Saturday, June 19

Foreign banks in Sarawak


Foreign banks have always had a long-standing presence in Sarawak, tapping into the many financial needs of growing industries and developing businesses here from days of long ago.

Banks such as Singapore’s Oversea-Chinese Banking Corporation Ltd (OCBC Bank) and HSBC Holdings plc (HSBC) – headquartered in London – had opened its first branches in Kuching way back in the 1950s.

Meanwhile, newcomers into the state such Industrial and Commercial Bank of China Ltd (ICBC) – the world’s largest bank by market capitalisation and deposits – had just launched its first branch here earlier this year, serving as the East Malaysian regional branch in Kuching.

Another influential financial institution from China – Bank of China Ltd through its subsidiary Bank of China (Malaysia) Bhd – has also set foot in Kuching, Sarawak, but has yet to officially launch its operations to the public.

According to Investor Inside in its ‘Inside Sarawak 2013’ report, despite the stringent regulations that Sarawak employs for foreign branches, many overseas players play an expanding role in the state’s financial sector, which hosts local branches of 18 European, 10 Middle Eastern, 11 Asian and five North American banks.

With these locally-incorporated foreign banks opening up branches in Sarawak, one wonders what attracts these institutions to do so in the East Malaysian state.

For Malaysian financial institutions, the attractiveness lies in the bullish prospects of long-term growth within Sarawak’s retail and corporate banking segments, according to Inside Investor.

“The result is that while Kuala Lumpur remains the strategic hub for the sector, Sarawak is where these institutes move to flex their expansionary muscles,” it explained.

The same could be said for locally-incorporated foreign banks, more so as they will likely be presented with a wider array of banking-related business opportunities in line with the development of the Sarawak Corridor of Renewable Energy (SCORE) .

Notably, foreign banks such as OCBC Bank’s subsidiary, OCBC Bank (Malaysia) Bhd (OCBC Bank Malaysia), believe it is well positioned to serve SCORE with its current branches located in Kuching and Miri.

Healthy competition

The entry of foreign banks is not considered a major threat to the domestic banks in Sarawak, but more as a way to encourage healthy competition in the banking services market.

In fact, foreign banks constantly compete with top Malaysian banks such as Malayan Banking Bhd (Maybank) – headquartered in Kuala Lumpur – which maintain a strong and ever-expanding presence in Sarawak, according to Investor Inside.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng once said that since Malaysian-owned banks had long been competing with the locally-incorporated foreign banks, opening the door wider to foreign banks should not pose a problem, although they would feel the competitive heat.

On whether foreign banks would take away Malaysian-owned banks’ market share, he said in a growing economy like Malaysia, it was more likely they would contribute to market expansion and add to the dynamism of the local banking industry.

“Besides generating jobs and demand for commercial space and other supporting services and facilities, the foreign banks could bring specialised services and attract talents to the Malaysian shore,” he added.

With that, BizHive Weekly takes a look at two foreign banks with branches in Sarawak and their future expansion plans within the state.

OCBC Bank serving the many industries of the state

The first look is at one of the longest serving foreign banks in Sarawak – OCBC Bank – which first opened its Kuching branch back in 1955 up to today.

OCBC Bank is the longest established Singapore bank, formed in 1932 from the merger of three local banks, the oldest of which was founded in 1912.

“It is now the second largest financial services group in Southeast Asia by assets, and one of the world’s most highly-rated banks, with an Aa1 rating from Moody’s.

“In addition, it was ranked by Bloomberg Markets as the world’s strongest bank in 2011 and 2012,” Jessie Lim, senior manager of the Kuching branch, for OCBC Bank Malaysia, highlighted to BizHive Weekly in an interview.

In Malaysia alone, OCBC Bank has a total of 41 branches – 31 conventional and 10 Islamic branches (through its Islamic banking subsidiary, OCBC Al-Amin).

“We are pleased to say that our Kuching branch remains one of the frontrunners in providing banking services to the Sarawak community,” Lim added.

After opening the Kuching branch, OCBC Bank progressively gained a foothold in the community for nearly 60 years.

In 2008, the Kuching branch was transformed to enhance its customers’ experience. This was in line with OCBC Bank’s nationwide transformation exercise.

Today, the bank is very much an integral part of Sarawak’s banking landscape. Its Miri branch became the second branch in Sarawak when it was established in 2006 as part of efforts to continue to serve the locals here through a full suite of consumer products as well as commercial banking services.

“Like Kuching, we saw and continue to see Miri as a community whose people are looking for more sophisticated products and services to help spur on their personal and business activities in order to achieve their aspirations.

“Beyond this, we recognised in Miri the potential to be another important hub from which to reach out to a broader community within the state of Sarawak,” Lim explained.

Generally, OCBC Bank sees Miri as a thriving locality. While it thrived mainly on the petroleum and timber industries in the 1900s, it has today diversified into other key sectors as well, such as agriculture – particularly palm oil – manufacturing and tourism.

“As such, we believe that with the bank’s presence here in Miri, it will help catalyse the growth of these industries through the provision of innovative financial services,” Lim opined.

With the opening of its branch in Miri seven years ago, the bank is now more accessible to both existing customers and those who have long wished to use its banking services, but might have found its Kuching branch a little far.

Beyond this, with the establishment of this hub, the bank sees itself serving an even broader community than that of Miri alone.

“For the immediate term, apart from Miri itself, we are looking to service customers in areas such as Bintulu, Limbang, Marudi and Sibu – previously considered too distant from us.

“The same applied for many years for Kuching, where we serviced other major towns from this base,” Lim said.

These areas are all populated by businesses with entrepreneurial and industrial vigour, in sectors ranging from oil and gas, oil palm plantation, and import and export.

As such, OCBC Bank is well poised to provide them with comprehensive financing solutions covering structured trade, equipment financing, working capital and operational services to facilitate their growth.

On the retail banking side, it hopes to continue to provide better payment and transactional convenience for its individual customers and introduce new lifestyle products to the masses.

Furthermore, with the expanding growth of the oil and gas and oil palm plantation sectors – coupled with the creation of new wealth – there is significant demand for wealth management solutions and services from the Miri community.

As a provider of wealth management services, the bank will now be better able to offer its full suite of products and services that might previously have been less accessible.

“In terms of specific numbers, our business loans base tends to be pretty much evenly divided between plantations, ship building and shipping, trading, manufacturing and services and as such, we will continue to focus on these areas,” Lim explained.

With the set-up of two branches, this allows OCBC Bank to reach out to its clients throughout the whole country by providing a seamless platform to cater to its clients’ financial needs and aspirations.

“Sarawak Corridor of Renewable Energy (SCORE) is very exciting to OCBC Bank and with our current set-up (in Kuching and Miri) we are well positioned to serve the Corridor.

“The bank is always looking to grow with our customer base and we will continue to review and assess the prevailing opportunities,” she added.

Overall, Sarawak is deemed a competitive market where both local and foreign banks are well entrenched with their strategies and client bases.

The consumer base in Sarawak is very discerning, well-travelled and able to discern value, and values long-term relationships and as such, it is where OCBC Bank thrives.

“We are pleased to say that with our strong foothold in Kuching, the people who bank with us have now entered the second and third generations.

“Our bank has grown together with these clients and we are pleased to have been able to cater to their needs and will continue to do so,” Lim concluded.

ICBC Bank: Newcomer in the scene

The recent launch of ICBC Malaysia’s branch in Kuching was met with much excitement, given that the parent company had just topped Forbes’ Global 2,000 list this year, beating companies such as China Construction Bank Corporation and HSBC.

Although in the past, Chinese banks in Sarawak have had difficulties in coping with competition and have mostly resulted in mergers and acquisitions, it is unlikely that ICBC Malaysia will suffer the same fate as its predecessors, given the fact that it is a wholly owned subsidiary of ICBC – currently known as the world’s largest bank.

ICBC, which was officially established in 1984, had been wholly restructured to a joint-stock limited company in 2005. Not long after, it was successfully listed on both the Shanghai Stock Exchange (SSE) and the Stock Exchange of Hong Kong (SEHK) in 2006.

How it came to be the world’s largest listed bank in terms of market capitalisation, customer deposits and profitability, was mainly due to its continuous endeavor and stable development.

“With a focus on the acceleration of operational transformation, the bank has realised capital-saving development and sustainable profit growth featuring diversified operation.

“In 2012, the bank had realised a net profit of 238.7 billion renminbi, representing an increase of 14.5 per cent over the previous year,” ICBC chairman Jiang Jianqing reiterated.

From its overseas institutions alone, the bank had achieved a 21.8 per cent increase in profit before tax, giving better play to the role of globalised operation in stabilising profit and dispersing risks.

ICBC’s presence currently spans over the five continents of Asia, Africa, Europe, America, and Australia, with operations in 39 countries and regions.

The bank provides comprehensive financial products and services to 4.38 million corporate customers and close to 400 million personal customers by virtue of its distribution network consisting of over 17,000 domestic institutions, 383 overseas institutions, and over 1,700 correspondent banks worldwide.

It also does so through its e-banking network, comprising a range of internet and telephone banking services, and self-service banking centres.

According to Jiang, the bank has to date, actively put in efforts to serve the economic and trade relations between China and the rest of the world, meet the financial demand of customers across the globe, and promote business development on a global scale.

By being the first amongst peers in China to finish the building of a globally integrated technology platform, and through strengthening the extension of key product lines and interactions between domestic and overseas operations, the bank has enhanced the localisation of the operation of its overseas institutions and the capability of its global services.

As such, this makes ICBC one of the few banks capable of providing comprehensive financial services across the entrie Asian region, with its group operations network covering Hong Kong, Macau, Japan, South Korea, the Middle East and Central Asia.

In Malaysia alone, via its wholly owned subsidiary ICBC Malaysia which was established in 2010, ICBC currently has a total of five branches, including the Kuching branch.

ICBC Malaysia saw the first operation in Kuching as a gateway to further expand throughout the state and into Sabah.

In fact, the establishment of the ICBC East Malaysia regional bank in Kuching is expected to further enhance the economic and trade ties between Malaysia and China.

Sarawak’s economic stability is one of the main reasons that attracted ICBC Malaysia to setup its East Malaysia regional branch here in Kuching that will oversee the Sarawak and Sabah operations.

ICBC Malaysia chief executive officer (CEO) Tian Fenglin foresaw Sarawak to be the next development centre in Malaysia by 2020 and remained confident the economic boom here would give the group a vast opportunity within the financing cycle.

In addition, he pointed out that there are many Chinese entrepreneurs in East Malaysia who have a lot of active transactions in China.

However, the bank is not limiting itself to just the capital of Sarawak here. While strengthening its footprint in Kuching, it is also eyeing to set up branches in most of the cities and towns throughout Sarawak and Sabah.

Overall, since the establishment of ICBC Malaysia more than three years ago, the group has reported steady growth over the past three years with products, services, loans and deposits all improving positively.

As at the end of 2012, ICBC Malaysia’s assets stood at over RM3 billion, while deposits and profits stood at RM800 million and RM20 million, respectively.

Gauging the increasing presence of foreign banks in Malaysia — BNM

As previously highlighted, the entry of foreign banks into the Malaysian market does not negatively affect the position of domestic banking groups, but rather enhances the local banking sector stability.

According to Bank Negara Malaysia (BNM) in the Financial Stability and Payment Systems Report 2012, the sizeable presence of foreign banks in the Malaysian banking sector has contributed to a more efficient and competitive market while enhancing the breadth and depth of the financial sector.

“In 2012, two new foreign commercial banks commenced operations in Malaysia, increasing the total number of foreign commercial banks operating in the country to 19,” BNM added.

On the whole, the Malaysian financial system has long been home to foreign-owned banking institutions, with foreign banks being pioneers in the development of the Malaysian financial system more than a hundred years ago.

According to BNM, the oldest bank in Malaysia was a foreign bank that was established to meet the financial requirements of the early European traders. Over time, other major foreign banks followed suit as the strong prospects for growth in trade drew keen interest in establishing presence in Malaysia.

The report also highlighted that since then, foreign banks have become key players that contribute significantly to Malaysia’s economy. Today, foreign banks account for approximately 27 per cent of market share in the assets of the banking sector.

Several foreign banks with a sizeable presence in Malaysia have also acknowledged Malaysia’s growth potential and connectivity with other economies, and as such, have positioned Malaysia as a priority market within the Asia-Pacific region.

Expansion flexibilities

In Malaysia itself, foreign banks have been accorded operational flexibilities to expand their network through electronic channels, agent banking and the establishment of a further number of physical branches.

“This has thus enabled the foreign banks to have an important role in the financial intermediation process and contribute to the functioning and growth of the economy.

“Moving forward, similar to domestic banks, foreign banks will be allowed to expand their branches more freely, while maintaining a balanced distribution of branch locations by all banks to support the needs of the underserved areas.

“This would be implemented with measures to further accelerate the development of alternative delivery channels which would promote greater convenience and efficiency in the provision of financial services to consumers,” BNM explained in the report.

Safety measures

With an increasing number of foreign banks entering the local financial sector, BNM has ensured that the pace of cross-border cooperation in surveillance and supervision has also subsequently intensified over the last few years.

According to BNM, Malaysia proactively collaborates with home country supervisory authorities to ensure that pre-emptive actions can be taken to preserve financial stability in the event of an imminent shock.

This includes developing arrangements for information exchange and supervisory cooperation through memoranda of understanding, as well as participating in supervisory colleges relating to these internationally-active banks.

Overall, these efforts are consistent with the broad principles recommended by the Financial Stability Board on cross-border cooperation in the management of financial crises.

Given Malaysia’s liberalised approach to its financial sector, it is only expected that we will continue to see an influx of foreign-owned banks in the coming years.