The road ahead for Maybank

Saturday August 8, 2009
By JAGDEV SINGH SIDHU

Its push for regionalisation will continue as other players seek opportunities in the region as well.

The changing landscape of banking has brought about many opportunities for banks in the country and it is no different for Malayan Banking Bhd, the largest bank in the country.

Maybank, like many others, is set on growing its staple businesses and is fleshing out the segments in which it is weak. But what excites the bank the most has been the source of much of its recent criticism.

Regionalisation, which had come at a great cost to Maybank, is seen as a segment of business that excites the upper echelon of management. The prospect of tagging on high-growth markets to the more placid growth markets in Malaysia is seen as the ideal tonic for the bank.

“For the banking entity, the push for regionalisation will continue and others will be looking for opportunities in the region as well,’’ says Maybank president and CEO Datuk Seri Abdul Wahid Omar.

Maybank spent RM11.1bil acquiring three banks just before the financial crisis engulfed much of the world.

The resulting recession seen in much of the developed world dragged down growth rates and dampened prospects throughout the world.

For Maybank, it had an added task of managing a transition of ownership, particularly in the next crown jewel of its overseas operations – Bank Internasional Indonesia (BII).

“As far as BII is concerned, because of the transition, it has not fully grown for the moment. And we want to make sure we put in place the necessary infrastructure before we push for growth. Our asset size has been relatively flat over the past one year,’’ he says. “We will start to expand a bit more aggressively from September.”
The under-banked market in Indonesia – where the banking penetration is just 33% to gross domestic product (GDP) – offers tremendous medium to long-term prospects to Maybank.

The market in Indonesia is also a fertile ground for Maybank to start cultivating its Islamic finance business as that business makes up just 5% of the market there.
The excitement also extends to Malaysia where Wahid says Islamic banking makes up 17% of total assets but the growth is twice as fast as conventional banking.

“As you cross the 20% to 25% range and reach a third, then you will see critical mass and with that innovation will come,’’ he says.

Wahid says the Islamic capital market is also interesting although it has been affected by the economic environment and the availability of conventional funding at very low rates.

“But as the economy recovers, capital-market activity will return such as sukuks and various other structures coming into place,’’ he says. “We also have takaful under Etiqa and some wealth management under Maybank Islamic. Eventually we are looking to consolidate everything under one entity, and that is Maybank Islamic.’’

Another exciting business segment for Wahid is Internet banking.
Maybank currently has the largest number of customers who do banking online through its Internet banking channel – 3.3 million out of a customer base of eight million – and he expects them to conduct more diverse transactions in the future.
“Currently, a lot of them are doing basic transactions but we are beginning to see other types of transactions such as the purchase of other products and money transfers,’’ he says. “Even though the penetration on mobile is not there yet, it is something we see happening in the next five years.’’
Domestically, Wahid feels Maybank could do more in investment banking and stockbroking.
“Although in debt capital markets we are ranked second, in the equity capital markets we are probably number three or four,’’ he says, adding that he wants to close the gap with the leaders.
Maybank, he says, has spent the downtime in investment banking this year on beefing up skills and resources so as to capitalise when the markets pick up next year.
In stockbroking, Wahid says Maybank is ranked seventh or eighth and that more needs to be done to tap the group’s vast branch network to grow that business.
“Once we get the infrastructure improved and strengthen our management on the broking side, and coupled with Internet banking and broking, we can make good advancement,’’ he says.
On asset management, Wahid says Maybank has made a conscious decision to park its asset management business under its insurance business so that the group can have a sizeable amount of funds under management.
“With that we can look at RM20bil of assets under management and from there we can strengthen our capabilities before going out and managing third-party clients,’’ he says, adding that the group is at least a couple of years away from managing a substantial amount of business for third-party clients.
“We also need to rebuild our unit trust management,’’ he says.
StarBizWeek: Has the crisis opened an avenue for Maybank?
Wahid: It has, from the corporate banking perspective. The large foreign players have slowed down and allowed us to gain dominance and prominence in that market. It has also helped us in terms of pricing.
Until recently it was so competitive, and many corporates were enjoying 50-basis-point spread over the cost of funds. But now the pricing is better and these people are paying close to 100 basis points.
What are the problem areas?
In terms of non-performing loans (NPLs), they are manageable. The net NPL ratio continues to decline. At end-March, it was 1.76% compared with the industry’s 2.2%.
We expect the number to have improved further after June.
There are concerns there could be a delayed effect, in the second half of the year, from customers who are suffering and who have run out of cash and no longer enjoy the indulgence from banks. So far, we think it is manageable.
The good news is that the economy has seen its bottom in the first quarter. We should be seeing improvement in the second quarter. From minus 7.7%, we should be seeing upwards of 2% on a quarter-on-quarter basis.
As the head of the Association of Banks, what is your view on the state of the banking industry?
Malaysia must be the strongest in this region. In terms of the capitalisation ratio as at May, I think the industry’s RWCR (risk-weighted capital ratio) was 14.2% and the net NPL ratio was 2.2%. The net NPL ratio has been holding steady for the past nine months. Some banks are recording lower profits but in the scheme of things it is still profitable.
Should banks adopt the model of conservatism and safety especially in view of things that have happened overseas or should they be a little more adventurous?
We have to go back to basics. The role of banks is to mobilise savings and rechannel them to the productive sectors of the economy.
And the protection of depositors’ money should be paramount. I don’t think banks should be overly adventurous and change their risk profile and jeopardise deposits.
As you progress, there will be various risk management instruments, such as deposit insurance, but these are just additional tools.
Given the increasing regional presence of large banks, do you still think the future of these banks is still Malaysia?
The domestic market will have its limits in terms of growth. Domestic loans growth is in single digit and if a bank wants growth, it has to look beyond our shores in markets where the banking penetration is relatively low.
Indonesia has a population of 235 million and the banking penetration there in terms of loans to GDP is 31%. It means there is high growth potential. Expanding operations to capture that growth and later on profit would be highly relevant for us.
But that does not mean we must ignore our domestic market. There is no way any company can claim to be a regional or global champion if its home base is weak. The home base will provide the core earnings for a bank to be able to expand abroad.
Are you paying more attention to foreign operations than local at this moment?
Before you grow abroad you have to make sure you have the necessary financial and human capital resources. On human capital, it is important to compartmentalise and have a dedicated team to run the international operations.
The way we run it, as in the case of Indonesia, is that we make sure we assemble a solid team on-site in Jakarta to run it as a full-fledged bank there. My role as group CEO is to guide them from a strategic perspective. I have managers in international (operations) who will oversee them and I spend about two days a month in Jakarta with management to go over the strategy and their performance.
You spent RM11.1bil buying three assets abroad, how important is expansion abroad to the future of Maybank?
I think it is important from a growth perspective. Foreign loans account for 30% of the group’s total and the idea is to have foreign operations contribute about 40% of loans.Eventually, as we grow further, it will be 50:50.
In terms of profit contribution, we are looking at one third initially and over time that will increase.
In terms of growth, they provide double-digit growth prospects. It is also important from the perspective of being relevant to our customers.
Having expanded their operations in Singapore, Indonesia, the Philippines and Indochina, we are able to support them. We start by providing support to customers we are familiar with. Over time, we will develop a strong client base in Indonesia as our base there grows. There will be benefits of having a cross-border linkage.
How would the competitive landscape in those countries influence decisions and the business model?
We do not adopt a one-size-fits-all concept. Banking operations in each country are tailor made to the situation in each country.
We apply the same risk-management standards in every country even though the business model can be different.
How will Islamic banking feature in an international perspective?
We are already the largest Islamic bank in terms of assets and we want to be holistic. We have been improving in terms of our loans to deposit ratio.
The next is to look at Indonesia. It’s still early days but with BII being established there, the setting up of a parallel syariah banking entity will be our next goal.
Islamic finance in Indonesia is not yet 5% of the banking assets there. Like Malaysia, it is growing very fast.
We also look at other non-traditional Islamic markets such as Singapore.
There is a high level of Islamic finance awareness and we have tried introducing some new products in Singapore.