Digitisation to cut need for bank branches


THE Covid-19 pandemic has accelerated banking digitalisation and may lead to the demise of physical branches sooner than expected.

Maybank Kim Eng (MKE) Singapore head of equity research Thilan Wickramasinghe said banks have to significantly reduce their face-to-face client interactions and step up virtual operations as consumers rush to digital applications such as mobile banking and virtual customer service.

He said even in higher growth markets such as Indonesia, the Philippines and Vietnam, physical branch availability is falling.

“Banks such as DBS Bank Ltd have announced they are cutting 20% of their floor space in the next few years while modifying their branches to offer more automated services.

“Indeed, the common view of an Asean bank being a traditional, interest-income-driven business model is set for a major change,” Wickramasinghe said during a webinar at the MKE’s Invest Asean 2021 conference yesterday.

He said a survey by MKE’s Asean financials research team showed that among the critical factors that could drive medium-term profitability is rising non-interest income contribution, particularly from wealth management as the region grows in affluence.

He noted that the team expects most of these services to be delivered digitally while banking through branches is declining.

“As the sector emerges from these changes, there should be significant opportunities.

“We believe supply chains shifting from North Asia to Asean, increasing cross border trade, higher digital adoption and rising wealth should all offer attractive paths for growth,” he said.

Wickramasinghe expects multiple drivers to shape the performance of Asean banks in the medium term with new opportunities on rising cross-border trade, higher digital adoption and growing wealth.

He said banks would need to adopt technology, new work models and become closer to customers while being cautious on the growth as tail risks from the pandemic remain.

“Our expectations on key profitability drivers for Asean banks in the next five years include increased service offering through digitalisation instead of branches, competition from digital banks and challenger banks, higher regulations around capital and liquidity.

“Other aspects include increasing non-interest income contribution (especially wealth) as an offset to low interest rates, and cleaning up post-Covid asset quality and restructuring,” he noted.

Wickramasinghe also said the increasing technology adoption to automate operations and drive customer insights is set to redefine the “bank job”.

He added that banks like Standard Chartered plc, DBS, United Overseas Bank Ltd have announced flexible working arrangements, allowing staff to work from home for several days a week.