Monday September 6, 2010
Consumer banking will continue to be an important revenue generator of banks
By DALJIT DHESI
PETALING JAYA: Consumer banking will continue to be an important revenue generator for banks with home loans being one of the major areas of focus amid the prevailing relatively low interest rates.
Apart from home loans, the other sectors in consumer banking which banks are focusing on to beef up their revenue streams are car loans, credit cards, personal loans and wealth management. Loans for the purchase of residential properties currently account for more than 50% of consumer loans.
RAM Ratings head of financial institution ratings Promod Dass said the relatively low interest rate environment had fuelled consumer lending, which represented more than half of the banking system’s loans.
He said that gauging from the trends in monthly loan approval data, residential property lending continued to accelerate.
As at end-2009, he said home loans represented 25% of the banking systems approved loans figure, contrasting against 16% as at end-2007. He added that this momentum had persisted to date. As at June, home loans comprised 27% of the system’s total loans.
“While there is no publicly available data to differentiate owner-occupied versus speculative home purchases conclusively, the rapid build-up of home loans over the last few years if unchecked, could lead to a credit bubble.
“Less of a concern at this point would be the purchase of passenger cars, personal loans and credit cards segments which make up 14%, 5% and 3% respectively of total loans. Given the positive economic traction, it is very likely the lending focus of most banking groups will still be aimed at the consumer segment well into 2011,” he told StarBiz.
He said even though competitive pressures had thinned margins on consumer loans, banks still viewed this segment as lucrative on a risk-adjusted basis.
Malaysian Rating Corp Bhd vice-president and head of financial institution ratings Anandakumar Jegarasasingam said the main challenge for banks would be to ensure the asset quality of household loans.
Although the household sector’s non-performing loans ratio had been on an improving trajectory (June 2010: 2.5%; December 2009: 3.1%; December 2008: 4.1%), he said the household sector’s debt burden had also been steadily increasing, partly due to greater appetite for borrowed funds and also as a result of strategies deployed by banks.
Anandakumar voiced some concern over banks relying too much on household loans, saying that it might create funding bottlenecks for emerging businesses vital for the Malaysian economy to attain its full potential.
Consumption-oriented personal loans, he said, did not necessarily add to the productive capacity of the country and might defeat Malaysia’s aspiration of becoming a high-income nation. Instead, funds should be directed towards strengthening the productive capability of the country, he said.
Ernst & Young Malaysia partner (Assurance) Chan Hooi Lam foresee consumer banking facilities like car loans, purchase of residential properties and credit cards to continue its growth momentum into next year.
He expected more customised and personalised services to be offered by banks as part of their strategies to protect and increase their market share in consumer banking.
This include serving special needs of the growing younger generation, younger professionals, private banking and wealth management. The other types of loans he said that had seen the growing trend include those relating to personal use as well as education and health.
Consumer banking business is one Citibank Bhd’s growth drivers, according to its head of consumer market Fabio Fontainha. The main focus for this business for the bank is credit cards, wealth management and mortgage.
He said he expected the bank’s consumer banking segment to post a double-digit growth in revenue this year, adding that for the first half of the year the segment had performed better than the corresponding period last year.
The bank anticipate this growth to be supported and boosted by its recent marketing campaign “Powered by Citi”, and continuous investment in people, product value proposition and client services.
“We expect our three key segments – mortgage, credit card and wealth management divisions – to deliver positive growth and the bank’s consumer banking to continue its growth path into next year,” he noted.
He attributed the success of its mortgage business to the quality of promotional packages offered, flexibility of mortgage product features and timeliness of loan approvals.
On the credit card side, he added although there had been a reduction of credit card accounts in the market due to the implementation of service tax, nonetheless, the bank’s sales and usage performance had been good judging from positive response from consumers to its new and re-launched products.
Fontainha said Citibank was currently the market leader in the credit card industry with a 20% share of credit card usage.
He viewed wealth management as one of the long-term growth opportunities for consumer banking as the expansion of the country’s middle-class would allow clients to invest their assets more effectively beyond deposits.
OCBC Bank (M) Bhd, which registered strong double-digit growth year-on-year for its home loans portfolio, expects this trend to continue for the rest of the year.
Head of Consumer Financial Services Charles Sik said that apart from home loans all sectors under consumer banking were important in building a wholesome consumer franchise.
“This explains why our investments are into building a better branch network, investing in a new core banking system, people (especially in sales) and Islamic banking.
“We do not focus on any one particular growth sector as banking itself represents a growth sector with the demographic of a young population getting urbanised and into the workforce in the next 10 to 15 years, Sik added.
RHB Banking group director of retail banking Renzo Viegas said that apart from credit cards, the focus would also be in debit cards as the bank saw tremendous growth potential in this area.
He added there was continuous growth in debit card spending amid active marketing campaigns promoting debit card usage as a safe and convenient alternative to cash.
Morgage loans would remain the key focus for the bank in view of increased demand for housing, stable local economy environment, attractive home ownership plans as well as low financing cost.
Consumer banking, as a whole, currently contributes about 44.7% of the bank’s revenue, he noted.