DBS Group Holdings Ltd (SGX: D05), Singapore’s largest bank, is going digital, and the results are beginning to show. For 2016, DBS Group’s total income was $11.5 billion, an increase of 6% compared to 2015. Interestingly, profit before allowances grew at a faster rate of 10% to end at $6.52 billion. The reason behind the faster profit growth was the slower growth in expenses. DBS Group said that costs were contained, in part, due to productivity gains from its digital efforts. For the first-half of 2017, expenses declined another 1%…
DBS Group Holdings Ltd (SGX: D05), Singapore’s largest bank, is going digital, and the results are beginning to show.
For 2016, DBS Group’s total income was $11.5 billion, an increase of 6% compared to 2015. Interestingly, profit before allowances grew at a faster rate of 10% to end at $6.52 billion. The reason behind the faster profit growth was the slower growth in expenses. DBS Group said that costs were contained, in part, due to productivity gains from its digital efforts.
For the first-half of 2017, expenses declined another 1% from digitalisation and productivity initiatives. DBS Group’s cost-income ratio was reduced to 43% for the same period.
During its earnings briefing, DBS Group chief Piyush Gupta revealed two ways that the bank will be changing in order to bring the cost-income ratio to 40%. He referred to the slide below in making his points:
Source: DBS Group CEO presentation
1. Fewer bank branches – click here
2. Fewer ATMs too – click here
3. End-to-end process digitisation – click here
4. War against paper – click here
5. Infrastructure upgrades
Changes are happening behind the scenes as well. Gupta said:
“Moving from legacy technology architecture to cloud-native architecture has massive impact on expenses, both on hardware, data centre infrastructure, software. On top of that, because we’re insourcing, we’re also reducing sourcing costs from vendors and providers as well. All of these are very positive.”
The move into a cloud based architecture lowers costs in a number of ways. Gupta expressed his surprise at the pace of technological developments in data centres, and the associated cost reductions:
“I’ll give you two examples – and this blows me away as well.
[First,] we’re in the process of switching our data centre in Singapore to a new one, and I’m going to make it the primary one in a few months. Its footprint is only 25% of the old data centre because, with new technology, I don’t have big machines. I have a single rack which used to earlier hold eight machines and mainframes. Now I’ve got 200 machines in one rack. So it’s a 75% reduction in footprint.
Data centre costs are not just about the premises. They’re about power consumption: the biggest cost is the air conditioning and power consumption. If I have a 25% footprint, I’m reducing three-fourths of my electricity and power consumption. Just this move to the new data centre will save me $8 million a year.”
Gupta added that DBS Group is moving its applications to the cloud as well. He mused:
“[Second], I’ve now started moving a lot of my applications to public cloud.
Microsoft and Amazon are running data centres for scale and synergy. They only charge me for what I buy from them at a point in time. Some of my applications have peak spurts.
The obvious one is calculating market risk every month end, which I need for three days a month. When [I do so using] my own data centre, I [need to set aside structural capacity to] handle that. Now, by moving to the cloud, I can just get that capacity for three days. The whole infrastructure becomes much cheaper when you do that.”
The ala carte usage fees allow DBS Group to scale up and down as needed, providing flexibility for it to manage its workloads for specific periods of time. With that, DBS Group would not have to spend additional capital to build up spare capacity unnecessarily, saving money in the process.
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