Keeping with the times
Maybank S’pore CEO says lender is conscious of the fact that if it does not evolve, it will basically ‘disappear.’
MALAYAN Banking Bhd (Maybank) Singapore appears not to be taking any chances when it comes to the ever-changing role of banks.
It has devised strategies which it hopes will continue to keep the lender relevant in the city-state where it is just one of the many hundreds of financial institutions hungry for a bigger slice of the pie.
Maybank Singapore CEO John Lee Hin Hock makes no qualms in saying that, while what banks currently do is necessary, the big question is whether people actually need banks to do these things.
“You take whatever we do today, for example, we give loans and take deposits. But (now) we have crowdfunding and P2Ps (peer to peer), so we don’t need banks anymore right?
“I think every bank is asking that question – so in a lot of the things you see we are doing, we are conscious of the fact that if we don’t evolve, we will basically disappear,” he tells StarBizWeek matter-of-factly, at Maybank’s headquarters in Kuala Lumpur earlier this week.
In his first exclusive interview with Malaysian media since assuming the head honcho role at Maybank Singapore a year ago, Lee, who was previously Maybank group chief risk officer, knows that he has his work cut out for him.
Especially so, in an extremely competitive market like Singapore.
“Singapore is a very different market from Malaysia; the main difference is that the Singapore market is a world stage.
“Malaysia is still a close market. You look at the (number) of players here, it is limited, it is not as open as in Singapore where anyone can come in.”
One of the strategies that he is contemplating to employ is a “re-modelling” of Maybank’s Singapore branches, which total 20, in all.
“We want to re-design our branches so that people come to our branches but how do we make people come to our branches?
“If I give you an offering, you might want to come right? The question is what (is the offering) and how do we engage our customers.”
The bank recently launched MSpace, a test branch or what it calls a concept branch – which combines bank, cafe and customer engagement sessions – in the hopes of finding that elusive answer.
Another strategy he is toying with is to hire psychologists to join the bank so as to better understand consumer behaviour.
Maybank Singapore’s earnings currently make up about 10% to 12% of the lender’s overall profits, making it the second largest contributor after Malaysia which generates around 70% of the group’s profits.
Its third largest profit contributor is Indonesia.
The bank’s significance in Singapore, where it is one out of at least 180 other financial institutions, was given a boost recently when it was given approval to locally incorporate its community financial services business.
Lee says moving forward, growth will come primarily from several areas such as wealth management, capitalising on Singapore’s position as a financial hub.
Its wealth management business, which includes private and premier banking services, has seen double-digit growth over the past five years since it was set up, thanks to growing affluence.
The group started its private wealth business in Singapore before expanding it to Malaysia and Hong Kong. Currently, its private banking assets under management (AUM) total US$10bil.
For comparison sake, UBS, which is the largest wealth manager in the Asian region as well as having a strong presence in Singapore, has a total AUM of US$382bil as at the end of 2017, according to Asia Private Banker.
Private banking “very, very competitive”
Lee says the focus for now is growing the premier banking market (defined as accounts with deposits and or investments above S$300,000) as opposed to private banking (above S$1.5mil).
He points out that private banking in Singapore is a “very, very competitive” market with the presence of far more established global players the likes of UBS, Credit Suisse and JP Morgan.
“Where I think we can create a stronger niche is the premier market as this is focused on people with newer wealth creation,” he says, adding that these individuals are obviously less demanding with products for them not having to be too complex in nature.
“The premier market, we talk about the more plain-vanilla stuff, more generic, as opposed to alternative investments like wine and art for private banking ...”
Profit margins are also “better” for the premier banking segment, he adds, without citing figures, as the cost to serve is “cheaper”.
“Basically, we need to increase our feebased income. I think if you look at Maybank, a lot of our business still comes from interest income or fund-income. So we want to grow our fee-income – wealth management is one, the other is trade.
“Singapore is a trading hub and our strength is trying to connect the trade corridors in Asean, that’s fee income for us.”
Lee says there’s a conscious effort to also try to do its business “better” with emphasis on a more competitive funding base.
“There is a lot of competition for deposits/ funds in Singapore, there is always a fight going on.
“People are able to move money very easily. In a blink of an eye you are able to move money from one bank to another with very little cost, if any at all, so we need to be smarter on how to attract people when creating products.
“If we pay up, we will get the FDs (fixed deposits) but that will increase our funding cost ... we compete if we have to but what we want to do is be a bit more creative.”
On investment banking deals, Lee says that previously, the lender did not really see it as an area that it wanted to focus on too much.
“But now we do and we believe that there’s a lot more that we can do.”
He says no specific growth or earnings targets have been set as yet for the Singapore unit, which for the nine months ended September 2018 reported a net income of S$844.94mil, 12.3% higher than what it made in the previous corresponding period.
“Now that we are locally incorporated, we probably will have our own targets but these have not been worked through yet.”
Nevertheless, Lee says the aim is to be a “more significant” contributor and a more “meaningful” business to the group.
“Our group has always said that we aim for a 40% contribution from all overseas markets but I think while we have set that target, the Malaysian business has also grown. So in that sense, we need to grow faster overseas to be able to catch up with that growth.”
Notably, Maybank is one of the few Malaysian banks with a presence in Singapore. It is the fourth largest bank by asset size in South-East Asia.
While the top three positions belong to Singapore banks – DBS, OCBC and UOB – the fifth largest is another Malaysian lender, CIMB Group Holdings Bhd.
But Lee doesn’t quite consider Malaysian peers like CIMB his closest rival nor is he focused on taking on Malaysian business, per se.
“Every bank in Singapore is a competitor. We are not so focused on CIMB or RHB (which also has a presence there), we compete with DBS, OCBC and UOB. In fact, 80% of our revenue in Singapore is from Singapore businesses.”
“Sufficient provisions” for Hyflux
Investors who track Maybank Singapore will recall that one of the thorns in its flesh this year was its link to Singapore-listed water treatment firm Hyflux, once the darling of investors.
The company, started by Malaysian-born Olivia Lum, received its fair share of flak this year, largely due to debt issues and the need for a business reorganisation. Its stock has since been suspended.
Maybank is Hyflux’s sole secured creditor for its loss-making Tuaspring water and power plant.
Just this Tuesday, Hyflux obtained its third extension of a deadline to find a purchaser for the plant. Maybank, in turn, has agreed to a deadline of Dec 28, from Nov 29 previously.
On this, Lee says that provisions have been made in the previous financial quarters and are sufficient thus far.
He says the lender is not expecting any other provisions out of the ordinary, moving forward, and its exposure to sectors like property and oil and gas, which have been less than favourable in recent years, are not too much of a concern.
“In the banking market, provisions are always there, more so under FRS 9. Basically we have to foresee what the market will look like and we have to provide based on that prediction but there’s nothing out of the ordinary.”
Open banking
On trends, he says there are a few banking patterns that are set to, or rather in places like Singapore, already picking up pace.
“One is the whole digitalisation idea. People are making decisions using different data sets, using artificial intelligence is another one, there are also people experimenting with blockchain.”
Lee says because of digitalisation and automation, the truth is that the banking sector, like many others, is going to need less and less human beings to do its work.
“Most banks are probably hiring less and less fresh graduates because of this. From a personnel cost perspective, you will see a downtrend but investments in technology will increase.”
The second big trend, he says, surrounds the concept of open banking.
“In Europe and the UK, they have already adopted this whereby open banking means the data of customers – with their consent – must be shared by all parties which are allowed to come into the banking system.”
This concept changes the way in which banks handle the financial information of its customers because it means the bank – with the consent of individuals – must share data which show the spending, lending and borrowing patterns of its customers with other parties.
The idea behind this is to spur innovation, competition and transparency.
What Singapore is trying to do is to make it a little more controlled for now, Lee says.
“As a bank, you can basically be displaced if you don’t do anything about this but if you do it well, you can attract customers. For Maybank, we have more to gain than lose because today, we only have about 4% to 5% of the market.
“DBS, OCBC and UOB collectively have about 70% of the market, so basically we can attract their customers to come to us with this open banking system, offering more things that are innovative and creative. But like I said, if we don’t do it well, it could also mean that we could lose customers.
“I think it will be a limited open banking system here by the end of this year but eventually it will be totally open,” Lee says, adding that issues like legal structure, rights and data protection of customers are being worked out by the relevant authorities.
The third big trend that will be of significance is the sustainability agenda.
“Increasingly, a lot of investors are pressuring companies to be sustainable. Obviously for banks, when they are asked to finance someone, they must make sure that it is done in a sustainable manner.
‘We have things like green bonds now – loans that are tied to meeting a certain sustainability agenda – you will see more of these happening,” he says.