1. Introduction
The Overseas Chinese Banking Corporation (OCBC) is currently the second largest financial services group in Southeast Asia by asset base. With an Aa1 credit rating accredited by Moody’s, it is widely regarded as one of the most stable financial institutions within Southeast Asia. OCBC Bank and its subsidiaries offer a comprehensive range of services to its retail, commercial and institutional customers.
2. PESTEL Analysis
We will now look into a PESTLE analysis of the banking industry in Singapore. Specifically, we will look into four factors, political, economic, technological and legal factors that determine the macroeconomic outlook of this industry.
2.1 Political factors
Singapore has a democratic electorate system where the government will be re-elected every five years. The incumbent is made up of a majority of elects from the People Action Party (PAP) with some representation from opposition parties. The risk of a political upheaval in Singapore is low and Singapore has been consistently ranked among the least corrupt countries globally, according to the results of Corruption Perception Index of Transparency International. Low corruption and a stable political regime has helped to develop the stable foundations for a global financial hub.
2.2 Economic factors
In recent years, Singapore has been grappling with a slowing economy, with GDP growth slowing from a five-year CAGR of 5.0% to 2.0% in the previous two years. The traditional banking business model derives profits from a low cost base (deposits) and allocates these capital to capitalists through high yield loans. With weakening global demand for consumer goods, central banks have been conducting expansionary monetary policies by creating a low interest rate environment to foster investment. As Singapore exercises its monetary intentions through exchange rate policies, it loses sovereignty over its benchmark rate decisions. This has contributed to a compression of banks’ profit margins from traditional revenue streams. With local banks being particularly exposed to the oil and gas sector, it has not helped that the sector has been plagued by low prices, discouraging further capital expenditure and threatening the survivability of key clients within banks’ loan portfolios.
2.3 Technological factors
Akin to how Grab and Uber have disrupted the ride-hailing industry in Singapore, there has been a wave of new start-ups that are leveraging on disruptive technologies to challenge the traditional banking business model. These start-ups offer innovative financial products from peer-to-peer lending solutions in Validus to robotic investment advisory platforms in Bambu. These start-ups are providing convenient and customisable financial solutions to a burgeoning group of banking clients, the millennials. Millennials in the 21st century are individualistic, opinionated and sophisticated and the traditional branch-banking transactional relationship can only satisfy the millennials’ demand to a certain extent.
2.4 Legal factors
In recent years, the Monetary Authority of Singapore (MAS), Singapore’s chief financial regulator, has shown that it takes a tough stance against corruption in the banking sector, with financial penalties imposed on UBS and DBS among other banks for breaches of anti-money-laundering requirements in their dealings with 1 Malaysian Berhad (1MDB). With an increase in complexity over funding sources, it becomes more difficult and costly for banks to determine the true source of funds albeit increasing scrutiny from regulators.