The Malaysian Insider

SINGAPORE, Nov 16 — As the economy recovers, top bankers here are busy adapting to the significant shifts in the Singapore banking industry over the past year, bracing themselves for tighter regulation and positioning themselves to benefit from new trends that are most likely to affect the way that they do business.

Early, anecdotal evidence suggests that the financial crisis has allowed some banks to benefit at the expense of competitors that have fared worse than others in the recent turmoil.

Over the last 12 months, DBS Group gained market share in various business segments such as corporate lending, capital markets, private banking and trade finance, as some of its foreign rivals scaled back their operations here because of problems at home, a spokesman for the bank said. “This has created a window of opportunity for Asian banks like ourselves to acquire new customers and deepen existing client relationships.”

Last month, rival OCBC Bank said it had won a fierce competition to buy ING Asia Private Bank, propelling it into the ranks of the region’s top wealth managers.

And in August, Australia and New Zealand Banking Group (ANZ) announced its entry into Singapore’s retail and SME banking sector when it bought Royal Bank of Scotland’s (RBS) assets here and elsewhere in Asia for US$550 million (RM1.9 billion).

While the acquisitions made the biggest headlines — bank takeovers are relatively rare — it is changes in regulations and customer attitudes that are most likely to reshape the way banks here do business.

In September, the Monetary Authority of Singapore (MAS) said it would ban firms from using “capital protected”, “principal protected”, or similar terms to describe investment products, among other new rules to change the way financial institutions here treat customers after recent mis-selling scandals in the industry.

MAS is expected to publish further guidelines based on several other proposals, including those on pay structures for financial advisers selling investment products and a definition of complex investment products by the end of this year.

“I would think that the most significant change would be to the sale of financial products,” said Pauline Lee, a banking analyst at Kim Eng Securities.

“Banks will probably still do well in their basic commercial-banking business — lending and borrowing — but the other parts of the business such as wealth management and cross-selling of financial products may be very different after the financial crisis.

“Banks will probably have to implement more restrictions, give their financial planners more training — that will cost more money and time. And eventually, the variety of products will be quite limited.

“Even with the recovery in the economy, I believe that consumer confidence will take quite a long time to pick up.”

Perhaps the biggest shift has been in customer attitudes towards investment products.

“Customers have gone back to basics, opting for simple and transparent investment products such as conservative protection and savings products which meet their financial needs and that they understand,” said Sebastian Arcuri, head of personal financial services at HSBC Singapore.

OCBC’s head of global wealth management, Nicholas Tan, said that the crisis has “irrevocably transformed the banking landscape, especially the way financial institutions market their products and services”. The bank recently revised its pay structure for sales staff to include new performance measures and deferred pay, to “encourage our sales staff to act in the best interests of our customers”.

Across the industry, financial firms have tightened up their sales processes. At DBS, “if a product is not suitable for the customer, we will tell him so and refuse to make the sale, even if the customer insists otherwise”, a bank spokesman said.

Ray Ferguson, regional CEO for Singapore and South-east Asia at Standard Chartered Bank, said that while confidence in the banking industry has improved, more must be done to regain the trust of customers.

“These are challenges for the banking sector globally — rebuilding trust, the nature and types of proposed regulation in certain markets, and the cumulative effect of this regulation on some banks and financial centres.”

Ong Lay Choo, head of retail banking at Citibank Singapore, said: “The industry is heading in a direction that further reinforces the priorities of client education, client suitability, and quality of advice.

“Banks will continuously review their advisory, sales and distribution practices of investment products to ensure that they are in the best interests of their retail customers. We believe that these steps to enhance the selection, marketing and distribution of investment products will re-build and increase consumer confidence, contributing to long-term growth for banks in this area.”

At least one trend was visible well before the crisis and is still true today — as banks compete aggressively for customers by offering a plethora of products and services, they also struggle to distinguish themselves from each other.

“Increasingly, banks recognise that in a commoditised industry like banking, it is the service extended to customers that is the differentiating factor,” said Pollie Sim, country head of Maybank Singapore.

With the lessons of the crisis fresh in their memory, “banks are setting their sights further”, she added. She expects that the emphasis on short-term gains will give way to “long-term relationship-building with customers, so that customers can be assured that the focus will be on their long-term interests”.

“To sustain such a model, remuneration structures will have to change. The new structure will have to reward bank staff on the fulfilment of long-term goals, and not just the achievement of short-term sales targets.”

And at the industry level, “more resources will have to be channelled into staff training and human capital development”, she added.

Recent highly public movements of top executives at banks such as Citigroup, as well as the mass defection of over 70 staff at private bank RBS Coutts last month, suggest that the banking industry is busy adjusting itself to the tougher business environment emerging from the crisis, an environment that is also still evolving.

“The industry is in the midst of enormous change,” said Pierre Baer, SG Private Bank’s chief executive for Singapore and South Asia. “The outcome is not yet clear.” — Business Times Singapore