Rising Earnings Among Rising Rates: Q&A With DBS Bank CEO Piyush Gupta

Piyush Gupta, the CEO of DBS Bank, shares his thoughts on the “fourth industrial revolution.”

Global Finance: The bank scored record net profits and ROE last year. What dynamic best explains these wins?

Piyush Gupta: In 2022, DBS’ net profit rose 20% to an all-time high of 8.19 billion Singapore dollars [$6.18 billion]. Return on equity, at 15%, was not just a record but also significantly higher compared to previous highs around the 12% to 13% range.

Tailwinds propelled earnings from a rising interest rate environment, with the net interest margin increasing after three years of decline. The bank’s solid financial performance reflects structural shifts to our franchise in the past decade. This includes the buildout of higher-return business lines such as transaction banking and wealth management, as well as the pervasive digital transformation we embarked on starting in 2014. Focusing on digitalization resulted in stickier and deeper customer relationships, greater income per customer and lower unit cost of serving them.

GF: The ongoing “fourth industrial revolution” requires innovation more than ever if organizations are to thrive. How does DBS maximize its innovation potential?

Gupta: DBS’ approach to industrializing innovation involves making it pervasive, ambitious  and orchestrated. Through a proprietary “innovation pyramid” framework, we can explore and exploit propositions that are new to the bank, the industry and the world.

For instance, to be future-ready, we bet on technologies that may mature only in a few years. In recent years, we established several high-profile blockchain-based businesses, such as DBS Digital Exchange and Partior. These businesses are examples of such bets. At the same time, we challenge our business teams to conceptualize innovations, or “moonshot solutions,” that do not currently exist. Thirdly, product teams are tasked with elevating existing propositions to exceed customer expectations. Finally, to awaken the innovation DNA in all employees, we often run internal campaigns to crowdsource the best ideas from the bank.

GF: How does DBS set itself apart from regional peers in sustainability and net-zero targets?

Gupta: We do so in a few ways. First, the sustainability agenda has dedicated board-level attention at DBS.  In particular, the bank established a Board Sustainability Committee in early 2022. Chaired by myself, the BSC enables a more significant focus on the sustainability agenda, one of the bank’s key strategic imperatives.

Second, our science-based decarbonization targets, announced late last year, are among the most ambitious and comprehensive among banks globally.

Thirdly, even as we decarbonize our portfolio, we recognize that this may not be adequate to effect change and impact the real economy. We partner with like-minded clients to proactively accelerate the energy transition. In 2022, DBS was chosen by the Indonesian Investment Authority [INA] as its financial adviser for the energy transition mechanism program. DBS has assembled a team of experienced industry and sustainability specialists to support INA while aligning with inclusive outcomes for the stakeholders affected.

GF: How important is DBS’ regional expansion outside Singapore?

Gupta: I always maintained that in the long term, DBS needs to be more deeply embedded in one or more of our four markets outside of Singapore and Hong Kong, which are China, India, Indonesia and Taiwan. While we are relying on digital expansion in these markets, our experience showed that a digital-only strategy has been difficult to monetize adequately, and a “phygital” approach, or digital coupled with appropriate physical scale, results in better customer selection and a path to profitability.

Over the past 36 months, DBS amalgamated Lakshmi Vilas Bank [LVB] in India, acquired Citigroup’s consumer banking business in Taiwan [Citi Consumer Taiwan], and invested in Shenzhen Rural Commercial Bank [SZRCB].

As we look into the next decade, all three transactions will position DBS well for growth. In India, the LVB transaction gives us an enlarged presence of over 520 branches across 350 locations, 2.5 million retail customers and 15,000 corporate customers. This is a robust platform from which to accelerate growth.

In Taiwan, where DBS agreed to acquire Citi’s consumer banking business, we are on track to complete and integrate the acquisition by August 2023. The acquisition will accelerate DBS Taiwan’s growth by at least 10 years, making it Taiwan’s largest foreign bank by assets.

Acquiring a 13% stake in SZRCB allows us to accelerate our Greater Bay Area strategy via Shenzhen, arguably GBA’s fastest-growing city. We also see mutually beneficial collaboration between SZRCB and our franchises in Hong Kong and China.