2018 marked DBS Group Holdings Ltd’s (SGX: D05) 50th anniversary. The longevity of the bank is certainly an outstanding achievement, with DBS growing to become one of the leading financial groups in Singapore and in Asia. The question now is, can DBS continue to remain relevant and competitive in the next 50 years? I think the short answer to that question is a resounding yes. DBS has built up two wide and durable economic moats that will continue to allow the company to grow its business well into the future. A network effect The…
2018 marked DBS Group Holdings Ltd‘s (SGX: D05) 50th anniversary. The longevity of the bank is certainly an outstanding achievement, with DBS growing to become one of the leading financial groups in Singapore and in Asia.
The question now is, can DBS continue to remain relevant and competitive in the next 50 years? I think the short answer to that question is a resounding yes. DBS has built up two wide and durable economic moats that will continue to allow the company to grow its business well into the future.
A network effect
The network effect is a phenomenon whereby an increasing number of customers improve the product or service. For instance, Facebook is commonly associated with having a network effect. The more users it has on its platforms, the more valuable its platform becomes for its users. As the user base grows, so too does its value to users.
In a similar vein, DBS has built a large network effect around its loan business. As the savings deposit volume in a bank grows, consumers gain more confidence in the bank and choose DBS to deposit more cash. DBS now accounts for more than 50% of the saving volume in Singapore. As such, it has grown to become an important entity in upholding the financial stability of Singapore and is now a trusted bank among customers.
With that ever-growing savings volume, DBS has access to cheap sources of capital, which it can loan out, garnering interest income. With the size that DBS has reached in Singapore, it is difficult to see new entrants encroaching on DBS’s market share.
A trusted brand
DBS also has a strong and recognisable brand. In 2018, DBS was named the World’s Best Digital Bank by Euromoney for the second time in three years. In 2018, DBS was also named the most valuable brand in Singapore for the sixth consecutive year. It was estimated that its brand was valued at US$6.5 billion, a US$1.1 billion increase from 2017. DBS was also ranked first on the list of most valuable bank brands in the ASEAN region for the sixth straight year, and it’s among the top 40 global financial brands in the world according to the “Brand Finance Top 500 Most Valuable Bank Brands 2018” report.
DBS continues to build its brand recognition both locally and in other markets in which it operates. In 2017, the company splashed out additional marketing dollars to create a series of marketing videos featuring local actor Adrian Pang. Despite DBS’s position as the leading brand in Singapore, management is taking nothing for granted and continues to build DBS’s brand each year.
The Foolish bottom line
DBS has done a fantastic job over the past 50 years. It has set the foundation to continue building its business going forward. On top of its network of savings and loans accounts, DBS has built the most valuable brand in Singapore, which continues to grow in value.
These two durable economic moats should enable DBS to continue growing and thriving well into the future.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore recommends DBS Group Holdings Ltd and Facebook. Motley Fool Singapore contributor Jeremy Chia owns shares of DBS Group Holdings Ltd and Facebook.