It is always enjoyable and informative to listen to the views of a veteran. Zarir J. Cama, new deputy chairman and CEO of HSBC Bank Malaysia, shares his views on banking in Malaysia and elsewhere. In an interview with StarBiz senior editor (Finance & Banking) Yap Leng Kuen, Cama also looks at some of the successes and pitfalls of banks in their various strategies either to expand or consolidate.
StarBiz: What are your observations of the banking scene in Malaysia?
Cama: A lot has happened since the crisis. The most obvious thing which has happened is that there has been a very pro-active dialogue between banks and regulators all over the world. This has been very clearly articulated here as well if you look at the kind of regulation and self-regulation which banks had prior to the crisis.
I think the biggest change which has taken place is this very close working relationship between the regulator and banks, understanding what is required to have a vibrant banking industry and yet at the same time, to have sensible regulation and a framework.
That is still evolving as the market is evolving and banks keep discussing things. Today, Malaysia or any other country is part of a bigger game and a global economy.
In the past, there were too many banks. I think that was part of the problem and there was a lot of confusion. In America, the number of banks is substantially less and will continue to come down. You need some kind of critical mass for people to be successful. So (consolidation) was a sensible approach which they took.
StarBiz: Will there be further consolidation?
Cama: The market will determine that but I think we have come down to a sufficient size where that process can take place logically. I believe over the next two to three years, that figure of ten anchor banks might come down by one or two.
There is no great necessity for that to place. Those banks themselves must be making the kind of money that shareholders want or whether it is better to be part of something bigger. To run a bank, you need to invest in technology, people, new product development. There is risk out there.
I don't think it will go much lower than seven or eight anchor banks.
StarBiz: What is a successful bank?
Cama: One that is applauded by customers, and able to provide the products and services which they need and makes sense for them. Out of that focus, they make that kind of money.
The bank has to balance what customers want and shareholders demand. It has to be successful in terms of shareholders. The bank must be cognizant of cost, pricing and profit. And that is what management is all about.
StarBiz: How do you think Malaysian anchor banks are doing?
Cama: I think they are doing a lot better because they now got some critical mass and paid more attention to internal systems. It has to do with credit processes, transparency and lending practices. All these have translated into lower levels of bad debt and better income streams.
What they have also done is to move away from corporate-driven business and gone into consumer finance. The good thing about that is there is annuity income. People's demands are different from corporates; they require homes, cars and electrical appliances. That is a steady, ongoing thing as long as the economy keeps performing.
The most important thing is that banks have reorganised themselves especially putting money into more robust systems.
You need good systems, for example, in credit cards, to see the behaviour of your customers, predict what they want and be able to act as advisors.
StarBiz: Do you see our anchor banks coming up to be on par with foreign banks?
Cama: I think that is not going to happen right across the board. Clearly, the ones that want to reach that same kind of levels of efficiency will have to invest new areas and systems. Yes, we see some of the banks beginning to practice some of these as there is now greater competition.
There are two ways of doing things; one is that you got a lot of money, the other thing is to provide solutions according to what your customers want.
For that, you need people who are experts in a particular business, be it trade, Islamic or consumer finance. They are bringing in more professional people and giving them a career in the organisations.
People want to work for organisations which have a vision, strategy, which believe in the future and their people's development. So I think foreign banks give a different perspective to local banks so that they can start shaping their own businesses and do things differently. They are a catalyst to change.
I think there is no harm in trying to emulate each other. Similarly, foreign banks often learn local customs and practices and those that are able to adapt are the ones that do well. The ones that just say 'I got a lot of capital' will not succeed.
StarBiz: With the opening of the markets, could there be an emergence of new foreign banks?
Cama: I suspect very few, simply because you already got foreign banks that know the market; good local banks; and you got to look at the size of the market. If there is somebody who thinks he can actually bring something different, and fill the gap, then I'd say he can come.
Islamic banks? Yes, but you already got Islamic banks here. There is a lot of expertise here. At HSBC, we got a global Islamic business being practised from Saudi Arabia to Canada.
Markets develop, and clearly, other products will come in. But all the players who are here today are also thinking of these things.
StarBiz: Is going regional a good strategy for local banks?
Cama: They are mostly following their customers and that is a good thing because they are providing a unique service which their customers want especially when the number is large enough. Then, you have a strategy and chance of competing in that market.
For example, somebody tells me a certain country is good and has a big opportunity because it is a big country. I think that will be a disaster. There are entrenched competitors already sitting there and they are not going to allow you to just walk in.
If you look at the global banking scene in the 1970s and 80s, what happened was banks from all over the world looked at areas that were expanding or markets opening. Many of those banks found they did not have critical mass or differentiation.
When the Indian market opened up, many banks went in with one branch. Today, most have exited as there was no real differentiation.
StarBiz: Are foreign banks included in the benchmarking process especially in terms of enhancing service quality?
Cama: Absolutely, we are very much a part of the process. It will be to the benefit of the customer because often, the person that is neglected or forgotten is the reason for the bank's existence. Exercises like this can put that back into focus.
It is an ongoing process. Service quality can be directly enhanced by training people to respond directly across the counter.
Another way is to ensure your customer can reach you quicker and more conveniently, example, by using ATMs, Internet or phone banking.
And we are constantly looking at what we have to make sure that it is working properly. For example, we have phone banking but perhaps, we have to see how to make it work better and not have to wait or with the new Internet service, how to make it more responsive and provide more information to allow customers to do different kinds of transactions.
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