Banks in the Asia-Pacific region are investing in digital technology as the pandemic, by forcing people to stay indoors, has accelerated the trend toward digitalization.
During conference calls after reporting results for the July-to-September quarter, top bank executives spoke about their plans and outlook, with many underscoring efforts to increase digitalization following the pandemic as well as to tackle emerging competition from new digital-only lenders.
"We're seeing digital technology enable a raft of changes, which come with both opportunities and risks," said Matthew Comyn, CEO and managing director at Commonwealth Bank of Australia. "Digital experiences and technology will underpin our aim of giving customers not just the best digital experience a bank can offer, but the best digital experience any financial services company can offer," Comyn said.
Digital payments accelerated in the Asia-Pacific region during the pandemic, making it the world leader in cashless transactions, with a predicted average annual growth rate of 16% from 2020 to 2025, according to a report in August by Research and Markets titled Asia-Pacific Online Payment Methods 2021 Post COVID-19.
Lenders in the region now have to compete with a raft of financial technology companies, including neobanks. For example, regulators have given licenses to four digital-only lenders in Singapore and to six in the Philippines. In addition, Malaysia issued a licensing policy for digital banks early in 2021.
Not just hardware and software
The investments in digital go beyond just hardware and software, said Pik Kuen "Helen" Wong, group CEO at Singapore's Oversea-Chinese Banking Corp. Ltd. "There will be more hires for people who would be able to do digitalization. It's not just in the IT department, but around our business units and other functions as well, as we continue to look at using more data and also building [a] more agile transformation sort of team."
Indian lender ICICI Bank Ltd. will seek growth by leveraging ICICI Stack, its comprehensive digital banking ecosystem for corporates, according to CEO and Managing Director Sandeep Bakhshi. "We believe that our ongoing investments in technology, people and distribution network, our prudent risk management practices and a strong balance sheet will enable us to drive growth in our core operating profit in a risk-calibrated manner," Bakhshi said.
DBS Group Holdings Ltd., the largest lender by assets in Southeast Asia, placed digital and artificial intelligence among its priority investment areas. "Incremental measurable revenues from AI and our ecosystem strategies are coming through, so we think it's worth putting [in] additional money to scale up," said CEO Piyush Gupta.
Japanese banks raised their full-year estimates on earnings and dividends after a strong fiscal first half while maintaining a cautious outlook on economic recovery.
"The economy is gradually recovering [from the pandemic]," Hironori Kamezawa, Mitsubishi UFJ Financial Group Inc.'s CEO, said during a Nov. 15 press conference. "But overall, we're cautious about the outlook [for our business]." MUFG now expects a record net profit of ￥1.05 trillion for the fiscal year ending March 2022, up 23.5% from its previous estimate.
Sumitomo Mitsui Financial Group Inc. CEO Jun Ohta told a press conference Nov. 12 that the Japanese megabank is "returning to the pre-pandemic situation and we will shift into a higher gear."
Several large Chinese banks increased their provisions against bad loans while asset quality improved, highlighting the uncertainty over credit risk as the world's second-largest economy slows. Agricultural Bank of China Ltd., Bank of Communications Co. Ltd. and Postal Savings Bank of China Co. Ltd. reported year-over-year increases of between 4.12% and 13.84% in their loan loss provisions in the three months ended Sept. 30.
With more people receiving vaccinations in India, there is hope that a possible new wave of COVID-19 infections could be less disruptive than before. The economy has started picking up and State Bank of India, the biggest lender by assets, expects higher credit uptake in the near future.
"As credit growth improves, the bank will be able to better utilize our strength on the liability side," said Chairman Dinesh Kumar Khara, adding that from its current position, the aspiration for the bank is consistent delivery of "[a return on equity] of 15% through major cycles. Hopefully, as the economic growth picks up, we should be able to deliver on our targets sooner than expected."
Bank chiefs also addressed some local concerns and elaborated on plans to grow their businesses with the COVID-19 pandemic under better control.
"The stimulus provided by our governments during lockdowns has been doing its job. Australians continue to accumulate more savings, and many businesses are ready to take advantage of opportunities ahead," Commonwealth Bank of Australia's Comyn said.
The Australian Prudential Regulation Authority intends to ask banks to maintain capital buffers, including a countercyclical capital buffer of risk-weighted assets, under its proposed capital reforms for authorized deposit-taking institutions that are slated to take effect in 2023.
The regulator's move "is about banking stability," said Peter Francis King, CEO and managing director at Westpac Banking Corp. "Now, I'm not saying there's a problem with banking balance sheets. Capital is good. The credit outcomes are good. Funding and liquidity [are] good, but they're just, I think, trying to get a little bit in front of it in terms of what's happened," King said.
Shayne Elliot, CEO of Australia and New Zealand Banking Group Ltd., said "the immediate impact of COVID is receding, but there will continue to be challenges, including long-term industry disruption."
"Given the repositioning of ANZ, our strong balance sheet, the investments made and the benefits of simplification, we are well capitalized and well provisioned should things deteriorate, and we are well positioned as growth emerges. Put simply, the headwinds will persist, but structural tailwinds are emerging for us," Elliot said.