DBS Group Holdings Ltd Annual Report 2016 Reimagine Banking

Letter from theChairman and CEOMuch of the heavy lifting is at the backend, where the bank has spent the pastfew years re-architecting our technologyinfrastructure. Today, we have a commonplatform of services and APIs which enablesus to integrate best-in-breed technologies,allowing us to move faster on the front end.As we move forward, we aim to adopt thepractices of global technology companiesknown for their ability to constantlyexperiment, automatically scale and rapidlybring new features to market. Like them,the bank is embracing microservices andcloud technology, which will enable usto be nimbler and more fintech-like.“ We made goodprogress on ourstrategy, deliveringstrong operatingperformance and costefficiencies, as wellas solid returns.”Embedding ourselves in thecustomer’s journeyChairman Peter SeahAn eventful yearIn 2016, the global economy registeredtepid growth for the sixth year. Marketswere volatile, exacerbated by political shockssuch as Brexit and the results of the USpresidential elections. Across the globe,a rising tide of populism and discontentreared its head, adding to the uncertainty.Technology disruption also continued toforce rapid change upon businesses andwhole industries.Against this backdrop, we made goodprogress on our strategy, delivering strongoperating performance and cost efficiencies,as well as solid returns. These results arecommendable given China headwindswhich reduced customer activity, as wellas the collapse of oil prices which causedstress in the offshore oil support servicessector. We increased our credit allowancessubstantially, and our provision coverageratios remain strong.A strong, resilient franchiseWe delivered record total income ofSGD 11.5 billion, while profit beforeallowances increased 10% to a new highof SGD 6.52 billion. Despite the higherallowances, net profit fell only marginally,down 2% to SGD 4.24 billion.8 DBS Annual Report 2016DBS’ earnings resilience is the payoff frominvestments made in recent years to buildmultiple business engines and to digitalisethe bank.With China slowing, trade finance cameunder pressure. However, weakness intrade was offset by broad-based growth inconsumer banking, investment banking, cashmanagement and non-trade corporate loans.Digitalisation also improved the efficiency ofthe bank, with our cost-income ratio fallingtwo percentage points to 43%.During the year, we completed two milestonetransactions, which will further strengthenour franchise and cement our ambitions inthe wealth and digital space: Acquired ANZ’s wealth and consumerbanking business in five markets –Singapore, Hong Kong, China, Taiwanand Indonesia. The transaction addsSGD 17 billion in deposits, SGD 11 billionin loans and 1.3 million customers, ofwhich over 100,000 are in the affluent/private wealth segment, to our franchise.Not only does this solidify our positionas Asia’s fifth-largest private bank, italso enables rapid scale-up of our digitalstrategy in Indonesia and Taiwan. Weexpect the deal to be ROE and earningsaccretive one year after completion. Officially launched a 15-year regionaldistribution agreement with Manulifecovering Singapore, Hong Kong, Chinaand Indonesia. The partnership combinesDBS’ Asian banking franchise with theinsurance and wealth managementexpertise of Manulife.World’s Best Digital BankSince 2009, DBS has executed well againststrategy, doubling both top-line andbottom-line. Many of our regional prioritiesincluding becoming a leading regional wealthand transaction banking player, as well asgrowing outside Singapore, remain relevantand continue to have a lot of headroom. Atthe same time, we have also been makingprogress in driving a digital agenda.Our vision in the next phase of growth is to“Make Banking Joyful”. We seek to act like a22,000-person start-up, able to respond andinnovate quickly to deliver simple, fast andcontextual banking in the digital age.Our three-pronged approach involves:Embracing digitalTo be truly digital involves a completetransformation of the bank. This goes beyondcustomer interfaces, such as digital apps ormobile/ Internet banking on the front end.To become more customer-centric, we havemade it a priority to embed ourselves inthe customer’s journey. This means thinkingabout banking not as a separate activity, butas one that should be seamlessly interwoveninto a customer’s everyday life. To do so, weneed to have a relentless focus on customers’true “jobs-to-be-done”.As an example, in the past, a home-buyermight have interacted with us only whenhe or she had identified a dream home,and was in need of a mortgage. Today,we seek to understand customers’ needsfrom the start, beginning with the househunting process, identifying pain-pointsand addressing these long before anybanking is done.To be effective, journey thinking involvesresearch and interviews, business casedevelopment, conducting experimentsand prototyping, before a new productor process is rolled out.Many of our employees have been trainedin journey thinking and human-centreddesign. Today, over 300 journeys are beingrun across the bank. These journeys involvecollaborations across business and supportunits, as well as across geographies, engaginga large part of the organisation.Creating a start-up mindsetFinally, we are re-wiring the organisation tohave a “start-up” culture and mindset. Inaddition to being familiar with technology,every employee needs to embraceexperimentation, entrepreneurshipand innovation.We encourage this by creating immersionprogrammes which involve experientiallearning and experimentation, such ashackathons, where employees from acrossthe bank work with start-ups to developsolutions to business challenges. Since 2015,we have also run over 1,000 experimentsin the bank.We also conduct our own incubator/accelerator programmes, where digitalstart-ups turn their concepts into prototypes.Over 400 start-ups were engaged in 2016as part of these programmes.We have invested in creating the supportinginfrastructure for a start-up culture. Many ofour offices regionally have been designed tohelp foster innovation. This is done throughan open office concept and dedicated spacessuch as social hubs for networking as wellas innovation and journey “laboratories”. In2015, we established DBS Academy learningcentres in Singapore, Indonesia and Taiwanto conduct immersive programmes. In 2016,we launched DBS Asia X – a 16,000 sq ftspace at Fusionopolis in Singapore, dedicatedto designing iconic customer experiencesand fostering greater collaboration with thefintech ecosystem.All these allow employees to be immersedin new technologies, a start-up culture,agile methodology and other digitalworking concepts.11.5 bnSGDTotal incomeOur total income rose to a recordon higher loan volumes, improvednet interest margin and broad-basednon-interest income growth.43%Cost-income ratioOur cost-income ratio fell from 45% to 43%as past investments to digitalise the banktogether with cost management initiativesyielded faster productivity gains.60 centsDividendsWe proposed full-year dividendsof 60 cents per share, unchangedfrom 2015.Producing resultsHaving invested time and resources indigitalising the bank, we have seenvisible results in a number of areas: Expanded customer reach and acquisition.In 2016, 25% of wealth customersand more than 60% of Singapore SMEcustomers were acquired via digitalchannels. In India, DBS launched digibank,the country’s first mobile-only bank,a groundbreaking proposition, to penetratethe retail banking segment. The bank hasacquired more than 840,000 digibankcustomers in just 10 months. Efficiency of the bank. Our cost-incomeratio improved two percentage points to43%, due in part to improved productivityarising from digitalisation initiatives.In particular, fewer manual processeshave enabled the bank to support higherLetter from the Chairman and CEO 9

business volumes with the same level ofresources. For example, digibank India usesone-fifth of the resources required in atraditional bank set-up. Harnessing the power of analytics.We have leveraged analytics for variouspurposes; for example, providingcontextual offers and advice to customers,reducing ATM downtime, predicting andpreventing trade fraud, and loweringemployee attrition.DBS’ digital transformation has won usexternal validation not just in Asia butglobally – DBS was named World’s BestDigital Bank by Euromoney and recognised asbeing best in the world for digital distributionat the Efma Accenture Innovation Awards.SustainabilitySustainability has always been at the coreof our purpose-driven DNA. We recognisethat not all returns can be found in financialstatements and that our responsibilityto shareholders is complemented byresponsibility to society at large.In serving our customers, we are committedto a culture that is sensitive to regulationsand suitability of transactions, and we holdourselves accountable at every level,starting at the very top.Both DBS and POSB were established withstrong social mandates – DBS was formedto finance Singapore’s industrialisation, whilePOSB as the “People’s Bank” had a mission10 DBS Annual Report 2016of promoting the nation’s savings habit andfacilitating home ownership. Today, DBS andPOSB continue to uphold our responsibility tothe communities we operate in across Asia,whether through providing inclusive andsubsidised banking, supporting SMEsor championing social entrepreneurship.We also recognise that our lendingpractices play an influential role in shapingthe behaviours of our customers towardssustainable development, and are committedto supporting and implementing responsiblebanking in line with The Association of Banksin Singapore Guidelines on ResponsibleFinancing. To this end, we have expandedour Core Credit Risk Policy to incorporatethe principles and approach to managingenvironmental, social and governance (ESG)issues in our lending practices and capitalmarket activities. We have also launcheda new Responsible Financing Standardwhich sets out our overarching approachto responsible financing.We are on a journey, and in the coming years,will continue to work on integrating ESG,including climate change considerations, intoour business processes to more fully live ourethos of “Making Banking Joyful”.DividendsThe Board has proposed a final dividendof 30 cents per share for approval at theforthcoming annual general meeting. This willbring the full-year dividend to 60 cents pershare, unchanged from the previous year.“ We will further ourdigital agenda inthe coming year bycontinuing to roll outdigibank, pressingahead with customerjourneys and becomingmore data-driven.These initiatives willenable us to forgeahead in our quest toreimagine banking. ”CEO Piyush GuptaGoing forwardWe expect 2017 to continue to bechallenging. Our base case is that the globaleconomy will be somewhat better, backedby stronger growth in the US economy.However, there is tremendous geopoliticaluncertainty, both in the US and Europe. Therecould also be continuing sectoral weaknesses,which will pose problems for our clients.Nevertheless, our core business should bestable, helped by additional revenues fromthe ANZ deal, as well as a potential pickupin interest rates.In awarding DBS the World’s Best DigitalBank accolade, Euromoney had said thisof the bank:“Leaders in digital banking talk about thedifference between digitising aspectsof a bank and creating a truly digital financialinstitution. DBS is doing this better thanany other bank. It is demonstrably thecase that digital innovation pervades everypart of DBS, from consumer to corporate,SMEs to transaction banking and eventhe DBS Foundation.”We will further our digital agenda in thecoming year by continuing to roll outdigibank, pressing ahead with customerjourneys and becoming more data-driven.These initiatives will enable us to forge aheadin our quest to reimagine banking.Peter Seah Lim HuatChairmanDBS Group HoldingsPiyush GuptaCEODBS Group HoldingsFrom left to right:1. DBS Asia X, the bank’s new innovationfacility, is a space where employeescome together to design iconic customerexperiences as well as collaboratewith fintechs.2. DBS acquires ANZ’s wealth and consumerbanking business in five Asian markets.3. Launch of digibank, India’s firstmobile-only bank.Letter from the Chairman and CEO 11

Re-architectingthe back endTransformingthe front endWe have invested more than SGD 5 billion in the past few yearsto develop a platform which enables us to be faster to market.We can now “plug and play” technolog

business performance and organisational synergies. It is also responsible for protecting and enhancing our brand and reputation. Group Management Committee About one-third of our Group Management Committee members are women. Average years of experience of the Group Management Committee. 6 DBS Annual Report 2016 n Hong s * ore * t Ge hina on .