year - Bronze Open Banking Initiative of the Year - Philippines

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ASIAN BANKING AND FINANCE | DECEMBER 2019 55

COVER STORY

2019

uab bank Limited Mid-sized Domestic Retail Bank of the Year - Myanmar

CTBC Bank Taiwan Domestic Foreign Exchange Bank of the Year

UOB Thailand International Retail Bank of the Year - Thailand Employer Award of the Year - Silver Branch Innovation of the Year - Silver

DBS Bank Singapore Domestic Technology & Operations Bank of the Year

Ngân hàng TNHH mot thành viên United Overseas Bank (Viêt Nam) Financial Inclusion Initiative of the Year - Vietnam United Overseas Bank Limited Domestic Retail Bank of the Year - Singapore Financial Inclusion Initiative of the Year - Singapore

DBS Bank (China) China International Trade Finance Bank of the Year DBS Bank (Hong Kong) Hong Kong International Technology & Operations Bank of the Year DBS Bank (Indonesia) Indonesia International Technology & Operations Bank of the Year

PT Bank UOB Indonesia Advertising Campaign of the Year - Indonesia

DBS Bank (Taiwan) Taiwan International Technology & Operations Bank of the Year

Vietnam Public Joint Stock Commercial Bank (PVcombank) Mobile Banking Initiative of the Year - Vietnam Credit Card Initiative of the Year - Vietnam New Consumer Lending Product of the Year - Vietnam

Doha Bank Qatar Domestic Cash Management Bank of the Year

YES BANK SME Bank of the Year - India

Habib Bank Limited Pakistan Domestic Cash Management Bank of the Year Pakistan Domestic Trade Finance Bank of the Year Pakistan Domestic Project Finance Bank of the Year

WINNERS OF THE WHOLESALE BANKING AWARDS 2019

Hang Seng Bank Limited Hong Kong Liquidity Management Bank of the Year Hong Kong Domestic Technology & Operations Bank of the Year

Abu Dhabi Commercial Bank UAE Domestic Trade Finance Bank of the Year ANZ Banking Group Limited Korea International Technology & Operations Bank of the Year Bangkok Bank Thailand Domestic Trade Finance Bank of the Year Bank Mandiri Indonesia Domestic Trade Finance Bank of the Year Indonesia Domestic Cash Management Bank of the Year Bank of Ayudhya PCL (Krungsri) Thailand Domestic Technology & Operations Bank of the Year Bank of China (Hong Kong) Limited Hong Kong Domestic Cash Management Bank of the Year Hong Kong Domestic Trade Finance Bank of the Year Hong Kong Domestic Foreign Exchange Bank of the Year Bank of the Philippine Islands Philippines Domestic Foreign Exchange Bank of the Year Philippines Domestic Trade Finance Bank of the Year Bank Sinopac Taiwan Domestic Technology & Operations Bank of the Year BDO Unibank Philippines Domestic Cash Management Bank of the Year BIDV Vietnam Domestic Foreign Exchange Bank of the Year BPI Capital Corporation Philippines Domestic Project Finance Bank of the Year Cathay United Bank Taiwan Domestic Trade Finance Bank of the Year CB Bank Myanmar Domestic Cash Management Bank of the Year Commercial Bank of Ceylon PLC Sri Lanka Domestic Technology & Operations Bank of the Year Sri Lanka Domestic Trade Finance Bank of the Year Commonwealth Bank of Australia Hong Kong International Trade Finance Bank of the Year 56 ASIAN BANKING AND FINANCE | DECEMBER 2019

IndusInd Bank Ltd India Domestic Technology & Operations Bank of the Year International Bank of Yemen Yemen Domestic Technology & Operations Bank of the Year KASIKORNBANK PCL. Thailand Domestic Cash Management Bank of the Year KBZ Bank Myanmar Domestic Trade Finance Bank of the Year Lao Viet Joint Venture Bank Laos Domestic Technology & Operations Bank of the Year Mutual Trust Bank Ltd Bangladesh Domestic Project Finance Bank of the Year National Development Bank PLC. Sri Lanka Domestic Project Finance Bank of the Year Sri Lanka Domestic Cash Management Bank of the Year PT Bank OCBC NISP Tbk Indonesia Domestic Foreign Exchange Bank of the Year RHB Banking Group Malaysia Domestic Foreign Exchange Bank of the Year Malaysia Domestic Cash Management Bank of the Year Malaysia Domestic Trade Finance Bank of the Year Saigon-Hanoi Commercial Joint Stock Bank Vietnam Domestic Trade Finance Bank of the Year Domestic Project Finance Bank of the Year Standard Chartered Bank (Singapore) Limited Singapore International Cash Management Bank of the Year Standard Chartered Bank Bangladesh Bangladesh International Cash Management Bank of the Year Bangladesh International Trade Finance Bank of the Year Standard Chartered Bank Nepal Limited Nepal Nepal International Cash Management Bank of the Year Sumitomo Mitsui Banking Corporation Singapore International Project Finance Bank of the Year Taishin Bank Taiwan Domestic Cash Management Bank of the Year

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COVER STORY

2019

The First MicroFinanceBank - Tajikistan Tajikistan International Technology & Operations Bank of the Year

Far Eastern International Bank Syndicated Loan of the Year - Taiwan

Trade and Development Bank of Mongolia Mongolia Domestic Trade Finance Bank of the Year

Faysal Bank Syndicated Loan of the Year- Pakistan

Turk Ekonomi Bankasi A.S. Turkey Domestic Cash Management Bank of the Year

Habib Bank Limited Corporate & Investment Bank of the Year - Pakistan Debt Deal of the Year- Pakistan

Union National Bank UAE Domestic Technology & Operations Bank of the Year United Overseas Bank (Malaysia) Bhd Malaysia International Cash Management Bank of the Year Malaysia International Trade Finance Bank of the Year

ICICI Bank Ltd. Corporate & Investment Bank of the Year - India Kenanga Investment Bank Berhad Debt Deal of the Year - Malaysia

UOB Brunei International Project Finance Bank of the Year

Maybank Investment Bank Equity Deal of the Year - Malaysia

Vietnam Public Joint Stock Commercial Bank (PVcombank) Vietnam Domestic Cash Management Bank of the Year

MCB Bank Limited Equity Deal of the Year - Pakistan Mergers and Acquisitions Deal of the Year - Pakistan

Westpac Institutional Bank Australia Domestic Technology & Operations Bank of the Year

Meezan Bank Limited Islamic Corporate & Investment Bank of the Year - Pakistan

YES BANK India Domestic Cash Management Bank of the Year India Domestic Trade Finance Bank of the Year India Domestic Project Finance Bank of the Year

WINNERS OF THE CORPORATE & INVESTMENT BANKING AWARDS 2019 Ahli United Bank B.S.C. Corporate & Investment Bank of the Year - Bahrain Al Ahli Bank of Kuwait (ABK) Syndicated Loan of the Year - Kuwait Bank for Investment and Development of Vietnam JSC. (BIDV) Corporate Client Initiative of the Year - Vietnam Bank Negara Indonesia Corporate Client Initiative of the Year - Indonesia BAO VIET COMMERCIAL JOINT STOCK BANK Corporate Bancassurance Initiative of the Year - Vietnam Bank of Ayudhya PCL (Krungsri) Corporate Client Initiative of the Year - Thailand BankDhofar Corporate & Investment Bank of the Year - Oman Equity Deal of the Year - Oman BDO Capital & Investment Corporation Corporate & Investment Bank of the Year - Philippines BPI Capital Corporation Mergers and Acquisitions Deal of the Year - Philippines Green Deal of the Year - Philippines Equity Deal of the Year - Philippines Commercial Bank of Ceylon PLC Debt Deal of the Year - Sri Lanka CTBC Bank Debt Deal of the Year - Taiwan DBS Bank Corporate & Investment Bank of the Year - Singapore Equity Deal of the Year - Singapore Doha Bank Corporate & Investment Bank of the Year - Qatar 58 ASIAN BANKING AND FINANCE | DECEMBER 2019

Mutual Trust Bank Ltd Corporate & Investment Bank of the Year - Bangladesh National Development Bank PLC Corporate Client Initiative of the Year - Sri Lanka Syndicated Loan of the Year - Sri Lanka NDB Investment Bank Limited Corporate & Investment Bank of the Year- Sri Lanka Noor Bank PJSC Corporate Client Initiative of the Year - United Arab Emirates PNB Capital and Investment Corporation Debt Deal of the Year - Philippines PT Bank CIMB Niaga Tbk Corporate & Investment Bank of the Year - Indonesia Syndicated Loan of the Year - Indonesia RCBC Capital Corporation Syndicated Loan of the Year- Philippines Mergers and Acquisitions Deal of the Year - Philippines RHB Investment Bank Berhad Mergers and Acquisitions Deal of the Year - Malaysia Riyad Bank Corporate & Investment Bank of the Year - Saudi Arabia Taipei Fubon Commercial Bank Co., Ltd. Green Deal of the Year - Taiwan The City Bank Limited Syndicated Loan of the Year - Bangladesh The Siam Commercial Bank Public Company Limited Corporate & Investment Bank of the Year - Thailand Debt Deal of the Year - Thailand Equity Deal of the Year - Thailand Trade and Development Bank of Mongolia Corporate & Investment Bank of the Year - Mongolia UOB Mergers and Acquisitions Deal of the Year - Singapore Syndicated Loan of the Year - Singapore Debt Deal of the Year - Singapore Yuanta Securities Co., Ltd Corporate & Investment Securities Firm of the Year - Taiwan

19

We are agile

Our commitment shaped our foundation.

Now, in a new era of banking, every step we take towards excellence is dynamic. noorbank.com ASIAN BANKING AND FINANCE | DECEMBER 2019 59

COVER STORY

Alliance Bank Malaysia Berhad

19

2019

Axis Bank

Bank of Ayudha (Krungsri)

Bangkok Bank Public Company Limited

BANQUE POUR LE COMMERCE EXTERIEUR LAO (BCEL) PUBLIC

CIMB Bank Philippines

Baiduri Bank

BDO Foundation & BDO Nomura Securities, Inc.

Citibank

Commercial Bank of Ceylon PLC

DBS Bank

East West Banking Corporation

Ho Chi Minh City Development Joint Stock Commercial Bank

60 ASIAN BANKING AND FINANCE | DECEMBER 2019

BIDV

Hong Leong Finance Ltd

ASIAN BANKING AND FINANCE | DECEMBER 2019 61

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HSBC

Islamic Finance and Investment Limited

19

2019

ICICI Bank

KASIKORNBANK PCL.

Jibun Bank Corporation

KBZ Bank

Maybank

Lao Viet Joint Venture Bank

National Development Bank PLC

PNB Savings Bank

PVcombank 62 ASIAN BANKING AND FINANCE | DECEMBER 2019

Security Bank Corporation

OCBC Bank and PT Bank OCBC NISP Tbk

RHB Bank Berhad

Standard Chartered Bank (Hong Kong) Limited

ASIAN BANKING AND FINANCE | DECEMBER 2019 63

COVER STORY

19

2019

Taishin Bank

uab bank Limited

Union Bank of the Philippines

UOB

Al Ahli Bank of Kuwait (ABK)

YES Bank

Bank of Ayudhya PCL (Krungsri)

Commercial Bank of Ceylon PLC

DBS Bank

National Development Bank and NDB Investment Bank Limited 64 ASIAN BANKING AND FINANCE | DECEMBER 2019

Noor Bank

BDO Capital & Investment Corporation

Far Eastern International Bank

BIDV

ICICI Bank

PNB Capital and Investment Corporation

Powering the growth of e-commerce merchants in Vietnam UOB BizMerchant demonstrates UOB Vietnam’s commitment to helping SMEs seize opportunities for long-term business growth. The programme is the first of its kind in Vietnam to provide loans to SMEs based on analytics of business data beyond financial records.

The insights gained from the SMEs’ sales records on e-commerce platforms, combined with existing sources of information, enables the Bank to determine a business’ credit worthiness more accurately and extend credit facilities to SMEs with more certainty.

Financial Inclusion Initiative of the Year

UOB Vietnam Website: Personal and Business Banking:

www.uob.com.vn 1800 599921 (local) +84 28 3898 9999 (overseas)

Commercial Banking:

1800 558880 (local) +84 28 3933 1999 (overseas)

ASIAN BANKING AND FINANCE | DECEMBER 2019 65

COVER STORY

PT Bank CIMB Niaga Tbk

RCBC Capital Corporation

UOB

Bangkok Bank

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2019

The City Bank Limited

Yuanta Securities Co., Ltd

Bank of Ayudhya PCL (Krungsri)

Bank Mandiri

Bank of China (Hong Kong) Limited

BIDV 66 ASIAN BANKING AND FINANCE | DECEMBER 2019

Abu Dhabi Commercial Bank

Bank SinoPac

Cathay United Bank

BDO Unibank

Commercial Bank of Ceylon PLC

ASIAN BANKING AND FINANCE | DECEMBER 2019 67

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DBS Bank

Hang Seng Bank

Doha Bank

KASIKORNBANK PCL.

KBZ Bank

Lao Viet Joint Venture Bank

PT Bank OCBC NISP Tbk

RHB Banking Group

Taishin Bank

UOB Brunei

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2019

UOB Malaysia

68 ASIAN BANKING AND FINANCE | DECEMBER 2019

National Development Bank PLC.

PVcombank

Union National Bank

YES Bank

ASIAN BANKING AND FINANCE | DECEMBER 2019 69

2019

AUTOMOBILE LENDING INITIATIVE OF THE YEAR - PHILIPPINES CONSUMER FINANCE PRODUCT OF THE YEAR - PHILIPPINES

EastWest Auto Loan wins two awards at 2019 Asian Banking and Finance Retail Banking Awards

From left to right: Alessandro L. Villaraza, FVP & Head, EastWest Bank Marketing & Corporate Communications; Josephine Vilma A. Abad, VP & Head, EastWest Consumer Lending Visayas & Mindanao Business Centers; Jocelyn C. Legaspi, FVP & Head, EastWest Auto Loan Sales; Tim Charlton, Editor-in-Chief, Asian Banking & Finance

G

fulfilling our customers’ demand for auto loan otianun-led East West Banking in the Philippines, despite the challenging Corporation (EastWest) won two market conditions,” said EastWest FVP and awards at this year’s Asian Banking and Head of Auto Loan Sales, Jocelyn C. Legaspi.

Finance Retail Banking Awards held last July “These awards 18 at the Shangriinspire us to innovate La Singapore for its “EastWest executed strategic further so we can Auto Loan business. manouevres to grow their auto continuously be the EastWest Auto loan business, such as exclusive best in class.”

Loan product won EastWest Auto the Automobile dealer tie-ups and expanding Loan comprises the Lending Initiative satellite centres to invigorate largest share of the of the Year and market reach in the provinces Bank’s consumer loan Consumer Finance and unique marketing and sales portfolio, growing Product of the programmes.” into a major player Year awards for in the industry with the Philippines a 19% growth in category. total amount financed in 2018 versus the “We’re definitely happy to be recognized in previous year, and a cumulative growth the region for our stellar and tireless work in

rate of 42% in loan receivables. The Bank achieved its growth despite a contraction in the auto loan industry last year. EastWest executed strategic manouevres to grow their auto loan business, such as exclusive dealer tie-ups, expansion of satellite centres to invigorate market reach in the provinces, unique marketing and sales programmes, and improved brand marketing.

“We at EastWest are always committed to providing the best service to our customers,” Legaspi added, “by banking on our robust dealer relationships and improving overall service from applications processing to payments.” EastWest is a key player in the industry with a 19% growth in total amount financed in 2018 versus the previous year, and a cumulative growth rate of 42% in loan receivables. The Bank achieved its growth despite a contraction in the auto loan industry last year.

CONTACT Company name: East West Banking Corporation Address: The Beaufort, 5th Avenue corner 23rd Street, Bonifacio Global City, Taguig 1634 Phone number: (+632) 8888-1700 Website: www.ewbanker.com

70 ASIAN BANKING AND FINANCE | DECEMBER 2019

“Now Papa drops me to school every day.

Thank you” Thanks to your support Axis Bank Foundation has reunited close to a milion families like Appu’s.

2019

RETAIL BANK OF THE YEAR - HONG KONG DIGITAL BANKING INITIATIVE OF THE YEAR - HONG KONG

Standard Chartered drives digital innovations as part of strategic omni-channel push

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tandard Chartered Bank (Hong Kong) Limited (“Standard Chartered Hong Kong”) is looking to continue to enhance customers’ satisfaction and improve productivity and offering omni channel customer experiences.

Standard Chartered Hong Kong has debuted an array of leading-edge new offerings on its digital platform, such as QR Cash, Mobile FX and insurance in 2019 as the bank is transforming and disrupting digitally. The bank improves clients’ experience through an enhanced end-to-end digital offering, responding to the changing digital habits of its clients.

At the forefront of the bank’s strategic initiative this year is the launch of QR Cash, first in the market, which enables clients to pre-order cardless cash withdrawal using their mobile banking platform, SC Mobile app, and get cash by scanning the QR code on the ATM without using any card.

In addition to QR Cash, Standard Chartered Hong Kong has rolled out other Vicky Kong, Head, Retail Banking, Hong Kong powerful new features for its SC Mobile app, including the artificial intelligencepowered 24/7 virtual assistant Stacy, Finnovate surveys, highlighting the growing SC Pay for Faster Payment System, adoption of digital banking in the city. online account opening and Mobile FX. The speed with which the bank has been SC Mobile 2.0 implementing leading-edge improvements Standard Chartered Hong Kong’s latest to SC Mobile app is powered in part by the additions to its mobile banking platform— launch of the eXellerator collaborative dubbed as SC Mobile 2.0—were designed to space, where every enable customers employee in the to quickly set bank collaborates up their account “We have more than 70 to develop ways to and complete a branches in Hong Kong serving improve customer broad range of our clients across all segments, experience and transactions with efficiency. our key advantage is our ease instead of “Strong and stepping inside a omni-channel servicing which effective digital includes both staff-assisted and branch. banking is central “We transformed digital access.” to omni-channel the on-boarding banking as it journey, enhanced provides 24/7 the security convenient and easy access to the most infrastructure and improved the user common banking needs and frees up interface of the mobile app that lifted the capacity in our staff-assisted channels,” adoption rate of our clients collectively,” said Vicky Kong, Head of Retail Banking, said Kong.

Standard Chartered Hong Kong.

The bank also cited key features, such Standard Chartered’s digital active as Split Bill by Statement Installment customer base (both mobile and online) has and Get Cash from Installment Credit for grown significantly, comparing favourably increasing loan digital sales by more than to the HK average of 40%, according to the 50 times. Prior to rolling out these features

72 ASIAN BANKING AND FINANCE | DECEMBER 2019

on SC Mobile 2.0, customers had to contact a call centre, but now they only have to click a few times and finish the whole process within 5 minutes. “This brings clients financial flexibility by splitting the bills and advancing the cash from credit limit and repaying in instalment. The convenience of the features has contributed significant growth,” said Kong.

Along with the new features launched on SC Mobile 2.0, the bank has also spent the past year upgrading its ATMs to be the fastest in Hong Kong among JETCO network, launched the Asia Miles Savings Account exclusively to the market, and was the first to roll out fixed rate mortgage to first time home buyers.

Culture of Innovation via eXellerator The bank recognised that this increased focus on improving the digital customer experience requires a transformation within the bank.

This led to the creation of the eXellerator, a collaborative space that was built expressly for nurturing innovative ideas and developing them with the customer at the center.

“The eXellerator is also a space to test, learn and iterate with our customers while colleagues are encouraged to lead their own transformation and engage with the fintech community,” said Kong. The bank said many proof-of-concepts were finished in 2018 across a few different departments in the bank, as well as hundreds of workshops, lunch & learn sessions, fintech talks and wellbeing sessions held in the eXellerator.

Virtual Bank in 2020 Looking ahead to 2020, Standard Chartered Hong Kong is working to launch its virtual bank, which it believes will redefine customer experience of banking services. At the same time, the bank will continue to strengthen its core business, which is very much focused on providing personalised solutions for affluent and the emerging affluent clients, where a mix of digital and human interactions co-exist.

“Our strategy focuses to accelerate transformation of traditional banking experiences to deliver seamless omni-channel services across digital and staff-assisted touchpoints,” said Kong. “In contrast to virtual banks, we have more than 70 branches in Hong Kong serving our clients across all segments, our key advantage is our omnichannel servicing which includes both staffassisted and digital access.”

Soon to be one of Cebu’s iconic landmarks, the Cebu-Cordova Link Expressway (CCLEX) is an 8.5-kilometer toll bridge that will connect Mactan island from Cordova town to Cebu City in mainland Cebu, Philippines by 2021.

Project developer Cebu Cordova Link Expressway Corporation (CCLEC), a subsidiary subsidia company of Metro Pacific Tollways Corporation (MPTC), envisions CCLEX as not only decongesting traffic in the two existing bridges but also increasing economic activities in Cebu and throughout the Visayas Region. CCLEX is MPTC’s first expressway project outside Luzon and its first Public-Private Partnership project with the local governments of Cebu City and Cordova.

ASIAN BANKING AND FINANCE | DECEMBER 2019 73

2019

FINANCIAL INCLUSION INITIATIVE OF THE YEAR - MYANMAR MOBILE BANKING INITIATIVE OF THE YEAR - MYANMAR

Building Myanmar’s Mobile-First Financial Future address the lack of traditional financial literacy within the country, the bank has adopted a radically new approach to customer acquisition and onboarding— turning its 18,000 employee team into an on-the-ground “force for financial inclusion.”

Across the year, KBZPay representatives have been deployed throughout the country to introduce the benefits of mobile-first financial services to people in Myanmar from all walks of life, and ensure they are equipped to interact with KBZPay in a secure way.

With the combination of an on-the-ground team and a mobile-first approach, KBZPay KBZPay makes purchasing everyday products and managing funds more convenient and secure. has enjoyed great success—achieving terrific strides in its aim to bring financial inclusion to everyone in Myanmar. smartphones? ore than just facilitating In less than a year from launch, the Mobile technology presents a huge convenient and secure application has onboarded over 3 million opportunity to bring financial services to transactions, KBZPay is laying the customers and 200,000 merchants and 80% of the country’s population who are groundwork for Myanmar’s mobile-first agents, each with full eKYC verification unbanked. This is the opportunity that financial future through facial recognition technology.

Myanmar’s largest privately-owned bank, Anyone who has visited Myanmar, KBZPay has already KBZ Bank, is whether to see the iconic Shwedagon facilitated more targeting through Pagoda, the balloons of Bagan, or the “KBZPay has facilitated than US$1 billion its mobile wallet, transfixing waters of the Irrawaddy, more than US$1 billion in in transactions, KBZPay. will know that the nation’s banking and streamlining countless Launched in transactions, streamlining finance sector is evolving. The country is October 2018, transitioning from an era where banking countless everyday payments everyday payments in a way that is transparent KBZPay is was for the exclusive domain of the elite for a people who, until now, and seamless for a leveraging mobileto an increasingly open economy where had no way to transact with people who, until now, first services to banking is accessible to everyone. businesses or one another in a had no way to transact deepen financial cashless way.” with businesses or one inclusion and However, as countries across the world another in a cashless way. strengthen forge ahead in the adoption of digital Today, over 3 million financial infrastructures within the country. payments and cashless transactions, people and their friends and family are Offering real benefits to the day-to-day life Myanmar is still a cash-based society. now connected to a modern, mobile-first of consumers, KBZPay makes purchasing Research has shown that an estimated financial sector, creating first-world banking everyday products and managing funds 99% of all financial transactions within standards that Myanmar needs to emerge more convenient and secure. Using the the emerging economy are cash-based as a globally competitive economy. Through KBZPay app, people can now make everyday and that almost 80% of the country’s consumer-friendly applications such as transactions without having to physically population is without a bank account.

KBZPay, Myanmar will soon make a quantum go to a bank branch and, for the first time, However, the realities of Myanmar’s leap to a mobile-first economy. have access to everyday financial and digital banking sector comes in stark contrast services, including peer-to-peer transfers, to the country’s booming smartphone QR payments, cash withdrawals, and even penetration, which was virtually nonpayment of university tuition fees. existent just 10 years ago, but now sits CONTACT As groundbreaking as KBZPay is for above 80%. Clearly, the modernisation the everyday consumer, KBZ Bank also of the Myanmar economy in recent years Company name: KBZ Bank recognised that in a country with limited has been uneven—as consumer use of Address: No. (615/1), Pyay Road, Kamayut digital infrastructure, mobile financial the internet and data is on par with that in Township, Yangon, Myanmar services need to be introduced at a developed European economies, and the Phone number: +95951018555 reasonable pace.

This includes ensuring banking sector works to catch up.

Email: kbzinfo@kbzbank.com improved digital and financial literacy Website: www.kbzbank.com through educational initiatives and public What if the key to banking the unbanked engagement every step of the way. To lies in the use of data, internet, and

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2019

DOMESTIC RETAIL BANK OF THE YEAR - SINGAPORE FINANCIAL INCLUSION INITIATIVE OF THE YEAR - SINGAPORE

Changing consumer behaviours and lifestyles, the catalyst for UOB’s transformation that they prefer face-to-face advice when making investment decisions, UOB opened its first high street Wealth Banking Centre in the heart of Orchard Road. But behind the shiny exterior, innovation is everywhere: not only was the location of the centre derived through geospatial analysis but within the centre, AI platforms power customised solutions and tailored investment advice for Relationship Managers to impress upon their clients.

United Overseas Bank Limited won the Domestic Retail Bank of the Year and Financial Inclusion Initiative of the Year for Singapore at the Retail Banking Awards 2019.

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018 brought about innovations that A complete list of UOB consumer continue to revolutionise business banking products that are intergated models and consumers’ choice. with MyInfo can be found at http:// For UOB, a bank determined to www.ifaq.gov.sg/MyInfo/mobile/index. embed itself into consumers’ changing aspx#DetailDoc/169237 behaviours and lifestyles, it was a year of transformation.

Partnering for new solutions Digital disruption knows few boundaries.

Understanding the ability of digital to That’s why UOB decided to adopt a holistic bring disparate players together as partners understanding of the consumers’ lives with an ecosystem, the bank pioneered - as well as a willingness to look beyond a number of new partnerships delivering traditional compelling new solutions financial to consumers’ lifestyles. products. It is UOB Home Solution is “The bank pioneered a number this thinking the market’s first digital of new partnerships delivering home loans platform that lies at the compelling new solutions to heart of every that alleviates a raft of consumers’ lifestyles.” innovation and pain-points of the home every success buyer’s experience. story.

This followed a similar digital platform for access and approval of Driving speed & convenience car loans. Another such partnership also Digital service innovation offers new resulted in the launch of Singapore’s largest levels of speed and convenience that have open electricity marketplace. never been experienced before. UOB More recently, the bank has partnered decided to apply this where it would benefit with prevalent players such as Grab and the consumers most. In doing so, it became LTA to bring compelling solutions to people’s the first bank in Singapore to enable everyday lives as they become increasingly instant digital onboarding for new-to-UOB digital. customers for all its consumer banking product offerings. With MyInfo, customers Wealth 2.0 may submit applications for any consumer In designing wealth management services banking products and get approval within for the affluent young, UOB has crafted a minutes. modern omnichannel experience. Observing 76 ASIAN BANKING AND FINANCE | DECEMBER 2019

Digital’s power to delight Another aspect of digital is its power to delight consumers by allowing them to discover fascinating new things almost every day: from where to eat, where to go on holiday, to what to do once you get there. UOB embraced this insight in the development of the very first online travel marketplace and online dining platform, which not only inspires, but also provide curated solutions for people to explore.

And finally, UOB has enhanced Mighty, it’s all-in-one banking app that enables everyone to bank, pay and play effortlessly. With an enhanced user experience and exciting user-centric rewards, UOB continue to elevate their digital capabilities to serve customers better.

A winning strategy Digital change is here to stay. As consumers’ preferences have evolved across so many areas of their lives, so have UOB’s products and services. By helping people bank, live and play with exciting new solutions, UOB has not only delighted consumers, but enjoyed extraordinary financial success itself.

CONTACT United Overseas Bank Eunice Seow Group Strategic Communications and Customer Advocacy Email: Eunice.SeowHW@UOBGroup.com DID: 6539 3986

2019

DOMESTIC RETAIL BANK OF THE YEAR - CHINA GOLD AND PRECIOUS METALS BANK OF THE YEAR - CHINA

Ping An Gold Bank: Gold Manager by Your Side In 2018, Ping An Bank innovatively created structured products, which provide better financial experience to its customers.

Business model and product innovation: A big hit On 9 September 2014, Ping An Bank took the lead in launching the “Gold Bank” brand, which was based on physical gold, focussing on gold monetisation and providing the product and service valued and settled in gold, thus establishing a gold balance sheet and asset pool to satisfy the clients in all dimensions.

Gold Bank has drawn great attention since then.

For Gold Bank business, retail customers can use the “gold account,” which is similar to the RMB account, to complete the deals. The deals include gold purchase, fixed deposit, automatic investment, finance, exchange, transfer, pledge, etc.

secure a gold put option. Their revenue is composed of interest from deposit and option premium. On the strike date, the bank decides whether to exercise the option based on the terms of gold put option. This structured product provides clients with higher yield and higher market risk, as clients need to undertake the market risk of falling gold price.

The financial products of Ping An Gold earned great feedback from clients, who are quite satisfied with the yield and structure of the product. It also provides the opportunity to convert money into gold with higher conversion rate when gold price falls.

Seizing the opportunity As one of the initial financial members of Shanghai Gold Exchange (SGE), which has the largest spot gold trading volume globally, Ping An Bank has been qualified Great feedback from clients to develop the business of proprietary In 2018, the price of gold experienced drastic trading, agency trading, physical & paper fluctuation. In order to meet the commodity trading, leasing, consignment, demands of pledge, liquidation, institutions and warehousing, individuals, intermediator, “From 2014 to 2018, Ping An Ping An Bank interbank Bank’s gold trade ranked in the offers the “Ping An cooperation, SGE’s top 10, which followed Gold” structured enquiry, importthrough with its platinum and product which export and other is designed for businesses. The silver trading.” clients who pursue bank has also been high revenue with conducting gold high risk. Ping An Gold structured product is importing, agency trading, proprietary managed by professional teams from trading and gold leasing in a sorted-out the Asset Management Division and HQ manner. Various precious businesses Financial Markets SBU, which make market risk and operating risk controllable.

The financial products of Ping An Gold is a floating-rate financing product. Clients deposit their money into the bank and

are developing rapidly, which improves the market share globally but also builds reputation.

From 2014 to 2018, Ping An Bank’s gold trade ranked in the SGE’s top 10, which followed through with its platinum and silver trading.

In 2018, a new AI trading system went into operation and improved the trading ability apparently. Ping An Bank is set to offer a more stable and excellent service to customers thanks to the new AI trading system.

Future development direction: Gold Smart Recycle Many people own gold bullions, coins or jewellries, and sometimes, they need to sell their gold. In order to meet such demand, Ping An Bank offers “Ping An Gold Smart Recycle” to help people sell their gold online or call for home-delivery service on their gold.

To experience, you need to follow three steps: 1. Submit an application online: First, you need to fill an application form online and upload several pictures of the gold production. Ping An Gold Smart Recycle system will inspect the file and make preliminary estimation on quality and price.

2. Wait for pick-up: After your application is approved, a courier will be sent to your home to pick-up the gold.

3. Test and pay: Your gold will be sent to our refinery for a series of tests. You will receive payment from Ping An Bank afterwards.

CONTACT

Company name: Ping An Bank Co., Ltd. Address: 5047 East Shennan Road, Shenzhen, Guangdong, China Phone number: (0755)82080387 Email: pabdsh@pingan.com.cn Website: http://bank.pingan.com The “Pin An Gold“ structured product is designed for clients who want to pursue high risk and revenue.

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2019

DOMESTIC RETAIL BANK OF THE YEAR - BRUNEI

Digital innovations: The key to Baiduri Bank’s growth

Baiduri Bank’s headquarters

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eceiving the “Domestic Retail Bank of The Year” award for the seventh consecutive year is strong evidence of success for Baiduri Bank in Brunei’s banking sector. Not content on resting on its laurels, the bank continuously looks to build on its successes and one focus area is leveraging on new technologies. From contactless payments to digital wallets, technology is rapidly changing the banking landscape in Brunei. As technology provides greater connectivity and access to information, customers now expect to do more anytime, anywhere.

With Brunei having one of the highest internet penetration rates in the region and a similarly high social media penetration rate, it is safe to conclude that Bruneians are among the masses heavily dependent on the digital realm. Beyond social media, technology has also penetrated other aspects of Bruneian life creating a heavy reliance on digital alternatives to everyday tasks.

There is no denying the numerous advantages that technology brings with the automation of many mundane tasks becoming the new norm such as bill payments, mobile top-ups, Hire Purchase car payments and more. In addition to convenience, technology is also the gateway to the world’s resources – things that were previously out of reach are now a few mouse clicks or button presses away.

The more tech-savvy consumer expects a mobile service as their default option, such as online purchases or online bill payments - this also applies to how they perform their banking transactions.

Today, with the internet and the ubiquitous smartphone being a daily necessity for many

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Bruneians, Baiduri Bank, and its whollyowned subsidiary Baiduri Finance, have each developed a comprehensive and userfriendly mobile app in keeping with the trend towards digital banking. Initially released in 2013, Baiduri’s mobile banking app, Baiduri Personal i-Banking, has undergone two major enhancements in recent years, with new features and a more intuitive user-interface in keeping with customers’ evolving needs.

Meanwhile, Baiduri Finance has also launched a mobile app, the Baiduri Finance Mobile App. Besides performing Hire Purchase e-payments, the Baiduri Finance mobile app is a mobile solution where customers are able to obtain quotes for their auto insurance renewals, a loan calculator, a gallery to view used vehicles as well as a tender request submission.

Baiduri Bank’s digital banking offerings not only affect the Bruneians who are rooted in the country, but also those living and working abroad. With offerings that include internet banking and a mobile banking app which can work anywhere there is an internet connection, payment of bills while abroad, or top-up of a Baiduri Bank Mastercard CashCard while overseas can all be done on the smartphone in real-time.

Among their other digital innovations is the introduction of Brunei’s first and only online securities trading platform through Baiduri Capital, another wholly-owned subsidiary, which allows customers to invest in major stock markets including Singapore, Hong Kong, Malaysia, the US as well as China from the comfort of their home or anywhere in the world.

Technology also affects the many budding individuals who want to venture into the world

of entrepreneurship. With the explosive rise in the popularity of e-commerce, Baiduri Bank has two payment solution options for businesses – the Baiduri Payment Gateway Services (BPGS) for large companies and an affordable e-payment solution for smaller businesses through MerchantSuite, an online platform facilitating the issuance of invoices and card payments without requiring a dedicated and more costly website. Both solutions make businesses more accessible to a wider audience, both locally and abroad, allowing for quicker and more efficient transactions whilst providing a convenient alternative for people who prefer online purchases.

While technology has been the driving force behind practically all of today’s innovations, a crucial aspect which must never be taken lightly is data security. Baiduri Bank is the first and only bank in Brunei to be PCI-DSS certified, the payment card industry standard for processing, transmitting and storing cardholder data to safeguard customer information. The certification process is carried out annually by a third-party assessor and Baiduri Bank is certified to the latest industry standard, PCIDSS Version 3.2.1.

These innovations have been an integral part in Baiduri Bank’s plans towards serving the current needs of customers and anticipating their future needs. With plans to continue development and enhancement of their electronic payment capabilities and e-banking services, Baiduri Bank has embraced the advancements in technology to bring a more meaningful banking experience for its customers whilst enabling them to lead a digitally enriching lifestyle.

As a major player in the financial landscape of Brunei, Baiduri Bank is on track with the country’s Digital Payment Roadmap 2019-2025, a strategic initiative to drive digital transformation in the domestic payment industry.

CONTACT Company name: Baiduri Bank Address: Block A, Kiarong Complex, Lebuhraya Sultan Hassanal Bolkiah, Bandar Seri Begawan BE1318, Brunei Darussalam Phone number: +673 226 8300 Fax Number: +673 226 8375 Website: www.baiduri.com

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2019

ADVERTISING CAMPAIGN OF THE YEAR - INDONESIA

UOB Indonesia portrays its long-term commitment through the ‘Generations’ brand campaign

PT Bank UOB Indonesia won this year’s Advertising Campaign of the Year award from ABF Awards 2019.

As a bank that is built on trust and deep relationship, UOB is well positioned to remain relevant to the changing lives of its customers and the society. In 2018, UOB launched the ‘Generations’ campaign in Indonesia, following the regional initiative.

The brand campaign was aimed to continue building its brand awareness and strengthen positioning in the local market as a bank that understands customers’ needs across generations.

The ‘Generations’ campaign portrays UOB’s timeless values of being honourable, enterprising, united and committed, through the different expressions of every generation, whilst guided by the same values. Prior to the campaign launch, a research was conducted to gather samples across different age groups (22 to 60 years old) to define the brand positioning and

interpretation for each segment. brand through the evolving needs of today’s The campaign served as an expression of generations.

UOB’s values and its brand promise—“Right The launch of ‘Generations’ campaign has

by You”—to always stand by the customer created high affinity and significant brand and do right by the customer. An additional funnel performance amongst those who tagline of “One that were exposed to the understands every “The ‘Generations’ campaign campaign. generation” was Targeting its core reflects the bank’s also introduced to audience of mass commitment to continue the affluent and affluent strengthen the bank’s brand values amongst segments effectively, journey for UOB Indonesia its competitors. the campaign took upon and start building the brand Aligning with its through the evolving needs of a strategy of a good vision to be one of the mix of conventional and today’s generations.” trustworthy banks, digital media channels, brand perception and delivered a tangible plays a critical role to support this objective. result for the business by generating leads.

The ‘Generations’ campaign reflects the UOB Indonesia has been committed to bank’s commitment to continue the journey creating long-term value for its customers, for UOB Indonesia and start building the colleagues and the community since 1956 across its presence in more than 175 branches and 30 cities in Indonesia. The bank has continuously built trusted relationships throughout generations by helping them plan their future through customised and integrated financial solutions.

CONTACT

UOB’s ad campaign in the streets of Indonesia

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For media inquiries, please contact: United Overseas Bank Eunice Seow Group Strategic Communications and Customer Advocacy Email: Eunice.SeowHW@UOBGroup.com DID: 6539 3986

PLANTING FIRM ROOTS CLOSELY SAFEGUARDING YOUR WELL-BEING FOR A BETTER FUTURE Cathay United Bank awarded ABF Wholesale Banking Awards 2019 “Taiwan Domestic Trade Finance Bank of the Year award”

ASIAN BANKING & FINANCE Taiwan Domestic Trade Finance Bank of the Year award

Cathay United Bank transforms an award-winning reputation into practical action to share the love with Taiwan.

We are committed to positive enterprise value, fostering green energy companies, and fulfilling our social responsibility by giving back to the public. Our dedicated planning and services are based on customer needs, leading innovation for your future and sustainable development of Taiwan.

ASIAN BANKING AND FINANCE | DECEMBER 2019 83

DEBT DEAL OF THE YEAR - PHILIPPINES

Phoenix Petroleum boosts LPG business with ventures in Vietnam and Brunei, inks deal with PNB Brunei refinery’s future production. The offtake agreement is expected to start within the year as PNX recently acquired PNX Conqueror—the company’s first pressurized LPG carrier with 2.5kT capacity, along with a long-term charter of Chelsea, another large pressurized vessel with 4.6kT capacity, in preparation for the venture.

“As we continue to expand the brand internationally and establish strong connections with complementary businesses from neighbouring countries, we are relentless in forging ties with companies like HYII to be able to provide Distributors of Phoenix Gas Vietnam in front of Tuan Chau International Marina in Quang Ninh Province quality products and services to more with Phoenix Petroleum Philippines Founder, President, and CEO, Dennis Uy and his family (centre), and and more communities. With another select company executives during an appreciation event for business partners in the country. milestone partnership, we are optimistic and excited about the future of this maintenance of LPG supply systems, LPG project as it opens new opportunities and hoenix Petroleum, the leading and transportation, and LPG warehouse and possibilities for growth and progress for fastest growing oil company in storage leasing. It has established branches both companies and countries,” Fadullon the Philippines, expanded its LPG in Da Nang, Long Thanh Rural District, Nha said. operations to Vietnam earlier this year Trang, and Cam With the when it officially completed the acquisition Ranh. proximity of of 75% of Origin LPG Vietnam LLC, which “Phoenix Petroleum reportedly Meanwhile, Philippines was later renamed Phoenix Gas Vietnam. raised around US$135m through the in a strategic and Brunei, the The company has been relentless in the listing of commercial papers partnership is move to further growing its businesses in the Philippines with PNB Capital and Investment expected to strengthen and abroad. Earlier this year, Phoenix its network in improve the Petroleum reportedly raised close to Corporation as manager.”

Asia, Phoenix Philippines’ overall US$135m through the listing of short-term Petroleum’s wholly-owned subsidiary PNX supply situation as Brunei would only commercial papers to the Philippine Dealing Petroleum Singapore also recently signed need a day to deliver its supply to the and Exchange Corp., with PNB Capital and a partnership with Singapore-based Hengyi country. The venture would also beef up Investment Corporation acting as the the Industries International (HYII) for an LPG Phoenix’s petroleum source from its usual sole issue manager for the commercial offtake venture in Brunei. suppliers—China, Vietnam, Korea, and papers programme and as lead underwriter The partnership, signed by PNX Middle East, among others. and sole bookrunner for the initial series.

Petroleum Singapore Director Henry Albert The latest LPG ventures in Vietnam and Recently, to get to know better and show Fadullon and HYII Director Chen Lian Cai, Brunei are expected to support Phoenix’s support and appreciation to its partners will allow PNX to offtake LPG from Hengyi LPG expansion across Asia Pacific. in Vietnam, Phoenix Petroleum organised a series of activities across the country.

Phoenix Gas Vietnam LLC, a subsidiary of Singapore-based unit Phoenix Energy International Holdings, treated its 68 distributors in Central and South Vietnam with a three-day gathering that featured tours in different spots in the country, including Yen Tu Mountain, Ha Long Bay, Hanoi, and Ho Chi Minh.

Based in Ho Chi Minh City, with presence in Central and South Vietnam, Phoenix Gas Vietnam is involved in LPG trading, storage, PNX Petroleum Singapore Director Henry Albert Fadullon (left) shakes hands with Hengyi Industries International warehouse, port and LPG tank servicing, Director Chen Lian Cai (right) during the signing ceremony for an LPG offtake agreement in Brunei. and other services, including repair and

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SYNDICATED LOAN OF THE YEAR: AL AHLI BANK OF KUWAIT Asian Banking & Finance presents ABK with Syndicated Loan of the Year Award 2019 Simpler Banking

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2019

WEALTH MANAGEMENT PLATFORM OF THE YEAR - HONG KONG

HSBC Hong Kong launches bespoke banking experience with HSBC Jade The platform will also provide clients with the most up-to-date market information, analysis and house view insights so they can better understand market opportunities and risk areas.

Moreover, insurance products, such as Jade Global Generations Universal Life, have been designed exclusively for HSBC Jade clients.

Clients of Jade may also gain access to in-depth insights on a variety of topics supported by experienced research teams from across the world.

Besides a dedicated team of experts HSBC Jade offers exclusive preferential pricing for global banking services to maximise investments. and wealth management solutions, HSBC Jade offers exclusive preferential pricing he service combines personalised banking-like wealth product solutions which for global banking services to maximise relationship management, advanced are generally not available to retail banking investments. wealth solutions, and luxury customers, including tailor-made payoff Furthermore, Jade clients can also experiences. selections for individual needs and different access Investment Financing, should they With dynamic economies that promise market sentiments,” Brian Hui, Head of be interested in using loans to invest prosperity, an overwhelming increase in Customer Propositions and Marketing, Hong in a broad range of eligible investment savings and the generation of new wealth, Kong, said in a statement. products in order to maximise returns. private wealth in Asia is growing faster than Bringing leading expertise in retail As for professional investors, private anywhere else. and private banking, insurance and asset placement notes and bonds are certainly To respond to this rapid growth, leading management, available. banking and financial services holding HSBC provides a HSBC “HSBC Jade puts forward company HSBC Hong Kong has launched distinctive service established a distinctive standalone service HSBC Jade, a bespoke banking experience in the high net worth HSBC Jade to that exquisitely combines personalised space. engage new for clients with complex relationship management, advanced wealth HSBC Jade investment needs and investable clients. With solutions, and luxury lifestyle experiences clients have access dedicated assets above US$1 million.” to cater to the needs of high-net-worth to products and resources to clients. services that are in provide wealth HSBC Jade puts forward a distinctive general not available to retail bank clients. product solutions to high net worth standalone service for clients with complex For example, to ensure that clients make individuals, HSBC Jade offers clients investment needs and investable assets more informed investment decisions, they distinguished privileges and access to above US$1 million. can gain insights from HSBC’s new Wealth unparalleled lifestyle experiences.

Under the new proposition, clients will Portfolio Intelligence Service, developed The HSBC Jade concierge service benefit from a specially appointed Jade through a partnership with BlackRock available to HSBC Jade clients, unlocks a Director, a committed relationship manager Financial Management Inc., leveraging door to a world of benefits across travel, equipped with more experience and on their market-leading Aladdin Wealth dining, retail and entertainment as well as knowledge in understanding and managing platform. special invitations to exclusive events. financial goals.

At HSBC Jade, this institutional level With this privilege, clients can secure Additionally, they can also enjoy access service is extended to clients. In the first prime-time tables at the world’s most to the bank’s most qualified financial phase, the Wealth Portfolio Intelligence sought after restaurants, even at a day’s experts, who will support them on wealth Service provides clients with an in-depth notice. Booking through the concierge also management strategy. test analysis of their Unit Trust holdings, secures memorable five-star getaways Senior Wealth Planning Consultants are which includes asset allocation breakdown, at more than 1,500 luxury properties and also available to set up clients’ financial portfolio volatility and volatility contribution independent boutique hotels across the profiles, complemented by a range of analysis, insights into potential impact to globe. products including investments, insurance portfolio from market events, performance Jade clients can also take advantage of and wealth management solutions. data and gain or loss reporting and exposure direct access to live ticket allocations and “HSBC Jade offers high net worth by funds denominated currency, equity discounts and pre-sale access on high-end individuals a preferential access to private region and equity sector. brands.

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OPINION

STRUEBI, SOETANTO

How can banks WOW the next generation of wealth?

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ome might still perceive millennials as a generation of teenagers obsessed with avocado toasts and fancy festivals. However, the upper bracket of today’s millennials are now almost 40 years old and many of them are entering their prime spending years. Over the next three decades, millennials would have inherited 30 trillion US dollars, and by next year they will make up 50% of the total global workforce.

Millennials will only give banks one chance to impress them. Banks need to act fast and reposition itself now to attract future customers and build ongoing relationships with them – even if this means taking short-term losses for sustainable long-term profits. Unfortunately, most of today’s private banks are far from being ready to satisfy this generation.

Our global customer journey study finds that 60% of millennials are dissatisfied with their current financial providers. Millennials perceive today’s customer experience to be poor across banks.

The study, which surveyed nearly 650 high net worth millennials worldwide finds that across the board, an overwhelming 58% of millennials would consider ‘60% of millennials are leaving their main bank in dissatisfied with their current the near future. To top their wealth management provider. dissatisfaction, this generation To top their dissatisfaction, this is not loyal. On average, each generation is not loyal.’ millennial has over three banking relationships. To win the next generation of wealth, banks have to optimise all the touchpoints that millennials experience to fulfill their needs. Banks need to re-wire their capabilities and processes to re-build a new bank that put millennials’ values at the forefront of their thinking.

DR. SILVIO STRUEBI Partner, Head of APAC Banking Simon-Kucher & Partners DESI SOETANTO Consultant Simon-Kucher & Partners

Ensure Millennial-RM match As an industry that prides itself as a people business, private banks cannot forget the criticality of interpersonal relationships. Clients want committed, like-minded investment advisors who speak their language. However, most relationship managers today risk losing the hard-earned trusted relationship that they have previously built because they lack the right capabilities to connect to their client’s children. In fact, one study finds that 66% of children would change their financial advisor upon receiving an inheritance. One of the measures that banks can take is to optimise the process in which

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they match advisors with clients.

Bring digital to the party Inevitably, Asia’s rapidly growing private wealth will be transferred to millennials who are used to a highdegree of digital self-service capabilities. Almost 90% of the surveyed high net worth millennials are currently using or are planning to use some form of online trading solutions. Currently, over half of the respondents’ wealth are already being managed by a digital arm such as online investments and robo-advisory. Banks will struggle if they do not accurately allocate digital investments towards engagements that have specific and measurable outcomes for their clients.

Highlight the WOW factor Our survey reveals that a low price offer is not the most important factor that millennials look for when it comes to financial services. Banks need to transform their practices and ‘WOW’ millennials.

Our survey has identified eight ‘WOW’ factors that wealth management services can offer. An example of this ‘WOW’ factor is that millennials don’t want to receive spams. Banks need to ensure that they only give tailored recommendations.

Furthermore, customer ratings significantly matter to millennial consumers. Today, reviews done by peers influence almost every kind of purchase, starting from simple ones like eating out to life-changing decisions such as which mortgage lender to choose. Our Rating Economy study finds that thanks to ratings, 51% of consumers feel that they get more value for their money. Therefore, banks have to develop a sound approach to exploit the power of word-of-mouth marketing. Are millennials still willing to rely on the big three credit rating agencies? How do customer ratings influence investment decisions? How can banks incorporate today’s rating economy into their practices? How can product catalogues be presented in an appealing and customised manner? To address these questions, banks need to develop a prioritised business and technology roadmap, offer end-to-end self-service capability tools, and foster a millennialcentric culture. The supertrend towards millennial domination will continue, and millennials are turning to those providers that can offer them the maximum satisfaction at the highest quality.

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OPINION

GARCIA HERRERO, NG

China’s dual banking system: consolidation as the solution to weak small banks

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he latest bailout of Bank of Jinzhou shows the intervention by the People’s Bank of China (PBoC) on Baoshang Bank was not an isolated event. There are indeed fundamental solvency and liquidity issues for some small Chinese banks, widely influencing both the bond market as well as the broader financial sector.

Baoshang Bank has been known as the first public government takeover since the late 1990s with China Construction Bank entrusted to handle the business operations. After the Baoshang Bank event, the widening spreads are very obvious for smaller banks’ most important source of funding, namely negotiable certificates of deposit (NCDs).

In fact, the cost of funding through NCDs has gone up for riskier banks, and bond issuance for lower rated banks dried up with the majority of their plans being cancelled or delayed at peak. As a result, net bond issuance by banks has also collapsed in the second quarter, drawing deep contrast with non-financial firms whilst putting additional pressure on banks raising capital to meet regulatory requirements.

From a policy perspective, “Large banks still have room to small banks are key lenders to accommodate such takeovers. small-and-medium enterprises This reduces systemic risk for the (SMEs). Investors’ perception of system or, at least, defers it to a much growing risk imbedded in later time.” small banks will make it harder for Chinese authorities to reach their goal of propping up banks’ lending to private firms and, in particular, SMEs. As such, the market’s reaction to the Baoshang Bank incident clearly shows fears of contagion to other small banks.

This has prompted the PBoC to react quickly and calm the market to ensure small banks have sufficient liquidity. To begin with, the PBoC has accelerated the pace to implement the deposit insurance scheme to beef up confidence. On top of that, the limits of the rediscount and standing lending facilities (SLF) were raised to cover banks’ short-term liquidity needs. In addition, NCDs are now included in the PBoC’s eligible collateral.

ALICIA GARCIA HERRERO Investors are right to be worried as China’s Chief Economist for Asia Pacific banking sector has become more dual over years Natixis with large banks being clearly sounder than small GARY NG banks. We expect the trend to continue on the Economist for Asia Pacific, 2015 back of smaller banks’ traditional liquidity and Natixis profitability struggles and new disadvantages arising 92 ASIAN BANKING AND FINANCE | DECEMBER 2019

from the government policy goal.

On the liquidity side, there are multiple reasons for the duality and the worsening. First, small banks are more reliant on alternative sources beyond deposits, which further deteriorated since the large capital outflows in late 2014, resulting in a clear reduction in their deposit base. Beyond the relative scarcity of deposits, the PBoC has made it harder for banks to concentrate their sources of funding on a single venue such as the money market. In fact, the Macro Prudential Assessment (MPA) imposes clear limits on money market funding, which further squeezed small banks in terms of liquidity.

Third, small banks tend to rely less on central bank liquidity due to their lack of collateral being accepted by the PBoC. For example, the PBoC does accept paper by policy banks and other large banks but not that of smaller banks.

Apart from more restricted funding channels, the tougher liquidity environment has encouraged small banks to look for businesses beyond traditional loans. In fact, many smaller banks switch towards shadow banking for regulatory leeway and profitability. As the consequence, when the China Regulatory Banking and Insurance Commission (CBIRC) put a stop in many shadow banking activities of banks, smaller banks are impacted more intensively due to larger exposure.

Beyond the fundamental balance sheet structure, there are also additional disadvantages for smaller banks as the new government policy goal could create greater divergence. In order to meet the ambitious lending target to SMEs, large banks have relaxed their collateral criteria. The move means large banks are more competitive due to the lower funding costs in getting better clients, whilst small banks are likely to end up with less sounding clients due to the higher funding costs, posing downside risks on asset quality.

Given the difficulties in creating a level playing field, we expect small banks to continue to underperform. This, however, does not equate to these banks defaulting. As shown in the cases of Baoshang Bank and Bank of Jinzhou, engineered takeovers by major banks will continue under the informal suggestion of the PBoC. We believe large banks still have room to accommodate such takeovers. This reduces systemic risk for the system or, at least, defers it to a later time.

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OPINION

EIICHIRO YANAGAWA LINE Securities, a new mobile investment service in Japan

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INE Corporation launched the LINE Securities, a mobile investment service, in August. Under its corporate mission of “investment made easy,” LINE Securities is a new mobile investment service available on the LINE platform. During the initial phase after the launch, users can trade stocks of 100 leading Japanese companies and 9 domestic exchange-traded funds (ETFs) in amounts as small as one share/unit, and starting at several hundred yen.

The Japanese wealth management market According to the Celent Report, the diversity of financial assets holdings of individuals in Japan— with more than 50% of assets maintained in cash or deposits—pales in comparison with the West.

Rooted in an understanding that the Japanese investor is typically conservative, seeks stability, and ultimately hails from an agricultural culture and tradition that is averse to risk, the Japanese government consistently hatches plans to improve the investment environment for individual investors and to enhance investment literacy. A prime example of this is the NISA initiative which was introduced in January 2014, and further expanded in January 2016. The number of accounts opened and purchase volume under these tax-exempt accounts continue to rise. From 2014 to 2015, the number of accounts increased by 30%, and “The fight centering on the purchase volume tripled.

UI for customers—the fight At the same time, the scope over mobile apps—will only of people using accounts has continue to intensify.” increased little. The ratio of NISA account holders in the “prime asset formation demographic” (aged 20 to 49) accounts for just about of 30% of accounts and a shade over around 20% of NISA investment activity. Also, NISA has been slow out of the gate, proving unable to attract a high ratio of inexperienced investors. Indeed, the proportion of NISA users without experience in traditional securities channels stayed low.

Celent believes that, along with the improvement of product offerings, the improvement of customer experiences is the top priority. We also believe EIICHIRO YANAGAWA that it is necessary to provide some investment Senior Analyst products that will greatly stimulate users to make Celent investments.

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The future of retail brokers The fight centering on the UI for customers—that is, the fight over mobile apps—will only continue to intensify. Customers can access all account information from mobile apps, selecting the most appealing product and service offerings from a wide range of options, and completing the transaction with one click. In today’s digital and hyper-competitive environment where customer experiences are shared nearly instantaneously through SNS, the financial product services sector will presumably no longer be afforded special treatment or insulated from these digital realities.

When the financial services industry (FSI) shifts to a modular model, Celent believes that what responsibilities financial institutions (FIs) will adopt could take the form of any number of scenarios.

• FIs become full-service providers: This differs from current practice in that modules could nimbly be replaced as needed and would secure greater strategic flexibility.

• FIs become service integrators: Banks become product service providers with implementation that even goes as far as the financial infrastructure through loosely coupled, comprehensive solutions.

• FIs become open architecture providers: FIs become full-service providers and service hubs that loosely couple the product services of partner firms to their customer interface and financial infrastructure.

• FIs become specialists: FIs offer services that become a piece of the value chain, collaborating with many front-end and back-end business operators • FIs become white label providers: FIs provide the financial infrastructure capabilities of core banking services. They provide a very rare and safe global delivery model, backed by exclusive licenses to countries and regions.

SNS dedicated retail brokers are blessed with the possibility and opportunity to create new business formats in the financial services industry through co-creation with its parent SNS (LINE) and a securities giant (Nomura). The success of the new company will not only provide synergies to the parent companies but it will also offer them an opportunity to move to a new business paradigm.

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OPINION

SAURABH BHALERAO

Indian Banking: Rappelling down the NPA wall

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n India, banks dominate the credit market given the domestic bond market is under developed.

Hence, the health of banks is a priority as they play a key role in financial intermediation. Further, a large majority of the banking space is owned by public sector banks (PSBs). Post the asset quality review (AQR) of the banks prescribed by the Reserve Bank of India (RBI) led to recognition of bad assets on the balance sheet of the banks resulting in sharp deterioration in the nonperforming assets (NPAs) of the banks and required banks to increase the provisioning for these bad loans. Due to this, the gross NPAs of banks rose over four times from Rs. 2,320 bn in FY14 to Rs. 10,191 bn for FY18.

Asset quality deterioration in scheuled commercial banks (SCBs) , especially PSBs, can be traced to the credit boom of 2006-2011 when lending grew at an average rate of over 20%. In December 2016, a landmark regulation titled Insolvency and Bankruptcy Code (IBC) which gave significant powers to the lenders to resolution of bad assets from banks was passed. Although, the resolution process has been slow due to teething problems with the new regulation, the overall credit culture among corporate borrowers has seen a change and banks have seen resolution in certain large NPAs. There has been a robust â&#x20AC;&#x153;This rise in the level of NPAs recovery of Rs. 3,590 bn over the has resulted in significant last four years, including recovery increase in provisioning of Rs. 1,230 bn in FY19 by PSBs requirement which has and resolution of a select set of impacted profitability.â&#x20AC;? large accounts. Additionally, slippages which had increased from 5.7% in FY17 to 7.6% in FY18 reduced in FY19 indicating slowing NPA, and write-offs.

Consequently, during FY19 the incremental NPAs declined, leading to a reduction in Gross NPA to Gross Advances ratio to 9.3% for SCBs, 3.7% for PVBs and 12.6% for PSBs. PSBs have played a significant role in the India development story by lending to various large infrastructure projects. In the past few years, because of a variety of legacy issues, few large projects stalled or became non-viable and SAURABH BHALERAO consequently lenders were also affected, leading to Associate Director, an increase in NPAs. This rise in the level of NPAs CARE Ratings Ltd. has resulted in significant increase in provisioning 96 ASIAN BANKING AND FINANCE | DECEMBER 2019

requirement which has impacted profitability and increased capital requirement for growth as well as maintenance, resulting in continuous need for recapitalisation of banks having bad asset quality.

Over the last five years, PSBs have raised over Rs. 660 bn and have also received a further infusion of over Rs. 2,500 bn by the Government. In FY19, PSBs have reported a capital to risk weighted assets ratio of 12.2%; however, on an individual basis, certain PSBs would require significant capital infusion to meet Basel III and provisioning requirements on account of asset quality challenges and credit growth. Consequently, PSBs which had higher levels of NPAs have lower levels of capital adequacy when compared to their private peers. PSBs have been able to maintain their CAR primarily due to significant capital infusions by the government.

In August, 2019, government announced the merger of ten PSBs into four banks. Further consolidation could enable better monitoring of loans and increases focus but pitfalls remain.

Merger integration could be a distraction from credit growth. However, special efforts would have to be taken to ensure that the share of PSBs in advances, which has already reduced from ~71% in Q1FY18 to ~66% in Q1FY20, is not further affected by the merger/integration process. In FY20, the Government has plans to provide an upfront capital infusion of Rs. 700 bn out of which an infusion of approximately Rs. 598 bn has already been announced.

The next two to three quarters would be crucial from the point of view of NPAs as it would clarify whether the NPA cycle has fully turned as in Q1FY20, the NPA ratio has increased marginally.

PSBs have lost market share in total advances, and will have to continually be adequately capitalised for ensuring that they can meet the future challenges.

PSBs would continue to face higher asset quality concerns as compared to their private peers.

However, incremental NPA addition is expected to decline. Additionally, as the PSBs are being recapitalised, the expanded capital base could also provide a level of cushioning for additional provisions if required. Key concerns include delayed realisations of recoveries and build-up of stress in consumption-led sectors as well as in the financial sector especially HFCs and NBFCs.

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