Q&A: In conversation with DBS Bank’s Tak Lap Leung
An exclusive interview with Tak Lap Leung, Group Head of Advisory Sales & Head of Treasury & Markets, Hong Kong, DBS Bank
Macro environments can pose significant challenges, as seen with the Russia-Ukraine crisis driving inflation and expectations of stagflation. Following our EM Currency and Rates Playbook webinar on the topic, where we examined various responses to central-bank rate rises, we sat down with DBS Bank’s Tak Lap Leung to get his take on a range of other issues, including corporate advisory, risk, digitalization and emerging trends.
Q: How have you seen the corporate advisory solutions business changing over the last few years?
A: We approach corporate clients more from a total-solutions angle, rather than offering vanilla products. For instance, given the heightened volatility in all asset classes as well as increasing cross-border activities in financing and investment, corporates need more advisory solutions to manage their market risk and cashflow risk. When we look at optimal hedging solutions for clients, there are several aspects to be evaluated. First and foremost, we need to assess the regulatory landscape governing the different types of products and processes in offering these instruments.
Secondly, we need to consider if the client has sufficient sophistication and risk tolerance for the proposed product structure while ensuring that it meets the client’s disclosure requirements and cost consideration. Another critical aspect is on hedge accounting that corporates may apply to help reduce the impact of mark-to-market fluctuations on financial statements. Therefore, nowadays our advisory team has to work with a wider range of stakeholders to build a tailor-made and holistic solution for our corporate clients.
Q: We understand that data is key. Can you expand on what are some of the objectives in the corporate risk solutions business?
A: Data is becoming an increasingly important aspect of how we drive our business. At DBS, we adopt DDOM, which stands for Data-Driven Operating Model. Data helps us make informed decisions which are not just based on our experience or conventional wisdom. It also helps in scaling up business quickly and enables precise customer segmentation which allows us to customize tailor-made advisory and risk solutions for each of these targeted segments. This is similar to how many tech firms, like Netflix, apply data to come up with highly personalized personas.
As our business is highly market driven, we also harness market data to identify business opportunities. For instance, macro and market data can help identify opportunities for customers to take advantage of market anomalies through basis swap. Efficient utilization of corporate-actions data relating to M&A, project finance, investment and divestment also allows us to engage customers with optimal financial solutions in a more proactive and timely manner.
Q: When we talk about digitalization, having the right technology, data transformation, how do you decide between build versus buy?
A: We have instances of both in-house and off-the-shelf solutions that are fully integrated. We consider two key factors: cost-benefit and the timing. Because timing is paramount in today’s world. When you look at all these technological advances, there are two ways of achieving success. One is to take the first-mover advantage to build and scale up the barrier to entry so that competitors entering the fray find it difficult to earn market share. Technology switching is very costly for most consumers and they tend to stay with you. Unless you have a very unique technology that nobody can replicate, timing and first-mover advantage are really key differentiators.
When we look at the digitalization journey, we also look at our in-house capabilities. Do we have the capabilities to build? When we consider buying, we consider what will bring us the most value, both in terms of current prospects as well as future relevance and value. We don’t want to invest in something for a specific opportunity that only has short-term value. We want it to be more holistic and long-term.
All else being equal, we will want to build, because we want to own the technology and the infrastructure. When we build, we look at two things: the customer journey and the employee journey. For the customer journey, we want to deliver the most seamless solutions for them. For the employee journey, we want to eliminate pain points, paper trails and bring in synergies and efficiencies to our workflows and processes. However, if we are buying instead, we need to ensure that it can be fully integrated into our banking technology and infrastructure.
Q:What are some of the emerging trends that you see? How do you expect these to influence your business?
A: Data and technology are megatrends that continue to create a lot of disruption in the industry and also opportunities for us. The other emerging trend is of course sustainability and ESG. If you look at our clients, corporate governance is one key aspect. This will play out in the next five to ten years and has to be looked at closely. ESG in general will manifest in the form of advisory and it will be integral to financing and investments. This will create a lot of opportunities for DBS to help customers in this area.
The next trend to look out for is a new and related asset class: carbon credits. There are currently two markets — the compulsory market in Europe, which is well developed, and the other one is a voluntary market outside of Europe, mainly in Asia. I think that these two markets will eventually converge to become compulsory. So, carbon credits will be the new route that everybody will want to make use of. It will become a new asset class. Some firms can have surplus carbon credits and there will be some firms which need carbon credits. This creates market opportunities to buy and sell carbon credits. We see some trading activities already in carbon credits and a lot of customers in the business are really keen to know more about this new asset class.