4. Case Study
4.1. DBS
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4. Case Study
Case study enables this research to compare between traditional bank and online lending platform. By comparing lending policy, data collection, decision criteria and all stakeholders, this research is able to pin point the key differences of traditional banking system and online lending platform.
4.1. DBS
Company Background
DBS Bank incorporated in 1968 by Government of Singapore. Today, DBS is the largest bank in South East Asia in terms of assets and among the larger banks in Asia, with total assets of SG$518 billion as of December 31st, 2016. DBS operates across 18 markets and around 280 branches around the world. DBS Bank provides full functions of financial service. The service includes consumer banking division (CBG), institutional banking division (IBG), treasury markets and others. CBG provides consumer banking and wealth management. The product and services include current and savings account, fixed deposits, loans and home finance, cards, payments and investments. IBG focuses on broadening and deepening of customer relationships.
Products and services comprises credit facilities, and working capital financing as well as specialized lending. Treasury markets include structuring, market making and trading across a broad range of treasury products.
In FY2017, total income increased 4% to SG$11,924 million and net profit increased 4% to SG$4,390 million. Institutional banking division accounted for 44.2% of total income.
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Table 5 Sales breakdown by segment of DBS in FY2017 (Unit: SGD million) Business Segment Total Income (FY2017) % of sales (FY2017)
CBG $4,671 39.2%
IBG $5,275 44.2%
Others $1,978 16.6%
Total $11,924 100%
Lending Decision Flow
In DBS, a lending decision is a complicated, time-consuming and subjective decision.
Before building up a line of credit, a standard credit process usually requires two months to go through the whole credit decision flow. A longer lending decision flow meant a higher operating cost to obtain a credit line. Additionally, within the lending decision flow, every step will include two or more stakeholder departments to involve in the decision of approval, which requires sufficient communication to reach a group consensus.
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Figure 2 Credit approval process of DBS Required Data Set for DBS Lending Decision
The lending decision for SME in DBS requires to collect various financial and non-financial data sets. Every front desk banker or credit analyst is required to review and analyze the data and information based on personal experiences and subjective judgement. Since this process includes many subjective interpretations, any conclusion and any determination might be biased by different subjective standards.
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Figure 3 Required Data Set for DBS Lending Decision Technology Platform
To attract a large amount of SMEs customers in Taiwanese market, DBS has launched a technology platform and new credit product, 星展中小企業星易貸3. By shortening lending decision to 5 days, DBS would like to differentiate its market positioning as a faster and easier bank from a complicated and time consuming traditional bank. The platform requires the borrower to fill out an application with their basic company background. However, the lending process is still the same. To approve a line of credit within 5 working days is more like a marketing slogan. According to the platform, eleven information are required to be filled out
3 https://www.dbs.com.tw/sme-zh/dbs-forms/microloan-form.page
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by applicants, including (1) Company name; (2) Tax ID; (3) Registered City; (4) Type of industry; (5) Existing company or not; (6) Years of establishment; (7) Business scale; (8) Contact person; (9) Mobile phone; (10) TEL and (11) Mail address.
The key difference of this lending program is that it focuses on domestic company with tax ID and it narrows down a target company’s sales within TWD800mn so that bankers are able to assess credit risk with an easier and faster method.
Figure 4 The work flow of 中小企業星易貸
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A risk rating is given as a benchmark for each target customer. By using the risk rating, bankers are easier to know the default risk so that bankers are able to shorten credit process by using less required information.
That is to say, bankers could know the credit risk based on credit rating instead of subjective and collective lending decision. Every credit rating indicated a certain default risk. Thus, bankers are able to determine pricing quotation easier and facility size faster given a certain risk rating.
For the Program, DBS adopted joint credit information center’s (JCIC) J21 as an external risk benchmark. Together with some in-house pre-screening checking criteria, bankers could assess credit risk easier.
Table 6 The Default Rate of a given J21 Scoring as of 2012.
The Default Chance of J21
Risk Range Default rate Accumulated Sample Size
<=1420 33.49% 0.4%
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Source: Join Credit Information Center
According to historical non-performing loan (NPL) rate of SME borrowers in DBS Bank (Taiwan), the non-performing loan against total loan outstanding was 2.19%. (DBS, Annual Report, 2017). The number not only perfectly equaled to possibility of default in terms of number of customers in DBS Bank (Taiwan) SME segment but it also indicated how this bank managed its portfolio. The total non-performing loan against total loan outstanding was around 1.08% in DBS Bank (Taiwan) in FY2017. Based on the above two figures, NPL for SME portfolio was higher than the total NPL of DBS Bank (Taiwan). Given the fact, we can interpret that DBS Bank (Taiwan) had an inferior customer portfolio or poor risk management in SME segment.
Therefore, to compare non-performing loan rate in DBS Bank (Taiwan) , 2.19%, with potential default rate with JCIC scoring, DBS could improve risk management while implementing JCIC scoring into lending decision. The JCIC 21 scoring of 1580 or above represented an acceptable risk given 0.77% of default rate for the given risk range.
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