By Stephanie Jacob
Although venturing beyond Malaysian shores has not always been lucrative for Malaysian businesses, the industry that has seen the most visible success would have to be the banking and finance sector. CIMB’s group chief executive officer, Nazir Razak tells us how the group did it and the problems it faces.
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The industry from Malaysia that has been most prolific in expanding into the Association of Southeast Asian Nations (Asean) and beyond, is the banking and finance sector.
Malayan Banking (Maybank), CIMB Group (CIMB), Public Bank, Hong Leong Bank, RHB Capital and Public Bank all have operations regionally and internationally – with Maybank and CIMB especially having large footprints across the region.
Malaysia’s largest bank Maybank, whose Singapore operations pre-date the creation of the city state itself, and where it has over 20 branches to date was by this virtue technically the first to venture across the border.
In 2011, Maybank further built upon its operations when it bought brokerage firm Kim Eng Holdings Ltd and this acquisition gave it access to expanding its investment banking services in Singapore, as well as into Indonesia, Philippines and Thailand. Aside from this, Maybank has also been in active in Indonesia, Philippines, Cambodia, Vietnam and Brunei with around 346 branches around these five countries.
CIMB’s first move into Asean
CIMB’s first venture into Asean was into Indonesia when the then Commerce Asset-Holding Bhd bank acquired Bank Niaga in 2002. Several years later in 2008, Bank Niaga merged with PT Bank Lippo Tbk to create CIMB Niaga – now officially called PT Bank CIMB Niaga Tbk. It is one of the largest banks in Indonesia.
The company has also grown into a substantial presence in Thailand, after it first began operations in 2008 when it bought the ailing Bank Thai from the government there. Since then, CIMB has continued to grow its stake and now has a 93% stake in the CIMB Thai Bank.
The bank also has a presence in Northeast Asia and Australia, where it facilitates investment banking and provides liaison activities aimed at helping local businesses in establishing and developing their businesses in Asean. To this end CIMB also acquired a portion of the Royal Bank of Scotland’s (RBS) businesses in the Asia-Pacific region and this has made it the largest investment bank in the Asia-Pacific area (excluding Japan).
But it is the Asean region that has always been attractive to CIMB and in particular to its group chief executive officer Nazir Razak who is a strong advocate of taking advantage of what he calls the Asian century.
Aside from Indonesia and Thailand, CIMB has operations in Singapore, Myanmar and Cambodia with more than 1000 branches across the region, and all this combined has seen CIMB grow into the fifth largest bank in Southeast Asia.
Being clear about the game plan
Going into Asean has not always proved successful for Malaysian businesses, and several large and successful local companies have seen their attempts fail. However, notably, the banking sector in Malaysia has often successfully moved into the Asean region and been able to produce measurable success.
Nazir Razak
Nazir says the key to getting things off to a solid start stems from being very clear on one’s game plan going in. He emphasised that strategising and executing a well-laid-out plan is key.
When CIMB enters a new market it makes sure that its plans take into account the local regulations and the work and social conditions of the new environment. This was especially true for Asean, as the region was so widely diverse that there were more opportunities to get things wrong than right.
On the flipside, Nazir believes that Malaysians have an edge in dealing with such a challenge, coming from a country that is so diverse in itself. Malaysians in general are more comfortable in such situations as opposed to their Asean counterparts.
The challenge locally was convincing the CIMB team to be bold enough to break away from the success they have had at home and to venture into these new Asean markets.
No template for success
“We needed to imbue in the mindsets of our people that there are different ways for different things…go beyond Asean. CIMB Bank is meaningless because we do not have things like the brand cover, we do not have the balance sheet cover you do not have a track record,” says Nazir.
In Indonesia on the other hand the problem is that CIMB Niaga is such a well-known commercial bank but hardly seen as an investment bank (despite the fact that investment banking is a growing sector). Therefore each situation has to be dealt with and addressed as it comes.
Diversity is such an important factor because it means that there can be no single template that fits all solutions for every market.
Nazir adds that the thing CIMB had to learn quickly was what had brought success in Malaysia would not necessarily translate into success elsewhere. He says that it is key to remember that “the operations there, may not have the infrastructure, the people and the support for those ambitions, and sometimes you have to reign your own instincts.”
Singapore is perhaps a good example of this theory, as Nazir says that even he is surprised at the level of success that it has had there with just two branches and several bureau de change outlets.
Offering something new
However he says that the success being seen in Singapore, where CIMB has managed to increase its initial retail deposits from a 100 million Singaporean dollars in 2009 to 2.5 billion Singaporean dollars in 15 months, is attributable to finding a space in which to offer something new and focusing on developing that.
In this case it was introducing a credit card that offered benefits in Kuala Lumpur and Indonesia. The trick was to realise “there are a lot of people who travel across Asean and there are a lot of Malaysians and Indonesians in Singapore,” and taking advantage of this specific need made the card a success.
This year operations in Singapore, with just two braches, is expected to contribute close to what will be recorded from Thai operations where CIMB has over 100 branches.
The Singaporean example gives a good idea of how harnessing the Asean market can be effective, and there are many more opportunities for growth.
Nazir highlights that there are many ways in which businesses, especially the financial and banking sector can take advantage of Asean’s growth and increasing opening up.
For example he says CIMB’s Asean operations has given it an edge in places like North Asia and Australia where it does not have its own bank. By leveraging on its vast network and knowledge of Asean, CIMB is often able to get into doors that would otherwise be inaccessible.
Concurrently by offering its services to clients across the Asean region, CIMB is able to to be the bank of choice when these businesses want to venture into markets such as those in Australia and North Asia.
Intra-Asian flows will dominate
The CIMB chief emphasises his belief that the Asian Century will be about intra-Asian flows, saying that “we will flow to each other, rather than through New York or London…that is what is growing!”
He adds that the only way that Asia at large, and Asean specifically are going to keep growing is if there are people who intermediate those flows. Currently there is a lack of such groups. Therefore he says that as more such groups emerge, “it is important that there is a cadre of Asian financial intermediaries to help fuel and keep the benefits of the Asian century in Asia.”
Expanding into Asean is a no brainer in Nazir’s opinion simply by virtue of the fact that the region has a combined population of 600 million people, and companies that are able to harness the Asean market will stand to have a strong ‘home base’ to build upon to eventually go even further.
Discussing the impetus for CIMB to go regional, Nazir says that they did it because it made sense in terms of economies of scale, “28 million people (Malaysia’s population) is not going to give me a competitive scale and gain long term – banking is a scale game.”
Therefore says Nazir, the liberalisation of the Asean region, the increased integration of structures, and elimination of tariffs and barriers via the Asean Charter of 2007 and the goal of the Asean Economic Community by 2015, all makes sound business sense.
Overcoming Asean integration problems
However the problems begin because the plans or blueprints that have been set out are vaguely defined. “Till today, I am not totally sure what happens at the end of 2015, and since 2007 the world has changed,” says Nazir.
Even in terms of banking, where Asean has produced a qualified banking framework to work from there still remains a lack of clear direction. Nazir says the document is “too light” and the information it contains is more geared toward championing the idea, rather than proposing workable methods for implementation.
Noting that banks play a big role in economic integration, Nazir suggests that rules for the banking integration should have come forth much sooner as the sector can be an important catalyst for economic integration.
He highlights that CIMB for instance has contributed much in terms of economic integration, as it has been instrumental in integrating Thai businesses into Indonesia – by helping their Thai clients navigate the different political, economic and social environments.
Nazir says his main concern over the Asean Economic Community or AEC is a lack of progress on the removal of non-tariff barriers which still contains a significant list of exemptions and trade-distorting measures.
The other thing lacking is clear information on where Asean is in terms of implementing the necessary changes to fulfil the goals of the AEC Blueprint. The CIMB chief says that without that, businesses are faced with the difficult task of planning for the eventual establishment of the AEC.
Going forward the success or failure of the Asean Economic Community will depend on political willpower of the member states. The question is: Are the Asean governments strong enough to follow talk through with concrete actions and solid leadership?
Yesterday: Building up to 2015 and a single Asean market
Tomorrow: MITI explains the AEC and achievements
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