Stiffer competition in consumer banking

PETALING JAYA: Competition in the consumer banking segment is intensifying as consumer loans growth slows down and continuous pricing onslaught puts pressure on margins.

“Opportunities are shrinking and competitors have embarked on extensive sales and marketing efforts,” RHB Bank Bhd head of retail banking Renzo Viegas said in an e-mail reply to StarBiz.

Alliance Bank Malaysia Bhd group CEO Datuk Bridget Lai noted that while the consumer loans segment was growing at a slower and modest pace in the last few quarters and within the portfolio, credit card debt was on a decline.

Sustaining margins is a challenge, given that the impact from Bank Negara’s reductions in overnight policy rates was further exacerbated by pricing competition.

“Banks need to weigh the consequences of price cutting, which may contribute to share gains in the market but will potentially hurt returns on equity and long-term profitability,” Lai said via e-mail.

Viegas said RHB Bank’s strategy was to focus on property financing, particularly refinancing and customising end-financing packages with developers, as household loans tended to have lower risk levels and expected to drive loans growth for many banks this year.

“Borrowers are switching banks for lower rates and residential properties are seen as a good investment during these uncertain inflationary times,” he added.

RHB Bank expects 5% to 7% growth in its consumer home loans portfolio this year, which is at parity with last year’s growth levels and above industry targets.

Alliance Bank, meanwhile, focuses on specific customer segments, improving services, leveraging on distribution network and controlling costs.

Fortunately, the risk levels of consumer loans are still manageable with its non-performing loans stabilising. “We do not see any significant downside risks in the consumer loans segment,” Lai said.

EON Bank Bhd head of group consumer banking Michael Lor believes as the economy recovers, consumer borrowing activities will also rise.

On the deposit side, the bank has introduced a number of products like SaveMonthly Account, Earn Now Fixed Deposit Account, Smart Junior Account and High Flexi Savings Account to entice consumers to save more.

The bank’s credit risk management system and enhancement on the credit risk process would ensure asset quality and that credit was available for the consumer market segment, Lor added.

OCBC Bank (M) Bhd head of consumer financial services Charles Sik said the stiff competition boded well for consumers as they could expect greater product innovation, service delivery and quality.

On whether Malaysia would fall into a trap similar to the United States of low savings and high debt levels, he said it was very unlikely due to the countries’ different environments.

First, the relationship of investment banks and commercial banks in Malaysia was not as closely linked as those in the United States.

Malaysia’s minimum equity level required in the mortgage market was higher at 10% compared with the United States, where 51% of the foreclosure of prime loans only had 7% equity, he said.

Lai added that the banking sector here adopted more stringent credit policy while the housing industry had steady and gradual price increases over the last few years, and not irrationally priced like in the United States.

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