Pedestrians are reflected on a glass panel at a DBS Group Holdings Ltd. bank branch in Singapore. (Photographer: Ore Huiying/Bloomberg)

Singapore May Allow Virtual Banks After Hong Kong, DBS Says

(Bloomberg) -- Singapore could follow Hong Kong in handing out virtual banking licenses, according to the head of the largest local lender, in a move that would create another source of competition for the city state’s established banks.

“I see no reason why it would not,” DBS Group Holdings Ltd. Chief Executive Officer Piyush Gupta said in an interview with Bloomberg Television, when asked whether the Singapore authorities might issue similar licenses to Hong Kong. But he downplayed the likely impact on Singapore’s existing banks, which are already competing with international giants like Citigroup Inc. as well as financial technology startups.

Provided incumbent lenders have been upgrading their digital capabilities, any virtual banking newcomers shouldn’t be considered a threat, Gupta said. “To my mind, that’s just basically giving a few more banking licenses,” he added.

Among the firms to receive virtual licenses in Hong Kong, three have partnered with financial institutions such as Standard Chartered Plc, BOC Hong Kong Holdings Ltd. and ZhongAn Online P&C Insurance Co. Fintech firm WeLab Holdings Ltd. has also received a Hong Kong banking license. The new entrants are targeting a market dominated by HSBC Holdings Plc, which has a leading share of the local market for retail and corporate lending, mortgages and credit cards.

Virtual banks typically have lower operational costs than traditional lenders that rely on brick-and-mortar branch networks. Last month, Gupta told DBS’s annual shareholder meeting that a new digital bank could generate $100 of income from a cost base a little above $30. In contrast, DBS’s cost-to-income ratio stood at 44 percent last year.

Level Playing Field

In the interview, Gupta said he’d only see a problem in Singapore if virtual banks are allowed to operate on more lenient terms than the incumbents, for example in terms of the capital they are required to hold. “The real challenge is if the regulators create an unlevel playing field, and let the new bank licensees come in and do banking on different terms,” he said. But he said most regulators “don’t seem to be inclined” to do that.

Singapore’s banking landscape is dominated by the three local lenders -- DBS, Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. -- though foreign firms such as HSBC and Citigroup also have branch networks.

Virtual licenses are “a broader banking policy that has to be studied carefully," Singapore’s Education Minister Ong Ye Kung, who sits on the MAS board, said in a parliamentary speech in January. “The real question is whether there are benefits for Singapore to increase the number of banks in Singapore by admitting primarily digital start-up banks,” Ong added.

What Bloomberg Intelligence Says

New licences may not really impact incumbent banks any more than they already are affected by the new competitors. The licenses may even help banks as these would subject tech-based financial firms to the same regulation, helping level the playing field.

-- Diksha Gera, bank analyst
Click here to view the research

Gupta said DBS’s training programs have been successful in minimizing job losses as technology disrupts the finance industry, and reduces the number of staff needed in branches. Some 1,200 employees have been retrained and about 900 have moved to new roles, he said.

Even for people in their 60s and 70s “if you know how to use FaceTime and you can Skype and you order an Uber or a Grab, if you can make the change in your personal life, there’s no reason to believe that you can’t be reskilled and retrained in your professional life,” Gupta said.

It’s hard to say whether retraining can stave off job losses indefinitely, according to Gupta. “But for the time being it’s something that we’ve been able to keep our hands around,” he added.

Other points from the interview:

  • Some one-off elements in DBS’s first-quarter earnings are unlikely to be repeated. DBS’s trading operations made about S$300 million ($220 million), while in a regular quarter the bank expects to make about S$200 million, Gupta said
  • DBS is hiring people from from different backgrounds as it adapts to technological disruption. They include people skilled in data analytics as well as with backgrounds in anthropology, human behavior and psychology
  • DBS started to worry about job displacement in 2016 when it realized that up to 1,500 jobs in branches and call centers could be affected, Gupta said

©2019 Bloomberg L.P.