Bumiputra Commerce Holdings Bhd - Document for BOD - Case Study Example

CIMB Bank: Discussion Document for BOD of Table of Contents Company Overview 3 CIMB banking market analysis 4 PEST Analysis 4 Political 4 Social 4 Economic 5 Technological 5 PEST Recommendations 5 SWOT Analysis 6 SWOT Recommendations 8 CIMB IT analysis 8 IT for underpinning future business strategy 9 Company Future 10 System Risk 10 Security 11 Recovery 11 Assumptions 12 Conclusion 12 References 14 Company Overview CIMB bank, formerly known as Bumiputra Commerce Holdings Bhd, is a purely Malaysian bank with one of the widest reach for an indigenous investment bank affiliated to the ASEAN. The bank was formed by the merger of Bank of Commerce or Bian Chiang Bank, Bank Bumiputra and United Asian Bank. Presently, the bank has over 1100 branches across the region. It is recognized as one of the strongest franchisee in the domestic territory and a leading investment bank in Malaysia. As a standalone concern, it has one of the strongest financial positions and ranks well in areas of capitalization, quality of assets and profitability. The company also takes pride in having an extremely strong flexibility in finances. It is a core operating concern of the parent company, Commerce Asset-Holding Berhad (CAHB), which has about 72.5% holdings in CIMB, as reported in 2004. CAHB is involved in diverse financial services and has 99.1 % stake in Bumiputra-Commerce bank Berhad (BCB), apart from CIMB. BCB is the second biggest commercial bank in Malaysia. CIMB has had a successful record of controlling market position in the core areas of its operations like, equity broking and corporate advisory. The bank is a completely integrated commercial concern that offers a whole host of services, including corporate advisory and services in debt and equity markets. It also runs lending services, private equity, private banking as well as research function in economics, debt and equity markets and is one of the providers of Islamic capital markets in Malaysia. The subsidiary of CAHB is the sole investment bank that is listed in Bursa Malaysia. CIMB has also been awarded the prestigious Best Domestic Sukuk House Award by Euromoney (IMF, 2013). CIMB banking market analysis PEST Analysis Political The investment banks in Malaysia are regulated by Bank Negara Malaysia for prudential regulation and safety of financial products within the investment finance sector and by the Securities Commission, which looks into businesses of the banks and issues relating to investor protection and market integrity (Kannan, 2013). Instability in political conditions and increasing credit crunch in the markets is expected to pose danger for small Islamic banks. It is anticipated that banks shall look at consolidation in order to increase their strength in capital and funding as well as to sustain Islamic banks within the country (Moutinho & Chein, 2008). Social Almost 91% of Malaysian residents were reported to be multi-banking for their daily financial needs and financial transactions (Ernst & Young, 2013). They do not reflect the pattern of adhering to one dedicated bank for their needs and services. Banks face high talent shortages and are finding it increasingly difficult to retain or hire competent staff. In addition to this, expansion of regulations and enactment of several acts that have increased the requirement of capital and accountability on part of the banks has also aggravated the shortage of updated and skilled professionals. Economic There is a general lack of desire to re-price lending products in the investment banking industry. Despite lowering profitability, banks are unwilling to raise the cost of their loans owing to stiff competition faced from international banks. High competition is also leading to a rise in different fee based products, which might source revenue for banks. The Malaysian financial sector is under reform and liberalization as stated under Financial Sector Blueprint. Foreign stakes in domestic banks is restricted to 30% of the total capital (Ernst & Young, 2013). 70% of the market is restricted to Islamic banking and investment banking where market penetration shall occur primarily as joint ventures (Ernst & Young, 2013). Technological Banking technology in Malaysia is looking at migrating from the traditional fee based over-the-counter modes of payment to online modes of payment like, mobile banking and internet banking, so as to reduce pressure in banks and increase their popularity among youngsters through high technology systems. CIMB is suggested to improve on their customer service activities and initiatives in order to enhance quality of their services, thereby successfully attracting and retaining customers to their banks. Tremendous competition from other competing banks and shortfall in customer services are acting negatively for CIMB. CIMB could also explore the social media platform in order to engage and interact more with the customers and in turn increase customer service potential and quality. PEST Recommendations 1. Investments banks like, CIMB, should encourage the use of online channels and high-end technology for the purpose of processing routing transactions. This includes online loan filing and application process, internet based payment procedures, web-based investment appraisals and so on and so forth. Transferring from high cost channels over the counter to low cost channels like, the online mode and mobile banking, shall increase company profitability, in addition to bringing in convenience. 2. It is suggested that in order to manage shortage in talented staff, CIMB makes investment in training their existing staff, contributing towards upgrading their skills for specific use of the investment bank, rather than hiring outside talent at higher costs. All enactments made by different control boards need to be followed by a companywide training structure, which will be able to reduce skill and talent shortage within CIMB. 3. Considering low availability of funds for lending, limited access to capital in domestic investment banks and fierce competition created by international banking concerns, it is recommended that banks must look more towards the capital markets for funding large investment projects and support the same by lowering maturity transformations and raising fee based revenues. Joint ventures and cross-sale of products is also encouraged for the purpose of increasing domestic customer penetration. SWOT Analysis Strengths The Malaysian economy is considerably developed, where the residing individuals have high disposable incomes. This allows for high spending as well as high savings. The banking sector can rely more on premium range of banking products and high ticket consumer saving schemes in order to attract investment funds. The investment banks in Malaysia accept deposits above RM 500,000 with sound access to the interbank lending and borrowing market (Ernst & Young, 2013). This gives them a wider access to liquidity and funds in the investment banking business. Weaknesses Domestic banks like, CIMB, which offer equity market services face severe gap, in terms of experience and skill within capital market division of their services. This has brought in great strength in global banks for the provision of equity underwriting services. The market for corporate lending in the investment banking business might encounter a liquidity crunch, where large infrastructure projects are likely to face paucity of funds due to investments being made in the country. This might in turn raise lending rates and reduce business when investors seek support from international banks. Opportunities The domestic equity markets in Malaysia are one of the most developed within the region. The ratio of market capitalization to GDP is 140%, which represents tremendous potential in raising equity capital (Ernst & Young, 2013). Domestic investment banks like, CIMB, can join hands with their international counterparts in Malaysia so as to develop their experience and skill gap in underwriting services to equity capital funding raised by the corporate clients. This collaboration shall also bring together the domestic clients of international banks and CIMB shall grow with expansion of the international company. Threats The competition within the investment banking industry is limited to 15 banks in the country, which is further consolidating, thereby increasing their power and market share (Kannan, 2013). This might have the potential of providing stiff competition in the coming years. Rich Malaysians still choose to make investments abroad and not within their home country. This is primarily because it is believed that local investment banks have limited choice of products and are not adequately developed in terms of financial product research (Ferrell & Hartline, 2010). SWOT Recommendations 1. Since most affluent Malaysian people making investments prefer to allocate their money to foreign financial products, it is desired that the investment banking scenario develops new and more innovative financial products in order to serve local needs. Here, there is a demand for good financial products and the investment market is quite lucrative. Nevertheless, the supply end is still underdeveloped. The banking industry needs to spend in greater amounts on the area of investment product development. 2. CIMB needs to address its skill gap issue in the area of equity services so as to tap the unsolicited potential in small corporate customers and expand to a global level through development of the equity services division. 3. It is recommended that paucity of funds to finance large infrastructure projects combined with untapped potential in equity markets can offer a very lucrative solution to CIMB and such other national investment banks. If CIMB resorted to suggesting corporate clients to raise funds from the equity market with their underwriting and equity funding services, the clients might be largely successful because of the potential within domestic equity markets for raising equity capital. This shall also help in reducing pressure over liquidity issues and CIMB shall have lower lending rates. Interbank borrowing pressures shall also be lessened owing to presence of liquidity within CIMB. CIMB IT analysis The infrastructure in Malaysian banks is still in a developing stage. CIMB launched its first ever online account opening feature (Kwik Account) on the online platform only in September 2013 (4traders, 2013). The company revamped its core banking system in February 2014 (Hamsawi, 2014). The CIMB Group concern is known to be the pioneer in introducing online account opening feature in Malaysian banks. As per the report filed by CIMB at Financial Service conference 2013 in Malaysia, top challenges faced by the banking system in the country include technological issues such as, device proliferation, rapidly increasing popularity of social banking and rise in demand for a multi-channel banking platform (Chua, 2013). The latest development in the core banking technology is the ‘1Platform’ at CIMB, which was brought about with an intention of increasing capacity and levels of service within the banking concern. With this new upgrade, the bank will be able to facilitate better bundling of its various financial products and also enhance customization feature on several of its products. Such upgrades shall also enable homogenization of operating procedures across its branches in different countries. The present banking IT infrastructure in Malaysia is increasingly focusing upon the customer. The core banking technology introduced within CIMB was also aimed at developing convenience for the consumer. Increasing competitiveness has raised difficulties associated with client penetration and retention in the banking sector. Moreover, in the investment banking scenario, use of mobile technology and internet platform within the banking services division has brought about a sea of change in the ways of doing business. Malaysian banks are in their early stages of development in terms of banking IT infrastructure. The increasing demand for convenience in banking has come forth with introduction and development of the online banking technology and besides that, banks in Malaysia are facing stiff competition from foreign banking establishments within the country (Austrade, 2014). IT for underpinning future business strategy In order to develop future business strategy for CIMB, IT shall play a very critical role in tapping new markets, enhancing client penetration and retaining existing clients in both retail as well as corporate businesses. It is suggested that the new core banking technology, ‘1Platform’, is supported by additional IT infrastructure, which shall allow for loan application over the company website or over any other convenient web platform. Apart from this, the company should also enable a quick loan and interest calculator for the client, which can be interactively used. This shall retain client interest in estimation of expected interest rates and deal terms. The online platform should also be able to make suggestion regarding bundled loan products and customization options in financial lending schemes so as to attract the corporate clientele. In terms of mobile technology, it is suggested that easy payment options and financial transaction details are available over the mobile platform for individual as well as corporate clients. Kwik Money Transfer available on the online platform should also be enabled over mobile banking options so as to increase convenience in banking for the consumers (The Malaysian Reserve, 2013). The online platform has enabled the online customer service system. This system allows clients to make complaints concerning their financial transactions as well as obtain prompt response from officials in an efficient manner. In an attempt to move forward with the online customer service facility, CIMB can also enable an interactive call service or helpline number, which would provide assistance and consultancy service over different options of financial products available to the consumer and in turn help to make the financial decision online. This shall reduce the costs in consultancy at their branches and more number of smaller transactions will be addressed online and through dedicated call center executives. Hence, one can observe that facilities need to be enhanced concerning the convenience factor for consumers through the web-based banking platform as a future business strategy with IT underpinning for CIMB. Company Future System Risk Company’s development towards IT technology brings in great amount of technology related risk factors such as, those pertaining to information security and data security of account holders at corporate banks. The system risk involves ones associated with credit or debit card information fed into the online banking system while making transactions. Assurance for security while making financial transactions is necessary to manage continuity in online banking business (Monetary Authority of Singapore, 2013). The risk in the system that is enabled on the mobile banking platform, core banking technology and online banking portals like, the company website, is also critical requiring high maintenance. It is important that all these are maintained with a dedicated IT team because one disruption can cause huge losses in a matter of seconds. Such disruptions are also critical for company’s brand value. There is a possibility that data available with the banks get hacked, so management of the banks needs to ensure proper online and technological security systems. Security In relation to information security, confidentiality of data becomes critically important for sustenance of banks. The development of technology also requires one to get associated with different security systems, which shall ensure safety and confidentiality of data with the banks. Banks contain highly confidential information of individuals as well as the corporate clients. Since the company relates itself to matters related to money, it is all the more important to assure its customers about maintenance of secrecy of their financial information so as to gain their trust and loyalty along with supporting a robust business. Information security also calls for appropriate mechanisms in order to store and manage data that is there within the banks. Such information must have sound backup systems for benefit of both the banks as well as the client. Along with this, any information that might be desired by the client or banks must be readily available, ensured of its authenticity and should be capable of appropriate identification and authorization. Recovery The risk with technology in core banking technology also relates to proper record maintenance, appropriate record keeping and availability of system in order to ensure proper storage of records for future references. Banking concerns deal with financial information that might be desired any time. In this case, for proper loan assessment, it is essential that data recovery of the client for a historical period is readily available (Ghosh, 2012). Recovery also calls for maintenance of proper records at the company backend, which shall reduce the need of manual paper work with an assurance that data required shall be available at any time. For this, the dedicated IT team must incorporate regular backups and system maintenance within the banking technologies being used. Assumptions It is assumed that all suggestions for technology improvement in the banking system are free from frauds and established and enabled in CIMB with proper risk analysis and assessment of the pros and cons of implementation for benefit of their business. It is also assumed that economic and market factors mentioned within the PEST analysis are general to all banks in Malaysia and shall have an equal impact on CIMB as that on other banking concerns of the country. It has been established that IT development shall be critical for bringing about enhancement of banking business for CIMB. However, the scope and level of impact to be experienced through such changes is largely unknown. In addition to that, all other environmental, political and social factors are assumed to be supportive of the suggested changes. In a further assumption, the paper supposes that all facts collected from the internet and other sources, which have been used in preparing this paper, are true to the best of the researcher’s knowledge. Conclusion In conclusion, it can be said that the Malaysian banking system is in a developing phase and is gradually moving from a traditional banking economy to a highly mechanized and advanced one. The role of information technology in development of banking system in the country is estimated and projected to be tremendous within the paper. However, impact of the same is yet to be determined. The market and IT structure analysis of the banking system at CIMB shows that investment banking market is facing stiff competition from foreign banking concerns, in terms of providing convenience and ease in transactions to customers through different means. The paper suggests that collaborating with foreign multinationals and development of IT infrastructure in investment banks shall collectively help to expand customer reach and enhance transformation towards a global banking concern. Banks also need to ensure that proper security systems are in place, which allow for data maintenance, confidentiality of information, financial information availability with high security and a sound mechanism for data recovery, as and when desired. References 4traders. (2013) CIMB Group Holdings Bhd: CIMB Bank leads technology innovation with the launch of two online banking firsts: Kwik Account and Kwik Money Transfer. Retrieved from: http://www.4-traders.com/CIMB-GROUP-HOLDINGS-BHD-6491205/news/CIMB-Group-Holdings-Bhd--CIMB-Bank-leads-technology-innovation-with-the-launch-of-two-online-bankin-17250794/ Austrade. (2014) ICT to Malaysia. Retrieved from: http://www.austrade.gov.au/Export/Export-Markets/Countries/Malaysia/Industries/ICT Chua, S. (2013) Financial Services 2013 Conferences Key Takeaways. Retrieved from: http://www.perfectsen.com/blog/technology-innovation-the-future-of-banking-financial-services-2013-conference-key-takeaways-2/ Ernst & Young. (2013). Banking in emerging markets Seizing opportunities, overcoming challenges - Country reports. Ernst & Young. Retrieved from: http://www.ey.com/Publication/vwLUAssets/Banking-in-emerging-markets-country-reports/$File/Banking-in-emerging-markets-country-reports.pdf Ferrell, O. C., & Hartline, M. D. (2010) Marketing strategy. Connecticut: Cengage Learning. Ghosh, A. (2012) Managing Risks in Commercial and Retail Banking. London: John Wiley & Sons. Hamsawi, R. (2014) CIMB installs new core banking system. Retrieved from: http://www.nst.com.my/business/todayspaper/cimb-installs-new-core-banking-system-1.488356 IMF. (2013) Malaysia: Financial Sector Stability Assessment. IMF Country Report. Retrieved from: http://www.imf.org/external/pubs/ft/scr/2013/cr1352.pdf Kannan, P. (2013) The Malaysian Banking Industry – A Picture Of Significant Growth And Resilience. Retrieved from: http://www.sharesinv.com/articles/2013/06/26/the-malaysian-banking-industry-a-picture-of-significant-growth-and-resilience/ Monetary Authority of Singapore, (2013) Technology Risk Management. Monetary Authority of Singapore. Retrieved from: http://www.mas.gov.sg/~/media/MAS/Regulations%20and%20Financial%20Stability/Regulatory%20and%20Supervisory%20Framework/Risk%20Management/TRM%20Guidelines%20%2021%20June%202013.pdf Moutinho, L. & Chein, C. (2008) Problems in marketing, applying key concepts and techniques. California: Sage. The Malaysian Reserve. (2013) CIMB launches 2 online banking options. Retrieved from: http://www.freemalaysiatoday.com/category/business/2013/09/10/cimb-launches-2-online-banking-options/ Read More