Maybank, Malaysia: In search of efficiency

The challenge

After years of rosy growth, the Malaysian banking industry is facing tougher macroeconomic and regulatory conditions. Consumer consumption took a beating after the implementation of the 6% goods and services tax on April 1st 2015. This was worsened by inflation caused by higher import prices due to the weakening ringgit. The consumer price index (CPI) has been floating above 2.5% in 2015 despite lower fuel costs, which resulted in negative transport inflation. Taken together, this volatile cocktail resulted in weaker loan demand for banks.

A key driver in the industry’s loan growth, residential mortgages, has moderated from the average 14% in 2014 to around 12% in 2015. New mortgage approvals plunged 19% year-on-year (YoY) in September. On a bright note, exporters are benefitting from the weaker ringgit, therefore, business loans have been picking up. Annual business loans growth rose from an average of 7% to around 9% in 2015.

Deposits grew 4.8% YoY in July, the slowest since September 2002, and is expected to weaken further. Banks have been forced to raise interest rates to pin down fleeing deposits, as competition further intensified ahead of the 2019 deadline to comply with Basel III capital requirements. As a consequence, net interest margins suffered. Capital market activities also remain lackluster due to the ongoing 1MDB saga and heightening racial tensions. Current foreign fund outflow from the country was above RM18b as of end-September.

Technology enabler

As the leader and many a times a first mover in the Malaysian banking industry, Maybank has launched several rationalisation and productivity programmes since 2009. Launched in 2012, Maybank’s strategic cost management programme was aimed at preventing wasteful expenditure and overspending and nurturing a cost-conscious culture. This effort was intensified in 2014 by improving IT efficiency and reining in marketing and administrative expenses. More recently, CEO Abdul Farid led a renewed regional transformation drive to reorganize the business to operate as an integrated regional business.

The overhauling of IT and operations has been and will continue to be a big part of this transformation drive. In 2014, Maybank upgraded its IT capabilities by increasing the use of virtualisation and the modernisation of its core banking platform. Underpinning this upgrade is the drive towards mobile banking and speed to market. To the bank, this means how agile or how mobile it can be in terms of bringing its services to the front and how it all ties back to back-end operations and data.

Investments have been made to enable CRMs, web analytics, internet and mobile banking, and pricing and bundling, among other initiatives to improve business efficiencies. One of the primary determinants of these investments is that of cost efficiency—the systems must be able to scale up and be easily reusable across the region.

Maybank Malaysia’s head of community financial services Hamirullah Boorhan notes that the refocus on customer segments coupled with IT and operational transformation has brought about sustained performance. Indeed, customers continue to shift towards cheaper internet and mobile banking. The total number of Maybank2U registered online users increased 20% from 6.5 million in 2012 to 7.8 million. The bank has cemented its leadership position in internet banking in Malaysia with over 50% market share.

The bank further demonstrated its investment savvy by deriving savings out of compliance projects. In 2014, Maybank implemented a centralised contract management tool to enable processing of contracts from all its regional branches in a single location due to regulatory reporting and risk demands. Maybank took this opportunity to transform tedious manual processes to a fully digitised and automated solution. This solution eliminated issues such as lost contracts and brought about enhancements such as accelerated initial processing; consolidated reporting; rapid, ready disaster recovery; and even increased bargaining power through better information availability. As a result, employee efficiencies were gained as new contract processing time was reduced by 80%. Moreover, business executives had real time information to support their decision making processes.

Operational quick wins

Additionally, while branch rationalisation remains a priority, the current crop of branches underwent upgrades, and the bank also launched new AFC Mega Hubs. This initiative unlocked higher profitability potential through cross and upselling as a result of higher customer engagement and satisfaction. Total revenues increased nearly RM300 million in 2014.

Human resource policies also plays a big role as Maybank focuses on improving and retaining human talent while at the same time, improving their working environment. Initiatives such as “train the trainer” and “employees as brand advocates” improved customer satisfaction and cross selling due to better product knowledge and representation.

The impact

As a consequence of driving these painful but necessary changes ahead of the industry, Maybank has seen cost efficiencies improving which contrast to that of its competitors (Figure 1). Benefits can also be felt on the top line as revenue growth outpaced expense growth (JAWS) since 2012 (Figure 2). Moreover, the focus on simplifying the business and the usage of technology has made it easier for its employees to do business. New analytics and a simpler business model also open up new opportunities to cross sell its products by giving the front office better understanding of products and clients. To be sure, in its H1 2015 results, product cross-selling ratio for within its retail bank rose to 3.18 from 3.08 a year earlier and notably, loans per employee is above that of its 2 peers in 2014 (Figure 3).

Moreover, Maybank has so far avoided disruptive retrenchment exercises that CIMB and RHB have been going through since their failed merger. CIMB cut 11.1% of its total workforce (or 3,599 employees) earlier this year while RHB cut 1,812 staff in late October 2015.

Moreover, CIMB pulled back from its regional equities business and its Australia unit. Meanwhile, it is business as usual for Maybank as it won the coveted Myanmar market and opened its first branch back in August. This is likely the result of Maybank’s lean operating model as evident in its leading employee efficiency (Figures 3 and 4).

Going forward

Ultimately, the bank aims to reduce operating costs by removing redundancies and streamlining its operations to its customer needs. These measures have collectively worked to control expenses, promote business stability by avoid drastic cuts in tougher times, and consequently, deliver better, sustained profitability (Figure 5).

Going forward, the bank will focus on the efficient delivery of financial services, aggressive capturing of market share, and developing strong relationships with clients. Elaborating on the rationale behind the bank’s focus, Maybank Singapore’s chief information officer Lim Kuo Siong stated, “A bank lacking in speed will lose clients to competitors due to products and/or service inadequacy, while having speed without a strong relationship means a bank can only engage in devastating price wars and also miss out opportunities to cross-sell, which comes with an intimate understanding of the client’s business.” This perfectly encapsulates Maybank’s goal, which is to achieve operational speed while deepening business relationships.