Saturday August 18, 2012
Alliance Financial Group to leverage on consumer and SME sector
By CHOONG EN HAN
STRIVING to cross-sell and retain its customers in a highly competitive financing market, Alliance Financial Group is kicking up a gear to drive more growth in the consumer and SME sector.
Alliance Bank Malaysia Bhd executive vice-president, head of consumer banking, Ronnie Lim said that with the responsible financing guidelines (RFG) in effect since January, the landscape of the financial industry will change with more sophisticated products coming from the various industry players.
“The new engine of growth will be from business owners of small and medium enterprises, particularly individuals looking for investment opportunities (wealth management) and also more products for current accounts and savings account,” he says.
He says the RFG had ensured the financial industry will grow at a more sustainable pace, with the focus on secured loans rather than unsecured loans like credit cards and personal loans that had resulted in a financial problems in other countries like South Korea, Taiwan and Hong Kong.
“With the RFG, the authorities are sending a strong message to society to borrow and spend within their means. In other countries, banks driven by returns had been promoting higher yielding personal loans to individuals, without being told to be cautious on spending. This is why the industry blew up in other places,” he says.
Drawing lessons from other countries like South Korea, Taiwan and Hong Kong, Lim points out that the regulators and the industry have seen abnormally high growth rates of over 100% for a new product, or over 30% of the entire unsecured lending market which is above the gross domestic product (GDP) growth rate, signalling a potential credit crisis in the making.
“Industry-wide data including that of non-bank lenders have shown that during the first five months since the RFG was implemented, mortgage and hire-purchase loan performance has normalised and it has had no major impact on loan applications and approval rates. Loan growth is back to normal now,” he says.
AFG is planning to introduce more products by the first quarter of next year.
With the changing landscape, it aims to consolidate a customer’s banking relationship by cross-selling and retaining its customers under the Alliance OneBank Rewards plan.
“Besides the conventional credit card reward system, the plan stretches across most banking services include deposits, loans, units trusts, and bancassurance. This would be our flagship product to tie up all the loose ends,” he says.
Under the new rules, banks will have to test if a borrower can afford a loan and provide more detailed information on a product. This will include its borrowing rate, repayment obligation, applicable charges, implications of non-repayment, risk associated with the product, and assistance and redress mechanism.
However, Lim notes that the RFG had profound impact on the credit card and personal loans sector.
“The personal loans sector suffered a big dip after the RFG and could not recover. This is the second time the credit card sector experienced guidelines to control the industry. Despite that, we do not expect RFG to restrain consumer credit growth significantly, given the robust demand for housing and auto loans, and stable economic growth of the country,” he says.
Lim says products like personal loans are often taken up by the lower income segment. In a way, the RFG is also to protect this segment as these individuals will not have any financial buffer if the external environment affects them.
According to him, the bulk of Malaysia’s household debt or 53% are loans secured by property, 19% from hire-purchase loans, 15% from personal loans and 5% from credit cards.
“We may have the highest household debt in the region at 77% of GDP, but 53% are secured loans, which is not alarming after all. We still have the cheapest houses in the region compared with Singapore, Hong Kong and Shanghai,” he says.
Lim says the bulk of household debt which is landed property and non-residential will continue to increase because of Malaysia’s young population and also their ability to withdraw from the Employees Provident Fund to buy property.