KUALA LUMPUR: The Hong Leong banking group’s focus this year will be on amplifying cost efficiency to ride out the ongoing economic headwinds.
Fresh from its mutual separation scheme (MSS) in October last year — details of which have not been released to the public — the banking group is looking to keep spending tight and focus on its core business, particularly on small and medium enterprises (SMEs).
Industry observers estimate some 8,000 employees from Hong Leong Bank Bhd (HLBB) and Hong Leong Islamic Bank Bhd (HLISB) would have been affected by the MSS exercise.
Maybank Investment Bank Bhd (Maybank IB) deliberated that the bank would have forked out RM90 million for the MSS, which meant saving of RM78 million per year for the next three years.
“There is room, therefore, for further cost efficiencies,” it said.
This was echoed by HLISB managing director and chief executive officer Raja Teh Maimunah Raja Abdul Aziz.
“This year, we will focus on managing our costs and bringing our existing online platform to our mobile platform because the future is in mobile,” said Raja Teh Maimunah, who plays a key role in spearheading the group’s ongoing digitisation agenda.
She said the banking industry was in a conundrum as there was a big gap between loans growth and deposit growth.
With Basel III coming into play, the race to raise deposits is picking up. But because of Basel Three, the cost of deposits is up and yet the yield for the loans has gone down, and this will have a continuous impact on margin compression.
“We’re still seeing double-digit loans growth for HLISB… but our bottom line could potentially get hurt because of Bank Negara Malaysia’s new guideline on restructured and rescheduled (R&R) loans,” Raja Teh Maimunah added.
Introduced in the first half of last year, the R&R is designed to discourage the “evergreening” of loans as banks will have to set aside provisions once the loans are classified as impaired, which would in turn affect their profit performance.
A significant portion of current R&R loans are retail-based and mainly in the form of home mortgages and credit cards.
“We will focus more on fee-based income as opposed to loans alone,” said Raja Teh Maimunah.
“We will also continue strengthening our relationship with our retail and SME clients while pushing our digital agenda forward. By adopting digital channels, we can reduce branch operations and that would significantly help with cost management.”
Last year the roup embarked on a four-pronged strategy that included continued investment into digital technology to leverage on “Best in Class” platforms to offer digital solutions and e-payment capabilities.
Since implementation, the group had achieved 28 per cent increase in online banking, out of which 17 per cent was mobile banking users, compared with 2014. The same period also saw a 207 per cent increase in mobile banking users.
The Hong Leong Financial Group is the first bank in Malaysia to offer its online banking services on the Apple Watch. The Hong Leong Connect lets customers view their savings, current and credit card accounts’ balances. The group also has the PEx+ digital platform, a merchant payment function for customers to pay for their purchases via their mobile phones.
“Year on year, we have seen an increase of 1,000 per cent in PEx+ usage and we expect this growth to continue in this challenging economic environment,” said Raja Teh Maimunah.