Malayan Banking Bhd's performance in recent times must certainly be a relief for president and CEO Datuk Seri Wahid Omar (pic). Record profits, having the right people on board and improved dynamism within the bank don't mean he is able to take it easy, but it means he will have the luxury of letting the company run on its own steam after a reorganisation to effect such changes gets well under way.
Below is an extract of the interview with StarBizWeek.
How do you assess risks to your regional strategy?
We have been growing our risk management capability in order to operate in a multi-currency environment. We are realistic enough not to stretch our resources. That's why we are focused on Asean and its key trading partners as opposed to claiming to be a global bank.
What about your domestic banking franchise?
Expanding overseas doesn't mean our local business is stagnating, it's just that growth abroad will be faster. The target of 40% pre-tax include inorganic assumptions. Organically we can grow to about 33%. The rest will come from M&As, Thailand in particular.
Is the growth in Indonesia last year a one-off?
Absolutely not. The economy is growing well. As we grow, we become more efficient and our cost-to-income ratio improves.
Does Bank Internasional Indonesia's performance vindicate the price tag?
We all make decisions based on the circumstances at the time. There was a scarcity of vehicles available, hence the large premium we paid. Profit, return on investment is now improving. Is it highly profitable? Not yet.
And when do you expect that will be?
We are in Indonesia for the long haul. The sooner the better. Over time we'd like to rebrand it as Maybank-BII.
Has Singapore reached a saturation point?
It has been very successful. We have 22 physical branches and five outside ATMs. We have reached a level where pre-tax profit has reached the RM1bil level. Our target is S$1bil. The current platform can't take us there. We are undertaking a massive study to see how this can be done. We also take into account Monetary Authority of Singapore's announcement about local incorporation. The statement made was that banks that are systemically important from a deposit-taking perspective should be locally incorporated. The other part is to allow some banks that have been responsible to increase their branch network to 50 points of presence (up to 35 physical branches and 15 offsite ATMs). We are one of the most efficient banks there.
Why has it taken you so long to realise the potential of the Philippines?
We have to look at the readiness of the market and our capacity as well. At the end of the day we have our priorities. In the early years it was to make sure we could operate profitably and grow steadily. We also had to focus on other markets such as Indonesia and Singapore. But we believe the time has come to expand our focus to countries like the Philippines.
I can't speak for the other banks, but our strategy is to be relevant to each of our markets. If you see it from a retail banking perspective, each market is different. You rely a lot on your branch network, distribution and so on. With wholesale banking, however, it is run on a regional basis.
With your ongoing expansion, what are the demands on Maybank's capital?
We have been very clear on this. We have said we want to grow by 12% per annum in terms of our weighted assets, which means we have to have additional capital of 12% per annum as well. Our return on equity (ROE) currently is 15%-16%. With the dividend reinvestment plan (DRP) we are then able to retain a lot more of our profit to fuel future growth. Net-net, if we can retain 80% of our profit on an ROE of 15%, we will have enough for the 12%. We allocate our capital based on the needs of each market.
But what about Thailand? Is that a sore point for you?
We have a strong presence there by virtue of Maybank Kim Eng, which is the No. 1 broker with 12% market share. They provide a linkage into our wholesale banking, but we would love to have a retail and commercial banking presence in Thailand as well. I suppose it is just a matter of time.
You bit the bullet in Indonesia.
Why not do the same in Thailand?
You can't be chewing too many at the same time. We need to prioritise. Having acquired three entities in 2008 that cost us more than RM11bil, we allowed ourselves some time to attend to the growth opportunities in our current markets. Now that they are progressing well, we can look at other opportunities. Thailand is a big piece of Asean. That said, we must be mindful. Any opportunity must be based on the right vehicle, valuation and timing.
But banks in Thailand are for sale. Why haven't you taken the plunge?
Picking the right vehicle is very important. We don't want to take a stake in a company without appreciating the valuation, potential, and how we can add value. That's why we're taking our time.
How many times have you had to evaluate an acquisition in Thailand?
Every week there is a proposal from an investment banker. But we are pragmatic. We only consider real deals.
Timeframe?
If it is allowed, we want to open a firm bank branch towards the end of 2014. This is based on earlier discussions with the regulators there. I think this needs to be revisited. We are open to inorganic opportunities, but we will not get there at all costs.
How do your periphery markets fit into your overall strategy?
We are by far the bank with the widest presence across Asean. We have a physical presence in all the 10 countries in Asean. But it's not perfect. In Thailand we're confined to investment banking and stock broking, and in Myanmar we only have a representative office.
In Cambodia we have 12 branches and plan to expand it to 20. People say Cambodia is a small country, but we think it is sizeable and part of Asean. We should be there. Vietnam, likewise, is sizeable. We have two branches there.
Barring any barriers, we would like to be fully present in all of Asean. Outside of Asean, we believe in having some presence in Asean's major trading partners like India, Middle East, China, and so on. This is not to compete for domestic business but to facilitate trade and investment flows between Asean and its partners.
And what are you doing towards this end?
We have increased our operations in China and are hoping to do a lot more.
Has Maybank Kim Eng matched your expectations?
It has turned out very well. Were making great progress, both in terms of internal integration and driving a wholesome investment banking franchise whilst at the same time being able to secure the mandates. We did the placement of Maybank shares ourselves in October and I must say our people did better than the other party. And we've upgraded our people. They are not just Malaysians, but also Asean nationals.
Will there be more dynamism in investment banking?
Yes. We've seen a Thai company taking over a Singaporean company (Fraser & Neave) and a Philippine multinational acquiring Esso's distribution here (Petron). There will be a lot more of this.
You've set ambitious targets for 2013.
Are they realistic?
I think we've delivered in 2012. In the past, Maybank was not known for its strength in investment banking. Now we're in the top two league table and No. 1 by M&A last year.
How much stress is this kind of growth putting in your balance sheet?
We're very disciplined. The loan-to-deposit ratio of 90% is an internal target. For markets like Malaysia we manage it within 90%. But for Indonesia it was a deliberate move for us to allow loans to grow faster than deposits, because it takes time to mobilise deposits. But once we have the 450 branches fully operational, our deposits mobilisation will be enhanced.
But if you do that your credit costs will rise and put pressure on your margins.
The margin is a function of the price of your loans and the cost of your deposits. Naturally, the competitive environment has resulted in yields on loans coming down. For last year we kept our net interest margin compression to 16 basis points. The aim for this year is to keep it within 10 basis points. What you do is minimise your margin compression and enhance your volume, which creates greater efficiency, so your cost-to-income ratio is manageable.
Are capital requirements a hindrance?
There are high capital requirements as we move towards Basel III. The capital that is required will dilute your ROE slightly. But if it makes you stronger I don't think you should complain.
Your outlook for the year?
We are optimistic about 2013. Just looking at Malaysia, where two-thirds of our operations is in, we had a great 2012 in terms of GDP. Internally, our analysts, who are conservative, are looking at 5.3% growth.
What will the operating environment be like for this year in Malaysia?
The macroeconomic environment will present growth opportunities. Loans typically grow two times faster than GDP. This year we reckon loans growth will be around last years' 10.4%. In our target markets we aim to grow faster than the industry. We also want our loan base to be balanced between retail and corporate.
Are Bank Negara's cooling measures for household debt a concern for you?
The responsible financing guidelines are a pre-emptive move on the part of Bank Negara and fully supported by banking institutions. What we need to do is ensure that the non-bank institutions adhere to the guidelines as well. That would help tremendously.
What we did to maintain loans growth was to improve our distribution channels. My simple analogy is that if we have an 18% or 19% share of distribution, why can't we have an 18% or 19% share of the loans? In areas where, for instance, our market share of the loans is 13%, clearly there is room to grow.
In the past our mortgage segment was weak, particularly commercial property. But we've improved on these counts and hence our growth has outpaced the industry.
One of our three strategies for 2013 involves changing the cost structure. It is as simple as looking at our distribution channel. We have 400 branches and service centres currently. On top of that we have business and auto finance centres. We have asked our people if we can reorganise and rationalise the network.
We are also looking at our IT and cash deposit machines. Some places may have too many and others not enough. We opened seven branches in 2012 and are planning the same number in 2013. The demand for physical branches is much reduced with the rise of electronic banking. The collaboration with Pos Malaysia has been very useful. We have been able to penetrate the rural areas without opening our own branches. And there's the scaled-down version of our branches with the Maybank One model.
What's driving your domestic loan growth? Is it the ETP?
Absolutely. The ETP is one of the major drivers for the economy, and not just for infrastructure. For example, when the MRT is ready and commercial property developed and businesses set up, there is a multiplier effect. Because of our capabilities, we're there if anyone wants to raise funding.
It's not just the size of our balance sheet, but distribution. We have a fair share of the market on any new funding requirements. It is not about being large, but being capable.
What about M&A in Malaysia? Are you up to gobbling up another bank?
Not on the cards (laughs). We remain focused on growing our business organically. There was a time when we looked at another bank but it wasn't meant to be.
There are whispers about you wanting to move to PNB.
I'm enjoying myself now. Never listen to rumours. I will continue for as long as I can.
