IN the retail or consumer banking scene, many changes are taking place including some local banking groups becoming indirect beneficiaries of certain foreign banks which have had to do away with businesses they deem not lucrative enough to pursue.

       This is according to some seasoned banking industry observers.

       Which may also explain why some foreign banks such as Citigroup Inc have, in recent times, exited the entire consumer banking business in some countries including Malaysia, citing “the lack of scale to compete.”

       “If you look at the product lines of the consumer banking business of foreign banks, it is mortgage, unsecured personal loans, credit cards and wealth management.

       “Most of the deposit products are actually loss-making and viewed as only funding cost to loans, ” a former foreign bank CEO tells StarBizWeek.

       Their loan products such as mortgages offer thin margins, with the bulk of the business only in urban areas while their unsecured lending has had a lot of restrictions placed on them since a decade ago, offering limited growth opportunities although it is a profitable business, he adds.

       On the other hand, large local banks generally enjoy cheaper and lower cost of deposits by virtue of their size and reach, which translate into a higher net interest income for them.

       Challenges ahead

       But that’s not to say that challenges do not exist for local banks.

       Some are facing similar issues.

       In both the foreign and local banking spaces, increasing competition is forcing players which cannot keep up to give up market share.

       “The consumer banking business has changed over the years and the business will only continue to evolve in time to come, ” says one industry observer.

       The credit card business, for instance, is a relatively challenging operation to maintain, with banks needing customers to roll over their outstanding bills at 18% per annum consistently in order to make sustainable profits.

       However, this market is also fast shrinking due to curbs on personal debt levels by authorities, as well as the mushrooming of non-payment fintech players which are taking over the roles of credit cards via e-wallets.

       Most lenders, however, have strategies in place to manage the changes that are happening within the industry.

       OCBC Bank (M) Bhd head of consumer financial services Anne Leh (pic below) says the foreign bank, for one, is not scaling back.

       “Far from looking to scale back, we are looking to grow our consumer business to make it even stronger and bigger than ever before, ” she tells StarBizWeek.

       According to her, the consumer banking segment contributed about a third of OCBC Malaysia’s total income in 2020 and will continue to be on the upward trend in the future.

       “As we aspire to be the best wealth management bank in Malaysia, we will continue to strengthen our brick-and-mortar capabilities alongside strengthening and enhancing our digital capabilities, especially in our wealth platforms, ” she says.

       To be sure, wealth management is one area that lenders can go big on, with the right strategy.

       Notably, with mortgage, unsecured personal loans and credit cards being challenging businesses to thrive in, this is one segment that has potential, banking on the growing affluence of individuals and the relatively untapped market here.

       Leh believes that in three to five years, brick-and-mortar as well as digital banking solutions will continue to complement each other even more.

       “While digital takes over the simpler transactions, client experience remains key to us as a bank.”

       Any branch closure on its part, Leh says, will only be on the basis of digitalisation opening up new opportunities for the redeployment of OCBC’s staff.

       Still resilient

       In the case of local banks, scale is something they constantly bank on.

       Malayan Banking Bhd group president and CEO Datuk Abdul Farid Alias (pic below) says the bank has “the advantage of scale, connectivity (both physical and digital) and on the ground insights in this (Asean) region.”

       “Overall, our Group Community Financial Services (GCFS), which includes our consumer banking/retail business, in our operating markets in Asean is still resilient, our loans grew at 5.7% year-on-year while pre-operating profit increased 12%, as at March, ” he tells StarBizWeek.

       He says to continue to grow the lender’s consumer banking business, it has been stepping up on digitalisation.

       “As an example, in Malaysia, all of our credit card applications are done online now. Through our MAE app, customers are able to open a banking account without having to step into a branch.”

       Online transactions

       The bank, the largest in the country, has seen a jump in its online monetary transactions in Malaysia which grew by 66% on a year-on-year basis, while its MAE app, which was launched last October, has also seen an increased adoption, with about 2.4 million of its customers using the app as at May.

       In financial year 2020, GCFS contributed 52% to the group’s net operating income and it continues to be a key income generator for the bank, Farid adds.

       “In the next few years, we expect to see increased digital and technology-driven competition in the consumer banking industry.

       “Hence, the consumer banking landscape is set to evolve into a more flexible and agile distribution model that necessitates banks to operate more efficiently and provide more personalised service to its customers.”

       For closest competitor CIMB Group Holdings Bhd, the consumer banking business, according to its group CEO Datuk Abdul Rahman Ahmad, has always been a profitable franchise and remains a “critical” component of its overall goal.

       “Our strategy, as part of our Forward23+ strategic plan, is to focus and double down on wealth management and on consumer banking, especially through digitalisation, data analytics and personalisation to ensure we are able to deliver a differentiated proposition, ” he tells StarBizWeek.

       The consumer business contributed about 35% of the group’s profits in first-quarter 2021.

       “As part of the Forward23+ programme, there are plans in place to continue to scale and grow the consumer business, ” Abdul Rahman says.

       Like most bankers, he says consumer banking evolution will continue to be driven by digitisation, technology and insights from data analytics.

       In the same vein, he says the bank will continually evaluate its branch network across the region to ensure it has an “optimal” distribution platform.

       “As of today, our banking transactions are already predominantly done digitally.

       “As more and more transactions and services are fulfilled digitally, there will be a re-visioning of the current focus, format and design of branches, ” Abdul Rahman says.

       Target segments

       RHB Banking group managing director and CEO Datuk Khairussaleh Ramli (pic below) says the lender will continue to grow its market share of target segments in retail banking and accelerate the development of various offerings to meet the needs of its customers, in line with its FIT22 Strategy.

       “We have seen strong growth in our retail banking business in the last 12 months, where our loan/financing portfolio has grown by 6.4%, while over 80% of customers’ transactions are being conducted digitally as of first-quarter 2021, ” he tells StarBizWeek.

       Khairussaleh says retail banking no longer focuses exclusively on offering banking products alone and as such the lender has launched various ecosystems to address this shift in customer preference and behaviour.

       “Within the retail banking space, our focus moving forward remains on target segments outlined in our FIT22 Strategy as primary revenue and profit generators including affluent and small and medium enterprises (SMEs).

       “Additionally, we look towards further strengthening our share of wallet and market penetration for large-cap and mid-cap companies, respectively, ” he says.

       AMMB Holdings Bhd (AmBank) group CEO Datuk Sulaiman Mohd Tahir says AmBank’s retail banking has been gaining market share with consumer banking having become one of the primary income generators for the group.

       “There is still much potential to be explored.

       “For FY2021, income increased 9% to RM1.6bil; we have seen tremendous value in our focus on affluent individuals and SMEs, these are our high-value segments, ” he tells StarBizWeek.

       Sulaiman concurs in that the banking infrastructure is evolving.

       “The essence of this evolution will be the enhanced integration of technology and adoption of digital channels, which will allow consumer banking to be more accessible to a wider customer base, ” he says.