KUALA LUMPUR: CIMB Group, Malaysia’s second largest bank with a deep presence in Asean, has identified three key markets that will shape the group’s future growth in the region.
The first is Indonesia, where it’s CIMB Niaga has had to deal with high provisions for non-performing loans (NPLs) due to lower commodity prices, especially coal.
“When Indonesia's economy picks up, then CIMB Group will benefit. We would be the main beneficiary among the banks in the region. We have the biggest exposure in Indonesia. If it comes back, you can see our numbers improve a lot,” Tengku Datuk Seri Zafrul Abdul Aziz said.
In an exclusive interview with the New Straits Times Press group, the 42-year-old group chief executive officer was confident that the Indonesian operations would be able to recover.
At its peak, Indonesia contributed 30 per cent to CIMB Group’s pre-tax profit, but has dropped to less than five per cent this year.
In its third-quarter results released yesterday, CIMB Niaga said gross NPL ratio had improved to 3.17 per cent as at September 30 from 3.35 per cent for the same period a year ago.
The second key market and new growth area is Indochina, where the group will open its first branch in Vietnam in 2016. It already opened a branch in Laos last year and has a representative office in Myanmar. Operations in Cambodia already turned profitable last year.
Next is Thailand, where CIMB’s corporate banking business is already doing well but the consumer bank operations need to be turned around.
“We don’t have the scale. We’re still small. So, either we need to have more branches through acquisitions or focus on niche markets like high net worth, which is what foreign banks are doing,” Tengku Zafrul said in the wide-ranging interview.
On the proposed merger between CIMB, RHB and MBSB, he said the plan was aborted because the implementation of the strategy to achieve synergy would be extremely challenging in the current economic climate.
“The reason for doing a merger is obvious — synergy. But to achieve that synergy, there is cost. Ninety per cent of synergy is cost rather than revenue, because with revenue a lot of it overlaps — we have the same customer profile on the retail side, both are GLCs (government-linked companies) so most of the big corporates we cover together.
“So how do we realise this cost? Can we execute the cost synergy or not? It’s difficult. That is why it is high risk. Based on synergy, that is how we justify the price.
“We couldn't agree and we moved on. In hindsight, it was a good decision made by all parties because if we do it today, we don’t think we can achieve the synergy with the current economic conditions,” Tengku Zafrul said.
On challenges facing the banking group in the years ahead, he said two major issues will be technology and human capital.
“The challenge for any bank like us at this size and growing bigger is the mindset. We always think that things won’t change,” said Tengku Zafrul. “But then we have seen what happened to big major corporates especially in the technology side, like Nokia.”
He said there is nothing to stop other players from entering the market and offering attractive solutions using new technologies, especially on the payment side.
In response, CIMB Group has started to look at what’s new in financial technology (FinTech). It recently invested in Startupbootcamp, a European initiative which recently opened in Singapore.
“We can see the technology, talk to people and invest in some new ideas. We cannot shy away. If we don’t embrace these disrupters, they will disrupt our business," Tengku Zafrul added.
With about 41,000 employers across the region, talent management is another challenge for CIMB Group.
“Talent at the senior level is very scarce in Malaysia,” Tengku Zafrul said. “Now we have a talent management committee in various units in all countries to look at talent development for all our high potentials. We didn’t have that before.”
He said pinching of staff among banks is still common in several countries where the group operates, including Indonesia, Thailand and Malaysia.
“I don’t think it’s healthy because it shows that talent development is not being done properly. You need to have a successor. In that way I think Petronas is doing very well, because their succession planning usually has coverage of two to three times. One person has got three successors. It’s important to build talent pipeline internally,” Tengku Zafrul said.