Friday January 21, 2011

OCBC banking on consumer, Islamic ops


KUALA LUMPUR: OCBC Bank (M) Bhd, which expects at least a 10% growth in earnings this year, is banking on two fronts consumer and Islamic to garner a larger market presence and beef up its revenue stream.

Director and CEO Jeffrey Chew said it was looking at enlarging its consumer banking business to ultimately account for 40% of the bank's total revenue over the next three to four years from the current figure of 27%.

For Islamic banking, he said, it planned to increase the contribution to 10% this year from the present 7%.

Jeffrey Chew

OCBC Bank's market share in consumer and Islamic banking is trending at 5% currently.

“There is tremendous opportunity to grow the consumer business with the country moving towards high-income nation status. With the higher disposable income, consumers will be channelling funds into mortgages, wealth management and deposits and this provides a good market for consumer banking,” Chew told StarBiz.

“The Government has initiated strategies to transform Malaysia into a global Islamic hub; therefore Islamic banking and finance continue to present a vast untapped market in the consumer, corporate and investment banking segments.”

At present, business banking contributes about 57% to the bank's revenue, followed by 27% from consumer banking and the balance 16% from treasury.

The bank is working towards a more balanced ratio with 40% each in business and consumer banking and the remaining 20% from treasury.

Without specifying the amount, Chew added that significant investments had been made into the area of consumer banking.

In this regard, he said, the bank last year made huge investments in the information technology platform to enhance its capability in customer relationship management, products deployment, cost effectiveness and product delivery.

He said the bank's participation in the Malaysian Electronic Payment System would further boost its consumer banking by offering cash convenience and other various banking transaction services.

Its Islamic subsidiary, OCBC Al-Amin, is also gaining traction on the corporate front. It was recently chosen as the joint book runner and joint lead arranger for the Singapore S$1.5bil Islamic Trust Certificate for Danga Capital Bhd, a subsidiary of Khazanah Nasional Bhd.

The bank is also working towards undertaking more corporate deals to strengthen its Islamic banking portfolio.

Being the only Singapore-based bank with Islamic footprint in Malaysia, Chew said OCBC Al-Amin would further grow by leveraging on the OCBC brand name and new Islamic branches.

He said OCBC Al-Amin was also spearheading efforts involving the Malaysian International Islamic Financial Centre and International Currency Business Unit and would be looking at introducing new products and new branches to further reach out to consumers.

OCBC is currently the largest lender among foreign banks in Malaysia and has carved out plans to deepen its penetration into the country. Malaysia is the OCBC banking group's second largest market, accounting for one fifth of the group's total business after Singapore.

Some of the initiatives which it has put in place to boost its business in the country are through capitalising on relevant infrastructure and systems, as well as maintaining efficient operations with low cost to income ratio.

Chew said for example, its credit scoring (risk management) allowed the bank to approve small and medium enterprise loan within one day, adding that its strong credit underwriting framework also enabled it to achieve the best turnaround time for mortgage loans among foreign banks.

The bank's cost-to-income ratio currently stands at a low level of 37%, resulting in it saving about RM60mil per year in overheads.

Performance-wise, Chew noted that OCBC Bank was aiming for a better set of results this year compared with last year, with at least 10% growth in revenue and earnings.

Business banking would still be the main growth driver and he projected about 50% of its earnings to derive from this business while consumer and Islamic banking would see bigger contribution over the next few years.

For the first half of last year, the bank's revenue stood at RM859mil and a pre-tax profit at RM499mil. Based on annualised numbers, he said the bank should be closing the year (2010) with around RM1.7bil in revenue and about RM1bil in pre-tax profit.

Revenue has doubled and pre-tax profit had tripled in the last five to six years due, among others, to strong credit underwriting measures and effective cost management.

OCBC Bank is part of the Singapore-based OCBC Group, which has in recent times emerged as the largest banking group in the region by market capitalisation and the second largest by assets.

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