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This article first appeared in The Edge Malaysia Weekly, on March 20 - 26, 2017.

 

WITH over six decades of experience in the financial sector, Tan Sri Teh Hong Piow is the most seasoned banker in town.

He began his banking career in 1950 at Oversea-Chinese Banking Corp Ltd in Singapore. In 1960, Teh joined Malayan Banking Bhd as a manager and was promoted to general manager at just 34.

On Dec 30, 1965, at the age of 35, he founded Public Bank Bhd, of which he is now the chairman.

Teh’s success in making Public Bank the third largest banking group in the country has made the silver-haired banker a much respected personality in the industry.

In an email interview with The Edge, he shares his experiences, and thoughts and observations on the banking industry over the last 67 years.

 

The Edge: In your expert opinion, how would you describe the banking industry now compared to what it was a decade ago?

Tan Sri Teh Hong Piow: When the global financial crisis sent the world financial markets towards a breakdown about 10 years ago, we saw a major enhancement in the regulatory and supervisory framework of the banking system worldwide. The Malaysian banking sector, while surviving the crisis, now has in place greater regulatory scrutiny, further boosting its fundamental strength. The more stringent regulations and greater emphasis on ethical business conduct have reaffirmed the importance of corporate governance and risk management practices on the banking scene.

Today, when the external environment continues to struggle in the aftermath of the crisis, the resilient Malaysian banking sector stands as a source of confidence for the domestic economy.

In the last 10 years of transformation, the Financial Sector Masterplan, the Financial Sector Blueprint 2011-2020 and the national transformation agenda have significantly enhanced the capability and capacity of the banking sector. Compared with a decade ago, the Malaysian financial sector has achieved much progress in financial inclusion, regional financial integration and technology transformation. These initiatives have further strengthened the role of the banking sector as an efficient and effective financial intermediary to facilitate economic growth.

 

What is the state of play in the banking landscape today? How different is the operating landscape for banks compared with when you started Public Bank?

When I established Public Bank 51 years ago, the Malaysian operating environment was dominated by foreign-controlled banks, which were long-established and already entrenched in the local economy. These banks catered mostly for the wealthy whereas the general public’s accessibility to banking services was low. Local banks struggled to compete with the more established banks. However, banking was simple then.

Today, the banking landscape has evolved to become competitive, comprehensive and innovative. While domestic banks have made significant advancement and now dominate the banking system, foreign banks continue to play a role, further intensifying the competitiveness of the industry. Banks now are highly focused on generating higher productivity, driving innovation and strengthening customer-centric strategies to grow their business.

The increased capability of banks has also developed a more inclusive financial system, where all segments of society, not just the wealthy, have easy access to financial services at affordable costs. The country is also progressing towards higher regional and financial integration, which presents new business opportunities for banks, facilitating domestic banks to venture abroad for greater growth opportunities. The explosion of technology has also transformed the way banks do business as digital advancement has opened a new horizon for banks to pursue higher innovation and growth.

As the banking sector evolves to become more complex and sophisticated, it brings with it increased risks that need to be effectively managed. In safeguarding the banking sector, Bank Negara Malaysia has done very well in the oversight of banks to ensure orderly development of the overall financial system. Today, domestic banks are resilient with healthy capitalisation, strengthened corporate governance and robust management practices.

 

Do you agree that banks in Malaysia have passed their heyday? Are the stringent requirements for the banking sector, like Basel III and MFRS 9, making it more difficult for banks to operate and make money?

The severe impact of the global financial crisis has prompted greater regulatory scrutiny of banks’ operations. While some say the more stringent regulatory requirements have limited banks’ growth potential, Public Bank Group is of the view that these rules and regulations are necessary to help ensure the banking sector’s stability and resilience. Sound and stable fundamentals will lay the foundations for greater business growth and public confidence in the future.

Furthermore, the fast-changing operating environment will always present opportunities for growth. We can always explore opportunities from a different perspective. Today, digital advancement has transformed financial services and brought business opportunities for banks, which we might not have expected decades ago. We can strike a right balance between pursuing business growth and meeting regulatory requirements.

 

Given the margin-compressed, high-operating-cost and low-liquidity environment that banks are in today, what strategies can they take to ensure profitability and growth going forward?

Efficiency is  key. In an environment of compressed interest margins, prudent and cost-effective management strategies are vital to safeguard asset quality and sustain profitability. Furthermore, in this landscape in which every bank is highly competitive in its product offerings, the relentless pursuit of excellent customer service delivery can be a strong competitive edge to attract and retain customers.

 

Financial technology has grown rapidly over a short period of time. Do you see it as a threat to the traditional banking industry? Do you see fintech companies eating into the market share of traditional banks?

Fintech companies and traditional banks have their own strengths and weaknesses. While fintech companies offer consumers seamless and convenient services through their technological capability, banks have a legacy of trust and stability and expertise in financial services. We expect the partnership and collaboration between fintechs and banks to bring huge potential opportunities to the financial industry, where both sides can reap the benefits of greater productivity gains.

The group recognises that fintechs have become more pronounced and their emergence can bring notable change to the banking landscape. Public Bank is currently exploring opportunities to collaborate with potential fintechs on new product offerings and enhanced services.

 

There have been many changes in the banking industry, for example, fintechs, a low-growth environment and stricter capital requirements.. How do you see banks navigating them? Will their operating model change?

We have seen banks continue to invest in new technology, boost operational efficiency, undertake capital-raising exercises and launch various aggressive promotional and marketing activities to adapt to these challenges while strengthening their capabilities to sharpen their edge for the more complex banking world ahead.

In the face of these changing times, Public Bank Group will remain focused on strengthening its quality attributes of superior service delivery, efficient cost structure, strong market share, high asset quality, sound risk management practices and strong corporate governance and compliance culture. While these elements will continue to drive business growth within its organic growth strategy, the group will continue to initiate more efforts to innovate and embrace new technology to adapt to the intensified competitive dynamics.

 

What is the future of banking?

On the domestic banking scene, banks will continue to be a major financial intermediary to foster economic growth. They will also continue to be an important channel to facilitate the flow of funds and financial information as the integration of regional economies deepens. As financial inclusion continues to be the top agenda in national development, banks play a vital role in promoting shared prosperity and a more sustainable economy.

The rapid change in digital technology will constantly give rise to new ways to promote efficiency in the economy. As the financial intermediary, the banking sector will have to position itself well to fit in with the changes in the economy. Evolution in digital banking is expected to continue in the future.

 

 

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