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CFO with the 'Holy Cat' approach
THERE is a children's book from which Darren Tan, chief financial officer (CFO) of OCBC Bank, has picked up ways to have his finance team be, in the words of Einstein, passionately curious.
The story goes that a group of people used to tie a cat onto a tree because of its loud wails. But over time, the cat became deified as a Holy Cat, and when it died, the next generation strung up a new, hapless, cat, without thinking about how the first cat got up there in the first place.
And so Mr Tan created the Holy Cat award, given out to staff in his 200-strong team in OCBC's finance department who rejected a mindless process of completing tasks, and tackled the heart of problems instead.
One staff in his late 20s automated the share buyback process, and that became his Holy Cat moment.
The pursuit of change goes beyond a howling feline. Mr Tan - who first joined OCBC as head of asset liability management in global treasury in 2007 after 13 years at GIC - is driven to push his staff to think beyond the numbers. "Somehow, most people are not passionately curious to ask beyond," says Mr Tan, awarded this year's Best CFO for a large-cap company as part of the Singapore Corporate Awards.
Take Mr Tan's approach in assessing risk. He set up the corporate treasury team, including a treasury financial control team that reports to him.
"How UBS got into trouble was because of what I call 'the left hand didn't know what the right hand was doing'. In UBS' context, because they have a private bank, they fund themselves with very cheap money, so they supply the liquidity for investment banks to essentially over-invest. The idea of a corporate treasury is to essentially coordinate so that the left hand knows what the right hand is doing," he says.
With problems of rogue trading historically happening in the dealing room, the team in treasury financial control looks carefully at trading positions, and in Holy Cat form, Mr Tan pushes the team to dig deeper. "Rather than look at the P&L (profit and loss) swing, you must understand why they swing," says Mr Tan.
He has also taken a personal interest in meeting clients who are building offshore supply vessels, and have been hurt by the sharp plunge in oil prices, to understand the difficulties their industry is facing.
"We have passed the eye of the storm. But we are still in the storm. They are hit by an outsized event - if your end product declines by 70 per cent, you are bound to be in some kind of problem," says Mr Tan. "When you understand all these issues, you would roughly have a macro sense of how long it might take to recover. It's not going to be so fast."
The 46-year-old, who graduated with First Class Honours in Accountancy from Nanyang Technological University, deliberately took a different path that an accounting training would have otherwise taken him, as he realised that accounting was limited to looking backwards.
"An accountant is trained to look at things in the past, so you work within the rules. I wanted to do something that was not about the past, I wanted to do something about the future. The irony is that after 20 years, I came back (to accounting). But I come back with a different perspective and the ability to look at things with a portfolio manager's mindset, and wanting to inculcate change," says Mr Tan.
Just as well then, that the role of a CFO - especially amid vast changes for the banking industry in the post-crisis era - has evolved in a dramatic fashion.
As Mr Tan took on the CFO role in 2011, he would be, like many CFOs today, expected to contribute to strategic decisions. There are advantages in tapping lessons from his experience as a portfolio manager, with his last post at GIC being the head of money markets.
"As a portfolio manager, you take a view, you put on a position, you measure your P&L, and you reiterate. The same principle can be applied, in terms of looking from the higher vantage point. You look at the megatrends, where the growth is, where's the competitive advantage, then you essentially help to strategise, in terms of positioning."
One clear megatrend is the strength and potential of Asia, where wealth continues to be generated, notes Mr Tan, which plays into OCBC's decision to buy Wing Hang, and to retain its insurance arm through Great Eastern.
"How do you decide what to play, what not to play, and what to play harder," says Mr Tan. "You cannot operate on the basis of not having an OB marker. Under Basel III, resources will become even tighter. So the ability to calibrate and play the trade-off becomes harder."
It explains how OCBC, in the few years after the crisis, systematically divested non-core businesses, and reinvested in building a network to bulk up the private banking business. OCBC's bet on Asian wealth also comes as it holds on to Great Eastern, even as regulatory changes suggest that it is now more capital intensive for a bank to hold a stake in Great Eastern, which is ranked No 1 in Malaysia, and second in Singapore.
"A lot of people have asked why are we owning insurance, where everyone else in the world is divesting," says Mr Tan. But he notes that banking regulators' intentions are to close capital arbitrage, and the bank is working to review the capital treatment to ensure an accurate and efficient use of capital, rather than abandoning the insurance franchise.
"If at this time, we were to go look for a buyer, we can generate a lot of interest, and potentially make quite a bit from it. But if you look at it longer term, this is a business that complements as a portfolio. It is in a leadership position. It's a good business," says Mr Tan. "A lot of insurance companies are coming to Asia. So the question we ask ourselves is: everyone is coming to Asia, so should we be selling?"
The big question over disruption through technology is another trend to watch, and Mr Tan is involved in thinking about how much to allocate to spending, and in what areas, especially as tighter capital requirements force banks to think deeper about where to park their resources.
With commoditised parts of the business being disrupted with the use of technology, the bank's focus on private banking can offer a significant buffer.
The bank is also circumspect with its spending on tech innovation, preferring to set up its fintech office known as Open Vault, to track trends. "With a winner-take-all mentality, maybe out of 100, only one is successful. Can you really have the ability to sustain until you hit that one?" asks Mr Tan.
For the same reason, OCBC is careful with the latest move to allow banks here to invest in digital matchmaking platforms such as Carousell. "It's good to have an option, but it doesn't mean we need to charge ahead," says Mr Tan.
As Mr Tan recalls earlier visits to startups where staff there were dressed down, he is also reminded how different banks are from fintechs, and how limited banks are in innovations, since successful products are quickly copied by competitors.
"The banker cannot be too hip-hop," he quips. "We are ultimately a storage of trust. We also don't want to lose that trust component, and get carried away with that buzzword. When the market is volatile, you must stay calm. When the market is complicated, you must stay simple."