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MMAsia Financials

Asia Banking 2025: Digitalisation to Redefine the

Falling rates are driving down returns. As digital adoption accelerates amid COVID-19, minimal investments and poor execution discipline could lead to a 4-5% ROE gap vs digital leaders by 2025, and banks missing

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should act now to secure competitive success and shareholder returns.

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estimates. Banks

New Normal

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MM
Contributors MORGAN STANLEY
Nick Lord 1

EQUITY ANALYST

+65 6834-6746

Richard Xu, CFA 2

EQUITY ANALYST

+852 2848-6729

Joon Seok 3

EQUITY ANALYST

+82 2 399-4934

Sumeet Kariwala 4

EQUITY ANALYST

+91 22 6118-2235

Mulya Chandra, CFA 5

EQUITY ANALYST

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Subramanian Iyer 4

EQUITY ANALYST

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Irene Zhou, CFA 2

EQUITY ANALYST

+852 2848-6526

Selvie Jusman, CFA 1

EQUITY ANALYST

OLIVER WYMAN

Dan Jones

PARTNER

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Anirudh Singh

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Seo Young Lee

PARTNER

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Jacob Hook

MANAGING PARTNER

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Marc Entwistle

PRINCIPAL

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Yutao Guo

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Toni Miharja

+65 6834-6517 +65 6510 9465

liverwyman.com
Toni.Miharja@o
1 MORGAN STANLEY ASIA (SINGAPORE) PTE.+

2 MORGAN STANLEY ASIA LIMITED+

3 MORGAN STANLEY & CO. INTERNATIONAL PLC, SEOUL BRANCH+

4 MORGAN STANLEY INDIA COMPANY PRIVATE LIMITED+

5 PT. MORGAN STANLEY SEKURITAS INDONESIA+

y

MM Contents

4 Messages for the C-Suite

6 Key Takeaways from our AlphaWise Surve

8 Digitalisation of Asian Banking

M

4

MAsian banks' growth and profitability were stronup to 2020. However, this success may not befuture, and the ongoing COVID-19 crisis has pubanking sector to test. During the pandemic, wenues missing forecasts, increased scrutiny onhigher cost of credit and a greater strain on banks in Asia.

Whilst some of these pressures will recede wiinterest rates are likely here to stay and will conpressure on bank returns. Our estimates show2019 levels for all country/market/region sectoof India (led by credit cost normalisation). Falls aingful for banks in Korea, Singapore, Hong Kon

Banks will therefore need to start or acceleratejourneys. Given the limited levers banks have has emerged as one of the highest priority stratlooking to recover and return to growth. The qnot this will be sufficient.

Fundamental behaviour changes of customershave fast-tracked banks’ digital development.

l Retail customers have rapidly adapted to digfinancial needs during periods of social distabecoming keener on value-added digital seSharp growth in digital payments is undamongst digitally advanced economies.

l SME customers, a generally underserved stheir preference towards digital channels. tinues to be a top need, as are increased expaccess to broader financial servicing needs

l Corporate customers are increasingly expecof offerings from banks, such as digital on-boital sector solutions and fintech partnershipefficient and seamless end-to-end digital sbanks are struggling to provide.

l Bank employees have adopted work from many organisations planning ongoing flexibCOVID-19. To facilitate sustained efficiency aoperating models and decision-making procdesigned.

Messages for th
g in the years leading a good guide for the t the resilience of the have observed reve-
operating expenses, infrastructure across

th the pandemic, low tinue to put material ROE in 2025 below

rs, with the exception re particularly mean-g and Thailand.

their transformation to pull, digitalisation egies for Asian banks uestion is whether or

and employees alike

ital channels to fulfil ncing. Consumers are rvices and products. er way, particularly

egment, are shifting Access to credit con-ectations for ease of via digital channels.ting a broader range arding, advisory, dig-s. They expect more ervices, which most

home routines, with le arrangements post nd flexibility, banking esses need to be re-

e C-SuiteThese changes mean that a bank’s traditional response to lower rates, such as increasing asset spreads and focusing on new fee strat-egies, might not work over the next five years, especially as changing digital preferences create opportunities for new entrants. Our anal-ysis looks in detail at the potential revenue benefits from digitalisa-tion, acting as a useful offset to broader revenue pressures due to lower rates, with banks in India, Indonesia and China potentially seeing the most benefit. Despite the hype surrounding digitalisation, the large driver of incremental returns from digitalisation and poten-tial cost savings may not be sufficient to hold up returns, especially in developed markets, where net interest margin (NIM) pressures are most intense.

Our analysis quantifies the impact on returns by three key pillars:

l Growth: The ability to capture an increased share of the market size by accessing new customer segments and driving financial inclusion, and to take market share from competitors for digitally savvy customers, while defending existing customer bases and margins from fintechs and digital challengers

l Efficiency: The ability to streamline, redesign and automate sys-tems and processes to drive efficiency and cost/scale benefits, leveraging systems and technology effectively, leading to enhanced profitability

l Resilience: The ability to insulate the business from future shocks and continuing to serve customers in a safe, secure, scalable manner in the face of increasing risk and an uncertain economic outlook

We estimate that the net growth impact on returns could add between 0.1-0.7% to ROE via higher income, with emerging markets banks in India and Indonesia having the most to gain, while banks in Singapore and Hong Kong have the least to gain. However, these net income gains are relatively small in terms of the revenue headwinds banks face from lower rates. We expect that the fall in revenues as a result of COVID-19, and in particular, lower rates, could take between 1.5-6.6% off ROE, with banks in more developed markets, plus Thailand, among the most impacted and Chinese and Indian banks the least impacted. While the growth benefits from digitalisa-tion will be relatively small compared to the revenue headwinds banks face, we still believe that banks need to act, as the conse-quence of not doing so would mean ceding ground to new entrants, potentially making revenue headwinds far worse.

M

MORGAN STANLEY RESEARCH

MThe bigger benefit to returns potentially comwith banks adding up to 0.7% to ROE from effgains. Once again, banks in Indonesia and Indmost. However, we estimate that these benefitsup to 78% of the cost efficiencies we believe bathe next five years. In the face of expected revonly will banks need to deliver on these digitaliwill also need to deliver further streamlining totations. The biggest challenge here is likely tThailand, Korea and Singapore. Banks in mainIndonesia would appear to have more headrooface similar challenges to Singapore banks, excealready incorporate an increase in cost-to-inco

Finally, we note that resilience impact willSignificant human capital has been invested intoover the past decade, and digitalisation will help

5

es from lower costs, iciency digitalisation ia could benefit the will account for only nks will achieve over enue headwinds, not sation gains, but they meet market expec-o come for banks in land China, India and m. Hong Kong banks pt that our forecasts me ratios.

be a drag on ROE. risk-related controls unwind that overca-

pacity, with the potential to actually cut net costs whilst providing greater control and resilience. This impact is relatively small in the context of overall forecast ROE movements.

Overall we believe the digital leaders of today have the opportunity to capitalise on the headstart they have in their digitalisation journey to maximise efficiency gains and defend against emerging risks including the acceleration of client expectations, regulatory driven change and new market entrants. The digital leaders of tomorrow can deliver up to 4-5% higher ROE than the slow adopters, but this will require concerted efforts to scale and accelerate the transforma-tion roadmap, upgrade digital capabilities and capture emerging growth opportunities. Meanwhile, slow adopters face a complex, multi-year digital transformation journey, risking an increasing gap in ROE vs the digital leaders and a rapid deterioration in shareholder value.

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6

MKey Takeaways Overview of the survey: As part of the researcin compiling this report, we have surveyed baAugust 25 to September 8, 2020. We got respmanagement across 17 banks. 60% of the busincally focussed, 30% had a regional focus and believe that this is a fair representation of the bWe also saw a good geographic spread, with ~from each of Singapore, Indonesia, India and SouThailand, Malaysia and Hong Kong also respondof respondents is good , the sample size is smshould be read more qualitatively, rather thasummarise the key observations / takeaways b

l Banks expect retail/household lending andmost impacted by COVID-19. The main drhousehold lending revenues were expectedployment, movement restriction and confidence. For SMEs, lower confidence antions were the main challenges.

l A large majority of banks expect marketingnext 12 months, with over 50% seeing a fall i13 respondents) and staff costs (6 out of banks see IT costs increasing or staying the saexpect to increase IT investment over the nexpects to reduce it.

Exhibit 1:Overwhelmingly, banks see retail/household lenas being most impacted by COVID-19 (base=14

Source: AlphaWise, Morgan Stanley Research.

Exhibit 2:Staff and marketing costs will be main source of savings in next 12 months; IT costs are expected to increase (base=14 respondents)


from our AlphaWise Surveyh process undertaken nks across Asia from onses from 21 senior esses were domesti-

10% were global; we anking sector in Asia. 20% of respondents th Korea. Banks from ed. Whilst the spread all, thus the results

n quantitatively. We elow:

SME revenues to be ivers of lower retail/ to be higher unem-

declining consumer d movement restric-

costs to fall over the n occupancy (8 out of 13 respondents). All me. 6 out of 13 banks

ext five years; no one

l Contrary to our expectations of falling returns, banks expect to return to pre-COVID-19 levels of profitability, although they think this will take 18 to 24 months.

l In terms of new competition, many banks are confident they can hold their own. SuperApps are perceived to be a bigger threat than pure digital disruptors. 8 out of 13 of banks also agree that COVID-19 accelerates the move of digital disruptors into the market.

l For the overwhelming number of banks, investing in their own organisation and building internal technological capabilities is the priority. Following that, banks favour partnerships with third par-ties followed by strategies to enter new markets. Developing new models, or ventures to take on digital disruptors head on, is the least popular strategy. More specifically for SME and corporate banking, the focus of investment will be data-led decision-making, with new digital ventures well down the priority list.

l Banks universally agree with the statements that digitalisation efforts will help lift ROE and ROA, and all agree that branch, man-power and overall operating costs will fall, which tallies with our view. The vast majority also agree that top line and balance sheet growth will benefit from digitalisation, and that credit costs should improve, however, there is not a universal agreement here.

ding and SME lending respondents)

M


MExhibit 3:Banks expect profitability to return to pre-COVIexpect this will take 18-24 months (base=11 res


Exhibit 5:Digital disruptors benefit from COVID-19 (base=


7

Exhibit 4:Banks see a bigger threat from Super App players than pure digital banks in terms of leading growth in the next five years (base=13 respondents)


D-19 levels, but many pondents)

15 respondents)Exhibit 6:Internal investment followed by third-party partnerships are the most popular strategies (base=14 respondents)


M

8

MDigitalisation ofSection 1. Setting the scene –normal” post-pandemic

The proliferation of the COVID-19 pandemicunprecedented social and economic disruptiRapid digitalisation of the financial services secentre of this change, putting industry participience to test. New market entrants may benefishift to digital, counterbalanced by lesser expcrises and compounded by fragile balance sfunding. So where are we likely to see the mosbest positioned to capitalise on this new norm

Before the pandemic hit, Asian banking growhad been strong. Despite global headwinds iranging from US-China trade tensions, uncertaiof the EU and a short-term hit to oil prices, amonbanking markets (based on eight major Asian mKong, Singapore, South Korea, Indonesia, Thaand mainland China) have grown faster than oof overall assets, recording a ~7% CAGR in 2with Europe and North America at ~3% and ~profitability, Asian banks have maintainedreturn on equity of ~10% in the past 10 yearaverage ROE of Europe at ~4% and North Amer

Exhibit 7:Total banking assets in select Asian markets, 2

Source: BMI.

more recently, these returns have been under pressure, especially relative to North America. Across multiple measures, we have seen Asia making large strides towards delivering sustainable growth within this rapidly evolving industry.

Asian Banking the “new

has brought about on on a global scale. ctor has been at the ants’ agility and resil-t from an accelerated erience withstanding heets and strains in t change, and who is al?

th and profitability n the past few years, nty over the direction g others, major Asian arkets, namely Hong

iland, Malaysia, India ther regions in terms 015-19 as compared 4%, respectively. On a healthy average s, above the 10-year ica at ~9%, although,

010-19 (USD tn)

However, past and present success may not be a good guide to the future. The ongoing COVID-19 crisis has put the resilience of the banking sector to the test and questions are being asked about how the sector will emerge from the crisis. We have seen increased leverage, not only private sector debt to GDP, as income levels fall, but also in the only unstretched part of the balance sheet – the public sector – given the significant fiscal easing. Whilst this isnecessary now, we believe it will lead to headwinds for future growthfor economies and the banking sector, leaving Asia with smaller roomfor government intervention in the next downturn. This could alsolead to unconventional monetary policies, which may have implica-tions for future NIM and ROE in the sector.

The changing face of globalisation, in particular the need to duplicate supply chains, is lowering cost benefits to south and southeast Asian economies. More broadly, we see that the decoupling between US/China and geopolitical tensions will make it more difficult to extract growth from the next cycle, whilst also lowering economics of scale, raising costs across the economy and potentially lowering profit-ability. China's localisation efforts also appear to be making its growth less complementary for the rest of Asia.

M


MThe post-COVID-19 environment for banks wilfore be far more difficult. Banks’ asset qualalready been impacted and will likely transgreater risk aversion, acting as a further drag ance sheet growth and returns. In addition, ainterest rate environment and pressure on fenues will also mean it will take longer for retrecover.

Our forecasts indicate that ROE is not experecover for any of the Asian country sectors we with the exception of India, which benefits fromperforming loan (NPL) recovery cycle over thfive to seven years. The cost of credit is expecontinue decreasing, resulting in ROE increuplift. The expected shortfall in ROA is most acIndonesia, Thailand, Hong Kong and Korea ( ExhIndonesia may expect less pressure at the ROE we see an expected increase in leverage in upyears, driven by acceleration of loan growthwith the digitalisation of lending products.

Asia will be the testing ground for the wCOVID-19 response. Much of this adaptation isoperational, with social distancing practicexample, leading to significant changes in cubehaviour, such as a shift to digital banking chand workplace business continuity challenresponse to these changes, many leading instihave embarked on transformation journeys – oveyed bank executives agree that “radical chavailable” and “the biggest mistake we can mago back to our former business model” (SourceWyman interview with a senior executive of a global bank).

As recovery strategies crystallise, digitalisiorganisation has emerged as the highest priothe post-COVID-19 agenda for many Asianlooking to return to growth. We see three objat the centre of rethinking the "new normal"banks must refocus digital transformation prpost-pandemic in order to capture opportunitdefend tangible revenue streams (growth), takout (efficiency) and strengthen risk control (res– summarised in Exhibit 9 .

9

Exhibit 8:Asian banks' ROE projections

Source: Morgan Stanley Research. E = Morgan Stanley Research estimates. Note: *ROE for India was >12% before 2016. ROE dropped in 2017 due to a surge in NPL. Since then, India underwent an NPL recovery cycle. We expect cost of credit to continue decreasing, driving incremental ROE lift post-pandemic.

l there-ity has late to on bal- lower e reve-urns to

cted to look at, a non-e past

cted to mental ute for ibit 8 ). level as coming , partly

orld's highly

es, for stomer annels

ges. In tutions ur sur-

ange is ke is to : Oliver leading

ng the rity of

banks ectives ; Asian ograms ies and e costs ilience)

Exhibit 9:Three key objectives in digitalisation

Source: Oliver Wyman.

M

10

MSection 2: What's next – the dchange and implications

Given the macro changes and prolonged duratioof this magnitude will inevitably change businethe global economy in many ways. Under the nethe profound impacts brought by the pandemicital developments, especially in emerging mar

2.1 Retail Customers

Rapid adoption of digital channels by consucial needs

Digital channels will become a major channewith increasing digital needs and expectatiotancing measures were imposed, a leading Asialion uplift in digital transactions compared to 2account applications received within three daaccess. Southeast Asian banks are seeing 200investment accounts, opening and usage (Sourccussions with banks).

Exhibit 10:Percentage of consumers planning to spend m

Source: Tofugear survey (February 2020).

rivers of

n of COVID-19, a shift sses, the society and w normal, we believe could fast-track dig-

kets.

mers to fulfil finan-

l for end-consumers ns. After social dis-n bank saw a 100 mil-019 and 10,000 new ys of limited branch +% growth in online e: Oliver Wyman dis-

It is perhaps unsurprising that mobile channels have seen the highest growth in usage. In 2Q results, the Hong Kong banks highlighted that the number of mobile bank users had increased by between 23% and 47% YoY, whilst digital wealth sales were up by 38-68%. Emerging markets such as Indonesia have also experienced a strong swing to digital engagement, with internet and mobile banking channel usage increasing up to 60% during the pandemic (Source: Company disclo-sures as seen in The Jakarta Post).

Sharp growth in digital payments

Digital payments have experienced strong growth in Asia and further accelerated during COVID-19. In April, the Association of Banks in Singapore announced that the amounts transferred with Singapore’s PayNow Corporate service, a platform for cashless transactions, saw a 713% year-on-year jump in February to S$3.12 billion. Emerging mar-kets have also experienced accelerated adoption of e-payments, such as Thailand’s PromptPay platform, which according to company dis-closures as cited in The Bangkok Post processed up to 11mn transac-tions per day in March 2020, achieving almost 100% growth compared to the same period last year.

ore online over the next 12 months, from February 2020

M


MA key driver of this growth has been the shift fre-commerce. There has been >100% growth in dacross developed Asian markets and >250% groAsian markets. Surveyed at the onset of the p40% of consumers anticipate spending more omonths across major Asian markets (Sour(February 2020)) ( Exhibit 10 ).

Growing demand for value-added digital se

There is a distinct opportunity for banks to capidemand for digital services and improve stickinand service innovation. In mainland China, Pinduced the “Do It At Home” campaign offering sservices across most of its online financial prwealth management to insurance. Within two wlion customers had made more than 11 milliononline lectures attracted over 470,000 viewedisclosures). The three largest Singaporean barise in digital transactions, digital account openiadvisory financial planning services in Robo-advisory investments between Januargrew 60% compared to October to DecemberTimes, May 2020).

COVID-19 has accelerated digital adoption anpreferences and expectations for banking servthat banks quickly adapt to consumers’ behawork to retain and expand upon the digitalisatiocovery.

Exhibit 11:Channel preferences for loan applications in As

Source: Oliver Wyman SME Banking in Asia Pacific Survey 2017, Oliver W

11

2.2 SME

Opportunity to serve the traditionally underserved SME seg-ment digitally

SMEs demonstrated a preference for digital servicing before the arrival of the pandemic. While more than 50% of Asian SMEs already look for new credit lines via digital channels, approximately 20% of SMEs were able to complete the process online to submit their loan application ( Exhibit 11 ). SMEs are more willing to adopt online channels as the primary channel to discover and apply for credit offers, but the supply side is falling short in enabling an end-to-end online credit application procedure.

We believe that banking players will need to move “beyond banking” with their retail and SME value propositions to defend against the threat of new challengers. A wide array of digital offerings can be offered to SMEs to support not only their financial needs but also business needs ( Exhibit 12 ). For example, leading banks are intro-ducing online accounting and cash flow management solutions lever-aging data analytics, enabling event-based bespoke offers, or group purchasing platforms that help SMEs reduce supply chain costs. Similar to retail customers, SMEs are increasingly using digital chan-nels for payments and transactions, an area where banks will need further focus to improve coverage of SME banking.

om physical stores to igital payment usage wth across emerging andemic, more than

nline over the next 12 ce: Tofugear survey

rvices and products

talise on the growing ess through product

g An Insurance intro-mart and contactless oducts, ranging from eeks, over three mil- transactions and its rs (Source: Company nks also saw a sharp ng and usage of robo-the same period. y and March 2020 2019 (Source: Straits

d changed customer ices. It is paramount vioural changes and n gains made post-re-

ia

yman analysis. 1. South Korea and Mainland China are out of scope in the survey.

M

12

MGrowing demand for value-added adjacent

Exhibit 12:An array of digital offerings catering to SMEs to


Opportunity to retain SME customers beyo

A further consideration will be the extent to provided by banks to SMEs during the COVID-19stickiness. Banks have offered repayment holidto many SME customers, either as part of theirschemes, or at the behest of respective governfrom this crisis, banks will be instrumental in suability of the SME sector via loan restructuring.cised opportunities to foster loyalty and

non-banking digital services

support business and financial needs

relationships may well be better placed to support against new market entrants competing on a price basis.

Whilst SME banking has been a historically underserved segment, it stands as a large growth opportunity in the digital era. Banks should leverage digital capabilities to offer improved lending solutions to SMEs, at the risk of leaving this opportunity open to new market players. Banks should also increase the share of wallet with broader, targeted and more digital offerings for SMEs.

nd COVID-19

which the assistance crisis increases SME ays or bridging loans own customer relief ments. As we emerge pporting the sustain- Banks that have exer-support their SME

M


M2.3 Corporate Customers

Whilst the global pandemic has brought taimpacts to retail and SME segments, there are dand less well understood changes to address in rate banking.

Digital offerings are expected to be one ogreatest emerging clients’ needs post-COVwithin Asia

Corporates have increasing needs for shorliquidity, capital and restructuring, risk managand supply chain integrity. Up to 65% of leadinporate banks in Asia view digital sales and advisimportant client needs post-pandemic (Wyman Corporate Banking 2020 Post-Covid SuIn particular, the top three requests for supporcorporate clients are for digital advisory, insolutions and partnerships. COVID-19 brings greater client demand for risk and liquidity topicforesee that value-added services, for examplviding online real-time advice with the use of dalytics, will become increasingly important andfrom differential to core functionality.

Digital channel usage has accelerated, makintual servicing increasingly mainstream

During the pandemic, leading corporate banks have seen a spike in digital channel utilisation53% reporting a large increase (>50%) andreporting a moderate (25-50%) increase (Wyman Corporate Banking 2020 Post-CSurvey). Banks also reported up to a 300% incredigital onboarding, a 4-6x increase in API voyear-on-year across leading institutions and u1,000x increase in digital support volumes, schatbots. This spike is mainly driven by increasinital interactions with RMs and client servicinglikely to persist post COVID-19. Delivering onexpectations for digital servicing will be kincreasing share of wallet.

13

ngible istinct corpo-

f the ID-19

t-term ement g cor-ory as Oliver rvey).

t from dustry about s – we e, pro-ta ana- move

g vir-

in Asia , with 45% Oliver OVID ase in

lumes p to a uch as g dig-

and is client ey to

Exhibit 13:End-to-end digitalisation support requests from corporate clients

Source: Digital Transformation Blueprint; Oliver Wyman client discussions.

Improved productivity of virtual meetings despite performance skews

More efficient virtual meetings have been observed, with cases of RM efficiency increasing by 30-40%. 86% of banks report that engagement levels in virtual meet-ings are at least as high as “in-person meetings”. This is a positive change for corporate banks as RMs can prioritise brief, high-value calls over travel time and lengthy in-person catch-ups. While productivity of the front office has increased overall, perfor-mance skews are still observed, with top performers generating a large proportion of revenues ( Exhibit 14 ).

Exhibit 14:Performance skews amongst bank sales force during COVID-19

Source: Oliver Wyman Corporate banking post-COVID survey.

M

14

MAn end-to-end digital servicing model is exp

Clients are seeking efficiency, with 75% of cointegrated services across channels and the RMless experience. Approximately 80% of corpexpect banks to interact with them in real time,case for a robust end-to-end digital servicing 95% of corporates want an aggregated accountransaction information but few corporate boffering that. To stay competitive, the maexpecting ~50-70% of originations to shift tothrough processing (STP) channels in the next

Exhibit 15:High expectation of corporate clients on efficien

Source: Oliver Wyman Corporate Banking 2020 post-COVID survey, 2019

ected from clients

rporates demanding to facilitate a seam-

orate clients already which underlines the model ( Exhibit 15 ). t view and real-time anking systems are jority of banks are self-service straight- six months.

While digital adoption has significantly increased, banks still struggle to meet clients’ expectations

71% of clients see a digital offering as an important factor in selecting a new banking partner. However the majority of clients (up to 60%) remain dissatisfied with their bank’s current digital proposition. Beyond traditional banking services, corporate clients are requesting additional digital offerings from banks. Premium services delivered over digital channels are increasingly requested, rather than limited to rapid access to essential services. The majority of banks are under-de-livering on corporate client expectations, leaving an opportunity to close the gap via digital offerings and achieve market differentiation.

t banking

CGI Transaction Banking Survey.

M


M2.4 Organisational change

Social distancing requirements have acceleratrends, forcing revised ways of working and eftomers.

The remote working model is here to stay

Operating models will need to be re-designed tciency and flexibility. During the pandemic, in 40–80% of employees have worked from hoare generally more comfortable with voice anbut at the same time many also report additdegree of disruption (Source: Celent).

While the degree of acceptance and satisfacthome varies, many more people are positivelytainability of this model. A major bank in Asia hof staff working remotely would like to maintaito work remotely. We expect that the demandarrangements in APAC will re-accelerate in the w

Exhibit 16:Degree of organisational and team managemen

Source: Oliver Wyman Corporate Banking 2020 post-COVID survey.

15

ted flexible working fectively serving cus-

o enable greater effi-many markets, up to me. Bank employees d digital interactions ional stress and some

ion of working from considering the sus-as reported that 80% n ongoing optionality for flexible working ake of the COVID-19

t change expectations

pandemic as banks are increasingly valuing flexibility to respond to quickly changing business conditions.

Decision-making needs to be more efficient

With the importance of fast decision-making in times of crisis, firms have expedited approvals to adjust for changes. Institutions were often able to mobilise quickly to roll out support packages to con-sumers and businesses, albeit at a speed which introduced additional operational risks. 100% of banks surveyed say that there will be some changes to their organisational and team management struc-ture ( Exhibit 16 ). In addition, 95% of banks report that new ways of re-organising and managing teams have enabled them to improve efficiencies during the pandemic.

To ensure sustained productivity gains, banks need to institutionalise positive outcomes to achieve substantial process efficiency gains and streamlined reporting lines, whilst mitigating for the new opera-tional risks that emerge via process automation, compliance moni-toring and workflow management.

M

16

MSection 3: ROE impact – the dlandscape

The accelerated consumer and institutional adoening the gap between banks leading and latransformation journeys faster than ever befokets such as Indonesia and India, the differencedigital leader banks and slow adopter banks coto 5% by 2025. For more developed markbetween leading and lagging banks is not asexisting investments in digital across major plcan still be significant at up to 2%.

We see several areas of differentiation that we arate digital leaders from slow adopters, whichthree key pillars impacting ROE:

Exhibit 17:Three key pillars

Growth

• The a ilit to apture accessing new custome

• The a ilit to apture share and margins from

Efficiency• The a ilit to strea liefficiency and cost/scal

Resilience

• The a ilit to i sulatein a safe, secure, scalab

outlook


Opportunities multiply as they are seized

Banks that are able to effectively leverage digital capabilities will be able to capture significant opportunities moving forward - to not only find business growth, but also enhance their efficiency and resilience.

Those that lag behind will find their profitability and growth nega-tively affected – losing out on the opportunity to capture new cus-tomers, losing existing customers to new entrants and experiencing lower margins, at a higher cost base, driven by legacy IT infrastruc-ture and occupancy costs.

We analysed the degree of impact brought by digitalisation on var-ious drivers of ROE for eight markets across Asia ( Exhibit 18 ).

igitalisation

ption of digital is wid-gging in their digital re. In emerging mar- between the ROE of uld be as high as 4%

ets, while the delta wide due to higher ayers, the difference

expect to greatly sep- we structure around

a i reased arket size a d pote tiall higher argi s r segments and driving financial inclusion

arket share fro o petitors hilst defe di g e isti g arket fintechs and digital challengers

e, redesig a d auto ate s ste s a d pro esses to dri e e benefits, leveraging technology effectively

the usi ess fro future sho ks a d o ti ue to ser e usto ers le manner in the face of increasing risk and an uncertain economic

M


MExhibit 18:ROE impact due to digitalisation across market

Source: Company reports, Oliver Wyman, Morgan Stanley Research.

17

s

M

18

MExhibit 19:ROE impact due to digitalisation across market

Source: Company reports, Oliver Wyman, Morgan Stanley Research.

s

M


M3.1 Growth

In evaluating the potential for growth of bankitalisation, we take into account three key factoevaluate these factors in their entirety to prostanding of the impact of digitalisation on incu

A. Market Size (Volume) Impact

The impact of digitalisativolume of services from customers

B. Fee Unit ImpactThe impact of digitalisati(for example downward pfrom competitors)

C. Market Share Impact

The impact of the entranattackers on the market s

A. Market Size (Volume) Impa

Underserved and un-banked retail segmenkets provide large opportunities for growth

Many emerging markets in Asia continue to hbanking penetration, owing to infrastructure ccostly for banks to provide services to semi-tomers. Digital banks benefit from lower coststion and servicing compared with traditional bmodel that is less reliant on branch distributioefficient technology infrastructure. Digital benable incumbent banks to lend to a populatiobeen unprofitable to serve.

In emerging markets such as India and Indonesbanking penetration and increasing access toserved, driving incremental ROE of ~0.2% froincome. In relatively more developed markets Thailand, we expect digitalisation to drive a poscial inclusion, albeit to a lesser extent, with a po~0.1% by 2025. In mature markets such as Sinand Hong Kong, digital leaders who are already ochannels to a digital-savvy customer base wdefend their market share against new comagainst loss of market share.

Leveraging digital capabilities to better sunlocks key growth opportunities in most m

SMEs in Asia are seeking more funding to drive

19

ng revenue from digi-rs. It is crucial that we vide a robust under-mbent banks’ ROE.

on on the overall both new and existing

on on a unit fee basis ressure on fees unit

ts of new digital hare of incumbents

be able to access credit due to a lack of collateral and are effectively excluded from bank sources of financing. In addition, SMEs' lending needs are often not fully supported for end-to-end digital lending journeys (as mentioned in Section 3: ROE impact – the digitalisa-tion landscape ). Digitalisation will increase lending penetration to this underserved segment and achieve an average 0.3% incremental ROE uplift, we estimate.

Leading banks and digital challengers are already focusing on this large opportunity across all markets. For instance, major banks in mainland China are tapping into SMEs’ transaction and inventory data to quickly assess the risks of providing SME business loans. Digital challengers in India are offering working capital to SMEs, ref-erencing alternative variables to assess borrowers’ creditworthiness.

Digital payment volumes are set to continue their fast growth trend over the next five years

As covered previously, COVID-19 has accelerated the adoption of dig-ital payments for both consumers and SMEs. All markets are under-going transformation from cash to digital payment. In markets such as Thailand, Indonesia and India, with lower credit card ownership, cards fees are likely to increase with higher ownership and e-com-merce usage. Together with payment fees, leading banks can gain up to a 0.2% increase in ROE, we estimate. The volume growth of credit cards, however, is likely to be limited by the popularity of e-wallets as an alternative payment vehicle.

The market for wealth management is rapidly expanding with increased accessibility

Digitalisation provides accessible channels for newly affluent cus-tomers to manage their wealth. In particular, new digital products and aggregation of pools of funds lower the barrier to purchase for individuals who previously could not meet investible-asset require-ments. We also note that various markets are introducing new poli-cies to widen wealth management opportunities. China announced a pilot scheme in 2020 that allows cross-border sale of investment and financial services between Hong Kong, Macau and mainland China through digital channels. In markets where consumers are already technology-savvy, robo-advisory and other digital wealth management products are already demonstrating strong growth.

Despite the rapid increase in volume, we expect margin to decline with the entry of competitors, which may offer up to 50% lower fees as compared with incumbents. In markets such as mainland China, where we expect volume growth to mitigate the fall in fees, digital leaders can gain up to ~0.15% ROE uplift, we estimate. In Singapore,

ct

ts in emerging mar-

ave relatively lower onstraints, making it urban and rural cus- of customer acquisi-anks, with a business n and built on more usiness models will n that historically has

ia, we expect greater loans to the under-m retail net interest such as Malaysia and itive impact on finan-tential ROE uplift of gapore, South Korea ffering robust digital

ill be able to better petitors, mitigating

erve SME segment arkets

growth but may not

M

20

Mand smaller population markets, we expect feebe greater than the increase in volume from dig~0.15% ROE fall in the average case, we estiunderpenetrated wealth management market, ertheless grow for Singapore banks due to naand the development of a private banking buwider regional client base.

B. Fee Unit Impact

Downward pressure on fee unit for variousa result of competition from digital challepressure on more developed markets

With digital challengers having a much lower cost, at US$1-38 vs incumbent banks' US$200, dable to either waive or reduce fees on the serviaddition, new challengers are not bound by legaa leaner cost structure with estimated US$25-6compared with incumbent banks at over US$2

Larger pressure can be observed in more develtend to attract a higher concentration of digmust directly challenge incumbents to capresulting in intense competition on fees. In devreductions should be more moderate, as cooption to target unbanked customer segment

Wealth management and cards-related feehigher pressure as compared to loan-relatekets

Wealth management businesses could see feeup to 20% for a significant proportion of pDespite the rapid increase in volume, margin isthe entrance of competitors, which may offer uas compared with incumbents.

Similarly, payments and card-related fees shoulmerchant discount rate (MDR), the primary spayment providers, across markets, due to inMDR may fall faster when regulators interveneto lower the cost of payments, as seen in timposing a cap on credit card and debit card inteThe overall impact on payments revenue variesdigital leaders potentially gaining up to 0.15% Rscenario in which a few winners take large sha

rate compression to italisation, with up to mate. As a relatively revenues should nev-tural market growth siness catering to a

services is likely, as ngers, with greater

customer acquisition igital challengers are

ces that they offer. In cy systems and enjoy 3 operating costs, as 10.

oped markets. These ital challengers that ture market share, eloping markets, fee mpetitors have the

s.

s are likely to see d fees in most mar-

unit compression of roducts, we believe. likely to decline with p to 50% lower fees

d see pressure on the ource of revenue for creased competition. with direct measures he case of Malaysia rchange fees in 2015. across markets, with OE, we estimate, in a res of the market.

Loan-related fees will see lower compression on unit fees as com-pared with other fees. In markets such as Singapore and Hong Kong, lower liability spreads in low rate environments should lead to lower pressure on loan-related fees. In developing markets, such as Thailand, growth in loan volume is still likely to be accompanied by fee compression, as customers move to lower-cost channels, leading to an average 0.1% ROE fall, we estimate.

C. Market Share Impact

Incumbent banks are likely to lose market share to new digital challengers targeting specific business lines if they stay put

Digital challengers are typically intensely customer-focused and operate with agility, providing faster time to market and a richer cus-tomer experience. These firms provide everyday services at high quality and low cost, while offering a smaller range of products as compared with incumbents. This makes simpler products, such as unsecured loans, more vulnerable to attack by digital challengers as compared to more sophisticated products, such as mortgages. Looking at SME loans, we expect up to 25% of market share could be at stake for working capital loans as compared to up to 15% of market share at stake for investment loans.

Higher degree of market share is at stake in markets with favour-able regulatory environment

A supportive regulatory landscape drives more growth for greenfield digital challengers, generating more intense competition and options for customers. However, specific impacts vary from market to market. We expect a higher degree of competition and market share at stake in markets with a favourable regulatory environment, such as Hong Kong, where digital challengers are likely to take market share from incumbents. In Singapore, two out of five licenses granted allow digital banks to take deposits and provide banking ser-vices to the retail segment, with a reduced focus on challenging incumbent banks.

3.2 Cost Efficiency

Reducing physical branch footprints, automating processes and using advanced technology stacks have the potential to bring significant cost savings in the longer term

Bank branch density should decrease as banks go increasingly digital. This effect gradually reduces the number of staff required in branches and improves staff cost efficiency. Occupancy costs will

M


Mdecline as banks start to reduce their physicabranches and ATMs.

l In Thailand, where physical banking infraspervasive, we expect a moderate cost saving+0.1% ROE) as banks go more digital by 20

l In Hong Kong, where banks are experiencingto digital due to the entrance of licensed diassociated regulatory initiatives, we expect savings (up to +0.05% ROE) by 2025.

We note that it will take some time for banks to banks also still perceive the need for physical prtant to be a first mover, given market risks. In stors also contribute to the reluctance of seeingBanks may therefore rethink their branch strateabsolute footprint locations. This may result branches that offer specific services catering tneeds, such as face-to-face customer onboardication

The introduction of banking process automatiowith many solution providers providing moresolutions. Processes that involve bulk, repetitivdures are prime candidates for robotic procesRPA drives up capacity and allows employees ttime on more value-added work. It also bringincrease in productivity, we estimate, while ability and ensuring that processes are regulat

Leading Asian banks are accelerating their efformation technologies. The digitalisation impshould be significant. Banks in more developeleading in this space.

Increases in ROE from staff cost reduction, howto local regulatory pressures. In contrast, a digitKakaoBank in Korea, which is free from the bushould have 13% ROE in 2024, we estimate, mprojected ~8% ROE, on average, for incumbentkets with relatively high cost-to-income ratios alations, such as Indonesia, where digitalisaindustry is still emerging, we expect staff costsresulting in an incremental ~0.5% ROE gain.

21

l footprints, such as

tructure is relatively on occupancy (up to 25. an accelerated shift

gital challengers and ~15% occupancy cost

implement this. Many esence and are reluc-ome markets, regula- branch networks fall. gy rather than lower

in smaller, optimised o local or regulatory ng and identity verifi-

n is rapidly maturing, specialised tailored e, rules-based proce-s automation (RPA).

o instead spend more s about up to a 50% providing 24/7 avail-ory compliant.

ts to implement auto-act on cost savings d markets tend to be

ever, is often subject al challenger, such as rden of branch costs, uch higher than our Korea banks. In mar-nd no prevailing regu-tion of the banking to fall ~10% in 2025,

Use of lower-cost, cloud-based, scalable technology should fur-ther bring cost savings and generate greater productivity in the long term

Traditional incumbent banks struggle with fragmentation of IT sys-tems, generating integration complexity and higher costs, duplica-tion of applications and inflated maintenance costs. Up to ~70-80% of IT spending is committed to maintenance, with only ~20-30% committed to upgrading systems (Source: Oliver Wyman analysis).

While IT system modernisation can be lengthy and costly at first, Asian banks have seen improvements in terms of their productivity and have gained cost savings in the long term. We expect up to 10% reduction in IT costs, driven by developed markets, such as Singapore, whilst being lower for developing markets, such as Thailand at 5%, owing to lower projected maintenance costs earned by digital leaders. In addition, system rationalisation will bring cas-cading positive impacts to operations, improving bank efficiency and agility.

3.3 Resilience

Cyber risk has significantly increased in recent years, forcing banks to enhance their resilience strategies and capabilities. Investments are required in the near term for resilience benefits in the long term.

Many Asian banks face increasing frequency of cyber-attacks and have responded accordingly with heightened cyber security mea-sures. With a greater move towards digital platforms, Asian banks are likely to spend greater percentages of their IT spending on cyberse-curity. Leading global banks spend up to US$600mn annually on cybersecurity (Source: JPM letter to shareholders 2018). Overall, spending on cybersecurity, including security hardware, services and software in Asia Pacific reached US$16.4bn (Source: International Data Corporation (IDC)) in 2019, an increase of 20% over the pre-vious year.

Across the eight Asian markets, we expect cybersecurity costs to increase by up to 12.5% in 2025. Whilst the overall ROE impact of this may not be too significant, banks that are not able to build a robust cybersecurity framework are likely to face higher risk of breaches that can bring significant negative impacts to both their business operations and customer trust.

M

22

MCredit costs should increase as a result of inassociated with lending to the unbanked antomer segments. However, digital bank lethat prove better at controlling incrementause of alternative data sources and intelligeniques to assess customer credit risks.

Through digital channels, banks in developindrive greater financial inclusion. With better (such as transaction data, inventory data, andpotentially better assess credit risks of loweand small enterprises.

Despite these new techniques improving thassessment, the credit risk of previously undwill still likely be higher than that of traditionaHowever, digital leaders would be able to mcredit cost by leveraging multiple data sourcescould see 20-25% increases in credit risk costswill likely see a less-than-proportionate increasto better management of risks, ain our view. Gesee ~0.1% ROE drag as a result of incremental

Exhibit 20:10 key actions under the “new normal”


Section 4: Build back better – rethinking digitalisation

Capturing opportunities and establishing digital leadership

In response to fundamental behavioural changes of both customers and employees, the impact of the pandemic has pushed digitalisation to the top of many Asian banks’ agendas. The gap between digital leaders and slow adopters in some markets could be as high as ~5% by 2025, we estimate. Even the digital leaders of today are not guar-anteed market-leading positions by 2025, with multiple areas at risk from evolving client expectations, regulatory-driven change, and new market entrants.

We have distilled the opportunity into ten key actions that we believe banks must address as they reprioritise their digital transformation portfolio for the “new normal” ( Exhibit 20 ).

creasing credit risks d underbanked cus-aders will be those l costs through the

nt assessment tech-

g Asian markets can use of data sources invoices), banks can r-income households

e accuracy of credit erbanked customers l banked customers. inimise incremental

. Slow adopter banks , while digital leaders e in credit cost, owing nerally, we expect to credit costs.

M


MAction 1: Launch a digital business mosider adjacent models and propositionew revenue sources

Pre COVID-19, many financial institutions werfield ventures on modern, scalable technolocosts and defend against the growing number omarket entrants. Post COVID-19, several new likely emerge. Financial institutions need to amodels can help drive sustained success. Keinclude:

l Analyse trends to spot where customer neerevenue pools are shifting and where corpneed to be placed.

l Explore adjacent and emerging digital businating non-traditional, sustainable revenues.

l Incubate new business models and proposlow cost by leveraging highly scalable andplatforms.

A small number of Asia’s leading banks have white-labelled services to extend their offeringsvice ventures. By building application programdriven, partner-ready infrastructure, ecosystemmedia, ride-hailing and e-commerce companies resell financial service products.

Action 2: Enhance interactive digital cmanage complex transactions

Post COVID-19, branches will remain relevantvices. As many services move online, we expexpansion to slow and even downsize. As custodigital products and interaction have grown sigface greater pressure to enhance their digital cnew ways of banking. Key steps for Action 2 in

l Invest in building an intuitive user interface user experience.

l Streamline digital processes by reducing timplete banking actions.

l Promote customer engagement through retain customer connections.

A large bank in India achieved higher virtual custlaunching e-KYC (know your customer) over vidless onboarding from home during the COVID

23

del, and con-ns to create

e considering green-gy stacks, to reduce f non-traditional new business models will ssess which business y steps for Action 1

ds and accompanying orate strategic bets

ess models for gener- itions in-market at a modern technology

taken steps to create via banking-as-a-ser-ming interface (API)

players such as social are able to provide or

hannels to

for value-added ser-ect branch network mer expectations for nificantly, banks will

apabilities to support clude:

to improve customer

e and steps to com-

digital channels and

omer engagement by eo to enable contact--19 lockdown period,

when physical branch visits were not possible. The new initiative was a success, boosting account opening rates, despite the pandemic.

Action 3: Launch new digital products and services to adapt to evolving customer needs

In response to evolving customer needs post-pandemic, incumbent banks need to identify emerging needs then adapt and tailor their offerings. We expect the shift between digital leaders and slow adopters in this area to widen as leaders capture market share by tar-geting previously underserved customers. Key steps for Action 3 include:

l Identify customer segments with accompanying revenue pools and emerging customer needs.

l Promote use of non-traditional data, such as social media, inven-tory level and logistics to access customers’ credit ratings.

l Design products that can be dynamically configured to market changes and varying post-pandemic sector recovery scenarios.

A major bank in Hong Kong designed a trade finance solution for e-commerce SMEs. It analyses comprehensive information, including customer background, logistics and inventory data and operation status, to assess credit worthiness for the targeted SME profiles.

Action 4: Accelerate partnerships with ecosystems and marketplaces

Banks traditionally faced challenges in identifying ecosystem part-ners operating at a similar pace, creating comprehensive data-sharing mechanisms, ensuring optimal ecosystem maturity, and building cus-tomisable products that integrate. As supply chains face disruptions from COVID-19, digital ecosystems have shown resilience. Banks now have a chance to double down on their ecosystem partnerships and rapidly adjust to continue serving customers. Key steps for Action 4 include:

l Identify ecosystems that have expanding customer bases and address critical customer needs.

l Explore the additional benefits beyond revenue gains when part-nering with ecosystems, such as access to non-traditional data or improved customer experience.

l Leverage external APIs and more modular architecture, enabling agility to quickly respond to changing market demands.

A major Thai bank created a healthcare ecosystem, by partnering with hospitals and launching video medical consultations from within their app. The app upsells a bespoke COVID-19 insurance, offering fur-

M

24

Mther value to the bank and end-customers. 840cies were issued in the first eight weeks of laun

Action 5: Accelerate end-to-end digitautomation, artificial intelligence (AI)

Around-the-clock availability, organisation-wresponse times and zero human error – thesewhich customers have become increasingly aend-to-end digitalisation, we believe digitally able to meet these expectations. We expect doperational cost savings of up to ~12%. Bankdown on efforts to automate processes anmaking across the organisation. Key steps for

l Review end-to-end processes across the valutlenecks and prioritise improvement areas.

l Re-engineer data models and process by leand AI workflow to overcome operational b

l Leverage APIs and build modular architeexternal data/service providers and interfacment tools.

A large ASEAN bank was able to reduce the amohome loans from 45 minutes to just one minute

Action 6: Create a low-cost, digital, srobust architecture

Pressure to limit technical debt from legacy syscompetition from digital challengers is increaaddress limitations in core infrastructure. It is infor banks to focus their efforts on building aarchitecture. While IT spending could increasesystem and back-end architecture, we expect sito be reaped in the long term. Key steps for Ac

l Transform into a cloud-native organisation aas-a-service (SaaS) where possible.

l Adopt microservice-based architecture andservice as standard.

l Incubate open API program to lay foundadevelopment partners.

Greenfield digital banks build a highly scalablebased architecture, utilising cutting-edge techn

,000 insurance poli-ch.

alisation via and workflow

ide consistency, fast are the standards to ccustomed. Through leading banks will be igital leaders to gain s must now double-d expedite decision-Action 5 include:

e chain, identify bot-

veraging automation ottlenecks.

cture to connect to e with client manage-

unt of time to re-price by using AI and RPA.

calable and

tems and intensifying sing the urgency to creasingly important digital foundational when upgrading the gnificant cost savings tion 6 include:

nd employ software-

containerisation of

tions for ecosystem

, low-cost, and cloud-ologies such as cloud

computing, AI, big data, and blockchains, allowing for significant operational efficiency and agility. A Chinese digital bank recently reported handling up to 300mn transactions on a daily basis at an operational cost of just US$0.6 per account per year.

Action 7: Shift to a digital and remote working model

During the pandemic, some banks have seen a 30-40% increase in workforce productivity gains - revealing an opportunity for the future. Banks should now revisit their human capital strategy, realigning everyday work routines to their “new normal” business and operating models, and redefining roles and how tasks are accom-plished. Key steps for Action 7 include:

l Redefine workplace policies and arrangements to maintain readi-ness for a remote working model.

l Upskill employees to excel in the new working model. l Decentralise decisionmaking and adopt formal governance to

complement working model.

A large Australian bank deployed secure remote access to its staff, numbering 32,000, during the lockdown. The work-from-home expe-rience changed employees’ working preferences. 45% of surveyed staff reported that their productivity increased. 80% of staff working from home during COVID-19 indicated a preference to continue the flexibility to work remotely in the future (Source: Oliver Wyman anal-ysis).

Action 8: Institutionalise organisational agility and speed

The responsiveness to an unpredictable market event will become a new KPI that businesses will plan and train for. Banks have been able to issue new products, services and communications to customers at varying speeds. Those that continue to act quickly will emerge suc-cessful in a post-COVID-19 world. Key steps for Action 8 include:

l Adopt the rapid minimum viable lovable products (MVLP) launch approach to move launch timelines from six months to just a few weeks.

l Build lean governance and empower teams with decentralised decision-making capabilities to boost efficiency.

An ASEAN ride-hailing provider was able to introduce multiple insur-ance products through its app within a few weeks of partnering with a global property and casualty insurance firm.

M


MAction 9: Embed data-led digital deciall levels of the organisation

Decision-making around credit and operatiodata-led and accelerated to cope with varyIntegration with alternative data sources, factechnology architecture, will further enhancesion-making. Key steps for Action 9 include:

l Transform the decision-making process frombeing data-led to proactively make businedecisions.

l Prioritise the development of automated cralternative data sources.

l Adopt new AI/machine learning (ML) technautomate and assist in the decision-making

l Redefine roles for humans in new processeresults, patterns and optimising algorithmefficiency or maintaining ethical use of data

Multiple fintech providers have recently gaineAsian banks seeking to mine public social medprospecting decisions. Digital insights are enabsegment customers and market to them in moways.

25

sion-making at

nal risks should be ing customer needs. ilitated by a flexible processes and deci-

being data-driven to ss and organisation

edit models by using

ology architecture to process. s, such as monitoring s to improve overall .

d rapid traction with ia, for digitally-driven ling banks to micro-re relevant, targeted

Action 10: Review and invest in upgrading data and cybersecurity controls

Threats to cybersecurity continue to increase, and banks need to build resilience to maintain customer trust and security. Institutions should evaluate control mechanisms by thinking about future states. Once the delta between the current and future state has been under-stood, new and improved controls can be defined and implemented. Key steps for Action 10 include:

l Design comprehensive cybersecurity metrics for senior manage-ment and incorporate those metrics in the decision-making pro-cess.

l Redesign cyber risk resilience operating models in response to widening attack surfaces and threat vectors arising due to digitali-sation and remote access.

l Review risks associated with third parties, set up security and access controls, and monitor data shared.

l Manage human communications to drive resilience, awareness and cyber discipline.

Over 50% of Hong Kong residents aged 18-55 have encountered cyber scams directly via banking channels. The increased use of digital has caused the Hong Kong banking sector to launch educational cam-paigns to customers and employees on the importance of safe internet practices.

M

26

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1 0% 25% 3 0%85 11% 15% 226 15%

787 1495

gs. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the ges provided in the "% of total" column may not add up to exactly 100 percent.

the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next

ine with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over

onviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage

w the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next

cluded in Morgan Stanley Research is 12 to 18 months.

r industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated

ustry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below.

dustry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below.

P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - CI AC Asia Pacific ex Japan Index.

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