Business

Saturday August 8, 2009

Making footprints in the region


SBW: Are you happy with the consolidation of the banking industry?

Zeti: What we would like to see is the minimum size, which is very vital because it allows more economies of scale, investment in technology and will reduce vulnerability.

There is no restriction on whatever degree that institutions will expand.

Will the consolidation of services also happen, with almost all banks offering the same full range of services?

Institutions must look at their comparative advantages and strengths. They need to focus on the areas of comparative advantage so that they distinguish themselves. However, there would be some that want to offer the full range of products and services.

They must have the capacity to do that and invest in people, systems and outreach. They must be able to manage the risks associated with this because one part of the financial system can very badly affect others.

Have Malaysia’s banking institutions developed in scale and size to potentially transform into financial supermarkets and venture into regional markets? Do you think they are ready to compete and provide the wide array of products to meet Malaysian and regional consumer demands?

Banks need to assess their own comparative advantages, their strengths and the space in which they are competitive.

To meet the changing requirements of businesses and consumers, there has to be continued investment in research and development. Going forward, the ability for reinvention, adoption of new business models and innovation are the key elements for success.

But important lessons must be drawn from the financial crisis taking place in the advanced financial systems. The governance and risk management practices must keep pace with the new activities undertaken by banking institutions. It is the under-estimation of risks and, thus, the mispricing of risk that results in problems.

How confident are you of local banks going into regional markets?

We have a high degree of confidence that they are well-positioned to compete. There is some convergence of the gap between local and foreign banks and, in some areas, they are better than the foreign banks. In some other areas, they need to be developed further, for example, in the quality of service.

We would definitely like to see greater efficiency and the emergence of world-class financial institutions. We now have six banks that have presence in 19 countries.

This is something to facilitate further, especially in terms of (the expansion) in economic and investment activities. This is a commercial decision and banks have to make their own assessments if it is a viable proposition and the prospects are different for the jurisdictions. The board and management have to make careful assessment.

Some of Malaysia’s larger banks are venturing abroad to find their footprint in the region. Do you think they are ready to compete and what are the challenges potentially facing them in foreign countries?

There are growing potential and opportunities within Asean, with its population of nearly 600 million comprising relatively young people with increasing purchasing power.

There are also opportunities in greater Asia and emerging economies in other parts of the world.

Already, there exists close cooperation with regulators in the respective jurisdictions to ensure that the banking institutions that have foreign presence have the capacity to manage their risk exposure.

Will Malaysian banks be more focused on the region or venture elsewhere in the world?

We (Asean) have a population of 600 million and incomes are rising. When you look at greater Asia from India to South Korea to China, this represents a major growth centre in the world economy.

Even before the crisis, I had already said many times that the world would become increasingly multi-polar and the concentration of economic powers would be more distributed in the global economy.

In the present crisis, I believe Asia will come up much faster than the more advanced economies.

We are not facing financial crisis, our banking institutions continue to function and continue to lend 8%–10%. Our corporate and household sectors are not over-leveraged. Most of the countries in Asia have not seen major unemployment taking place.

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