Hong Leong Bank gears up for further expansion

Tuesday August 26, 2008

Electronic banking, regional expansion and Islamic banking are part of its plans

KUALA LUMPUR: It has been about four years since Hong Leong Bank Bhd (HLBB) set out its business transformation programme and the stellar financial performance unveiled Monday is only one of the outcomes of the programme.

Not resting on its laurels, the banking group is gearing up for electronic banking, expanding regionally and beefing up new business lines such as Islamic banking.

Expansion in Malaysia

Group managing director and chief executive Yvonne Chia told StarBiz: “The next level of transformation in Malaysia will be to review the existing distribution network to further optimise our productivity and efficiency as well as to reach out to new communities and a new way of delivery.”

This meant that as customers became more sophisticated, the bank had to think about segmenting the delivery channels for these specific customer segments “and in what way we can achieve high quality service through face-to-face interaction as well as electronic channels,” she said.

The bank is reviewing its entire network, including how the electronic channels can complement the branches.

The recent upgrade of branches goes beyond a face-lift.

“We have already upgraded many branches. You can see our new signboard is brighter and there is differentiation in that sense.

“But now we are going beyond the look and feel,” Chia said.

HLBB has built its network with a key focus on bandwidth and disaster recovery.

“In the process, it has spent on business applications such as in treasury, and also stepped up IT infrastructure and platforms,” she said.

Regional Expansion

Essentially HLBB’s investment in China is on track.

Chia said: “In terms of the regional expansion, we have already concluded the transaction in China and we have today, in China, a chief operating officer who is also the vice-chairman.’’

HLBB announced on July 21 that it had completed the subscription of 650 million shares or 20% equity interest in Chengdu City Commercial Bank Co Ltd.

“We also have two representatives on the board and up to eight people whom we have assigned to strategic positions – finance, personal financial services (PFS), IT, credit and operations,” she said.

HLBB is involved in the strategic planning of the bank.

She said: “At present, we believe it has more or less (been successful in) segregating the non-performing assets and non-performing loans (NPLs).”

HLBB is working with Chengdu City Commercial Bank to scale-up (with the right foundation) the IT infrastructure, governance and internal controls.

“I think these are the foundation for scaling-up especially in a consumer culture. So potentially, this will be one of the fastest growing projects for us,” Chia added.

Islamic banking in Hong Kong

The bank has just last week announced the opening of a window of operations for Islamic banking in Hong Kong.

Chia said: “That is the precursor for us to offer wholesale deposit and investment banking services, fully supported by Hong Leong Islamic bank as well as the head office wholesale and treasury (department).”

She cautioned that it would be a slow process, but the new window was part of preparations to take part in the Islamic banking business out of Hong Kong, where the Hong Kong Monetary Authority (HKMA) is intent on building that business up.

Singapore Business

Despite a competitive market, the bank has been able to sustain its growth in Singapore.
“Singapore (operations) today continues to be ahead in terms of its investment banking transactions, private banking and has been able to differentiate on a sustainable basis,” Chia said.
The bank has also been able to sustain its fee income in Singapore which is on the uptrend.
“We continue to enjoy the support of our clients from the Middle East, China and South East Asia,” she added.

More on transformation

Chia said: “Our results show the momentum of this transformation.”

Post Asian financial crisis, HLBB has undertaken a re-engineering of its workflow and a revamp of credit origination and collection.

“We have also refocused our wholesale and consumer credit with a clear focus on two credit officers,” she said.

The impact has been seen and overall, NPLs have come down with the bank’s emphasis on credit culture based on “a wholesome approach”.

The key now, according to Chia, is finding ways to automate and which will coincide with efforts to step up the bank’s analytics and scorecard to meet the requirements of Basel 2.

“These become our business engineering tools, especially analytics which can aid in marketing and risk management,” she said.

Analytics looks at consumer behaviour from which HLBB aims to draw up marketing programmes.

“In terms of risk, analystics of consumer behaviour becomes the basis to build credit scorecards,” she said.

On the new banking credit management regime, Chia said: “We are comfortable with Basel 2 which allows us to scale and grow in a sustainable manner.”

Talent management

“Part of the challenges that probably would differentiate us today, is people and talent management,” Chia said.

“I think I would say the top team at Hong Leong Bank is strategic and clear with their own respective business programmes in place.

“Let’s just say that I am proud of the leadership as a team, who are able to come together and seen the benefits of the transformation journey and undertake their respective parts,” she added.

In the process, HLBB has built a team that brings in new skill sets which contribute to change across the breath of the business.

“I guess the change is to be relevant to the marketplace, where we retrain the older staff and bring in new skill sets as well.

“It is a combination of training as well as new compensation in-line with the marketplace,” she said.

In strategic terms, the bank is actively bringing in new skill sets to address “the market risk” of a changing environment.

The challenge is to get the combination of old and new to assimilate into the Hong Leong culture of integrity and high performance standards, where we benchmark against the best in the world and the best in class, she added.

Outlook

“Analysts in the US expect that the fallout from the subprime crisis will last until 2009,” Chia said.

However, Asia’s resilience is only in relative terms and the performance of the regional economies still depend on the changing environment in the US and Japan.

The China factor is the main reason that Asia is expected to be able to weather global volatility.
Meanwhile, competition with China’s low-cost manufacturing has actually improved efficiency in many industries in Asia, including Malaysia, making various sectors stronger.

From an investment view point, Chia does not see political risk as the reason for the lacklustre investment scene.

Instead she believes it is all about global efficiencies, incentives in individual countries and events in global markets.

“Nowadays, a dollar is a dollar, and investors look for returns and markets,” she said.
The credit crunch is not so much affected by Asian local currencies, but tight liquidity of US dollars. And foreign investment into Asia is dependent on US dollar position.

Chia remains “cautiously optimistic” about the second half of the year. The banking system is in a much healthier state but cost push inflation is affecting consumption, business growth and demand.

“The bank will have to drive efficiency to cater for the changing marketplace,” she said. It will have to watch the credit and costs, stay in touch with customers’ ongoing business and find new areas as well as offerings in a changing market.

Asia ex Japan could be the bright spot in the global economy in the second half of this year and for the rest of next year even as the credit crisis starts to affect the real economy in the US.


http://thestar.com.my/news/story.asp?file=/2008/8/26/business/1881612&sec=business