These are interesting times for the business of banking, to say the least. An economic crisis, a hurried consolidation process and the impending liberalization of banking policies mean that local bankers have a plethora of new challenges facing them.
For starters, local banks are unlikely to forget the effects that corporate failures had on them during the recent crisis. In fact, it is that sentiment which is driving many banks to turn their focus from large corporate clients to small and medium sized businesses and the good old retail customers.
The local banks are now scurrying to lend to SMIs with strong cash flows. These range from your neighborhood provision store to the export oriented manufacturer. Banks are no longer as eager to take on the large corporate clients as a few failures can cause the whole bank to be shaken.
Industry observers say that this is in line with a very clear banking trend - a move from interest bearing income to one of fee based revenue. The rationale is simple enough. Interest income from large loans, if not hedged properly, can be adversely affected by sharp movements in the interest rate environment as seen in 1997. Fee based income on the other hand, is more controllable and with sufficient volumes, can prove to be a substantial contributor to a bank’s profits.
However, the challenge for the banks would be to maintain their profits. For me as a senior banker, one side-effect of the merger exercise could be that foreign banks may stand to gain market share at the expense of the local players ‘caught up in the merger exercise’. It is important for the local banks not to lose sight of the business as foreign banks are already aware of the possible opportunities that will arise as local banks use their resources on their respective integration issues.
KHAIRUL IDZWAN IDRIS
Timbalan Pengerusi
Biro Ekonomi Dan Pembangunan Usahawan
Pergerakan Pemuda Umno Bahagian Setiawangsa
Wilayah Persekutuan
For starters, local banks are unlikely to forget the effects that corporate failures had on them during the recent crisis. In fact, it is that sentiment which is driving many banks to turn their focus from large corporate clients to small and medium sized businesses and the good old retail customers.
The local banks are now scurrying to lend to SMIs with strong cash flows. These range from your neighborhood provision store to the export oriented manufacturer. Banks are no longer as eager to take on the large corporate clients as a few failures can cause the whole bank to be shaken.
Industry observers say that this is in line with a very clear banking trend - a move from interest bearing income to one of fee based revenue. The rationale is simple enough. Interest income from large loans, if not hedged properly, can be adversely affected by sharp movements in the interest rate environment as seen in 1997. Fee based income on the other hand, is more controllable and with sufficient volumes, can prove to be a substantial contributor to a bank’s profits.
However, the challenge for the banks would be to maintain their profits. For me as a senior banker, one side-effect of the merger exercise could be that foreign banks may stand to gain market share at the expense of the local players ‘caught up in the merger exercise’. It is important for the local banks not to lose sight of the business as foreign banks are already aware of the possible opportunities that will arise as local banks use their resources on their respective integration issues.
KHAIRUL IDZWAN IDRIS
Timbalan Pengerusi
Biro Ekonomi Dan Pembangunan Usahawan
Pergerakan Pemuda Umno Bahagian Setiawangsa
Wilayah Persekutuan
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