Banking in a time of and after the pandemic

Q: What is the more short-term impact of the Covid-19 outbreak on the banking industry?

A: There will be an impact on our loans growth, and investment activities in the short term will be muted as many countries have enforced different degrees of a "lockdown" to minimise the spread.

Many Asian countries have introduced multi-faceted measures to support the economies, including financial assistance for businesses and individuals.

The financial sector in these countries plays a key role in supporting these initiatives and the relief measures sponsored by the governments across the region will help customers ride through this difficult period.

However, there will still be casualties. Non-performing loans and credit costs will rise. This will be a concern but, given the fiscal accommodation and credit relief programmes put in place by governments and central banks, we do not believe that the fundamental stability of our financial system would be disrupted.

The impact of the US Fed cuts would flow through the banking system in varying degrees to the economy.

Low interest rates would benefit customers, but long periods of low interest rates will lead to misallocation of resources which will create asset problems for the banking industry in the long run and pressure on our net interest margins in the short term.

Q: What about the longer-term impact to the industry and on OCBC Bank?

A: The impact on OCBC Bank's financial performance will not be a lasting one. OCBC has been through the most challenging of times, since 1932, whether they are economic cycles, financial crises and crises like this virus outbreak. There will be short-term pressures on our financial performance, but we will come out stronger and more resilient like how we have come out of the other crises of the past.

The lasting impact arising from this crisis will instead be on the way we work, the way we operate, the way our customers bank with us and even the way we engage our shareholders. This crisis has forced us, whatever industry we are in, to re-evaluate our systems and processes which are built on a business-as-usual operating scenario, to see how we can be more efficient and effective in engaging our customers and doing business with them.

It may mean driving our digital push even further, allowing our staff to have more stay home times to watch their children grow, reducing big physical presences in large commercial properties, and eliminating a fair number of physical branches and ATMs permanently when more and more banking transactions can be completed online.

Today, except for over-the-counter cash services, 9 in 10 financial transactions are performed digitally. Our next-generation ATMs, which we rolled out in 2018 and are available at 23 branches around Singapore, can function as "mini branches" and can perform 80 per cent of the most-often requested over-the-counter services.

We should therefore not view the measures put in place during this period as temporary ones. Instead, if they make sense and have worked, we should consider making these more permanent, even after the pandemic is over.

I believe there will also be a silver lining for our banking industry - I am seeing a very good opportunity for an even stronger digital acceptance by bank customers.

Over the past few years, banks have significantly increased their investments in online, mobile and digital channels to bring the convenience of accessing banking services without visiting branches.

During this time, customers have been encouraged to make active use of the digital channels and services. The Stay-at-Home requirement has propelled both individuals and businesses to embrace digital capabilities much faster than before.

Conventional banks will invest even more in technology and digitalisation after the outbreak as the public's comfort in digital banking has caught up with the technological advancements. With the rollout of stand-alone digital banks in Singapore delayed, this time gap gives conventional banks more room to develop further digitalisation to compete with the digital-only banks.

Q: How will major economies around the world be impacted by the outbreak?

A: The shock to the economy from the Covid-19 outbreak is unprecedented. The stresses to the global supply chains are becoming larger than the 2003 Sars outbreak, and the financial market has become much more volatile and defensive.

As a result, at both the government and financial industry level, extraordinary measures have been taken to address not just a health crisis, but what has developed to become a deep global economic crisis.

However, looking at the situation in Singapore, even the cumulative effect of an unprecedented S$59.9 billion worth of support from the Government's Unity, Resilience and Solidarity budgets may not be enough to prevent a recession.

Our forecast for Singapore's economy is a 3-4 per cent contraction which could go even higher to a mid-single digit contraction. Hong Kong will report another year of recession, and slower growths are also expected in all our other core markets in Malaysia, Indonesia and China.

Governments of many of our core markets have implemented relief measures to help both individual customers and businesses.

We are fully behind these measures and we had proactively reached out to them to make available targeted relief measures to help them overcome this stress period which was not of their own making.

We want to do our very best to help bring affected customers back to their normal state within six to 12 months after the outbreak ends.

Yet, the trigger event of this global recession is still a virus outbreak, which is an event waiting for a medical and social remedy. The remedy will come, and the outbreak will be contained at some point in time.

We should also recognise that, for the first time since World War II, central banks and governments all around the world are injecting unprecedented levels of liquidity into the financial system and directly increasing the spending power of the people to improve consumer sentiments.

There will be long-term structural consequences that will arise which the nations will have to address given their unprecedented use of fiscal and monetary tools, but the near-term positive effects from these measures will help arrest an otherwise even deeper recession. These effects will be more readily seen once the spread of the virus is contained, not necessarily eradicated.

Although I do not expect meaningful recovery this year, I do foresee more stability towards the end of the year and much improved consumer sentiments and investment appetite in 2021.

It is good that China has contained the spread of the virus and it could emerge as a nation that helps to lead the world out of the recessionary doldrums again. If this were to happen, it will benefit us tremendously as, being a hub economy, Singapore depends on connectivity flows more than any other Asean country to emerge from the recessionary pressure.

Q: OCBC has always been known for being prudent. Would you say OCBC was "prepared" for a crisis like this?

A: As the shock to the economy from the outbreak is unprecedented, no one bank can be "ready" for a crisis of this magnitude. But I must say that if this pandemic were to happen prior to the Global Financial Crisis, it would have been worse. Since the GFC, most banks are better capitalised and, in that sense, better prepared for crises. A strong and well-capitalised bank will be better placed to deal with the impact of the crisis. We have always managed our balance sheet prudently and maintained strong levels of capital, funding and liquidity.

At the same time, we have invested significantly over the past decade in our digital transformation - in both the technology front and also in our people. We have upgraded our mobile and digital banking platforms so that customers can do a wide variety of transactions without stepping into a bank branch or office. Our employees are increasingly taking on digital roles.

These capabilities have enabled us to respond quickly to the crisis as it evolves. Many of our employees are able to work from home to support the bank's operations well during this period and we are able to support our customers with the wide range of digital capabilities.