Restructuring of IT infrastructure towards regional integration and digitisation are emerging as key visible trends among banks in Malaysia. Driven by needs towards greater customer centricity, improved engagements and faster time to market, most leading banks are revisiting their IT systems.
Discussing their IT strategy and initiatives, Gurdev Singh, Hong Leong Bank’s GM, Technology Innovation Services, IT Division, says, “From a corporate perspective, we are trying to reach out to ASEAN countries such as Singapore, Cambodia, and Vietnam to expand further. We seek to create a regional platform that powers business in these countries and at the same time actually be able to defray costs of building individual platforms in these countries”.
Many leading banks in Malaysia have recently implemented initiatives towards IT restructuring. CIMB recently implemented a common regional core banking platform across Singapore, Thailand and Malaysia. OCBC Bank has also integrated a core banking system across Singapore and Malaysia operations. Ambank replaced their core banking system, branch teller front end system and enterprise data warehouse. Hong Leong bank is not far behind in this competitive race of beefing up the IT systems to fuel future growth.
“We revisited our back end system to support regionalization and digitization. We actually looked at some of our weak spots in middleware, backend systems and thereafter either upgraded them or changed them to new systems or platforms. We have replaced the credit card system and ATM switch, undertaken certain core banking changes and converted our branch teller system into a web-based solution. We are also moving away from the mainframe to AS400 and UNIX platforms”, explains Gurdev.
“These activities will prepare the back end system and middle ware to be able to manage to what we consider the new technology wave that will take place with the front channel changes to meet customer needs”, he adds.
As customers become more tech-savvy and mobile, digital banking channels present a massive opportunity for banks to grow and also increase their customer base. Recognising this, Hong Leong Bank has scratched out its earlier internet banking system and rebuilt it to include a new mobile banking system.
“Electronic channels that actually reduce the need for consumers to deal directly with a brick and mortar branch concept are the focus. Our strategy is to reach out to consumers either through virtual platforms or physical channels that are strategically placed in highest population density areas. Most Malaysian banks are also embarking on the same strategy”, feels Gurdev.
“We are looking at initiatives that will generate higher fee based income rather than interest based income, which was the way the traditional banks built their systems on”, he adds.
However, like most other banks in the country, the bank has incurred significant expenditure in beefing up its IT systems across back end and digital channels and now needs to tackle the problem of managing cost implications.
Asian Banker Research shows that Hong Leong Bank incurred a total technology spend of about 8% of its total income in 2012. However in 2013, it managed to reign in its high IT capital expenditures and brought its total IT spend down to 4.8% of total income.
“We have a number of regulatory requirements, the framework for that accounts for about 30% of our IT budget. We have incurred high capital expenditure that will convert into depreciated costs over the next five years. Taking that into consideration, do we see a need for increase in IT budget? The answer is probably no. We have done enough of what we needed to do, and now we will focus on using this and building business”, he adds.
The bank expects to now lower its capital expenditure and also have controlled operating expenses. It expects its operating expense to correlate to the rise in revenue and is looking at some innovative and ground breaking measures to control future IT costs. “The current year should end up with similar IT spending as a percentage of revenue and the next year may see a drop, but not more than 10%”, feels Gurdev.
“We need to find the ways to reduce IT costs, without reducing our technological advantage. I feel there are two ways of managing this. First we may go towards partnership and profit sharing with the vendors and that has not been done before. I would not be surprised if we see an increasing trend among banks towards this. Unlike the existing scenario where banks bear the entire IT cost, new arrangements could see the vendor and bank sharing the development cost. Vendors would provide software while the bank will provide hardware and they would both share the profits from use of the system”, explains Gurdev.
“The second way is to do proper cost management in order to manage the IT operating and capital costs. I feel that as banks embark on IT projects, they will be looking at very short ROIs. They will no longer be looking at three or four year payback periods. Rather, they will target year-to-year payback periods. Banks should try to sort out what is the most essential business first before talking about other enhancements for applications,” he concludes.
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