Changed retail banking scene | The star
Many changes are taking place in the retail or consumer banking scene, including some local banking groups becoming indirect beneficiaries of certain foreign banks that have had to go out of business that they believe are not lucrative enough.
This is according to some seasoned banking industry observers.
This could also explain why some overseas banks like Citigroup Inc have recently phased out all retail banking in some countries, including Malaysia, citing “insufficient size to compete”.
“If you look at the retail lines of foreign banks, they’re mortgages, unsecured personal loans, credit cards, and asset management.
“Most deposit products are actually loss-making and are only seen as a cost of financing loans,” a former CEO of a foreign bank told StarBizWeek.
Their loan products like mortgages offer thin margins, with most of the business only taking place in urban areas, while their unsecured loans have been severely constrained for a decade and have limited growth opportunities, despite being a profitable business, adds.
On the other hand, due to their size and reach, large local banks usually benefit from cheaper and lower deposit costs, which leads to higher net interest income for them.
But that doesn’t mean there aren’t any challenges for local banks.
Some face similar problems.
In both the foreign and local banking sectors, increasing competition is forcing players who cannot keep up to give up market shares.
“The private customer business has changed over the years and the business will only develop further in the future,” says an industry observer.
The credit card business, for example, is a relatively difficult task as banks have to constantly extend their outstanding bills at 18% per year in order to generate sustainable profits.
However, this market is also rapidly shrinking due to the containment of personal debt by the authorities, as well as the increasing number of non-paying fintech companies that take on the role of credit cards via e-wallets.
However, most lenders have strategies in place to cope with the changes in the industry.
OCBC Bank (M) Bhd, Head of Consumer Financial Services, Anne Leh (pictured below), says the overseas bank, for example, will not be scaled back.
“We don’t just want to reduce our consumer business, we want to expand it to make it stronger and bigger than ever,” she tells StarBizWeek.
According to her, the consumer banking segment contributed around a third of OCBC Malaysia’s total revenues in 2020 and will continue to grow in the future.
“As we strive to be the best asset management bank in Malaysia, we will continue to strengthen our stationary skills in addition to strengthening and developing our digital skills, especially in our asset platforms,” she says.
Of course, wealth management is an area where lenders can achieve a lot with the right strategy.
Since mortgages, unsecured personal loans and credit cards pose a challenge for businesses, this is a segment with potential that is banking on the growing wealth of individuals and the relatively untapped market here.
Leh assumes that both stationary and digital banking solutions will complement each other even more in three to five years.
“While digitization takes over the simpler transactions, the customer experience remains the key for us as a bank.”
Any branch closure on his part, according to Leh, will only take place on the basis of digitization, which opens up new opportunities for the redeployment of OCBC employees.
In the case of local banks, size is something they are betting on all the time.
Malay Banking Bhd Group President and CEO Datuk Abdul Farid Alias (pictured below) says the bank has “the advantage of size, connectivity (both physical and digital) and local knowledge in this (Asean) region”.
“Overall, our Group Community Financial Services (GCFS), which includes our personal and retail businesses, are still robust in our Asean operating markets, with loans increasing 5.7% year over year and pre-operating profit 12% increase. like in March, ”he tells StarBizWeek.
In order to further expand the lender’s private customer business, he advanced digitization.
“In Malaysia, for example, all of our credit card applications are now submitted online. With our MAE app, customers can open a bank account without having to enter a branch. “
The bank, the largest in the country, saw its online monetary transactions in Malaysia grow 66% year over year, while its MAE app launched last October also increased in acceptance, with around 2.4 million in May of his customers used the app.
In fiscal 2020, GCFS contributed 52% to the group’s net operating income and continues to be a major source of income for the bank, adds Farid.
“In the next few years we expect increasing digital and technology-driven competition in the private customer business.
“Therefore, the consumer banking landscape will evolve into a more flexible and agile sales model that requires banks to work more efficiently and offer their customers a more personalized service.”
For the next competitor CIMB Group Holdings Bhd, according to CEO Datuk Abdul Rahman Ahmad, the private customer business has always been a profitable franchise and remains a “critical” part of his overall goal.
“Our strategy, as part of our Forward23 + strategic plan, is to focus and double our focus on wealth management and consumer banking, particularly through digitization, data analysis and personalization, to ensure we can deliver a differentiated offering,” he tells StarBizWeek.
The consumer goods business contributed around 35% to net profit in the first quarter of 2021.
“As part of the Forward23 + program, there are plans to continue to scale and grow the consumer business,” says Abdul Rahman.
Like most bankers, he says that the evolution of consumer banking continues to be driven by digitization, technology, and insights from data analytics.
The bank will also continuously evaluate its branch network throughout the region to ensure that it has an “optimal” sales platform.
“Most of our banking transactions are already being carried out digitally.
“As more and more transactions and services are processed digitally, there will be a revision of the current orientation, format and design of branches,” says Abdul Rahman.
RHB Banking Group’s Managing Director and CEO Datuk Khairussaleh Ramli (pictured below) says the lender will continue to expand its market share in the target retail banking segments and accelerate the development of various offerings to meet its clients’ needs in line with its FIT22 to fulfill strategy.
“We have seen strong growth in our retail banking business over the past 12 months, where our loan / finance portfolio has grown 6.4% while over 80% of customer transactions will be digital from Q1 2021,” he says.
According to Khairussaleh, retail banking is no longer solely focused on offering banking products alone, and as such, the lender has implemented various ecosystems to address this shift in customer preference and behavior.
“In retail banking, our focus remains on target segments that are described in our FIT22 strategy as primary revenue and profit makers, including high net worth and small and medium-sized enterprises (SMEs).
“We are also striving to further strengthen our share of the wallet and the market penetration for large-cap and mid-cap companies,” he says.
AMMB Holdings Bhd (AmBank) Group CEO Datuk Sulaiman Mohd Tahir says that AmBank’s retail banking has gained market share, with consumer banking becoming one of the key revenue generators for the group.
“There is still a lot of potential that needs to be explored.
“For the 2021 financial year, income rose 9% to RM 1.6 billion; We have seen tremendous value in our focus on wealthy individuals and SMEs, these are our high quality segments, ”he tells StarBizWeek.
Sulaiman agrees that the banking infrastructure will continue to evolve.
“The essence of this development will be the improved integration of technology and the introduction of digital channels that will make it possible to make consumer banking more accessible to a wider customer base,” he says.