It seems like the digital transformation of Singaporean firm DBS Bank is paying off as it just claimed the title of Southeast Asia’s largest company by market capitalization, beating mobile network operator Singapore Telecommunications Ltd. (Singtel) on Friday.
As of Thursday’s close, the Marina Bay-based lender had a market value of S$62.97 billion ($46.8 billion), putting it on top of the telecom group’s S$60.42 billion ($44.9 billion).
Shares of DBS have also increased 42 percent so far this year, while Singtel added 1.4 percent.
Moreover, things will not exactly get easier for Singtel as it is likely to deal with more competition from a new Singapore entrant in the mobile-phone market, Australian telecom business TPG Telecom Ltd.
Tech shares from Apple Inc. to Alibaba Group Holding Ltd. constitutes for all of the world’s seven largest companies by market capitalization.
Analyst Diksha Gera said that some of the optimism may have something to do with what is happening with the tech companies, adding that DBS is among the rare banks in the country that appears to be facing the challenge straight on through an extensive tech transformation.
DBS Aims to Generate Higher Returns for Shareholders
Having gained the upper hand in digitization game, the firm is aiming to generate higher return on equity (ROE) for shareholders.
DBS could be targeting for an unprecedented bank-wide ROE in the range of 13.5 to 14.5 percent. Back in 2006, the bank hit a record peak of 12.7, while its ROE was at 10.3 percent last year. Its current ROE for this year stands at 9.7 percent.
DBS’ Digital Transformation
DBS’ application of its digital strategy has helped it strengthen customer base and achieve financial targets in the tech-driven banking sector. The digital drive has also improved cost efficiency, leading to better returns.
The bank for the first time has presented numbers showing how the digital drive has helped its customers to continue conducting transactions with them.
DBS’ chief financial officer Chng Sok Hui said that they were releasing the data, in response to analysts’ challenge to demonstrate a direct correlation between the firm’s digitization push and the impact on its outcome.
The company’s consumer as well as its small and medium-sized enterprises in Singapore and Hong Kong has raised its cost-income ratio to 43 percent this year. ROE also improved by 24 percent.
DBS’ chief executive Piyush Gupta stated that he wanted to show the figures last year, but was stopped by the board. The release was only approved when three years worth of data proved the trend that digitization helped build.
From the year 2015 to 2017, customers identified to be mainly using digital platforms has made a compound annual growth rate (CAGR) profit of 23 percent, while ROE rose to 27 percent.
To produce such progress, DBS needed to make significant changes. Rather than outsourcing 85 percent of its IT functions in 2009, the same percentage is now done internally as Gupta believed that if they want to be a tech company, they better own their own technology.
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