Changing the retail banking scene | The star

In the field of retail or consumer banking, many changes are underway, with certain local banking groups becoming indirect beneficiaries of certain foreign banks which have had to get rid of activities they deemed insufficiently lucrative.

This is what some seasoned observers of the banking industry say.

This may also explain why some foreign banks such as Citigroup Inc have, in recent times, abandoned all consumer banking activities in some countries, including Malaysia, citing “the lack of scale to compete”.

“If you look at the consumer banking product lines of foreign banks, they are mortgages, unsecured personal loans, credit cards and wealth management.

“Most deposit products are actually loss making and considered the only cost of financing loans,” a former CEO of a foreign bank told StarBizWeek.

Their lending products such as mortgages offer low margins, with most of the business located only in urban areas, while their unsecured lending has been subject to many restrictions for a decade, providing opportunities for growth. limited although it is a profitable business. adds.

On the other hand, large local banks generally enjoy a cheaper and lower cost of deposits due to their size and reach, which translates into higher net interest income for them.

Challenges ahead

But that doesn’t mean the challenges don’t exist for local banks.

Some face similar problems.

In foreign and local banking spaces, growing competition is forcing players who cannot keep up to give up market share.

“Consumer banking has changed over the years and the business will only continue to evolve in time to come,” says an industry observer.

The credit card business, for example, is a relatively difficult operation to maintain, with banks needing customers to renew their unpaid bills at 18% per year on a consistent basis in order to achieve lasting profits.

However, this market is also shrinking rapidly due to the reduction in personal debt levels by the authorities, as well as the proliferation of non-payment fintech players taking over from credit cards through e-wallets.

However, most lenders have strategies in place to manage the changes that are occurring within the industry.

Anne Leh, head of consumer financial services at OCBC Bank (M) Bhd (pictured below), said the foreign bank, for its part, was not cutting spending.

“Far from looking to reduce, we are looking to grow our mainstream business to make it even stronger and bigger than ever,” she told StarBizWeek.

According to her, the personal banking segment contributed around a third of OCBC Malaysia’s total revenue in 2020 and will continue to trend upward in the future.

“As we aspire to be the best wealth management bank in Malaysia, we will continue to strengthen our physical capabilities while strengthening and enhancing our digital capabilities, especially in our wealth management platforms,” she said. declared.

Certainly, wealth management is an area in which lenders can invest themselves, with the right strategy.

Notably, with mortgages, unsecured personal loans and credit cards being a challenge for businesses to thrive, this is a segment that has potential, capitalizing on the growing influx of individuals and the relatively relatively large market. untapped here.

Leh believes that in three to five years, physical and digital banking solutions will continue to complement each other even more.

“While digital supports the simplest transactions, the customer experience remains essential for us as a bank. “

Any branch closures on his part, Leh said, will only happen on the basis of digitization opening up new opportunities for the redeployment of OCBC staff.

Always resilient

In the case of local banks, scale is something they constantly rely on.

Malaysian banking bhd Group chairman and CEO Datuk Abdul Farid Alias ​​(pictured below) said the bank had “the advantage of scale, connectivity (both physical and digital) and insight into the ground in this region (of Asean) “.

“Overall our Group Community Financial Services (GCFS), which includes our consumer / retail banking business, in our operating markets in Asean is still resilient, our loans increased 5.7% year-on-year while pre-operational profit increased 12% in March, ”he told StarBizWeek.

He says that to continue growing the lender’s consumer banking business, he has stepped up digitization.

“For example, in Malaysia, all of our credit card applications are now done online. Thanks to our MAE application, customers can open a bank account without having to go to a branch.

Online transactions

The bank, the country’s largest, saw a jump in its online monetary transactions in Malaysia, which grew 66% year-on-year, while its MAE app, launched last October, also saw an uptick in adoption, with around 2.4 million of its customers using the app in May.

In fiscal 2020, GCFS contributed 52% to the group’s net operating income and continues to be a key revenue generator for the bank, adds Farid.

“Over the next few years, we expect increased digital and technological competition in consumer banking.

“As a result, the consumer banking landscape is set to evolve towards a more flexible and agile distribution model that requires banks to operate more efficiently and provide more personalized service to their customers. “

For the nearest competitor CIMB Group Holdings BhdAccording to the CEO of his group, Datuk Abdul Rahman Ahmad, the consumer banking business has always been a profitable franchise and remains a “critical” component of its overall objective.

“Our strategy, as part of our Forward23 + strategic plan, is to focus and double down on wealth management and consumer banking, including through digitization, data analysis and personalization to ensure we are able to come up with a differentiated proposition, ”he told StarBizWeek.

The consumer business contributed around 35% of the group’s profits in the first quarter of 2021.

“As part of the Forward23 + program, plans are in place to continue to develop and develop the consumer business,” said Abdul Rahman.

Like most bankers, he says the evolution of consumer banking will continue to be driven by digitization, technology and insights from data analytics.

Likewise, he says, the bank will continually assess its branch network in the region to ensure it has an “optimal” distribution platform.

“To date, most of our banking transactions are already done digitally.

“As more transactions and services are executed digitally, there will be an overhaul of the current branch orientation, format and design,” said Abdul Rahman.

Target segments

RHB Banking Group Managing Director and CEO Datuk Khairussaleh Ramli (pictured below) said the lender will continue to grow its market share in target retail banking segments and accelerate the development of various offers to meet the needs of its customers, in accordance with its FIT22. Strategy.

“We have experienced 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 are done through channel. digital in the first quarter of 2021, ”he said. says StarBizWeek.

Khairussaleh says retail banking is no longer focusing exclusively on offering banking products and as such the lender has launched various ecosystems to deal with this shift in customer preference and behavior.

“Within the retail banking space, our focus going forward remains on the target segments described in our FIT22 strategy as the main drivers of income and profit, including the rich and small and medium-sized enterprises (SMEs). ).

“Additionally, we plan to further strengthen our share of portfolio and market penetration for large and mid-cap companies, respectively,” he said.

AMMB Holdings Bhd Group CEO (AmBank) Datuk Sulaiman Mohd Tahir said AmBank’s retail bank has gained market share as the consumer bank has emerged as one of the group’s main revenue generators.

“There is still a lot of potential to explore.

“For fiscal year 2021, revenue increased 9% to RM1.6 billion; we have seen tremendous value in our focus on high net worth individuals and SMEs, these are our high added value segments, ”he told StarBizWeek.

Sulaiman agrees that the banking infrastructure is changing.

“The essence of this evolution will be the increased integration of technology and the adoption of digital channels, which will allow personal banking services to be more accessible to a wider customer base,” he said.

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