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Building trust, the DBS way
TEN years since the onset of the global financial crisis, the global financial system is probably safer, simpler and fairer as a result of regulatory reforms. But global banks and financial institutions still continue to grapple with a trust deficit.
Trust is not a given, but how can banks go about building trust? For Singapore's largest bank DBS Group, it is about building a culture of doing the right thing, as well as having supporting frameworks and processes in place.
"Ultimately, effective safeguards against undesired business conduct have to go beyond a tick-the-box mentality," says DBS Group CEO Piyush Gupta. "Apart from relying on published codes of conduct, we also advocate organisational safeguards to maintain a strong risk and governance culture."
This entails conscientiously reinforcing cultural norms by rewarding right behaviours and censuring wrong ones.
"A significant proportion of staff remuneration requires demonstration of adherence to proper sales process and embracing our cultural values," Mr Gupta adds.
Explaining how the bank walks the talk, he notes that firstly, the tone set by the board and the senior management serves as the moral compass of the organisation.
The board of directors is actively engaged in the risk management agenda of the group, he points out.
Conscious of the diverse needs of stakeholders, the board has put in place robust mechanisms to ensure that corporate governance principles are embedded in the corporate culture.
Directors provide sound judgment and constructive challenge to management so that the bank can maximise value for stakeholders, manage risks, and make good progress on its digital agenda.
To conduct a robust self-assessment of the bank's risk culture, one way is through the balanced scorecard, which aligns financial and non-financial performance indicators across multiple stakeholders, including shareholders, customers and employees.
Short-term strategic outcomes are weighed against longer-term goals. Almost one-quarter of the total weighting on the scorecard is focused on control and compliance metrics.
There are also established escalation protocols. The bank encourages constructive challenges and debate on all views to be evaluated for decision-making, Mr Gupta explains. This culture is in turn reflected in the way the bank conducts its business, through responsible banking and financing activities. This means generating profits responsibly, balancing the needs for development with creating positive social and environmental impact.
For instance, DBS practises fair dealing by ensuring that it only offers products and services suitable for its customers. True to its heritage as the "People's Bank", it has brought affordable banking services to the heartlands.
DBS has also pioneered innovative products in sustainable financing, particularly in the areas of financial inclusion and green financing. For instance, it introduced the world's first social sustainability bond listed on a stock exchange when it launched the US$8 million Women's Livelihood Bond (WLB) with Singapore-based impact investing platform Impact Investment Exchange. Through that vehicle, WLB raises funds for social enterprises and microfinance institutions, in order to improve the lives of women in Cambodia, the Philippines and Vietnam.
Last year, DBS also issued its inaugural green bond, becoming the first financial institution in Singapore to do so. The floating rate green bonds due 2022 were priced at S$500 million. In addition, DBS has expanded its Core Credit Risk Policy to incorporate environment, social and governance (ESG) issues in its lending practices and capital market activities. This policy is supplemented by the new Responsible Financing Standard, which provides structured guidance to assess potential ESG risks.
Mr Gupta explains that this risk assessment approach ensures that material ESG issues are considered for all new credit applications, capital markets transactions and during periodic reviews.
In fact, DBS has no qualms about rejecting transactions that fail to measure up to the ESG standards. In the fourth quarter last year, for instance, a total of 15 transactions received additional ESG due diligence, and the bank declined three transactions owing to ESG concerns.
Lately, technological disruption and cybersecurity have emerged as the top risks for banks. These risks are prioritised and closely monitored at DBS, where a digital transformation journey is well underway.
"As early as 2014, we had identified the need to disrupt ourselves so as to be a viable, or even preferred banking partner, even as new fintech entrants encroach into our space," Mr Gupta says. "Over the last five years, we have actively invested in being digital to the core, embedding ourselves in the customer journey, and rewiring culture and mindsets so as to behave like a startup."
In the area of cybersecurity, DBS takes an approach that converges the management of physical, cyber and data-related risks with the role of a central chief information security officer who also oversees the financial risk management programme.
DBS has also been educating its employees of the risks and collaborating with industry, while keeping abreast of ever-evolving threats to come up with suitable counter measures. "We expect to continue to lift our capabilities in 2018, including collaboration with cybersecurity authorities and regulators, since this is not merely a private sector issue," Mr Gupta says.
Besides managing risks internally, DBS find communicating the risks and corporate strategy with investors and other external stakeholders to be just as crucial.
DBS is the first Singapore bank and listed South-east Asian company to adopt the International Integrated Reporting Framework to enhance the way it communicates on how it creates value across multiple stakeholder groups. "We did so because it resonates with our belief that it is important to help investors join the dots in understanding a company's strategy, how strategy is executed, what risk is created and governed and how this ultimately transforms into performance and value creation," Mr Gupta points out.
For its annual report, continual improvements have been made based on investors' feedback. The corporate governance, remuneration, risk management and sustainability chapters have also been enhanced.
DBS is also the first Singapore bank to adopt the Global Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines in its 2015 annual report. GRI is an international independent standards organisation that helps businesses, governments and organisations understand and communicate their impact on sustainability issues.
In addition to holding quarterly briefings, organising roadshows and attending investor conferences, DBS also conducts dedicated events to help analysts and the media understand its strategic priorities. It leverages technology to reach out to retail investors, including the use of Facebook and Twitter.
"We view investor relations as a dialogue," Mr Gupta notes. "As such, we make it clear to analysts and investors that we welcome negative feedback."
For the past five years, DBS won Gold in five different categories at the Singapore Corporate Awards - namely, best annual report, best investor relations, best chief financial officer, best CEO and best managed board.
For the winning streak, DBS is crowned a Special Recognition Award this year, for winning five different categories within five straight years.