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Focused business model and social responsibility are “new normal” for bank CEOs: Samuel Tsien

SINGAPORE – Chief executives of banks must review their business models to juggle between growing regulatory costs and sound financial performance. They must also commit to greater demands for corporate governance and social responsibility.

Mr Samuel Tsien, Group CEO of OCBC Bank. Photo: OCBC

Mr Samuel Tsien, Group CEO of OCBC Bank. Photo: OCBC

SINGAPORE – Chief executives of banks must review their business models to juggle between growing regulatory costs and sound financial performance. They must also commit to greater demands for corporate governance and social responsibility.

These challenges are part of the “new normal” for bank CEOs today amid an increasingly complex operating and regulatory environment, OCBC’s CEO Mr Samuel Tsien said today when speaking at the Hong Kong Institute of Banking Annual Conference 2014.

As tightened banking regulations incur more operational costs for banks, “My view is that banks must be more focused in fewer countries, rather than aspire towards a global presence. They should be encouraged to deepen their presence to build scale, rather than plant flags all around the world,” said Mr Tsien, who is also the current chairman for the Association of Banks in Singapore.

Mr Tsien’s speech followed OCBC’s further expansion into Greater China – one of its four core markets alongside Singapore, Malaysia and Indonesia – with a S$6.23 billion acquisition of Hong Kong’s Wing Hang Bank. To boost its capital following the costly move, OCBC has launched a S$3.3 billion rights issue last month.

Meanwhile, OCBC has also seen a 35 per cent annual growth in resources deployed to the control and compliance areas since the Global Financial Crisis, Mr Tsien noted, adding that the GFC has also led to more intense public scrutiny on financial institutions.

Against this backdrop, “bank CEOs need to respect the social expectations of communities, and reshape their organisations to meet the highest demands of trust, honesty and integrity,” he said, adding that a better understanding of technology is also important as internet evolves the banking industry.

Meeting these challenges and demands will mean shouldering more costs that are not revenue-generating, “and because not all costs can be passed on to customers, some of them will be passed on to the shareholders in the form of reduced returns,” Mr Tsien cautioned. “OCBC was able to achieve a healthy annualized return on equity of 14 per cent for the first half this year. Nevertheless, the challenge of depressed banking returns will continue to intensify.”

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