Stay­ing the course

CIMB group whole­sale bank­ing CEO re­mains con­ser­va­tive de­spite im­prove­ments seen

The Star Malaysia - StarBiz - - Companies & Strategies - By YVONNE TAN yvonne@thes­tar.com.my

TWO years into the job as the CEO of group whole­sale bank­ing at CIMB Group Hold­ings Bhd, Mak Lye Mun says the di­vi­sion has achieved most of what it set out to do and growth plans are in­tact.

But true to his con­ser­va­tive na­ture which is well dis­played dur­ing this lengthy in­ter­view, Mak is not cel­e­brat­ing just yet.

“Al­ways un­der-prom­ise and you will over­achieve,” he quips.

That mantra could be es­pe­cially use­ful in an in­dus­try like his, one that is closely in­ter­twined with for­tunes of clients – some­thing which no one can ever ac­cu­rately fore­tell.

“With the larger banks or in­sti­tu­tions, there is al­ways the temp­ta­tion to only choose or cherry-pick clients which can de­liver ROI for just this year, or next year, or for strate­gic trans­ac­tions that can bring in im­me­di­ate value.

“Our group whole­sale bank­ing prac­tice how­ever looks at clients holis­ti­cally, based on their longer-term po­ten­tial – not just in fair weather. Time will tell if our strat­egy has been cor­rect,” he says.

“Of course, the more risky the bor­rower, the more in­come you make but that might come back and bite you later on,” adds the 60-year-old sea­soned in­vest­ment banker.

If num­bers are any­thing to go by how­ever, it ap­pears that things are on track for the di­vi­sion which has had to deal with – over the last few years – high op­er­at­ing costs that re­sulted in sev­eral loss-mak­ing busi­nesses out­side of the lender’s main Asean mar­kets.

For the fi­nan­cial year ended Dec 31, 2017 (FY17) for in­stance, CIMB’s whole­sale bank­ing di­vi­sion which op­er­ates in the bank’s core mar­kets of Malaysia, Sin­ga­pore, In­done­sia and Thai­land saw its profit be­fore tax con­tri­bu­tion to over­all group pre-tax profit stand at 42%, up from 34% in FY16.

At 42%, its con­tri­bu­tion was sim­i­lar to that of CIMB’s con­sumer bank­ing seg­ment.

CIMB’s whole­sale bank­ing busi­ness in­cludes its in­vest­ment bank­ing or IB (eq­uity cap­i­tal mar­kets, debt cap­i­tal mar­kets and ad­vi­sory), eq­ui­ties and re­search, trea­sury & mar­kets, cor­po­rate bank­ing, and its pri­vate bank­ing seg­ments.

“When I started in 2016, we said let’s try to man­age our pro­vi­sions, in 2017 we saw lower pro­vi­sions than 2016 and this year, we are also fore­cast­ing much lower pro­vi­sions for whole­sale,” says Mak, who is also CEO at CIMB Sin­ga­pore.

“We did some scrub­bing, so you don’t see a lot of loan growth, we didn’t want to take high credit risks.”

As a re­sult, whole­sale bank­ing’s qual­ity of credit is “gen­er­ally bet­ter” now, he says and this is a strat­egy that it in­tends to con­tinue to pur­sue.

In terms of its cost to in­come ra­tio (CIR) which is a bench­mark of over­all pro­duc­tiv­ity, Mak says the seg­ment is on the way to achiev­ing its set tar­get, which is 40% CIR by 2018/19, am­bi­tious as it may sound.

“Last year, we re­duced our CIR by 200 ba­sis points from 49% to 47%, for this year, we think that the down­ward trend will con­tinue,” says Mak.

In com­par­i­son, CIMB’s clos­est com­peti­tor, Malayan Bank­ing Bhd’s sim­i­lar di­vi­sion has a CIR of 36%.

The pri­mary rea­sons for CIMB’s whole­sale bank­ing di­vi­sion’s drop in costs last year were a much im­proved rev­enue con­tri­bu­tion from its core mar­kets, re­duc­tion in costs out­side its non-Asean mar­kets like Hong Kong, and its eq­ui­ties busi­ness which turned prof­itable.

This year, the lender’s joint-ven­ture (JV) with China Galaxy Se­cu­ri­ties Co Ltd (CGS) which was re­cently com­pleted, will fur­ther cause a drop in costs.

Re­call, in Jan­uary, CIMB and CGS had com­pleted the sale and pur­chase of a 50% in­ter­est in CIMB Se­cu­ri­ties In­ter­na­tional Pte Ltd, whereby CIMB and CGS are now 50:50 share­hold­ers of CIMB Se­cu­ri­ties In­ter­na­tional.

CIMB Se­cu­ri­ties In­ter­na­tional houses the bank’s in­sti­tu­tional and re­tail bro­ker­age busi­ness as well as eq­ui­ties re­search in In­done­sia, Sin­ga­pore, Thai­land, Hong Kong, South Ko­rea, In­dia, the UK and the US.

No­tably, by the end of the first half of this year, CIMB’s Malaysia stock­broking busi­ness is ex­pected to be in­cluded into the JV.

“This year how­ever, we have to make up for the loss of rev­enue from the de-con­sol­i­da­tion of our eq­ui­ties busi­ness, we think we will still show some topline growth, notwi­stand­ing the loss of some rev­enue but we also de-con­sol­i­date some ex­penses due to the JV, so net net, it’s a good thing.”

Mak notes that CIMB’s eq­ui­ties busi­ness which has been loss-mak­ing for the last few years turned prof­itable last year due partly to more ef­fi­cient re­al­lo­ca­tion and use of re­sources, and for the first three months of this year, the busi­ness re­mained prof­itable.

Mov­ing for­ward, he says costs should con­tinue to trend down helped also by pro­cesses and tech­nol­ogy put in to im­prove pro­duc­tiv­ity.

The whole­sale bank­ing di­vi­sion, he notes has com­mit­ted to in­vest 1% of its an­nual rev­enue on tech­nol­ogy but the way in which the busi­ness views tech­nol­ogy is rel­a­tively dif­fer­ent from the way its coun­ter­parts see it.

“For whole­sale, tech­nol­ogy is viewed more as a part­ner and en­abler, not a dis­rup­tor un­like con­sumer bank­ing where fin­techs want to eat their lunch...

“Tech­nol­ogy helps us be­come more ef­fi­cient and to be com­pli­ant, it frees up our peo­ple to do more value-added work... whole­sale is re­ally about know­ing your cus­tomer... it’s all very tai­lor-made, I am not overly con­cerned about fin­techs dis­rupt­ing our cor­po­rate or in­sti­tu­tional busi­ness.”

He says on the whole, the di­vi­sion’s CIR has also come down be­cause it has been gen­er­at­ing more rev­enue across all coun­tries, helped by im­proved mar­ket con­di­tions.

“Low­er­ing cost can only take you so far.”

For this year, whole­sale bank­ing growth should come pri­mar­ily from all seg­ments and coun­tries but Mak thinks that pri­vate bank­ing and In­done­sia will likely dom­i­nate.

Pri­vate bank­ing be­cause of a surge in new monies and client net­works that the group has man­aged to build over the years, and In­done­sia, be­cause the coun­try has “a lot of po­ten­tial with on­go­ing in­fra­struc­ture projects” that will need fi­nanc­ing and trade that it can help fa­cil­i­tate, he says.

“Pri­vate bank­ing is grow­ing very fast and has now be­come a larger profit con­trib­u­tor than IB. The big­gest con­trib­u­tor for us last year was cor­po­rate bank­ing, fol­lowed closely by trea­sury and mar­kets, ” he says.

Hav­ing said that, he says while IB’s profit con­tri­bu­tion is rel­a­tively small, it adds “a lot of value” in other ways.

“You can­not say just be­cause IB doesn’t con­trib­ute as much to the profit line as the other units.. .it is not im­por­tant, it is im­por­tant for pro­fil­ing for ex­am­ple, and IB re­mains an im­por­tant part of busi­ness.

“It also doesn’t use a lot of cap­i­tal un­like cor­po­rate bank­ing for in­stance which takes cap­i­tal and the risk-weight is there, in IB you do an M&A, you don’t nor­mally use cap­i­tal there, right?”

He notes that in the IB busi­ness, the lender will con­tinue to main­tain its cur­rent lead­er­ship po­si­tion in Asia.

“When the mar­kets are good, we will make more money, as for the deal pipe­line, it is there and that’s gravy for us. But we all know a pipe­line re­mains just a pipe­line... mar­kets can be very volatile.”

Mean­while, based on re­cently-re­leased data, bet­ting on pri­vate bank­ing for growth does seem like a strat­egy in the right way.

The Asian Pri­vate Banker re­ported this week that as­sets un­der man­age­ment (AUM) at Asian pri­vate banks in­creased by al­most 30% last year to US$2 tril­lion, buoyed by China flows and healthy fi­nan­cial mar­kets.

At US$2 tril­lion, this was re­port­edly the fastest an­nual growth in the re­gion since the Hong Kong-based pub­li­ca­tion started col­lect­ing such in­for­ma­tion six years ago.

In terms of rank­ing, UBS Group AG was said to have man­aged the high­est amount of as­sets among the top 20 firms, fol­lowed by Cit­i­group Inc and Credit Suisse Group AG.

In 2017, the Europe-based UBS said its Asia-Pa­cific wealth man­age­ment unit saw its in­vested as­sets rise 28% to 373 bil­lion Swiss francs (US$387bil), its best per­for­mance since 2010.

Com­par­a­tively, CIMB cur­rently man­ages over US$13bil in AUM. How­ever, it does as­pire to be among the top 20 in Asia Pa­cific.

Based on the 2016 League Ta­ble Pri­vate Bank­ing, it is cur­rently slightly out­side the Top 20 list, with num­ber 20 on the list man­ag­ing an AUM of US$15bil.

Mak ad­mits that com­pe­ti­tion is in­tense although the pie seems huge enough with in­di­vid­u­als in the re­gion get­ting richer, thanks partly to the cre­ation of new economies. One ad­van­tage it does have over its larger and more ex­pe­ri­enced com­peti­tors is the re­la­tion­ships that it has es­tab­lished with in­di­vid­u­als in Asean and Asia.

“For ex­am­ple, in Malaysia, be­cause we are strong in IB, we know all the movers and shak­ers here and in the past they may never have re­ally banked with us but our ex­pe­ri­ence with them in IB can make it eas­ier for us to talk to them about han­dling their pri­vate wealth .”

Hav­ing been in the role for two years now, Mak hints at the pos­si­bil­ity of re­lin­quish­ing it to some­one else in the not-so-dis­tant fu­ture.

“Per­haps a lady who will have a softer touch,” he jokes.

A firm be­liever of no one be­ing in­dis­pens­able he says: “When you take on a new role, your ul­ti­mate goal must be to marginalise your­self, if you can do this, you would have done a good job.”

By marginalise, he means to have trained up a team not fully de­pen­dent on one leader.

He be­lieves he’s been able to do this by get­ting “very ca­pa­ble peo­ple in all the right seats”.

But there are still chal­lenges.

He points out that the work­force of the fu­ture needs to be ag­ile, able to take on new chal­lenges and learn new skills.

“That is the na­ture of the world to­day and I am fo­cused on build­ing tal­ent with ca­pa­bil­i­ties which will en­able them to work across in­dus­tries and ge­ogra­phies.”

He says skill-mo­bil­ity is es­sen­tial for any­one in the bank­ing in­dus­try but es­pe­cially for CIMB’s fran­chise where it wants to have deeper and wider ca­pa­bil­i­ties across Asean.

In a busi­ness such as this, Mak be­lieves that it’s al­most al­ways 70% luck and 30% hard work.

“Let’s not say all suc­cess is due to one per­son but nei­ther is all fail­ure due to a sin­gle per­son, we have been lucky so far... hope­fully, we will con­tinue to be lucky, some­thing like what Napoleon (Bon­a­parte) said... I’d rather have lucky gen­er­als than good ones...”

“Also, we can plan but things al­ways change, it’s how fast you re­act that counts.”

Mak: Our group whole­sale bank­ing prac­tice how­ever looks at clients holis­ti­cally, based on their longer-term po­ten­tial – not just in fair weather. Time will tell if our strat­egy has been cor­rect.

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