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SCMP Reporter

In a bid to rein-in rising costs DBS Group, the Singapore lender which took over Dao Heng Bank Group earlier this year, has reduced senior executives' pay by a fifth.

News of the reductions came in an internal staff memo from chief executive Philippe Paillart, who said the bank's recently released interim results 'do not project a pretty picture'.

He said that, when representatives of the bank's 70 managing directors were informed of the executives' decision, they volunteered a 10 per cent cut in their own pay.

The disclosure of the memo comes at a sensitive time for Southeast Asia's largest financial group. DBS is going head to head with rival United Overseas Bank (UOB) to take over Singapore's fourth-largest lender, Overseas Union Bank (OUB).

The cost-cutting exercise may also refocus attention on levels of executive remuneration at DBS and other government-linked companies.

The topic has provoked some disquiet in Singapore this year, prompting a vigorous defence of the companies' salary scales from Senior Minister Lee Kuan Yew.

'All of us have a role to play either on the revenue side or on the cost side,' Mr Paillart said in the memo.

'Leadership starts at the top. The corporate office has therefore decided to take a 20 per cent cut in salary for the remainder of this year.'

Apart from himself, the corporate office comprises chairman S. Dhanabalan, the bank's chief operating officer, Jackson Tai, its vice-chairman Ng Kee Choe and the senior managing director, Frank Wong Kwong Shing.

The bank's first-half was marred by flat revenue growth and rising costs as economic activity in Singapore and across the region slowed. Net profit dropped 10.6 per cent to S$629 million (about HK$2.72 billion).

'Our investments and operating costs rose 26 per cent and as a result, our cost to income ratio in now at 49 per cent,' Mr Paillart said.

'All this comes against a backdrop of an increasingly difficult economic environment, and I know that this makes the road ahead a much more challenging one for all of us.'

Mr Paillart said the remainder of the bank's 14,700 employees, including those in Hong Kong, did not face mandatory pay reductions.

'The corporate office members have taken a personal decision,' he said.

'We are impressed that our managing directors reacted immediately with a commitment to take a 10 per cent pay reduction. It stops here, we do not expect other staff to do the same.'

Of the five listed Singapore lenders, DBS' costs have run ahead of those of its rivals. Keppel Capital, which is being taken over by Oversea-Chinese Banking Corp (OCBC), reported a cost to income ratio of 34 per cent in the first half. At takeover-target OUB the figure was 36 per cent.

Neither OCBC nor UOB have reported their interim results, but last year their cost to income ratios were 38 per cent and 39 per cent respectively.

Mr Paillart commented: 'We have shown that we can transform this bank but we have not proven that we can pace our investments and operational cost growth wisely.'



Profit drop leads DBS executives to tighten their belts