FINANCE Consolidation has strengthened the sector, which is anticipating growth and higher profits
Youthful future for banking

DR ZETI AKHTAR AZIZ, governor of Bank Negara Malaysia, favours consolidation in banking

reater consumer confidence has returned as a result of changes wrought in the Malaysian banking sector during the past four years. Two factors have enabled banks to forecast their growth potential far more accurately: consolidation within the sector and – the banks note with undisguised pleasure – a young population that will adapt quickly to the sophisticated services now on offer.
Zeti Akhtar Aziz, governor of Bank Negara Malaysia (BNM), the central bank, says: “We have strengthened our banking system and there has been consolidation in the industry.
A few years ago there were about 30 banks in the country. Now we want to have 10 so-called anchor banks and this will make the finance industry stronger – and hopefully give investors more confidence.”
Southern Bank is one of the country’s anchor banks. It has achieved this status through a series of mergers in the past few years, as well as a sharply-focused strategy to increase productivity and cut costs.

TAN TEONG HEAN, chief executive of Southern Bank, expects strong earnings this year

Chief executive Tan Teong Hean simply points to demographics to give an idea of how banks will grow in the next decade. Eight out of 10 of the population are under 40 (and around a third of the population is 15 and under), so there are many potential new customers coming up to the age when they will require banking services.
“Demographics, full employment and strong income mobility favour consumer banking,” he says. “We are confident that, with an economy in recovery and more sophistication in mass-customisation and micro-marketing, we should increase our lead in the market.”
Southern Bank reported a 65 per cent increase in net profit for 2001, exceeding many analysts’ expectations. It ranked eighth among Malaysia’s domestic banks.

Market-focused Southern Bank won an award for its business-to-business e-banking service

The bank has slashed costs and increased productivity, says Mr Hean. “This year we are moving beyond short-term initiatives and we have restructured away from a transaction or process-based orientation to a marketing and sales-led focus,” he adds. “We expect very strong earnings growth this year.”
The mergers, which were carried out between 1999 and 2001, brought to Southern Bank several financial entities which, while they may not have had large balance sheets, did have some operational complexity.
“One of the things we did was to separate our operations and distribution, and I believe we are the only bank in the country to have done this,” says Mr Hean. “It took us some time to find the right people, and to re-match and rebalance their skills.”
Southern Bank has traditionally preferred small and medium-sized enterprises (SMEs) as clients. “Strength in the middle markets is something that cannot be developed overnight,” says Mr Hean. Southern has won an award for its business-to-business e-banking, which he says “helps our SMEs to move up the IT chain”.

Islamic banking commands about seven per cent of the total market. Mr Hean says: “Islamic banking is an under-served market. Islamic products are open to everybody and I believe this presents a very good opportunity for us.
“Our finance company, Southern Finance, ranks number two in terms of Islamic banking on the retail side, even though it is the smallest anchor finance company. And our unit trust companies, BHL Pacific Trust and Southern Unit Trust, offer a number of Islamic unit trusts. We are gaining recognition as a market leader.”
Dyfrig John, the deputy chairman of HSBC Malaysia, agrees that the young represent a good potential market. “Malaysia is excellent from a banking point of view because you can see a natural movement of ages coming through for many years ahead,” he says.
A key element in Malaysian banking is self-service. “Malaysians embrace technology very easily,” says Mr John. “We’ve shifted from about 30 per cent automated transactions to more than 84 per cent. So it’s nearly all self-service.”