Creating value from digitalisation Chng Sok Hui Chief Financial Officer March 2018 The presentations contain future-oriented statements, including statements regarding the Group s vision and growth strategy in the light of anticipated trends as well as economic and market conditions. Such statements necessarily involve risks and uncertainties, which may cause actual performance in future periods to differ from projections. 1
Agenda 01 Our digital strategy 02 03 04 Robust and well-tested methodology to understand customer behaviour and measure financial impact Digital segment demonstrates clearly superior financial and operating metrics Changing the way we run our business Making Banking Joyful 2
Driving the transformation: Making Banking Joyful The three pillars driving the digital transformation to Make Banking Joyful BECOME DIGITAL TO THE CORE Global recognition for pervasiveness of transformation EMBED OURSELVES IN CUSTOMER JOURNEY Make DBS Invisible CREATE A 24,000-PERSON START-UP World s Best Digital Bank 2016 Top of the Digital Class 2017 3
Our digital business model: 5 key capabilities The five key capabilities of our digital banking model ACQUIRE Increase customer acquisition through wider distribution Lower acquisition cost TRANSACT Eliminate paper, create instant fulfilment Decrease cost ENGAGE Drive sticky customer behaviours, cross-sell through contextual marketing Increase income per customer ECOSYSTEMS: Pipes to Platforms DATA: Be insights driven 4
You manage what you measure: The balanced scorecard and management process Then: Today: 50% Shareholders Achieve sustainable growth 50% Geographies Regulators Traditional KPIs Customers Position DBS as bank of choice Strategic priorities Regional businesses Society Employees Position DBS as employer of choice Enablers 40% Traditional KPIs Shareholders Achieve sustainable growth Customers Position DBS as bank of choice 20% Making Banking Joyful Drive digitally: Acquire Transact Engage Joyful customers & employees by focusing on journeys, experiences 40% Strategic priorities Geographies Regulators Regional businesses Society Employees Position DBS as employer of choice Capture value created from digitalisation Enablers 5
Digital has accelerated income growth and lowered structural costs, boosting operating leverage Cost-Income Ratio Income (S$m) Cost-Income Ratio Productivity gains from digitalisation Income growth Lift from digital 6
Unbundling the bank 2017 income: S$11.9bn Measuring the digital value created in: Consumer and SME (Singapore, Hong Kong) Our agenda Pre-empt disruptors 52%, S$6.2bn 44%, S$5.2bn Consumer and SME (Growth Markets) Disrupt incumbents 5%, S$0.5bn Other Businesses 1 Digitalise for profitability 1 Corporate Bank, Private Bank, Markets, and Others 7
44% of the bank: High performing and rapidly digitalising business Consumer and SME (Singapore, Hong Kong) 2017 income: S$11.9bn Pre-empt disruptors Rapidly transforming to digital Gaining market share, creating new income streams S$5.2bn 38% (2015) #1 in Singapore in mortgage, auto loans, cards 1 Income 12% CAGR vs Group: 5% Cost-income ratio 49% 2015 44% 2017 22% 2015 ROE 23% 2017 44% (2017) Jewel in the crown Likely to grow income at double-digit Has potential to contribute ~50% of the bank s income in 5 years 8
Agenda 01 Our digital strategy 02 03 04 Robust and well-tested methodology to understand customer behaviour and measure financial impact Digital segment demonstrates clearly superior financial and operating metrics Changing the way we run our business Making Banking Joyful 9
First bank to develop methodology to measure digital value creation Consumer and SME (Singapore, Hong Kong) 2017 income Two distinct segments based on customer behaviour 44% 12% CAGR 23% ROE Digital 27% CAGR 27% ROE 49% (2015) Digital (D): predominantly online / mobile interactions Traditional (T): predominantly offline interactions Traditional -4% CAGR 18% ROE 63% (2017) We have been progressively helping our customers adopt Digital behaviours The Digital segment is growing faster, with superior ROE CAGR refers to 2015-2017 income 2017 ROE adjusted for accelerated provisioning in SME; without adjustments, 2017 ROE is 20% overall, 15% for Traditional segment and 23% for Digital segment 10
Robust, well-tested methodology based on customer behaviour Three behavioural criteria for Digital customers 1 2 3 Product purchase or segment upgrade via digital channels Account opening iwealth OR More than 50% of financial transactions via digital channels DBS Remit Pay bills online OR More than 50% of non-financial transactions via digital channels Add / delete payee Change personal details For each customer, all associated income and all associated costs are completely and accurately attributed Customers must re-qualify on a rolling 12-month basis 11
P&L for Digital and Traditional segments based on customer view Consumer and SME (Singapore, Hong Kong) Traditional Digital End-to-end P&L constructed following a set of principles Digital and Traditional customers identified based on banking behaviour Income Cost Direct Indirect Overheads Profit CIR Income Cost Direct Indirect Overheads Profit CIR Complete attribution of all income streams and costs Full reconciliation to Group financial statements Granular data to ensure methodology rigour Time-tested over three years 12
Agenda 01 Our digital strategy 02 03 04 Robust and well-tested methodology to understand customer behaviour and measure financial impact Digital segment demonstrates clearly superior financial and operating metrics Changing the way we run our business Making Banking Joyful 13
Superior returns from Digital segment 2017 profit and loss (S$bn) Total T D Digital is material Customers (m) 6.0 3.5 2.5 Income 5.2 1.9 3.3 Costs 2.3 1.1 1.2 Profit before allowances 2.9 0.8 2.1 42% of customers contribute 63% of income and 72% of profit before allowances Key indicators Digital is more valuable Income per customer (S$ 000) 0.9 0.6 1.3 2X income per customer Cost-income ratio (%) 44 58 36 22pp lower CIR Return on equity (%) 23 18 27 9pp higher ROE 2017 ROE adjusted for accelerated provisioning in SME; without adjustments, 2017 ROE is 20% overall, 15% for Traditional segment and 23% for Digital segment 14
Consistently superior returns from Digital segment over time Consumer and SME (Singapore, Hong Kong) 2015 2017 2015 2017 Profit and loss (S$bn) D D Share of total (%) Digital increasingly material Customers (m) 1.9 2.5 33 42 Income 2.0 3.3 49 63 Costs 0.8 1.2 40 51 Profit before allowances 1.2 2.1 58 72 Strong growth momentum driven by customer migration and uplift in income per customer Key indicators Differential over T Digital increasingly valuable Income per customer (S$ 000) 1.1 1.3 2X 2X Higher income per customer Cost-income ratio (%) 40 36-18pp -22pp Lower CIR Return on equity (%) 25 27 +8pp +9pp Higher ROE 15
42% of customers contribute 72% of profit before allowances Digital share of customers, income and profit before allowances 33 Customers 37 +9pp 2015 42 2016 2017 49 Income 55 +14pp 63 58 Profit before allowances 64 +14pp 72 0 10 20 30 40 50 60 70 80 Digital share (%) 16
Agenda 01 Our digital strategy 02 03 04 Robust and well-tested methodology to understand customer behaviour and measure financial impact Digital segment demonstrates clearly superior financial and operating metrics Changing the way we run our business Making Banking Joyful 17
We have changed the way we run our business Acquire Transact Engage Making it easier for customers to buy our products: wider distribution Lower acquisition cost Create instant fulfilment making it easier for customers to use our services Decrease cost Deliver the right offers, at the right time to increase traction through contextual marketing Increase income per customer 18
Acquire: KPIs set and tracked across products to drive results Consumer KPIs Increase digital acquisition share: Deposits Cards Loans Equity Unit trusts General insurance Examples Online deposit account opening Digital share of deposits onboarding 45% 11% 2014 2017 34pp SME Increase digital share of: New account opening Banker s guarantee Loans Increase subscriptions: IDEAL online banking platform Online deposit account opening Digital share of deposits onboarding 60% 27% 33pp 2014 2017 For SME, digital share of deposits onboarding refers to IBG 4 addressable base (excluding niche segments) in Singapore and Hong Kong; IBG 3 excluded due to dedicated RM model 19
Transact: KPIs set and tracked to drive results KPIs Example Consumer Migrate transactions to digital: Cross-border payments: Customer-initiated Deposits Remittance Loans Volume of transactions (m) 6.3 Equity Unit trusts D 4.5 SME Migrate transactions to digital: 2.9 Cash Trade FX 1.7 Design for no-ops : Cash and trade processing Loan creation, disbursements and servicing Account opening and maintenance 0.5 2014 0.4 2015 0.4 0.3 2016 2017 T 20
Engage: KPIs set and tracked to drive results Consumer KPIs Increase number of: Digitally engaged customers 30-day, 90-day active customers Improve customer satisfaction: Internet banking Mobile banking (digibank) Examples to drive stickiness Omni: Instant points redemption, budget tracking, etc. 2.5x Average spend per Omni user SME Increase number of: Digitally engaged customers BusinessClass members and activities Visits to DBS websites Increase share of: Internet banking login frequency Mobile banking usage Contextual marketing: Drive cross-sell and up-sell 31 Campaigns ~S$1bn Incremental deposits 21
Digital customers: Highly engaged; multiple times more transactions Customer-initiated transactions per customer, 2017 Consumer SME 58 402 17x 8x 3 Online channel Offline channel 53 T D T D 3,390 2,456 Customers ( 000) 92 90 For Consumer, financial transactions include fund transfers, remittances, bill payments, deposits, cheques, and investments and insurance, excludes ATM; non-financial transactions include call centre and other account services. For SME, financial transactions include FAST, MEPS, RTGS, TT, GIRO, cash, cheques, ACT, PRIME, trade, factorpro, DOL, etc. excludes H2H due to bulky volumes; non-financial transactions include IDEAL enquiries and Bizcare 22
Consumer: Consistently higher income from broad-based engagement Multiple over T 2015 2016 2017 2017 Income per customer 2x 2x 2x Products 1.7x 826 1.7x Other lending 2.7x Credit cards Deposit balance 1.4x 403 3.5x 2.4x Mortgages Wealth & others Loan balance 3.8x 1.4x Deposits T D Investment balance 2.0x Income per customer excludes lump-sum income not tracked at customer level 23
SME: Consistently higher income from broad-based engagement Multiple over T 2015 2016 2017 2017 Income per customer 2x 2x 2x Products 1.7x 11,852 4.1x Treasury 2.7x Trade finance 5,164 3.1x Cash management Deposit balance 2.8x 1.4x Loans T D Loan balance 1.3x Income per customer excludes lump-sum income not tracked at customer level 24
Digital customers: Consistently faster growth in income per customer Relative income growth for same customer cohort, 2017 v 2016 Slower than overall Consumer Moderately slower than overall Faster than overall SME Total Deposits Mortgages Credit cards Other lending Wealth and others T 1 D 2 T to D T 1 D 2 T to D Total Loans Trade finance Treasury Cash management % of customers 60 32 8 56 37 7 1 Existing Digital customers (D): Faster income growth 2 Newly migrated Digital customers (T to D): Also show faster income growth 25
Upside in Digital customer base to drive progressively lower CIR Consumer and SME (Singapore, Hong Kong) Digital share of customers (%) Cost-income ratio (%) 33 39 50-60 43 <40 2015 2017 Aspiration 2017 Aspiration Customer base as of Jun 2017; other 2017 figures annualised based on 1H17, where applicable 26