by Francis Chan

IT HAS been a tough year for banks - mis-selling scandals, investors' fury and criticism from the Government and the public - but the sector is getting back in the groove.

A line seems to have been drawn under the Lehman Brothers collapse and the huge losses suffered by people who have sunk cash into investment products linked to the American bank.

There is still a legal action pending, and the wounds for many are still raw, but the banking sector is experiencing a change in sentiment.

'We are seeing the return of risk appetite, with affluent and high net worth clients in particular venturing back into the markets and taking advantage of buying into market weakness across almost all ranges of investment instruments again,' said Citibank's head of wealth management, Mr Salman Haider.

Mr Nicholas Tan, OCBC Bank's head of global wealth management, added: 'With the current low interest rate environment, demand for products offering better returns has returned, and interest in investments is slowly picking up.

'Events that have taken place in the past year have irrevocably transformed the banking landscape, especially the way financial institutions market their products and services.'

Citibank and OCBC, which did not sell any of the Lehman-linked structured investments in Singapore, say some clients have shown interest in similar but safer and more transparent variations of structured products.

Bank staff told The Straits Times that apart from the recent run-up in global markets, steps taken by banks in the aftermath of the Lehman mis-selling fiasco to restore trust in the industry have led to the change in investors' sentiment.

Many financial institutions have been rolling out new sales processes that encompass some of the reforms proposed by the Monetary Authority of Singapore.

These include barring bank tellers from referring over-the-counter customers to colleagues selling investment products and giving a seven-day cooling-off period for investment decisions.

DBS Bank, which sold products linked to Lehman, was one of the first banks to implement reforms, as it attempted to stave off an exodus of unhappy clients.

It took the steps in January - well ahead of the industry - at the height of the DBS High Notes 5 debacle.

While OCBC has avoided selling similar toxic investments, the bank nevertheless has also been introducing changes to promote higher disclosure and fair-dealing standards when serving customers.

Although the reforms introduced by banks are partly a knee-jerk response to new rules proposed after the structured products fiasco, most executives agree that they are sensible changes.

'Like it or not, clients will demand more of banks from now on,' said a veteran in the business who asked not to be named. 'We can keep explaining that it was a crisis no one saw coming, but to a client who has lost $10,000 or $10 million, a loss is a loss, and the finger will point back to the bank that advised him. So, we have got to get better.'

Mr Ajay Kanwal, the South-east Asian regional head of consumer banking at Standard Chartered Bank, said that while clients are now managing their expectations on returns, they have raised their expectations on what they want in advisory services.

'This is especially when they see that markets have seen huge correlations in the last couple of months, leaving very few insulated from the global moves,' said Mr Kanwal.

Yet, while the financial industry is showing signs of picking up, OCBC's Mr Tan said it is still a far cry from the sales volumes during the boom of 2007 and last year.

Even as the industry continues to adapt to refinements, bankers caution that it will be a long and winding road to full recovery.

'The reality is that we are still in a rebuilding phase, even as investors recover from the pain of last year,' said Mr Haider.

Mr Kanwal agreed: 'Overall, confidence at the banking industry and customer level is improving. However, there is more progress required at the economy level for us to leave the crisis behind us.'

franchan@sph.com.sg

This article was first published in The Straits Times.