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OCBC's all for digital transformation, but is not keen on separate digital bank

Singapore

OCBC Bank's digital transformation is bearing fruit, with more customers transacting digitally and the initiative is also helping to drive costs down, said its chief executive Samuel Tsien.

But OCBC will not create digital banks, nor apply for an Internet bank licence in Hong Kong, Mr Tsien said on Thursday following the release of its Q3 results.

OCBC does not believe in focusing on digital banking but believes in a digital transformation throughout the bank, he added, which is seen by some as a slight dig at the competitors.

DBS Group Holdings has digibanks in India and Indonesia while United Overseas Bank said in August it plans to launch a digital bank for Asean customers.

"We do not intend to create a bank outside of the conventional bank to pursue purely the banking digital strategy," said Mr Tsien, adding that OCBC believes it does not need a separate digital bank to look for new customers, whether it's in its core markets or even in markets like Indonesia where it has smaller market share.

"We also do not think it's the right approach."

OCBC NISP Indonesia will, instead, have a separate unit to pursue digital connection with customers, while operating under the same brand and licence and the same legal unit.

Mr Tsien said the bank is not applying for an Internet bank licence in Hong Kong. The Hong Kong Monetary Authority has opened up additional licences for virtual banks, and 29-30 applications have been submitted. DBS and UOB have told The Business Times that they, too, have no plans to apply for a virtual bank licence in Hong Kong.

Telcos, fintechs as well as banks such as Standard Chartered Bank have submitted virtual bank licence applications, according to reports.

In the past five years, OCBC has been spending more on technology as it pushes towards digital transformation throughout the bank.

Technology spend, excluding IT staff costs, has risen steadily to 11.3 per cent of total costs, said Mr Tsien. In the first nine months of 2018, technology spend was S$330 million, against S$430 million for the whole of 2017.

This can go to 12-12.2 per cent next year, where it can be "half a billion dollars or more, it is most likely".

OCBC is also committed to spending S$20 million on educating its staff in digital knowledge. "We're educating them, we're encouraging them, not just from a work perspective, but also from social and personal perspectives because if you're not digitally equipped and knowledgeable, you may feel yourself to be gradually outpaced in societal development."

"We think digital as a techonology should be employed throughout the bank, and not just focusing on interaction with the market, or with the customers. It should be all comprehensive from the back office to the middle office, to the front office," added Mr Tsien.

Since 2012, OCBC has reduced the Singapore branch network by 14 per cent to 42 from 49. It has also reduced the branch network in Hong Kong, China and Indonesia.

There has been an increase in the number of branches only in Malaysia, by five in East Malaysia where the bank has a smaller presence, and we "think there's a market which is very worth developing for us to be more engaged in".

"(Singapore) teller headcount has fallen by 15 per cent, there's been no attrition because we always retrain our people to do other things," said Mr Tsien. OCBC Singapore currently has over 300 tellers.

Sales has improved three times, and in Singapore, the bank has 2,700 sales employees who are digitally equipped.

Excluding ATM withdrawals, 87 per cent of financial transactions and 70 per cent of international remittances are now done on the digital channels. Previously there was quite a lot of manual processing for remittances, including customers having to queue at a bank counter to fill in forms.

"So it has been helping us on the cost side quite a bit," said Mr Tsien.

OCBC is targeting for digital consumers to reach 60 per cent for all its core markets, and for small and medium enterprise (SME) digital consumers to hit 70 per cent.

Digital consumers who have used Internet or mobile banking at least once in the last three months now make up 48 per cent of all customers in the first half 2018, up from 36 per cent in 2014. SME digital consumers have risen faster, making up 60 per cent now from 36 per cent in 2014.

Revenue from digital consumers is two times more than that from non-digital consumers, while revenue from SME digital consumers is three times more.

At the same time, OCBC expects cost-to-income ratio to fall to 40 per cent by 2023, from 42.7 per cent now.