Business

Saturday August 8, 2009

Meeting the challenges

By DALJIT DHESI


While Bank Negara has built-in buffers to strengthen the domestic financial system, banks need to remain vigilant.

The global banking industry, within the past year, has faced some of the roughest moments in its history.

The subprime mortgage fiasco in the United States sparked a financial tsunami worldwide causing some of the financial giants, chiefly Lehman Brothers and Bear Stearns, to collapse.

Heavyweights, among others, Citigroup, Morgan Stanley, Goldman Sachs Group Inc and JPMorgan Chase & Co were bailed out with billions of dollars from the US government. Central banks worldwide pumped in trillions – at last count US$24 trillion – to save their banking systems from collapsing.

Malaysia, fortunately, was not that badly hit.Unlike during the Asian financial crisis of 1997–1998, the country was on a stronger footing, thanks to Bank Negara’s initiatives and built-in buffers to strengthen the domestic financial system.

Some of these measures included ensuring sufficient capital in the banking system, better supervisory and risk management systems, and improvement in loan quality.

Measures put in place by the Government such as the stimulus packages, the reinvigorated Corporate Debt Restructuring Committee, providing blanket guarantees on all bank deposits, and guarantees on bonds for small and medium enterprises, has further fuelled confidence in the banking system.

The liberalisation of the financial services sector is expected to heat up competition in the banking industry as more new licences are expected to be issued to foreign players.

With more foreign players coming into the local market, the domestic banking industry would need to be far-sighted and focus on some key areas to remain competitive to face future challenges.

This, among others, include talent development, specialisation, information and communications technology, consolidation and customer “centricity”.

Talent development

Deloitte Malaysia country managing partner Tan Theng Hooi says while most banks may have their respective talent development and management models, the key to make these models work as robust systems is their ability to execute them properly.

“This is one area most banks find most challenging as talent development often requires a balance between short-term business gains and long-term organisational benefits in addition to securing business leaders’ commitment across the organisation.

“Its success also depends largely on the ability of the banks to identify and articulate competencies that are required to support future business needs, particularly in the future, as banks no longer find it tenable to just remain as players in the domestic market without venturing beyond Malaysia’s shores,” Tan adds.

To succeed, he says banks need to rethink their sourcing strategy and create a pool of seasoned “international” professional bankers instead of just relying on the traditional approach of mobilising resources from within the domestic boundaries.

Tan says it is also necessary to review existing legislation and regulations to make them more business friendly to support the industry in facing the new challenges by making it easier to mobilise talent from other non-traditional and global sources.

He also urges local banks to forge partnerships with foreign parties as this would enhance the transfer of knowledge and expertise, especially in staff mobility and talent attraction.

Strategic alliances with foreign players could also potentially bring other benefits such as risk management practices, retail and SME banking, product innovation, training and development, as well as regional and global presence, he notes.

Apart from ensuring sufficient liquidity in the banking system, talent management is also critical for a bank to succeed in the future, says Ernst & Young Advisory Services Sdn Bhd partner Chow Sang Hoe.

There is an urgent need in the industry for skilled professionals who can exercise seasoned judgements across functions and on frontlines, Chow notes.

PricewaterhouseCoopers Malaysia tax financial services leader Jennifer Chang says although talent development in the industry has improved to an extent, more needs to be done.

There is a need to expose Malaysians working in local financial institutions to how the financial sector works and operates overseas, to form linkages and networks.

“There is also a need to attract talent back to Malaysia and to retain existing talent by ensuring local financial institutions offer competitive packages and advantages. Malaysia cannot be a hub without the people to drive the industry,” she adds.

Chang says that although the gap between local and foreign banks has somewhat narrowed, especially in the past few years, local institutions still have a lot of improvements and advancements to make before they can be on par with foreign players, especially in expertise and knowledge.

Role of ICT

On electronic payment channels and usage of ICT, Chang says local players need to invest more in this area as foreign banks have greater technology and have invested far more in ICT.

According to Ernst & Young’s Chow, leveraging on technology to effectively support the strategic management function is another key challenge. “In our survey, over 90% of the respondents believe they will have a long road ahead to fully mobilise their IT resources to support enterprise-wide risk and decision-making,” he notes.

Stressing the importance of ICT, RAM Rating Services Bhd head of financial institutions ratings Promod Dass says he foresees demand for Internet banking to grow as the current younger generation enters the workforce.

Dass adds that Malaysia’s broadband penetration needs to grow exponentially to support wider usage of e-banking and to put the industry on a stronger footing.

For local banks to compete effectively, Deloitte’s Tan says they should consolidate further or merge with bigger institutions, or become niche players in certain market segments.

Specialisation

In terms of specialisation, PricewaterhouseCoopers’ Chang says it has worked out well, especially in the area of Islamic finance.

Owing to strong competition from other countries with keen interest to expand their reach into this area, Malaysia’s financial institutions need to innovate to stay ahead, she says.

PricewaterhouseCoopers assurance financial services leader Sridharan Nair says areas of potential specialisation that banks could look into are agriculture and infrastructure as they are relatively under-served in the country.

In view of rising competition from foreign players, Deloitte’s Tan says greater specialisation is essential to build expertise in specific areas or market segments.

He says it is important that domestic banks see the merits of specialisation and stick to their core expertise.

For example, in the United States, State Street Bank is well-known for its custodial services, while National Westminster Bank (Natwest), a high-street bank in the United Kingdom, specialises in retail banking, he adds.

Customer focus

Tan says the challenge today for many local banks is to evolve from a banking model that places emphasis on transaction processing and operational capabilities to one that is customer-centric.

While some have made strong progress in improving their customer experiences, such as leveraging customer data to deliver a better product mix, creating a distinct brand image, and improving service operations, he believes the challenge for local banks is to be able to adopt customer and product strategies that will allow them to capitalise on the potential for growth and profitability.

One area, he says, is to recognise that customer behaviour and expectation often vary across different segments, and banks would do well to develop appropriate channel, marketing and product strategies that would deliver an enhanced experience and better customer relationship.

The banking industry, which has been resilient despite the financial crisis, has to be forward-looking and focus on some of the above key areas that would bring it to the next level of growth to face future challenges.

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