THE following are Part II of excerpts from an interview with Maybank Group president and chief executive officer Datuk Abdul Farid Alias.
Question: With the Asean Economic Community (AEC) and Trans-Pacific Partnership (TPP) coming up, is that going to add some pressure on the banking sector?
Answer: Yes it will. We have started this process a while ago, trying to put in place infrastructure and processes to look at the market as a common one, so to speak. It is work in progress, still many challenges. This whole idea of AEC, I think, a lot more people will look at it and say “Hey, the market is now big”.
It’s just like in the old days, when Jack Welch was running General Electric, he said: “I want to be No. 1 or No. 2 in every market”. All the No. 3, No. 4 (businesses), he started selling. So whatever business is No. 1 or No. 2, it stays and will keep on growing, until it cannot grow any more, until he doesn’t have a new story to tell. So he changed the idea of what the denominator means. Suddenly, the denominator... from X becomes double X. It’s the way he defines it.
I think people are increasingly shifting their perspective on what this market is going to be like. More and more people will shift their perspective and, therefore, their strategy accordingly. Not just banking but other sectors as well.
Question: : Looking at the Malaysia operations, where do you see prospects for loan growth in the next year or so? Which sectors are struggling and which are showing signs of strength?
Answer: I think the construction sector will be okay because affordable housing projects are taking shape. Similarly on the infrastructure side. Hopefully, the market will have a positive impact on the whole economy. Mining sector will obviously be affected, plantation sector and all commodity sectors will be affected.
Question: : By looking at the recent numbers, are you worried about impairment and having to make more loan loss provisions?
Answer: We are watching that space, obviously. As external demand slows, the leading indicators of the economy, some of them are slowing while some are improving, as shown by the economic data for October. Labour market and housing approvals improved in October, month-on-month. As a start, we have been very careful in our underwriting processes because we saw this coming. The 10-year cycle... 1997, 2007... so we said: ‘Another one is coming so we have to prepare ourselves’. In this market you can pick and choose the segment that will give us better asset quality at the end of the day. From the statistics that we see, we don’t see anything systemic at this point of time, but we are still monitoring.
Question: For consumer loan growth, have the cooling measures by Bank Negara had an impact?
Answer: There is a slight drop, about one percentage point. But that is the right thing to do because the household loans need to come down, to make sure it is at a level which is comfortable for the economy. Home loans are still growing, but slowed a little bit.
Question: Can you explain Maybank’s role in supporting local small and medium enterprises (SMEs)?
Answer: SMEs are a misunderstood segment, I think, because when you mention SME, it goes from being a start-up to the angel stage, venture capital, etc. It’s always assumed that banks will finance from the start-up when banks don’t take this kind of risks. Once the business risk is taken over, then banks can take care of those risks.
We have been growing SMEs. SME loans growth in the third quarter was about 36 per cent annualised. We have to figure out how to make sure that our lending to the SME sector will give us the right asset quality at the end of the day because some financial institutions had bad experiences when they moved drastically on the SMEs.
Question: : What is your segment-by-segment outlook for fee-based, non fee-based, Islamic and insurance products?
Answer: Our Islamic business in Malaysia has been growing at double the rate of the conventional banking. We decided five years ago to adopt an Islamic-first strategy. This means giving customers a choice at the end of the day. It so happened that when we adopted that approach, the take-up rate in the last five years was more on the Islamic side. In Malaysia, our Islamic assets now is about equal that of our conventional assets. That is why we are now the third biggest Islamic bank in the world in terms of assets, and that is something that we are proud of. Segment by segment, in Malaysia, we are everything to everyone.
Question: : How about in Singapore and Indonesia? What is your game plan?
Answer: We were lucky because when Maybank was incorporated back in 1960, it was incorporated in Kuala Lumpur and Singapore. So we have to thank our founders for that foresight. And that is why we have been growing both Malaysia and Singapore in tandem, more Malaysia than Singapore due to size.
For us to be a true regional bank, Singapore is very important, you cannot ignore and put it in the backseat. It’s one critical component of being a regional bank.
Indonesia has one of the highest growth potential as banking penetration rate is very low. It’s a market that is growing and we want to be able to nurture that.
Our culture is very different and we promote teamwork and that is something very dear to Maybank, that everybody plays their role but works as a team. If you ask any
Maybank staff what’s their core value, they will tell you its “TIGER”: Teamwork, Integrity, Growth, Excellence and efficiency and Relationship building. Everybody knows “Tiger”.
Question: : Maybank has produced two ministers and a couple of central bankers. It has been a very strong brand since 1960.
Answer: If we take a look around, many of the top leadership (in banks) are from Maybank, such as at RHB, CIMB and Agro Bank. I think it has always been a place where people develop themselves, where people grow their knowledge about how a bank is done and that knowledge is clearly valued in the marketplace. The culture has always been one that promotes teamwork and cooperation with each other, so we infuse a little bit of competition, excellence and efficiency and accountability to make it better. Obviously, it is still work in progress.
Question: : You keep mentioning about being nimble as a bank. Is it harder to introduce change because of your size?
Answer: In a way, you are right. We are an old organisation that has always been conservative and that may be why we have not been involved with things that may not be very productive to the economy. But being nimble is very important. It is no longer about staying in front as everything that happens is no longer exclusive to any particular bank. It is about the ability to assess and execute as efficiently as we can. And it is a challenge for any bank.
Question: : What keeps you awake at night?
Answer: The inflection point I was telling you about... that, more than anything else. I am scared if I am too early, too late or if I make the wrong decision. When I deal with my colleagues, I tell them this is my blind side. Please look after me and make sure I am not caught by my blind side. Somebody has to say ‘Farid, step carefully’. At the end of the day it is a collective decision.
I never go into a meeting trying to pretend I know everything. I go into meetings with the mindset that I am not the smartest guy in the room and to get everybody to put their best on the table and collectively decide what is the best course of action. Maybe it helps that I am a proud man but not too proud to say I don’t know when I don’t know.
Question: : In terms of headcount, are you happy with the current level? Or if things get tougher, you may have to right size?
Answer: After we acquired Kim Eng, we were at 48,000 employees. After its completion in 2010/2011, we brought it down to 46,400, all through natural attrition. We have not done voluntary separation scheme (VSS) and we don’t plan on doing so in the near future. I think something like VSS should be reserved when we have no more choices. By managing the workforce purely by natural attrition, we can manage the environment better. A lot of people make mistakes when they do a VSS and I don’t think that is a mistake we can afford.
Question: : I refer to the Ambank Research report that Maybank is set to remain more selective on asset growth and focus on deposit taking. Is it a fair statement?
Answer: People will ask, how do you expect to grow in a market like this. The common wisdom is we have to be very careful but if we choose the market, customers and assets well, then it is not going to be an issue. We just have to ensure that we follow the right processes, choose the right segment, and continue with our practices. Even in a challenging market, we can still find growth.
Question: : Now given the ringgit weakness or rather the strength of US dollar, what is your take on the currency?
Answer: Ringgit is undervalued, that’s for sure. It keeps on changing over time depending on expectations, but clearly it is undervalued.
At one time I said it was supposed to be 3.3, clearly expectations have changed. See, the thing is, one of the roles that we have is when we say the way we mean it, for example, (ringgit should be at) 3.3, we hope the market participants will say it with enough volume. Because perception is reality. But if we say no, the ringgit shouldn’t be 3.3, it should be 5.0, then 5.0 would become a reality. We know that fundamentally we are undervalued and based on interest rates parity, we should be at 3.3. When we say it, we hope people will pick up on it, but it hasn’t happened.
Question: : There have been some research reports saying that asset quality is going to be as bad as 1997.
Answer: You saw the research by JPMorgan. Citibank would probably quote the same thing about their concern on asset quality. Some of them are saying that there will be a scenario where the asset quality is going to be as bad as 1997 crisis.
Our strategists have done a research on Southeast Asia and China. They picked several publicly listed companies each in all those countries and tested their cash flows against interest rate and cash flow shocks. Malaysia is “strong”.