By Tan Choe Choe / theedgemarkets.com | March 18, 2017 : 1:37 PM MYT
KUALA LUMPUR: Do you remember a time when high-flying bankers were getting some RM10 million in annual bonuses or payouts that were at least three-to-five years' worth?
It seems those days are now a thing of the past, as the tables have turned for bankers and banks.
Profits and revenue are still rising, but apparently not as fast as costs. And the ROEs -- the returns on shareholders' investments -- are falling rapidly, wrote The Edge Malaysia's associate editor Joyce Goh and senior writer Esther Lee in the publication's cover story, 'End of golden era for banks?', for the week of March 20-March 26.
In just 10 years, banks' ROEs, which hit a high of 30% in 2008, have fallen to a low of 4.55% in 2015, as banks grapple with stricter capital requirements, technological disruptions and thinning margins, as costs continue to escalate.
And while banking was the 'it' job back then, more bankers have grown increasingly worried about their jobs.
"The golden era of banking is over," CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak told the weekly.
“All banks need to recalibrate to navigate the ‘perfect storm’ — a combination of rapid technological advances, slower global growth
and banking re-regulation. There are massive challenges and opportunities, and standing still is not an option. Those who don’t recalibrate will not survive in the long run, but then, those that do, but do it badly, may also face ruin," he said.
The intensity of competition in the industry is such that some banks are undercutting each other or even opting to sacrifice advisory fees just to secure a deal for the placement fees, the weekly wrote.
“Banking was simple then. Today, the landscape has evolved to become competitive, comprehensive and innovative,” Public Bank Bhd chairman Tan Sri Teh Hong Piow told the weekly, as he compared the industry now to 51 years ago, when he founded the group.
There have been disruptions on many fronts that has pushed up competition -- "not just among banks but also with new entrants into the traditional banking space", said Malayan Banking Bhd group president CEO Datuk Abdul Farid Alias. Yes, fintech, which have resulted in emergence of platforms that provide payment and lending services that could bypass banks altogether, comes to mind.
In terms of regulatory requirements, the upside of which is the strength of the banking sector as custodian of public funds have been enhanced and trust boosted, as RHB Bhd group managing director Datuk Khairussaleh Ramli put it, such requirements have also put pressure on bank's earnings and returns to shareholders, with the combined effect of higher capital and liquidity requirements.
“MFRS 9 requirements, for which reporting will commence on Jan 1 next year, is based largely on a forward-looking expected credit loss (ECL) impair-
ment model and a substantially reformed approach to hedge accounting. ECL is expected to increase the provision amount required and hence will potentially affect the profitability of banks,” he told the weekly.
In the face of these, building a regional banking platform is "more challenging" today than when Nazir first anticipated.
“Before, we said that you can be one regional bank across Asean, but the rules do not facilitate that.
“Regional banking will continue, but the dream of having one entity across Asean will not materialise. There will be multiple banks.
We have to be multi-local across Asean. Banks have to work a little bit harder to get cross-border synergies compared with being one entity across Asean," he said.
To these top bankers, including Alliance Financial Group Bhd (AFG) CEO Joel Kornreich, the way forward is to change, to evolve, as the environment shifts, because "the only way to make money is to evolve and be more efficient". But how? In what form should the change take?
And what of the recent recalibration of foreign banks' presence in the region? Just last year, we have seen ANZ's sale of its retail and wealth management businesses in five Asian markets. Then there's Barclay's disposal of its private wealth business in Singapore and Hong Kong, and RBS winding down its business in Malaysia. What opportunities -- if any -- or lessons that bankers are seeing from these events?
Pick up a copy of The Edge Malaysia today at news stands near you to find out more about what these top bankers have to say, why 'Fintech startups [have] yet to gobble up bankers' lunch', and Teh's reflections on nearly 70 years of banking.
P/S: The Edge Malaysia can also be downloaded from Apple's AppStore and Androids' Google Play.
http://www.theedgemarkets.com/my/article/golden-era-banking-over
