(Nov 18): On Nov 14, 11 banks in Hong Kong, including HSBC, OCBC Wing Hang and DBS Hong Kong, announced branch closures because of the protests in the Special Administrative Region. The South China Morning Post reported on Nov 13 that 250, or 19%, of Hong Kong’s 1,300 branches closed on that day, with another 100 closing early. In its bank closure notice, OCBC Wing Hang told customers to use other branches, ATMs or bank online.

Digitalisation and fintech have been a boon to Hong Kong’s banks during the protests. Customers can transfer money, pay bills, book restaurants, shop, pay for stocks, buy an investment product or insurance without having to go to the branch.

On Nov 1, Piyush Gupta, CEO of DBS Group Holdings, announced that DBS had launched digibank, its digital bank, in Hong Kong. Digibank was first launched in India in 2016, and in Indonesia in 2017. “This year, including digibank, our Indonesian consumer business will be marginally profitable,” Gupta says. He found that his Indonesian digibank strategy worked better than his Indian digibank strategy. In Indonesia, digibank has a targeted customer strategy. In India, digibank was signing up 100,000 customers a month.

Going phygital

“We’ve changed the Indian digibank strategy to mimic that in Indonesia, and scaled down customer acquisition to 40,000 to 50,000 a month. The new customers are of better quality,” Gupta says. He believes the Indonesian phygital strategy — a combination of physical branches and digital banking — was a key element in its success.

In March this year, DBS incorporated its wholly-owned subsidiary, DBS Bank India Ltd, through which it plans to open 100 branches and touchpoints in 25 cities in the next 12 months, enabling digibank to become more phygital. “India is beginning to track closer to [our target]; it’s not entirely there but it’s 80% to 90% there. We had always said these digital [initiatives] would be a slow burn and would take a period of time before they turned profitable,” Gupta says.

United Overseas Bank, which introduced its bank-on-phone app, UOB Mighty, in 2015, launched a standalone digital bank, TMRW, in Thailand in March. TMRW is different from digibank in that it does not have a menu but uses customer transactions to learn what its customers want or need. UOB Mighty has an extensive menu and is targeted at UOB’s traditional mass-affluent older customer base.

UOB Thailand reported a 16% y-o-y increase in loans and a 24% y-o-y jump in deposits for 3QFY2019. As a result, allowances more than doubled to $59 million, accounting for 40% of UOB’s total allowances of $145 million. This caused UOB Thailand’s earnings to almost halve y-o-y to $43 million in 3Q. Loan and deposit growth is likely to indicate future earnings growth.

As part of UOB’s omnichannel retail strategy to serve a larger base of customers in Thailand, it introduced its Singapore products, such as the UOB One Account, and concept branches designed for the demographics in the areas in which they are located.

Steady growth in wealth management

All three banks showed y-o-y growth in fee income, and their CEOs have articulated that wealth management offers long-term growth prospects.

DBS’s wealth management fee income rose 22% y-o-y to $357 million for 3Q. “Our wealth management business continues to do solidly well, and Asia creates a lot of wealth. Even with slower economic growth in Asia, the number of millionaires and billionaires keep on expanding. If you can maintain market share, you get doubledigit growth,” Gupta says.

Oversea-Chinese Banking Corp has a standalone private bank, Bank of Singapore, whose assets under management (AUM) grew 5% y-o-y to US$110 billion ($149.9 billion) as at Sept 30 on net new money flows. “Our Bank of Singapore brand has really matured to become a global brand for Asian clients and is more attractive for clients outside of Asia when they seek diversification. They see Singapore as a base to expand from and we have elevated ourselves to be a globally recognised entity and a point of destination,” Samuel Tsien, CEO of OCBC, says.

Bank of Singapore has integrated its 2016 acquisition of the wealth and investment business of Barclays in Singapore and Hong Kong. “Over the past few years, we have expanded with Barclays. We have become a stronger platform and improved our penetration into the markets, and our brand has become more recognised,” Tsien says.

The surprise of 3QFY2019 was a 38% y-o-y jump in wealth management fee income to $183 million reported by UOB. During a results briefing in August, CEO Wee Ee Cheong had said that 60% of its wealth management AUM of $118 billion was from overseas customers through the group’s network of wealth management centres in Southeast Asia.

In 3Q, non-interest income accounted for 35% of total income for DBS and UOB, and 40% for OCBC. As net interest margins contract and loan growth slows, the boost to the banks’ bottom line is likely to be from fee income such as wealth management and, in DBS’s case, from its investment banking pipeline.