This article first appeared in The Edge Malaysia Weekly on February 10, 2020 - February 16, 2020
WHEN Lee Lung Nien began his tenure as CEO of Citi Malaysia in 2014, the digitalisation wave had not quite swept the banking industry yet. Back then, the focus was still on branch distribution network.
“When I started more than five years ago, I remember doing a SWOT analysis. In the top right-hand column for weaknesses, it was ‘lack of branch distribution network’.
“But three years down the road, I took that out … It wasn’t about branches anymore. It was about our digital strategy,” says Lee, who is better known as Lung.
Now, Citi Malaysia is one of the top players in the local digital banking space. Lung says, “Recent data shows that as we have moved to a digital strategy in Asia-Pacific, our consumer bank deposits have risen close to 20% in the last few years, despite our nearly halving our branch network.”
As at last December, 77% of Citi Malaysia’s customers were digitally enrolled, of which 81% were digitally active over 90 days and 60% were mobile active over 90 days. Interestingly, 41% of card instalment sales were achieved through the digital channel.
In terms of earnings, the bank has a five-year compound annual growth rate that exceeds 8%.
According to the latest available public results, the banking group’s revenue for the nine months ended Sept 30, 2019, grew to RM2 billion from RM1.88 billion in the previous corresponding period. Profit expanded to RM664 million from RM609 million a year earlier.
Annualised, the top line is RM2.6 billion while profit is RM885 million — an improvement from revenue of RM2.2 billion and profit of RM524 million in 2014 when Lung first took over as CEO.
The cost-to-income ratio improved to 42% in September 2019 compared with 54.5% in 2015. ROE rose to 23.81% from 17.03% in the same period.
Like all banks, Citi Malaysia recognises that digital is the way forward and it had planted the digital seeds early.
It is the first bank in Malaysia to verify the identity of its clients using their unique voiceprints through voice biometrics — launched in 2016 and which has led to a 66% reduction in time spent on verifying client details.
That year, the bank launched the Citi Mobile app in Malaysia, allowing clients to register for an online banking account entirely via a mobile app as well as apply for a credit card and credit card loans, create their own credit card PIN and activate their cards, among many other services, from their mobile phones.
Recent enhancements include an easy-to-use interface and functionality for improved user experience, and enabling more DIY capabilities whereby customers can perform basic demographic updates or even request for a card replacement via the app without the need to walk into a branch.
In recent years, Citi Malaysia has also partnered Grab, Lazada Group and Expedia Inc, among others, to become more relevant in the digital ecosystem.
The bank continues to be on an aggressive digitalisation path. “We are always on the lookout for opportunities and partnerships. We are in discussions with a few corporations or clients we would like to partner,” says Lung, declining to reveal names.
Today, the group also uses artificial intelligence, which has national language understanding for improved user interface and experience.
On the digital banking licences to be given out in Malaysia, Lung says it does not affect Citi Malaysia much and the group does not need a separate digital banking licence, as it has already embedded the digital value proposition in its future direction.
“It is for new players to come into the market. The key thing here is, how do we make sure it’s a level playing field for everyone? You want the new digital banking licence … but you should also make sure that the same rules apply to everybody, for example, capital requirements.”
Parallels in racing and banking
What does Lung think about the state of play in the banking sector? An avid competitive go-kart racer, he draws parallels between racing and banking. “A race is not about winning the first corner but taking the chequered flag at the end of 20 laps. In a race, you have to plan in your mind things like how to conserve your tyres so you don’t overdrive and [how to] finish the race strong.”
This principle is applicable in banking as well, says Lung. “What I have learnt from racing is that one needs to be very disciplined and focused. It’s about the preparation for the race and the single-mindedness in a race. It’s about the long game. Having the discipline and focus — that’s very important. It’s not about the race itself but the preparation prior to the race … like the workout before the race. You cannot just jump into the kart and race; you need to prepare for it over time.”
All race car drivers want to go fast but one must know how to stop, he cautions.
This approach seems to have been applied to Citi Malaysia’s credit card business — a space in which it was leading a few years ago with a 20% market share, which has fallen to 15% today.
“We are currently in a dominant position in the credit card space and we are quite happy. We have to balance what the returns are because it is very competitive. We are in a sweet spot. Our market share for credit cards is about 15%. You have to spend a lot more today if you want to gain market share in this segment, as customers are very savvy,” says Lung.
“Across the board, in the last three years, there has also been the challenge of margin compression, with interchange moving from 130 basis points to 58 basis points in the last five years. It’s an industry phenomenon,” he notes, pointing out that what is important is the impact on earnings over market share.
With a tougher operating landscape and rising competition, Lung believes it is imperative for Citi Malaysia to have superior products to support new client acquisition.
“Understanding our clients and making sure that our products are suitable and appropriate, and implementing a good strategy for client acquisition are important. We must continue to acquire banking clients. As margins get squeezed, you have to grow your base. That is a key priority for us in 2020. The acquisition strategy will be across sectors — in cards, Citigold and the corporate, commercial banking and SME (small and medium enterprise) space,” he says.
Driving the bank forward
Lung describes his journey thus far in the top job at Citi Malaysia as good, but one with its fair share of challenges.
“There are always challenges. What has made my journey good are the people around me who have been with the company for a long time. Most members of my management team at Citi have worked in Citi for an average of 20 years. As we are moving forward as a team, it is easier to navigate the challenges. I would say the challenges have been there, but we have been quite lucky in the sense that we have navigated these things quite efficiently,” says the Citibanker who has been with the group for three decades.
Lung shares Citi Malaysia’s strategy for moving forward in a tough and competitive operating landscape: “The core mission is the same — to be the best bank in Malaysia. We want to be a trusted adviser to clients and be the employer of choice. We will get there by working on four pillars — people, clients, world-class governance of our process and, lastly, relationships,” he notes.
In terms of its strategy for people, Lung believes it is working out well and he is proud of the current staff retention rate. “We have a staff attrition rate of 12%, which is great compared with the industry’s 20%. For high performers, the attrition rate is even lower — at 8.4%. This means our top performers stay, which is very important to us,” he says.
“In terms of our strategy for clients, it will be more solutions-based as opposed to pushing products. Being a global bank, we have access to almost every country in the world. Having that global footprint has been beneficial to us and something we want to leverage.” Lung cites the example of its presence in Latin America — a market some of Citi Malaysia’s bigger clients can access through the bank.
Its governance strategy is also very important, Lung points out.
“We have learnt and we have strengthened our processes, whether it is KYC (know your customer), AML (anti-money laundering) or audit. We self-regulate. For example, seven years ago, the compliance factor for consumer sales incentive computation was 3% to 4% compared with today’s 20% to 25%. This shows that we take compliance very seriously,” he says.
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