This article first appeared in The Edge Malaysia Weekly on August 29, 2022 - September 4, 2022

THERE has been a leadership change in at least eight banks in Malaysia so far this year — markedly more than in any of the past years — and possibly two next year, which industry sources say bodes well for an industry grappling with many new challenges.

The industry, already a highly competitive one, needs to accelerate its digital game amid unprecedented disruption from financial technology players, even as five new digital banks are set to emerge in the market in one to two years.

Banks, which have seen margins thin over the past few years, are now coming out of an extended period of low interest rates but have to contend with a potentially slower economy because of geopolitical issues.

“We’re seeing banks becoming more inward — that is, focusing on their home or regional markets — as opposed to expanding their footprint. With all these new challenges, it will be good to have new leaders with fresh ideas and strategies to take the industry forward,” says a bank CEO, speaking to The Edge on condition of anonymity.

Shankar Kanabiran, a financial services advisory partner at EY Malaysia, agrees. “A fresh pair of eyes coming in can help rejuvenate the bank and stir up competition.”

To be clear, there is nothing sinister behind the recent CEO changes. Some of the incumbents reached the end of the road upon the expiry of their contracts, while others hit the retirement age of 60 or chose to retire early. One — Datuk Seri Ahmad Zaini Othman of MBSB Bank Bhd — died of illness.

Industry sources say there may be a change of leadership at OCBC Bank (Malaysia) Bhd next year as its CEO, Datuk Ong Eng Bin, is understood to be turning 60 in June. Ong declined comment when contacted by The Edge.

There may also be a changing of the guard at Bank of America Malaysia Bhd as its CEO Raymond Yeoh, who turned 60 this year, will be retiring in 2023 as he recently had his contract extended for one year, the sources say.

Malayan Banking Bhd (Maybank), the country’s largest lender, started the ball rolling with the changes when it announced in January that Datuk Khairussaleh Ramli — the group managing director and CEO of RHB Bank Bhd — would be its new president and CEO from May 1. This came about as Datuk Seri Abdul Farid Alias, who had held that role for nine years, opted for early retirement.

RHB Bank went on to appoint Mohd Rashid Mohamad as its new group MD and CEO, effective April 1. Mohd Rashid had been the group’s MD of group wholesale banking.

HSBC Bank Malaysia Bhd made Omar Siddiq its CEO on April 1, succeeding Stuart Milne, who retired after almost four years at the helm. Omar was formerly the deputy CEO of CIMB Group Holdings Bhd.

At United Overseas Bank Malaysia Bhd (UOB), Ng Wei Wei became the lender’s first female CEO on May 1. An internal candidate, Ng succeeded Wong Kim Choong, who relinquished the position after having run the bank since 2012.

MBSB Bank chose Nor Azam M Taib, also an internal candidate, to replace the late Ahmad Zaini as group CEO last month.

Alliance Bank Malaysia Bhd will have Kellee Kam as its group CEO from Sept 1. He takes over from Joel Kornreich, whose tenure ends on Aug 31 after over seven years of having run the country’s smallest lender. Kam, a former CEO of the RHB Banking group, recently stepped down as chairman of Bank of America Malaysia.

More recently, Standard Chartered Malaysia Bhd (StanChart) appointed Mak Joon Nien as its MD and CEO effective Aug 18. He takes the reins from Abrar A Anwar, who has held the post since 2017.

Interestingly, HSBC’s Omar and StanChart’s Mak are the first Malaysians to hold the CEO post at the respective foreign banks. Industry sources say there has been a noticeable trend of foreign banks “localising” their leadership in Malaysia, which is what Bank Negara Malaysia is said to prefer.

Digitalisation is changing the competitive dynamics in Malaysian banking, observes Wong Yin Ching, RAM Ratings’ co-head of financial institution ratings.

“The global pandemic has accelerated the pace of digital adoption as customers expect greater digital accessibility and connectivity. The award of five digital bank licences is also expected to spur more financial innovation in the industry. Against this evolving backdrop, new bank CEOs will need to carefully evaluate their current digital strategy to ensure long-term market relevance and to stay competitive,” she tells The Edge.

“Along with digital transformation, banking leaders will need to contend with cyber security risks and managing tech talent,” she adds.

Wong notes that environmental, social and governance (ESG) risk management is another strategic priority that bank CEOs cannot afford to ignore these days.

“Stakeholders’ demand for and expectation of transparency and accountability in relation to ESG have heightened in recent times. Regulatory authorities are increasingly focused on the need for financial institutions to expedite changes in governance, risk management and disclosure to properly account for climate-related risks and build them into decision-making processes. However, absence of harmonised disclosures, lack of access and comparability of data as well as shortage of expertise are among key challenges that CEOs will have to deal with,” adds Wong.

Bank Negara had, in late April, awarded digital bank licences to five out of 29 applicants. Among the recipients are a consortium of Boost Holdings Sdn Bhd and RHB Bank Bhd; a consortium led by GXS Bank Pte Ltd (made up of Grab Holdings Inc and Singapore Telecommunications Ltd) and Kuok Brothers Sdn Bhd; and a consortium led by Sea Ltd and YTL Digital Capital Sdn Bhd.

“While we believe large banks will retain their market shares, it will be interesting to see how the business models of incumbent banks evolve in response to the digital competition,” analyst Nikita Anand of S&P Global Ratings said in a report last month.

With increasing competition, a consolidation of the banking industry is inevitable but the question is, will it happen sooner rather than later? As it stands, there are 26 commercial banks in Malaysia — of which 18 are foreign — as well as 17 Islamic banks, 11 investment banks and six development financial institutions.

“That’s a lot of financial institutions for a country with a population of around 30 million,” remarks a banking analyst. Consumer lending, in particular, is highly competitive — margins on home loans, for example, one of the biggest lending segments for banks, are very thin.

Amid this competitive scenario, Citi in January agreed to sell its consumer banking business in Malaysia, along with those in Indonesia, Thailand and Vietnam, to United Overseas Bank for S$4.9 billion (RM15.8 billion).

“The Malaysian banking sector is competitive and relatively saturated, given the number of players for a market of our size. As a result, net interest margin has been under pressure over the years (if one were to exclude the effects of overnight policy rate changes this year),” says RAM Ratings’ Wong.

This year, Bank Negara — which had cut the overnight policy rate by a cumulative 125 basis points during the course of the Covid-19 pandemic, bringing it to a historic low of 1.75% — has raised rates by a total of 50bps to 2.25%.

“While there is merit for consolidation, there are considerable overlaps in business lines, customer segments and branch networks for many banks which make it hard to derive revenue synergies. A consolidation that is based on cost synergies is not very compelling, especially if it involves staff retrenchment which could be a sensitive issue in a still-cautious economic environment,” Wong points out.

Be that as it may, analysts list AMMB Holdings Bhd (AmBank), RHB Bank Bhd, Hong Leong Bank Bhd (HLBB) and even Public Bank Bhd as potential institutions where mergers and acquisitions (M&As) may pan out.

In the case of HLBB, Public Bank and AmBank, each has an elderly major shareholder who needs to pare his stake. Tan Sri Quek Leng Chan owns 62% of HLBB, Tan Sri Teh Hong Piow holds 23.41% interest in Public Bank, while Tan Sri Azman Hashim has 11.81% in AmBank.

Under the Financial Services Act 2013, an individual is subject to a 10% shareholding limit. As for RHB, the mid-sized bank has always been viewed as an M&A candidate and the best fit for AmBank.

Bloomberg reported earlier this month that Quek, 80, is mulling options for his stake in HLBB, including a merger, citing unnamed sources with knowledge of the matter. While this created excitement in the market, the fact is that valuations will likely be a stumbling block.

“There are factors like valuation — many banks, including HLBB and Public Bank, are trading near historic highs — and [fragmented] shareholding structure to take into consideration, as well as whether banks have the surplus capital to acquire. There are too many moving parts and this would make any M&A challenging,” says the banking analyst.

As it stands, banks already have a lot to deal with in trying to recover from the impact of Covid-19 and may not want a merger adding to complications.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.