Driving the financial sector forward

  • Business
  • Saturday, 24 Dec 2011

LOOKING at the recently launched Financial Sector Blueprint (FSB), it certainly reflects the philosophy in a Chinese proverb which goes “When planning for a year, plant corn. When planning for a decade, plant trees. When planning for life, train and educate people.”

As a decade-long plan for building a more vibrant financial sector and, subsequently, a thriving society, it not only sets out to implement recommendations in line with farsighted ambitions, it also addresses the need to engage society, keeping it on par with the developments intended for the financial sector.

For banks, the blueprint highlights a feasible and commendable roadmap for driving the financial sector forward.

Hong Leong Bank group managing director Yvonne Chia believes the blueprint will work along the path of success of the first financial sector masterplan (FSMP) and set the path for the banking sector to the next level of competitive growth.

“In fact, the first FSMP blueprint has demonstrated the remarkable resilience, agility, cohesiveness and stability of the banking system during the 2008 and 2009 global financial crisis and has continued to support local businesses and economic activities in an intermediary capacity,” she says.

“The other important feature of the blueprint is the safeguards it puts in place to ensure financial stability across the region.”

She anticipates there will be a lot of investments to be made in terms of people and skill sets, systems and technology as well as training and re-skilling. These would need consistent and disciplined planning aligned with the FSB.

“Some of the key dynamics that banks will have to plan forward would be in optimising efficiency, risk-based pricing and the appropriate capital allocation for respective bank growth sectors,” she says.

Chia also says the banking system will be able to align itself with the FSB with a market-driven risk management framework and changes in global regulatory and accounting.

She feels there will be a lot for the banking and financial services sector to adopt and align going forward.

“We need to plan and act on the building blocks. The key challenge is the need to remain agile and adaptive to the consistently changing landscape and to be pragmatic of our relative growth and liberalisation,” she says.

Director and chief executive of OCBC Bank (M) Bhd Jeffrey Chew says the FSB's proposition to propel the financial industry is both emphatic and imperative, given the widespread credit crunch that has seized the previously strong financial markets.

“This blueprint was timely because regional trade contributes significantly to Malaysia's growth prospects and the continued commitment to expand the use of local and regional currency payment arrangements will help to further boost intra-regional trade,” Chew says.

“Our total trade to gross domestic product for the period from October to September 2011 stands at 190% and our total regional trade accounts for two-thirds of our total trade amount during the same period. This move allows local companies to manage their foreign currency risk exposure better and reduce transaction costs for cross-border trades and investments,” he adds.

He opines that expanding the use of the local and regional currency payment arrangements will help reduce foreign exchange risks arising from currency mismatches, as the foreign exchange (forex) market is usually volatile and there is a tendency for Asian currencies to move in a similar trend.

The blueprint shows the Government's continuous effort to liberalise the forex market and encourage financial institutions to offer Internet and electronic trading platforms for corporate and retail customers to trade in foreign currency including margin trading. It's a move that Chew applauds.

Another point he favours is the move to expand the distribution and reach of banking services to SMEs, especially in rural areas.

He sees the effort to facilitate the movement of SMEs to higher-value activities through other means than bank financing would augur well for investments into knowledge-intensive and innovative activities as it will encourage venture capitalists and equity or quasi-equity financing under the risk and profit-sharing model.

On establishing new delivery channels for mobile banking and direct electronic transactions, both OCBC Bank and Hong Leong Bank note that there are areas to improve for the objective to be met.

Chia says there will be large technology investments in the IT systems as well as for mobile and web-based payment.

“Coupled with a more inclusive growth, it is important how we (banks) transform our branch network to cater for efficiency and tech innovations as well as a diverse range of services for a more discerning population,” she says, adding that infrastructure was important for the “access to investment services and products to do with wealth creation by the broader market segment and the younger generation”.

Chew says that “there is also the need to create awareness and provide education on mobile banking in order to raise public confidence”.

“We would like to point out that there is currently a lack of regulatory protection for customers in the event of e-payment losses as well as a need for more clarity in handling e-payment disputes,” he adds.

He says that currently there has been substantial groundwork in sharing the e-payment infrastructure with MEPS and cheque clearing outsourcing “but there is certainly room for greater infrastructure sharing”.

The three highlights for the Association of Banks in Malaysia (ABM) under the new FSB are financial inclusion for better shared prosperity, electronic payments and empowerment for customers.

For shared prosperity, ABM says the banking sector will have to be innovative and dynamic in providing financial services catering to the needs of households, SMEs, micro enterprises and the corporate sector.

It expects banks to further promote the migration to e-payment functions, leveraging on technology to provide more convenience and cost-saving banking products.

“Due to the availability of a wide range of financial products in the market, consumers must be empowered to make the right financial choices. Thus, banks will have to be more transparent in their dealings with customers,” it adds.

Related Stories: Roadmap to stronger banks Accountants, analysts give favourable views on blueprint

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