|Saturday, August 1,1998
The Straits Times : Life Page 2
Global is good, but local matters too
The People's Bank POSBank can, and should, continue to take care of its small savers despite its new commercial demands
WAY BACK in 1983, the Government had considered making the then Post Office Savings Bank a full-fledged commercial bank.
Mr Hsuan Owyang, then a director of Overseas Union Bank, was moved in as deputy chairman of POSB. He was expected to become the bank's CEO when it went commercial. The chairman then was Mr Tan Chok Kian.
But in August 1983, several months after the announcement of the plan to convert POSB, the Government decided that it should remain a statutory board.
That decision was made, I believe, in the larger interest of society, because if POSB was less than a bank in that its services were limited compared with the commercial ones, it was also much more than a bank in that it was a civic institution.
It was a people's bank, where small savers could deposit their money.
On top of carrying on the general business of a savings bank, it also had a civic role, as stated in the Post Office Savings Bank Act of 1971, which was to help build a culture of saving and thrift among the people.
The commercial plan scuttled, Mr Hsuan, who is chairman of the Housing Board, nevertheless stayed on as deputy chairman for the next five years.
This time round though, with DBS buying it over, POSBank has in effect gone fully commercial, and as part of another bank to boot. Bottom line will be paramount, because DBS Bank is a listed company, answerable to shareholders.
There must be thousands of small accounts in POSBank that are non-productive, that is, the cost of maintaining these accounts is more than the returns it can make from them.
What will happen to these accounts? Who will take over the bank's role as an institution that helps make people save, no matter how little?
But before I proceed, let me address something mentioned by reader Teo Yi-Dar, whose letter to the Forum page on DBS' acquisition of POSBank was published on Tuesday (ST, July 28, 1998).
Teo wrote: "Many analysts and bankers cheer the acquisition, which makes DBS the 65th largest bank in the world. While I do not disagree with the fact that banks need to be big to be globally competitive, most Singaporeans are neither working in the financial sector nor holding DBS shares.
"We are more worried about our livelihood than about challenging international banking giants."
I do not pretend that I could speak for the Government but I think it is precisely because it is worried about its citizens' livelihood, and not just of those in the financial sector, that it made this seemingly unsentimental move.
The world has turned. It is a global economy that we are looking at now, and to be just a player in it, and hopefully to be a winner, Singapore needs to have a bank that is within shouting distance -- to borrow Finance Minister Richard Hu's words -- of the big players.
If the DBS-POSB bank succeeds, the country will be so much the stronger for it, and so will be its people, both within and outside the financial sector.
In a global economy, no country can afford to say it does not want to play by its terms. You lose out by not playing, and who suffers? The people of course, especially those who do not have the skills or talents to be mobile. This means all the small savers, to start with.
So this time round, as against the proposed move in 1983, it makes sense for the small savers that POSBank will go fully commercial.
It is in their interest that their country has a bank big enough to participate in the global marketplace. THIS brings me back to my first question: What about the small accounts then?
DBS Bank has promised not to impose any service charge on POSBank savings accounts of children, full-time students under 21 and full-time national servicemen.
But why can't the bank not impose any service charge at all on all its POSBank savings accounts?
POSBank has shown that it is a very efficient high-volume, low-cost processing centre.
It may not cost the bank much to keep its doors open to the small savers.
In fact, POSBank can build up economies of scale by taking over the backroom processing work of all the other local banks as well, or pool resources with them to do so. It is more cost-effective for the other banks to outsource the processing work to one centre which has the volume so that its cost can be kept low.
A senior bank official in a local bank told me earlier this week that DBS Bank should actually move all its non-productive accounts to POSBank, and concentrate on its productive ones.
He pointed out to me that there is a 20-80 rule in banking, which says that 20 per cent of a bank's depositors are the ones who bring in the revenue which supports the other 80 per cent.
The international banks are only interested in the 20 per cent, and if they cream them off, the local banks would be saddled with the low-yield 80 per cent.
With deregulation, which means local banks will not be protected against competition from the international ones which operate in Singapore, OUB and OCBC have already begun imposing service charges and minimum balances on their savings and current accounts.
The other local banks are poised to do the same, and soon they may all charge their customers on the number of cheques they use too.
The local banks will have to take these measures to stay competitive. This will, of course, effectively push out all the small savers.
But it will also mean that the banks can then focus their attention on their high-yield customers, and keep them from moving their business to the international banks.
In the case of the DBS-POSB bank, a clear segmentation of its customer base can help it to be more effective in keeping the top 20 per cent in DBS Bank.
POSBank can have the low-yield 80 per cent of all the local banks and still make money, because it will have economies of scale.
It is a brutal fact that the people will have to be segmented. There will, in effect, be two economic classes, and the gulf between them will widen.
But that is a fact of globalisation, and better that than any pretence at equality, and equal misery for all.
The important thing is to help the second, larger class achieve a certain level of wealth as well, so that the gulf will never become too wide as to destabilise the society.
To do that is to address my second question: Who will take over the POSBank's role as an institution that promotes a culture of saving and thrift?
My initial response on hearing the news of the acquisition was that an outfit such as NTUC's Thrift and Loan Society or Income could step in to do that, and take care of the small savers as well.
But now I believe POSBank itself can -- and should -- continue to play that role, without losing DBS shareholders. It should just secure its economies of scale.
The two letters published in the Forum page on Tuesday -- I had mentioned Teo's, the other was by Yap Kim Sang -- which lamented the loss of a national institution, may sound sentimental and even naive, but the sentiment was not entirely misplaced.
In the last 26 years, POSBank has become very much a part of Singapore life. Its branding goes well beyond dollars and cents.
As a national icon which can rally together the people, its logo in the shape of a key is surely more potent than the artificially-created Merlion.
The Ah Peks and Ah Hmms (uncles and aunties) of the heartland all know about the "key" bank, even if they cannot call POSBank by name.
The fund managers can complain about how confusing it would be for the new DBS Bank to retain two names, but these are people who do not see beyond dollars and, well, sense, and the national good.
It is all well and good to go global, but it is counterproductive to do so at the expense of the local.
And as POSBank chairman Moses Lee says in the bank's 25th anniversary book, Banking On A Virtue, which was published last July: "Affluence and consumerism must be matched by a desire to save. That must be a fundamental habit."
People must continue to save, and it does not matter if people do not bank exclusively with POSBank, "so long as they have an account with us", he says.
POSBank's CEO Dileep Nair puts it well when he says: "POSBank must be a sort of anchor for the Singaporean right from the time of his birth.
"It must be a bedrock institution that gives people some sense of what is lasting and secure."
An anchor like POSBank is even more critical in a time of dislocating changes.
01/08/98 Global is good, but local matters too