Jackson Tai: Asian growth prospects remain strong

DBS Vice Chairman and CEO, Jackson Tai, explains why the bank is well positioned for both organic and inorganic growth.

Two weeks ago, DBS became the recipient of FinanceAsia's inaugural award for Best Bank in Asia. The award was bestowed to DBS in tandem with our annual Country Awards and presented at an awards ceremony in Singapore.

It was partly judged on the basis of Standard & Poor's Bank Fundamental Strength Rating (BFSR) and partly on the basis of 12 independent metrics. The BFSR component was assigned a 25% weighting and the other 12 metrics, the remaining 75% weighting.

Shortlisted banks comprised the nine winners of our individual country awards across Asia.With each of the 12 metrics - including measures such as NIM and ROE - each bank was awarded a score from one to nine (nine being the highest and one the lowest). DBS was the clear winner with a score of 89.7.

Here Vice Chairman and CEO Jackson Tai explains the bank's ongoing strategy as it consolidates and expands its operations across Asia.

When you were given the top job at DBS, what were the strategies you decided to employ to take the bank to the next level?

Tai: The backdrop wasn't so great for DBS, externally and internally, back in June 2002. As a result, we needed to convince our customers, our shareholders, our employees, and the public that we were capable of being a well-managed Asian-based bank. We needed to differentiate ourselves as Asian banking specialists, with all of our senior management located in Asia and committed to good governance, transparency, and best-in-class practices from Asia and the West.

To produce sustained growth in revenues and earnings, we embraced a "challenger" approach in building fee and recurring income businesses, and turned to our upgraded risk management skills to grow our loan book. We allocated more resources to higher risk-adjusted return businesses, such as SME and consumer banking, but without forsaking DBS' long-standing leadership in wholesale banking, treasury, and the capital markets.

We placed a stronger focus on the emerging markets, including China, India and Indonesia, in order to build scale across the region, and to continue DBS' geographical diversification beyond Singapore.

We rededicated ourselves to a customer-first orientation. We directed our colleagues to work horizontally across the firm to provide a cross-functional approach to addressing customer needs, capturing opportunities at the seams, and delivering customized products.

We brought more discipline in the way we managed our expenses and capital investments. We trimmed headcount across the firm, and that included a 12% cut of our managing directors.

How far do you feel DBS has come in the time you have been with the bank (ie since just after the Asian crisis)?

We've come a long way, yet we know there is much more to do. DBS today is well-capitalized, and has the highest credit ratings among all Asian-based banks. We've worked hard to resolve our non-performing loans in the aftermath of Asian financial crisis, and today our asset quality is among the best of Asian banks,

We are anchored in Asia as the largest bank in Singapore and the fifth largest banking group in Hong Kong. We have reduced our concentration in Singapore from over 80% post Asian Financial crisis to about 60% today.

We took deliberate steps in 1999 to build strong treasury and risk capabilities. Today, that leadership in derivatives, wealth management and risk-taking extends fully to Hong Kong, where our ability to engineer and sell customized wealth management products rivals that in Singapore. These same skills have extended our ability to intermediate surging capital flows in Asia - we bring an end-to-end orientation in connecting our Asian issuers with new Asian investors, whether they are Private Banking clients or our Asian mass market customers through our branches. We take pride in not only being leaders in originating real estate investment trusts (REITs) in Singapore, but also in pioneering the sale of such instruments through our ATMs.

Some critics expressed concerns over the years about our dependence on our leading treasury and markets gains. In the end, the numbers speak for themselves. We grew loan assets over 10 consecutive quarters, or 35% (S$21 billion) over that same time period. As a result our net interest income for the second quarter this year was the highest in fourteen quarters. Our fee income business has developed from about $S274 million in 1998 to over S$1 billion in 2004 - that's over six consecutive years. Today, our higher-return businesses in SME and consumer banking businesses account for more than half of our net profit.

Investors have acknowledged our progress and our prospects as Asian banking specialists. More than 50% of our shares are held by institutional investors in the States and in Europe. On top of that, of course, Temasek owns 28% of our shares.

Do you view this award 'Best Asian Bank' as a vindication of your regional strategy?

We have large ambitions in Asia, and I hope we've demonstrated that we can be disciplined and focused in our organic and inorganic growth. I'm not sure that any award vindicates anything we're done or planned, but awards do encourage us to stay the course on building long-term shareholder value, while worrying about near-term results.

By the way, we're honored to be the first recipient of Finance Asia's Best Asian Bank award. When I took over, I banned slogans or any bragging about being the "best bank in Asia" because I believe its more important to let the results do the talking. I'm still going to enforce that rule. Your award raises the bar for us, so we need to keep our heads down to create stronger shareholder value.
DBS had the highest rating in S&P's Bank Fundamental Strength Rating - which made up a 25% weighting in our methodology. Do you see the strength of DBS Bank's internal controls and systems as being a key reason for the progress made?

DBS has been investing in risk management, Western style controls and compliance, as well as in technology and operations since 1998. We believe we must differentiate DBS among Asian banks for our pre-occupation with doing the right thing, and with disciplined controls and infrastructure support.

Needless to say, these investments don't come cheap. But these investments are fit right into our emphasis on good governance and transparency. The payback will be clear as we continue to grow our customer franchise in Asia, both organically and inorganically.

How do you view the year ahead? (ie in Asia/ the global economy/ the US after Katrina/ continuing trend in interest rate rises/ replacement for Greenspan in February)

We're concerned about the prospects for a savings-short US economy, particularly one that draws on its asset bubble and on Asian capital to subsidize excessive consumption and expensive foreign policy initiatives. Obviously, any setback or course correction in the States or Europe will have a large impact on Asia, whether in 2005 or over the medium term.

Longer term, the prospects for Asia remain strong. Economic growth in Asia continues to outpace the West, the trade surpluses continue, and massive savings rates and capital formation provide Asia with multiple degrees of freedom in adjusting to changing prospects in the West.

No doubt economic growth in 2006 will be adversely affected by higher commodity prices, including oil. We don't expect, however, any drastic slowdown because Asia now stands on a more resilient foundation than it did prior to the 1997 Asian crisis. Fiscal, corporate and bank balance sheets are in far better shape across Asia than ever before.

What is your medium term strategy for DBS? And is further regional growth planned, especially in key markets such as China and India? And if so, will that involve acquisitions / partnerships/ or organic growth?

We take a long-term approach to building a customer franchise, and believe there will be plenty of opportunities for DBS to grow its businesses across Asia, whether through organic or inorganic growth. In particular, Asia's huge economic growth and capital formation places the wind behind us as we pursue organic growth in exciting markets like China and India.

In China, we've built a credible presence in Shanghai, Beijing, Guangzhou and Shenzhen, with a full complement of licenses available to foreign banks. On top of that, our leading presence in Hong Kong will allow us to penetrate the fast growing South China - Pearl River Delta markets. In India, we are encouraged by CECA - the free trade agreement between Singapore and India that will enable DBS to apply for several new branches in key markets. Even without that opportunity, we recently concluded an agreement to take a joint controlling investment in Cholamandalam, one of India's respected finance companies with over 120 locations across India.

We've made considerable investments over the years in our businesses and in our infrastructure. That investment positions DBS for growth, whether it be organic or inorganic.