HKIB Annual Conference - Sept 27, 2024

Here are some excerpts from a couple of sessions at The Hong Kong Institute of Bankers Annual Conference on Sept 27th 2024. Always great to hear from experts and connect in person to discuss real-life issues experienced by industry practitioners.

I. Chief Executive Officer (CEO) Panel

Panellists:

Joe LAI CEO, HKSAR/ Chairman, Investment Bank Asia, Deutsche Bank

Yvonne Leung Chief Executive, Ant Bank (Hong Kong) Limited

Adrian Li Co-Chief Executive, The Bank of East Asia & VP, Council and Deputy Chairman, Executive Committee, The Hong Kong Institute of Bankers

Aveline San Chief Executive Officer and Head of Banking, Citi Hong Kong and Macau & VP, Council, The Hong Kong Institute of Bankers

Moderator:

David Scott Partner, Financial Services Risk Consulting, EY

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Context:

We are in a very dynamic tech environment bringing disruption to the banking world. We are also in a very fragmented global regulatory environment. Nonetheless, there is enormous potential in the region for the banking industry.

Questions & Answers:

1. What are the challenges you face and what are your priorities?

Joe LAI: we always ask is the bank nimble enough? How can we navigate the geopolitical tensions? What are the new products, new markets, new technologies we need to focus on? We also ask ourselves if we have the right infra and the right tech to support our clients for their next stage of growth.

Yvonne LEUNG: we are a digital bank so need to provide new choices of banking compared to the existing players. How to adopt the tech in real life applications and how are these applications received by customers? Do we have the appropriate risk control measures in place?

Adrian LI: we are focused on being ready to handle macro factors, a slower economy, financial volatility, etc. We focus on bank resilience and customer protection and push for proactive risk management. In addition, we look at return on resources deployed and look for ways to drive fee income (from trade, from private banking, etc). We also try to further develop digitalisation for the benefit of customers. We aim to be a digital led and customer centric bank.

Aveline SAN: “We eat uncertainty for breakfast”! On the Trade side, mid-size companies in the Greater Bay Area (GBA) need to grow in ASEAN and LATAM because of supply chain changes. We are well positioned to support these customers. On the Wealth front, we expect wealth creation in the next 10 years to reach 100 trillion dollars globally. Just in HK 7% of the local population are multi-millionaires (10 million HKD and above).

2. Transformation journey

Aveline SAN: AI is not new; it’s been around for 70 years but the focus now is on how to deploy it. How will it impact the Financial Services sector? We will be impacted because we have a lot of data in our industry. Some estimates suggest that by 2028 AI could boost global banking profits by 10%. AI should be used to improve the customer experience. In the future, customers themselves will be using AI when interacting with banks (e.g. using bots to compare fees or to renew mortgages). Tokenization is also a key element. Interoperability of different tokenization projects will be important.

Adrian LI: financial institutions can benefit from technology in 3 ways:

a. More efficient banking processes (STP, increased back-end transaction monitoring e.g. through the implementation of trade surveillance tools)

b. More customer focused bank (customer analytics enable micro targeting which elevates customer centric approach)

c. More trusted bank (e.g. with all the cyber security threats, banks can be more able to protect customers)

Yvonne LEUNG: the key for Ant is to integrate their banking solutions with their ecosystem (for both individuals and corporates). For example, integration with digital wallets/super apps (Alipay).? They are not trying to be just another bank because many good banks already in HK. The idea is to provide options for customers to try new ways of banking.

To achieve that they have streamlined KYC/client onboarding process (leveraging data that is already available in the Ant ecosystem – this helps providing quick pre-approval and faster access to the services). Provide immediate service at the point of need; that’s the idea.

Adrian LI: HK is the international financial centre for China and plays an important role in the internationalisation of the RMB. HK is the Offshore RMB centre of the world, has the largest RMB deposits in the world, and largest RMB money flows in the world.

Also, the GBA has brought the market from 8 million to 80 million people. HK can bring international products to the GBA investors.

Joe LAI: HK brings a unique value prop to investors interested in China. As more countries trade in RMB, HK’s role is only going to expand. HK also provides connectivity with the Middle East as well as ASEAN. Middle East investment in China is at its highest level. China is the largest trading partners of 120 countries in the world. Banking institutions in HK can provide a range of solutions in trade finance, currency hedging, payments.

HK can play a part in the trade flows but also in the massive investments going from China into other countries. As Chinese clients invest in other part of the world HK institutions can provide financial support and guidance.

Aveline SAN: there are a lot of delegations going back and forth between HK and the Middle East. Need patience to build trust. It takes time to understand what’s beneficial for all parties.

3. Green Finance

Aveline SAN: conversations are taking place with customers on mitigation strategies. There is a need to broaden the lens when talking about green transition. Citi looked at family offices. One in five are incorporating ESG policies in their policies.

Adrian LI: one third of Gen Z and Millennials are actively researching green products (e.g. by reading about companies commitments to green transition) and two thirds are willing to pay more for green products.

4. Talent in the banking sector

Yvonne LEUNG: young talents like to take charge of things. At Ant, employees need to start with ideation all the way to implementation. It’s end to end. The big advantage is that you can quickly get feedback on what you deployed. You can see results very quickly and adapt. This provides agility. Staff are motivated by the ability to control things but also having access to the details and being able to quickly change things, adapt and see the results.

Joe LAI: at DB, young talents are given the opportunity to have exposure to different types of clients, products, etc. Internal mobility is important (can be mobile across products, clients but also locations).

Aveline SAN: these days, employees are focused on learning and purpose.

5. What skills will be needed in the next 5 years?

Joe LAI: it will be on the tech front.

Yvonne LEUNG: need staff to analyse not only the tech but also the regulatory context (and appropriate controls) as well as the market they operate in. Tying the 3 needs together is the key. There will also be a great need to be able to translate the business requirements to the tech teams.

Adrian LI: other than hard skills you also need soft skills. Teamwork, agility, interpersonal skills, leadership, negotiation, etc. Soft skills are equally important.

Aveline SAN: “human durable skills” – these are the ones that cannot be replaced by machines. They are very important. Communication is a key soft skill. Leadership is another one i.e. how to drive change without being bogged down by legacy infrastructure.

6. Advice to young people considering banking as a career

Yvonne LEUNG: the industry needs new ideas and energy so join the banking world if you want to transform it.

Joe LAI: there is no fixed formula in banking anymore, there is no standard procedure in anything. Young people need to be entrepreneurial, have a global mindset.

Adrian LI: people need to have an open mindset and be willing to learn new things.

Aveline SAN: having a growth mindset – understand new sectors, and being able to collaborate with colleagues across departments.

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II. HKMA – Regulatory updates by Arthur Yen

Presentation by Arthur Yuen Deputy Chief Executive, Hong Kong Monetary Authority & Chairman, Executive Committee, The Hong Kong Institute of Bankers

Some banks are already adopting GenAI (coding, internal chatbots, etc). HKMA’s overall stance is to promote responsible innovation. However, there is a need for ethical deployment and there is clearly a need to handle issues such as bias, hallucination, etc.

As a supervisor, HKMA uses a risk-based approach and a tech neutral approach. If risks can be mitigated, then HKMA is quite neural in their tech approach.

When deploying GenAI, HKMA has told banks they need to adopt a human in the loop approach in client facing applications. This will build confidence in the use of the platform. Banks also need to give customers an option to opt out if uncomfortable.

Adoption of GenAI requires significant computation capacity. Just for testing you need a lot of GPU capacity and not every bank can afford it. This is why HKMA and Cyberport launched the GenAI sandbox. HKMA has been a pioneer at providing sandboxes. This latest sandbox is to bridge the gap between large financial institutions and smaller ones that cannot afford high level of investments. In the sandbox, banks will not be charged for using the computational capacity. This will put everyone on the same footing.

With the adoption of GenAI there is now a question on its impact on manpower and how we may need new job types and whether financial institutions are ready.

Using AI also raises a question on the impact on the environment. In 2022, the amount of energy consumed by data centres outstripped the amount of energy consumed by France.

Digitalisation brings a lot of good things but also brings a lot of challenges particularly with respect to digital fraud and scamming. There are a lot of bad actors. The long-term trend in regard to frauds and scams is worrying. Complaints for frauds and scams received by HKMA jumped 10 times in the past 4 years.

Fraud and scams are different things. Fraud refers to fraudulent transaction/activity; it is about an activity the victim did not authorise. Scams are authorised transactions and payments where victims have given approval, but they have been deceived/cheated. The 2 cases demand different responses. Increasingly, HKMA is seeing an increase in scams compared to fraud.

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