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Saturday August 8, 2009

Appeal of Islamic banking

Foreign banks in Malaysia are developing innovative products and services to tap the growing market.

The next phase of growth in the foreign banking space would likely be the Islamic banking sector, according to most industry players.

Already foreign banks in Malaysia are stepping up efforts to position themselves well for this purpose.

Many have and are continuing to develop innovative products and services to tap the growing Islamic finance market, which they say is demonstrating encouraging growth despite the challenging financial environment.

According to HSBC Bank Malaysia Bhd deputy chairman and chief executive officer Irene Dorner, the bank’s new Islamic subsidiary, HSBC Amanah Malaysia, was progressing as planned and was well-positioned to capitalise on the growth of Islamic finance in Malaysia.

“Our strategy is to position and place the business on a strong footing through the introduction of new, innovative core products and drawing resources from a pool of Islamic finance expertise (locally and globally),” she says.

HSBC has opened four new full-fledged HSBC Amanah branches and there are plans for more such branches in the future.

“We will continue to invest in these uncertain times as we believe that the Islamic business has vast potential, going forward,” she adds.

HSBC, which has conventional, takaful and more recently Islamic banking licences, would continue to focus on its bancassurance/bancatakaful model with its own customers as the target market.

“Bancassurance or bancatakaful is an efficient and convenient way for individuals to purchase their insurance or takaful products by dealing with an organisation that they already trust with their financial well-being. In the current economic climate, trust is a key consideration factor,” Dorner says.

She says HSBC, with its international brand name, is one of top 10 global insurers (by profits of US$2.6bil in 2008), and has 125 years of banking presence in Malaysia.

“Our customers’ needs remain the key driver of our business and we are committed to developing campaigns that will help give our customers added value during these challenging times,” she says.

She notes that there is a possibility of slower take-up from retail and corporate customers as many businesses are seen to be putting on hold their expansion plans while consumers are cutting back on their spending until the economic outlook improves.

Dorner also points out that the bank would focus on non-financial issues considered material to businesses such as sustainable practices as well as attention to ethical and social issues.

“Going forward, I believe that customers would demand banks to focus on these issues too as they become more sophisticated. In fact, the current global economic and financial crisis has brought the wider challenges of what it means to be a sustainable business into sharper focus,” Dorner says.

Citibank Bhd chief executive officer Sanjeev Nanavati says the banking group has in place a dynamic team to develop innovative products and services to tap the growing Islamic finance market.

Citibank, which was the first to introduce globally accepted syariah products, was also the first to introduce Islamic off-balance sheet property backed transactions as a means of financing.

In 2006, Citibank launched the first index that measures the performance of global bonds complying with Islamic investment guidelines, known as Dow Jones Citigroup Index.

“The launch of the index was our strategy to offer Islamic issuers and investors world-class and innovative products that would contribute to expanding the frontiers of Islamic capital markets,” Sanjeev says.

As for OCBC Bank (M) Bhd, its director and chief executive officer Jeffrey Chew says the bank offers Islamic banking services via OCBC Al-Amin.

“Our Islamic banking subsidiary, OCBC Al-Amin, will spearhead the group’s Islamic banking initiatives on various fronts,” Chew says.

The bank is looking to launch more products so as to provide full-fledged financial services to the community in this regard.

“We are the first foreign Islamic bank to offer a full range of trade finance services to our business banking customers, especially small and medium enterprises,” he says.

The bank would, in the future, work to introduce syariah-based products instead of merely syariah-compliant ones, he says.

“In so doing, we aim to create a differentiated value proposition on which OCBC Al-Amin would compete locally and regionally,” Chew enthuses.

With a combined pre-tax profit of RM1.2bil for 2008 from the Malaysian operations, OCBC’s combined presence in Malaysia is significant, he notes.

Describing the present times as “exciting and challenging” for foreign banks in Malaysia, he says OCBC’s long-term vision is to provide complete financial solutions to businesses and individuals across communities in Malaysia.

“The recently announced financial liberalisation initiatives really represent a window of opportunity for foreign banks such as OCBC Bank, which like any local financial institution is very much entrenched in Malaysia, having been around for almost a century now,” Chew says.

United Overseas Bank (M) Bhd has a slightly different take on positioning itself for the future.

“We will concentrate on traditional banking, providing financing and transaction banking services to cater to our customers’ needs,“ CEO and director Chan Kok Seong says.

The bank would also continue to leverage on its niche market position to grow its consumer and small and medium enterprises businesses, Chan says.

“The UOB group already has a strong foothold in Asia and over the next two years, we will focus on strengthening our position as a regional bank.

“We envision to be one of the top three foreign banks in the country, in line with the group’s mission to be a premier bank in the Asia-Pacific region,” he adds.

Chan feels that with large foreign banks and Islamic banks coming onstream as a result of the central bank’s liberalisation initiatives, the local banking industry will become more crowded in the future.

“Inevitably, competition will become more intense, resulting in margin compression,” he notes.

He points out that while increased competition will help raise the efficiency levels at banks, priming them to compete on the international stage, there is the possibility that some weaker domestic banks would eventually be taken over or merged with stronger ones.

“At present, there is no urgent need for banks in Malaysia to further consolidate,” Chan says.

He says UOB is well-positioned to capitalise on the developments in the Asian region, especially in China and India – the new economic powerhouses that are set to lift Asian economies from their present doldrums.

“We are well positioned because of our Asian presence and we have processes in place to serve the growing middle-class base as well as provide the basic banking needs of emerging industrial and services sectors,” Chan says.

The UOB group currently enjoys strong presence in Singapore, Malaysia, Thailand and Indonesia.

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