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Homesingapore businessMAS penalties on DBS won’t set the bank back, analysts say

MAS penalties on DBS won’t set the bank back, analysts say

SINGAPORE: The punishment meted out to DBS appears “minor” and not commensurate with the impact of the service disruptions to Singapore’s biggest lender, including one where online banking and ATM services were down for hours, analysts said.

On Wednesday (Nov 1), the Monetary Authority of Singapore (MAS) said DBS would be barred from making non-essential IT changes and any acquisitions of new business ventures for six months.

DBS also will not be allowed to reduce the size of its branch and ATM networks until MAS is satisfied with the progress of the bank’s remediation plan. 

And the financial regulator said it would continue to require DBS to apply a multiplier of 1.8 times to its risk-weighted assets for operational risk.


MAS bars DBS from acquiring new business ventures for 6 months after repeated banking service disruptions

When asked if the penalties were reasonable, the National University of Singapore’s Assistant Professor in Finance Ben Charoenwong said it was worth considering the impact that the disruptions had on customers.

DBS is the “go-to bank” for many Singaporeans – some of whom may not do business with any other institutions, he said.

“If they are unable to access their funds or process payments, the cost to those users is the foregone economic transactions,” he said. “From that perspective, it seems the (penalties) and additional capital requirements appear to be minor.”

In a research note published on Thursday, RHB Bank research analysts said the management team at DBS could give more details on the impact of MAS’ regulatory action, when its third-quarter results are released.

“But the direct impact looks to involve higher opex (compliance cost, tech spending) and capex,” the analysts wrote, referring to operational expenditure and capital expenditure.

“In our view, the impact does not represent too much of a setback to DBS,” the analysts told CNA separately.


The ban on acquiring new business ventures in the next six months may also have a limited impact on DBS, with five analysts telling CNA they were unaware of any upcoming acquisition plans.

“We note that the group has been focusing on integrating LVB (Lakshmi Vilas Bank) and Citi Taiwan acquisitions as well as guiding for higher dividends,” said Mr Thilan Wickramasinghe, head of Singapore research at Maybank.

“To us, this indicates limited appetite for any material (mergers and acquisitions) in the near term,” he said.

DBS took over India’s Lakshmi Vilas Bank in late 2020 and completed its acquisition of Citi’s consumer banking business in Taiwan in August this year.

MAS will review the progress made by DBS after the six-month window, and may extend the duration of measures, vary the additional capital requirement or take further actions.


MAS did not impose any punitive monetary actions on DBS, noted Dr Patrick Thng, former chief information officer for finance and treasury at the World Bank.

“It’s not a bad idea in the sense that instead of fining DBS and taking the money, they asked DBS to use that money to fix their infrastructure problems,” he said.

“To some extent, I commend MAS, I think that’s quite commendable.”

DBS chief executive officer Piyush Gupta said the bank will set aside S$80 million (US$58.6 million) to enhance system resiliency.


DBS chairman says senior management will be held accountable for banking service disruptions

Consulting firm Accenture conducted an independent review and found four main areas of weakness for DBS – technology risk governance and oversight, incident management, system resilience and change management.

To MAS, the board of directors and senior management play an important role in the oversight and management of technology risk, Dr Thng pointed out.

On that note, he said it was important for board members to have strong digital skills – beyond financial and business skills – to effectively steer the organisation.

“Many organisations, banks included, are not having enough people with digital experience on their boards,” he said, adding that it sometimes takes a disruption or outage to spur a company to find a board member with digital skills.


Shares of DBS fell 1.12 per cent on Thursday, the first trading day after the penalties were announced by MAS.

RHB Bank said it was possible that the decline was a reaction to the regulatory action, but pointed out that most banks’ share prices slipped on the same day.

However, CGS-CIMB said DBS shares fell more than its peers on Thursday. UOB’s stock dipped 0.77 per cent, while OCBC fell 0.16 per cent.


The Big Read: With no foolproof way to prevent banking and e-payment outages, what can businesses and consumers do?

Shares of DBS have fallen around 5 per cent so far this year, but analysts said it was not due to the service disruptions.

“(The year-to-date) share price movement is primarily driven by earnings and management’s outlook in relation to the interest rates, and less so by the outages, in our view,” CGS-CIMB said.

Mr Wickramasinghe of Maybank said material impact on earnings or dividends was unlikely in the near term. In the medium term, growth could be affected by how DBS addresses the root causes of the outages and how risk management and control functions are strengthened, he said.

“Five major digital disruptions in the space of a year does raise concerns on system reliability and risk management,” he said, adding that DBS Group’s growth and product distribution strategies were very digital-centric.

“More clarity will be needed on how these can be executed under the current situation.”

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