Banks are integral to our everyday lives, we place our savings in them, finance our student loans/HDB loans with them, and for some of us, they may very well be an essential source of income.

Analysts are excited about the prospects of the banking sector and now may be a good time to enter the market to make the banks help you work towards financial freedom as well. A significant catalyst for growth is the turn towards digitalization to drive up productivity in the banks. This article will be analysing the latest developments in the three major banks in Singapore.

1. OCBC: Heavily Integrating technology Into Operating Process

Artificial Intelligence Chatbot
Regarding the use of technology to optimise customer experience and increase productivity, Oversea-Chinese Banking Corporation (OCBC) has started the use of artificial intelligence, Emma the chatbot, for the handling of home loan enquiries, wealth management advisory and regulatory compliance.

Emma can handle commonly asked questions with regards to home loans and renovation loans. She is also able to sieve out the specific needs of individual clients to make it easier for product specialists to focus on developing a strong rapport with the clients to seal the deal.

The use of artificial intelligence has proved to be promising for OCBC as according to UOB Kay Hian’s report, “more than 10 percent of chat sessions have been converted to home loan sales prospects”. To date, Emma has been used for 34,000 enquires and has approved $28 million worth of loans. The success of its AI will determine how much OCBC can cut down on its headcount and reduce cost.

Robo-advisor For Your Portfolio?
OCBC is also using an algorithm-based robo-advisor to guide clients in making investment decisions by first assessing their risk profile and investment goals and subsequently recommending one of the five portfolios of exchange-traded funds and specific groups of stocks that are listed on the US New York Stock Exchange and Nasdaq Stock Exchange. Furthermore, the platform will continue to observe the selected portfolio and continuously rebalance the portfolio at fixed intervals.

Using AI To Detect Money Laundering And Terrorism Financing
OCBC has pioneered the use of technology to counter financial crimes in Singapore, using software to identify any suspicious transactions that deviate from their clients’ usual banking behaviour. This technology is expected to be implemented with the existing transaction monitoring system in the second quarter of 2018.

The use of technology in the banking system is extremely vital as digitalisation has taken over the world. As OCBC attempts to make fuller use of the technology at hand, it is possible that they will be much more efficient and be able to streamline their teams to reduce cost.

UOB-Kay Hian has a Buy call on OCBC with a target price of $14.88. Currently, OCBC is trading at $12.99.

2. DBS

DBS is yet another bank that has been increasing their use of technology to enhance their processes. It has been recognised as “the world’s best digital bank” by Euromoney Awards for Excellence 2016. This follows a shift in DBS’s focus to increase their use of big data, biometrics and artificial intelligence in their processes.

DBS has been heavily involved in the use of technology to reduce their headcounts even as they launched Digibank in India in April 2016 and Indonesia last August. Digibank is a mobile-only bank that is “paperless, branchless and involves no signatures” according to UOB’s report. DBS has its own AI as well which was created together with Kasisto in partnership. The use of this virtual assistance can answer 80 percent of customers’ requests without the need for human interaction.

DBS has significantly changed its IT infrastructure, shifting to insourcing 85 percent of their IT department whereas, in 2009, they were outsourcing 85 percent of it. The use of technology has been integral in DBS becoming increasingly efficient with the most productive workforce in Singapore.

The advantages of digitalisation are tremendous as digital customers make up 39 percent of their customer base and they provide a higher return on equity as compared to traditional customers. The lower cost associated to digitalisation kicks in as there is a lower cost to acquire and serve the customers which help to drive up margins.

Overall, UOB-Kay Hian maintains their Buy call on the stock with a target price of $29.50. Right now, DBS is trading at $26.34 per share.

3. UOB

A key catalyst that will help to drive growth for United Overseas Bank (UOB) is its exposure to property-related loans. Compared to other two local banks, UOB has the highest proportion of home loans that can ride on the property market’s recovery.

UOB’s asset quality has been a source of concern for quite some time due to significant non-performing-loans (NPL). However, analysts at DBS have pointed out that the number of NPLs in 9M17 have come down from 9M16 and they are expecting an end to the deterioration of asset quality in 2018.

DBS has set a Buy call on the stock with a target price raised to $29.50 as analysts believe that the improvement in UOB’s asset quality is going to drive investors to re-rate the stock upwards. Currently, UOB is trading at $27.87.

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