No industry can truly insulate itself from the effects of large-scale, unprecedented events. However, the ability for banks to maintain a strong degree of risk assessment is a trait that David Kwok, managing director and chief executive (CE) of Shanghai Commercial Bank (SCB), sees as being an essential component for a successful financial institution.
“Doing business is not just about understanding trends,” Kwok says. “You have to take into account all the unprecedented occurrences that can take place, from the 1998 financial crisis, to SARS in 2003, and the financial tsunami in 2008. The world is more complex now and we need a lot of specialists and systems. It’s hugely different from when I first came to the bank. Then, we only talked about relationships and trust. We still talk about these things, but now we also have to have analytics, assessment and risk management to protect our customers as much as ourselves.”
This attitude to all areas of the bank’s business is something Kwok sees as having put SCB in good stead over the years. The bank’s ability to appropriately gauge risks in times of uncertainty has taken on particular prominence, especially in July 2008, just two months before Lehman Brothers filed for Chapter 11 bankruptcy, when SCB’s Board decided on an unconditional tender for its adjacent lot to expand the headquarters. SCB moved to its newly redeveloped Shanghai Commercial Bank Tower at 12 Queen’s Road Central in September 2016.
“We knew that the crisis was coming, but the property was just next to us and a lot of investors were chasing after it. I think we were not the highest bidder and the seller was wise enough to choose us as we wouldn’t require a long closing time.”
Established in 1950, SCB has more than 50 branches, located primarily across Hong Kong and mainland China, along with branches in the United States and the United Kingdom, including a branch in London it has operated since 1978. The bank has also operated a branch in London since 1978. But with the somewhat unexpected decision in June 2016 by voters in the UK to leave the European Union, SCB – and the financial sector in general – is once again facing an unprecedented situation.
In the past, SCB’s London operations typically focused on foreign currency deposits and a strong mortgage portfolio. In order to buy property for investment, loans would typically be required and many of the bank’s customers sought to borrow sterling.
“A lot of our customers won’t be happy with the drop in the value of the sterling, but many are still borrowing in the currency,” Kwok says. “None of our customers are in trouble and our mortgage portfolio is always secure, covering prime locations mainly in London. We’ve done a very quick and detailed analysis of our portfolio and customers – it hasn’t been a big concern.”
That said, Kwok foresees difficulties in the banking sector as a result of Brexit. “Moving forward, I think there will be challenges for the banks and there may be fewer investors. However, there are also many other opportunities for customers to invest, such as in Europe or Japan, where the currencies are also relatively weak.”
Despite the potential difficulties SCB may face in London, Kwok remains optimistic about the bank’s opportunities, in particular in the US – where it has branches in New York, Los Angeles and San Francisco. Compared to Europe, the US still presents a favourable environment for investment.
With the majority of SCB’s branches based in Hong Kong and mainland China, however, Kwok sees the region as a prime growth area. In particular, he views the One Belt, One Road initiative as a source of opportunity for Hong Kong’s financial sector. “This is a long-term plan and Hong Kong, being so near to mainland China, has the infrastructure to be a facilitator. In the securities business, mainland China has also supported us with the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect.”
Kwok also anticipates significant development in mainland China’s regulatory systems, in particular a focus on issues surrounding shadow banking and online fintech companies offering money-lending services. These companies have greatly affected the way companies are able to lend and borrow money, but the sector has also come under criticism due to the underlying risks, such as scams and frauds.
Improved risk awareness is something Kwok sees as vital to bankers in today’s financial sector. “In the past, lending has just been a matter of looking at collateral and cash flow,” Kwok says. “But now, because of globalisation and unprecedented events, bankers need to have a more global and risk-conscious perspective, particularly now that cyber risk is becoming more prominent.”
That said, SCB is far from eschewing digital banking. On the contrary, the bank is looking to grow its online banking offerings in response to changing customer behaviour and a preference for making transactions via automated channels. SCB launched its new “My Smart Card” in June 2016 following a soft launch earlier in the year. The card is the first in Hong Kong to combine a credit card, ATM card and internet banking PIN generator. “We want to go slow and test the market,” Kwok says. “There is a cost attached to the card, and I want it to be used by high-net-worth individuals explicitly for internet banking.”
The new My Smart Card represents one of a number of initiatives that the bank has developed to facilitate and encourage the use of online banking, and enhance its offering to individual and corporate customers. “We’re asking our customers to learn how to use our systems, as we excel in our securities trading business. We’re probably the most stable in Hong Kong when it comes to securities trading. We also want to cooperate with some of the fintech companies – we actually run a very small fintech enterprise with the aim of introducing apps to the market to entice customers to use our services.”
While SCB is looking to expand its corporate offering, Kwok says the bank is keen to remain a community-focused company. Local services targeting SMEs and local start-ups are a particular focus.
“A lot of these companies are quite successful – it’s a lot like doing corporate social responsibility activities,” Kwok says. “This is an area we are also trying to develop in our bank.” Kwok estimates that more than 50 per cent of SCB’s staff are involved in the bank’s CSR activities, which typically target local NGOs that may be less likely to receive substantial funding.
As a business leader, Kwok is keen to impart the company’s values to his employees, and considering the chief executive has only ever had one company on his résumé – a situation he says “could be seen as crazy in today’s world” – it isn’t difficult to understand why.
Kwok began life in SCB as a trainee doing end-to-end operations. “The bank was growing at the time and was in need of people able to work overtime, which was good for me as it meant I had a little more money to spend. I also learned a lot, because I had to go through a lot of end-to-end processes.”
It wasn’t long before Kwok underwent exams through The Hong Kong Institute of Bankers, a qualification not many in the bank had at the time. Kwok received a promotion and went into international trade and then treasury management, followed by a transfer to New York after about 10 years with the bank. Positions in London, New York and San Francisco followed, with Kwok managing the bank’s overseas network for about 14 years.
It wasn’t until 1997, and the handover to China, that he returned to Hong Kong. Since then, Kwok says he has wrestled with various crises and experienced ups and downs but, despite that, SCB has managed to remain a prudent and consistent bank throughout. “We really want to serve our customers and understand what they want and need. We’ve had a lot of successful cases and few bad ones, though in doing so we haven’t necessarily enjoyed the same sort of growth other banks have when the market has gone after particular things. We just want to be consistent.”
Now, in his role as chief executive, Kwok sees one of his prime responsibilities as being relationship management. One of the key reasons the bank has chosen to remain at a modest size is to ensure it is able to deliver a consistent level of quality service to all its customers. That said, Kwok notes that the bank needs to grow to maintain quality and scale, and is expanding its operations to include these components.
“Back-end and regulatory issues, systems and control mechanisms – we need all these analytics and assessments in order to satisfy the new requirements. But these requirements are also needed to run a bank, so we’re spending quite a bit of money on these areas.”
Kwok is also planning for the day when someone else takes over as chief executive of the bank. “I’m looking for a successor too – I can’t be in this position for life. This is part of the job I have – to find a suitable successor and to transfer my skills and thinking about the business to our future leader.”
GROWING YOUNG SEEDS
Having spent his entire career at Shanghai Commercial Bank (SCB), David Kwok is keenly aware of the need for banks to foster talent and provide employees with an environment in which they can grow and develop.
“We always stress the importance of home-grown talent, though this is becoming tougher nowadays as you need staff with specific qualifications in particular departments,” he says. “We need very good succession planning in order to continue our development pipeline, and this is something many banks also have to face as there is a shortage of talent.”
Kwok notes that HKIB, in cooperation with the Hong Kong Monetary Authority, has done good work in developing projects in order to ensure the sector has a strong supply of talent. “If we don’t have this, the market will tilt and people will only go after the money, and may not actually have the capabilities for particular jobs. We want our staff to have these capabilities, but they should know that you have to build the job competencies – it’s not just a matter of job-hopping.”
Providing trainees with mentors, along with having mentors go through necessary training, helps ensure that SCB is able to develop the kind of talent it requires. However, having the right skills as a leader is also essential. Having a clear vision and the ability to communicate that vision with employees is key, Kwok says.
“I work in a comparatively small bank, so it’s always good to be a jack-of-all-trades. That way, you can better understand your business and ask questions to your staff directly. Transparency is something I believe in and I always try to instil integrity and commitment in our people. We want them to have the skill set, mindset, working environment and the jobs to achieve.”
This article originally appeared in the November-December 2016 issue of Banking Today, the official journal of The Hong Kong Institute of Bankers.
This article appeared in the Classified Post print edition as Leading a legacy.