Smaller, niche banks still see good prospects for the industry as they gear up for a more level playing field.
Liberalisation and competition seem to be the buzzwords of the day for the domestic banking industry. Scale and size become important under such circumstances.
But the smaller, niche banks still see good prospects for the industry in the future despite the challenges as they gear up for a more level playing field.
As Hong Leong Bank Bhd group managing director Yvonne Chia puts it: “Levelling of the playing field will of course accelerate, but this is nothing new.
“We have been competing against foreign banks for the longest time and today we are formidable competitors at various levels.”
Alliance Bank Malaysia Bhd group chief executive officer Datuk Bridget Lai concurs.
Lai sees the local banking industry heading towards greater liberalisation in the future with local banks facing tighter competition to integrate into the global marketplace and the country striving to become a financial hub in the region.
“Local financial institutions are now in a greater state of readiness to compete in a more liberalised and challenging environment especially with Bank Negara’s sequenced and consistent approach to develop a resilient, diversified and efficient financial sector via the Financial Sector Masterplan,” she points out.
A case in point is the implementation of Basel II, the objective of which is to redefine the measurement of risks, ensure more efficient capital management as well as beef up sound risk management practices – all to achieve better financial stability.
“The implementation of Basel II is consistent with (and continues) our country’s mandate set by the Financial Sector Masterplan, to build a strong, resilient and well-capitalised banking system,” Lai says.
“The crux of it all is strong risk management capability and capital adequacy management, ultimately translating into smarter and more efficient use of capital,” she adds.
As such, Lai expects future regulations to address banks’ responsibilities in adopting stronger internal risk rating processes and robust capital adequacy framework, touching on all aspects, including risk-based profiling/pricing, strategies and business plans.
With regulatory changes, Chia also foresees banks will be simpler institutions in the future.
“It is back to basics and simplicity with the inevitable and impending regulatory changes.
“The near-term outlook will see higher market and regulatory demands on balance-sheet health, capital, liquidity, efficiency and leverage,” she says.
Chia also sees strong organic growth potential especially in wealth management and investment services in the local banking industry.
“The winners will be the ones with specific competitive advantages in their business models and are flexible to adapt to the changing market and customer dynamics.
“They will be efficient, have deep market positioning, strong capabilities as well as a diversity of people assets,” she says.
EON Bank group consumer banking head Michael Lor expects to see a more “interesting” local banking environment in the next five to 15 years as a more competitive industry will ultimately lead to better growth for the sector in the future.
“I believe the banking landscape has definitely been impacted by Bank Negara’s directive to liberalise the sector,” he said.
He sees liberalisation as a good thing for banks and customers alike.
Customers the biggest gainers
First, customers will be the ultimate beneficiaries as the increased competition and choice will ensure they enjoy only the best that financial institutions can offer.
Second, the industry stands to benefit tremendously as healthy competition often leads to growth. And third, the country will certainly gain from foreign investors who will now view Malaysia even more attractively.
“I am confident that the liberalisation of the sector will greatly benefit the EON Bank group. This new financial arena will only reinforce our convictions to offer our customers what really matters to them: simplicity, convenience and value,” Lor says.
He highlights that human capital issues such as getting and retaining good talent in the industry would continue to be a challenge. However, with the rapidly changing global economic environment, the addition of new financial tools, products and services, as well as the continued evolution of the banking sector, Lor sees much opportunity and potential for more Malaysians to develop high-flying careers in the industry.
Another key concern will also be to educate and encourage Malaysians to adopt new technologies and innovations so that they can do banking more conveniently.
“Banks around the world have successfully introduced Internet banking, mobile-phone banking and other cutting-edge solutions for their customers – so it is certainly something the Malaysian banking sector can look into more aggressively,” Lor stresses.
In an environment of increased competition, Lai admits that Alliance Bank will be faced with tougher rivalry for margins.
The bank’s strategy is to differentiate itself through continuous innovation, not only in terms of products and services but also the delivery of excellent customer experience through strategic alliances and enhanced group synergy, where it will employ best-in-class technology and human capital.
Lai says the bank’s vision in this environment is to be a leading integrated solutions provider, delivering the best customer experience and creating long-term shareholder value.
“We have clearly defined priorities in terms of our key drivers of future growth, led by strong pillars in the consumer and small and medium-sized/commercial businesses of the bank, which at present comprise 55% and 30% of our business composition respectively.
“These are our target segments where we have gained good momentum and continue to build strong capabilities to further strengthen our market penetration and positioning,” she says.
To Lai, Alliance Bank is a domestic-centric bank and it aims to deepen its footprint within its core client segments via a spectrum of financial solutions such as wealth management, Islamic banking, as well as investment banking products and advisory capabilities.
Chia points out that for Hong Leong Bank to survive and excel, it has to stay agile, adapt and remain relevant. It must continue to stay disciplined and focused on drivers of long-term sustainable value creation. Apart from enhancing its core businesses in personal finance services, wholesale banking and Islamic banking, the bank is expanding and optimising its reach and distribution network for market share and to better reach new communities.
It is also investing in payment systems, and electronic and alternative channels to complement its branches.
“This will position us to ride with the upcycle when the economy improves,” Chia says. “Apart from new markets, wealth management and Islamic banking will remain key engines to drive new growth.”
For Chia, the long-term vision is to embed Hong Leong Bank in the region and build a sustainable, profitable franchise.
“Growing new markets is as important as strengthening the domestic core business in Malaysia,” she says. “We also aim to further transform our subsidiary, Hong Leong Islamic Bank, into a formidable regional player in the high potential, fast-growing Islamic finance market space.”
Smaller banks gear up
Hong Leong Bank was the first Malaysian bank to enter China’s banking sector through a strategic shareholding in Bank of Chengdu Co Ltd. It was also the first and sole recipient from South-East Asia of a 100% owned subsidiary licence in Vietnam.
Chia’s aim is for Hong Leong Bank to be embedded as a “local” bank with a strong domestic position in Vietnam and China.
“We have our positions of strength that will allow us to be opportunistic and emerge stronger and more relevant in the region.
“We remain opportunistic for further acquisitions and expansion in the region,” she says.
As it seeks to be the bank of choice for consumers, EON Bank group launched Project Quantum Leap – a three-year strategic plan from 2008 to 2010 with four strategic focuses: grow deposit franchise, strengthen consumer banking, focus on SME banking and expand Islamic banking offering.
To compete, EON Bank group aims to diversify its loan portfolio and build its customer deposit franchise with more pioneering products and offerings.
“We are also looking at strengthening our consumer franchise further by working on initiatives such as refurbishing our branches, increasing our electronic delivery systems, as well as building our Internet banking capabilities,” Lor says.
All of which goes to show that smaller banks are not going to let themselves be left behind as liberalisation picks up pace and competition becomes hot.
To achieve this, the group will spend RM30mil over the next three years to add more self-service terminals across Malaysia, invest RM50mil this year to refurbish an additional 50 branches nationwide and RM25mil on data warehouse and business intelligence.
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