THE Infocomm Media Development Authority (IMDA) has partnered DBS, OCBC and UOB to develop banking solutions, leveraging nationwide e-invoicing network InvoiceNow with the PayNow e-payment system.

 

InvoiceNow and PayNow both use the Unique Entity Number to help businesses send or receive invoices and collect payments.

 

By registering for both services, businesses can enjoy business efficiency, cost reduction and seamless payments, IMDA said in a press statement on Wednesday.

 

IMDA implemented the nationwide e-invoicing network - now called InvoiceNow - in 2019 to help businesses improve efficiency, reduce cost, receive payment faster, facilitate cross-border business transactions and reduce impact on the environment by using fewer paper invoices.

 

Today, there are about 25,000 companies on InvoiceNow, up from 1,000 at the beginning of 2020, IMDA assistant chief executive Jane Lim said.

 

" Within the past three months, we have seen an exponential increase in businesses coming onboard e-invoicing," she noted.

 

DBS group head of global transaction services John Laurens said: " As the bank with the largest PayNow market share in Singapore, we will continue to actively engage our corporate customers on the benefits of digital to drive greater adoption of InvoiceNow and PayNow to ensure they have their best foot forward as we embark into the next normal."

 

OCBC head of global transaction banking Melvyn Low said InvoiceNow and PayNow are two initiatives that have seen strong take-up from the bank' s business banking customers.

 

" The complementary nature of the invoice and payment cycles means that businesses can digitalise their cash conversion cycle end-to-end to enjoy even more convenience and time savings," he added.

 

UOB country head of business banking Singapore Mervyn Koh said: " We expect that the launch of InvoiceNow will drive greater adoption of e-invoicing, thereby creating a virtuous circle where businesses adopt and benefit from digital solutions."

 

IMDA said businesses that register for InvoiceNow on or before Dec 31, 2020 can receive an e-invoicing registration grant of S$200, which will be paid out through PayNow Corporate. The grant was announced in March 2020 as part of the Resilience Budget, and S$10 million has been set aside for it.

Environmental, governance, corruption risks seen as particularly relevant for the bank

United Overseas Bank has some catching up to do on the green banking front, said a Maybank-Kim Eng analyst report, as it lags behind its peers on its environmental, social and governance (ESG) financing portfolio and certain diversity metrics.

 

As a bank with a wide regional footprint, it is exposed to multiple ESG risks - directly and through its clients, said analyst Thilan Wickramasinghe in a Sept 18 report.

 

Environmental as well as governance risks, money laundering and corruption risks are particularly relevant for the bank, Mr Wickramasinghe wrote.

 

This comes as just 14 per cent of the bank' s incremental lending in 2019 were for sustainable uses, falling behind peers which averaged 35 per cent. UOB' s total sustainability portfolio is around 2 per cent of its total loans.

 

The bank has established an ESG committee that reports to the management executive committee, which, however, sits one notch below board level.

 

The group has had several reported mis-selling incidents in the past two years, which raise fair dealing and governance risks, the report said.

 

Five of its personal bankers were jailed or sanctioned - or both - between 2018 and 2019 in separate cases of mis-selling and cheating.

 

As a lender to a wide base of small and medium-sized enterprises (SMEs) in Singapore, the bank, Mr Wickramasinghe pointed out, is also " particularly exposed to social risks" in terms of balancing shareholder returns while supporting small business owners, against the backdrop of the Covid-19 pandemic.

 

About 36 per cent of UOB' s corporate loans at the end of last year were made to businesses classified as SMEs.

 

" This creates notable social risks, given this is among the most impacted segments under the current economic backdrop," he said.

 

These risks will rise as small business owners emerge from Covid-19 loan moratoriums.

 

Some 16 per cent of UOB' s loans are now under moratorium, a bulk of which are set to expire between the third and fourth quarter of this year. The situation may increase the risks of non-performing loans in the near term.

 

From a diversity standpoint, women make up just 10 per cent of UOB' s board membership - the lowest among Singapore banks - and 35 per cent of senior management as at end-2019.

 

Mr Wickramasinghe also noted that compared with its local peers, UOB is " marginally below average" in disclosures in terms of adhering to ESG standards.

 

The analyst believes that UOB' s ESG risks are typical for a systematically important bank with regional presence. " UOB displays no exceptional risks that are not typical for a large, regional D-SIB (domestic systemically important bank) for ESG," Mr Wickramasinghe wrote.

 

He kept a " hold" recommendation and a target price of $20.79 on the stock.

 

Tighter net interest margins and softer growth may further erode earning visibility, he flagged. Still, UOB is offering a dividend yield of 4.1 per cent even after taking into account dividend caps imposed by the authorities, he noted.

AMONG the Singapore banks, UOB is generally seen to be more conservative in its wealth management (WM) pursuits, with a considerably smaller - and organically built - franchise when compared against its peers.

 

But industry observers say differences are not significant enough to warrant a strategy overhaul for now, particularly at a time where capital conservation should be UOB' s top priority amid the pandemic.

 

Overall, UOB' s WM fee income in Q2 makes up 16.5 per cent of its non-interest income for the quarter. This was 21.4 per cent for DBS.

 

OCBC captures significant wealth income from its insurance arm as well. Stripping that out for comparison sake though, OCBC' s pure WM fee income stood at 17.8 per cent of total non-interest income.

 

CGS-CIMB analyst Andrea Choong told The Business Times that UOB' s wealth franchise is mainly catered to the mass affluent market in South-east Asia, compared with DBS and OCBC which target more high net worth clients given their deeper roots in Hong Kong and Greater China.

 

" UOB' s client segment generates less trading activity, and thus less fee income for the bank," she said.

 

DBS and UOB - which include retail flows in its WM asset base - reported assets under management (AUM) of S$251 billion and S$129 billion respectively as at June 2020.

 

OCBC, which focuses on flows for its private banking arm, Bank of Singapore, posted a S$113 billion AUM that thus excludes retail flows.

 

Amid lockdown restrictions, UOB' s second-quarter WM fee income slumped 34 per cent to S$133 million from the previous quarter. DBS' s fell 24 per cent over the quarter to S$305 million, while OCBC' s Q2 WM fee income was down 30 per cent from a quarter ago to S$205 million.

 

Of the trio, UOB was also the only one that posted weaker non-interest income in Q2.

 

But Phillip Securities research analyst Tay Wee Kuang said UOB' s weaker performance in Q2 is not significant enough for the bank to start pursuing more inorganic growth via mergers and acquisitions (M& As), especially if it' s for the purpose of tiding through a sluggish short-term business outlook.

 

Patience is a virtue here. The wealth franchise across the three banks is expected to recover over time as economies gradually reopen.

 

Instead, short-term differences in WM performance across the sector may be attributed to factors beyond the size of the franchise, such as a stronger digital presence.

 

DBS Group Research analyst Lim Rui Wen added that UOB has stepped up its WM efforts in recent years.

 

In 2019, the bank renewed its bancassurance deal with Prudential for S$1.15 billion for 15 years. This compares with DBS and Manulife' s 15-year partnership from 2016, where both partners will co-fund up to S$100 million, said Ms Lim.

 

M& As also come with higher costs of integration that may offset the benefits of stronger income, especially as a result of a " hasty" business decision, said Phillip Securities' Mr Tay.

 

Private banking

 

DBS' s private banking segment has benefited from inflows from its traditional markets such as Asean and Greater China, and is also seeing inflows from Europe and the US, as reported by BT earlier this month. The bank is looking to expand further in Thailand and the Philippines.

 

OCBC, via Bank of Singapore, has been steadily expanding its wealth business across Asia, the Middle East and Europe.

 

While the weak interest rate environment and lower fee income do make a " more compelling" case for UOB to try boosting its WM income, a hurdle to this could be the bank' s perceived conservative culture - as seen in its targeted customer segment and stable trading income - and challenges in finding a franchise that is of a " similar fit" to the bank, said CGS-CIMB' s Ms Choong.

 

The need to conserve capital in the current pandemic is also a limiting factor to banks' M& A capacity at this juncture, she noted.

 

Likewise, Maybank Kim Eng' s head of research Thilan Wickramasinghe told BT that banks' immediate focus should be on capital preservation and maintaining robust Common Equity Tier 1 (CET1) ratios. UOB' s CET1 ratio stood at 14 per cent as at the second quarter this year.

 

Given " significant" macro uncertainties and potential non-performing loan risks, acquisitions for wealth management, or otherwise, would be " premature" , he added.

 

Given the renewed focus on digitsalition amid a pandemic, Phillip Securities' Mr Tay said the three banks should continue to bulk up their WM business with more digital services.

 

" Focusing on strategies such as digitising the business that the three banks have all pursued may be more impactful in building a more resilient WM business," he said.