Monday 22 Apr 2024
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KUALA LUMPUR (Feb 2): The current strict regulations in the banking industry is not creating a conducive environment for banks to be creative or innovative to respond to the oncoming threats from the Fourth Industrial Revolution, said CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak.

In a statement today, Nazir said it is somewhat ironic that with the rise of platform companies and fintech companies that pose a direct threat to their business, banking institutions have become more tightly controlled by regulators than ever.

"Since the global financial crisis (of 2007-2008), banks have been constantly battling re-regulation — new rules and much stricter demands on compliance to all rules.

"Capital requirements have been raised significantly and banking activities have been restricted by regulatory limitations or punitive capital charges," he said.

He also noted that because of the strict regulatory environment, banks are handicapped and have been conditioned to be 'slow and conservative'.

Nazir cited giant platform companies such as China's Alibaba and Tencent, which have taken the lead with payment systems and are building on their customer base and data to challenge other areas of banking.

"They have both set up licensed banks to provide consumer loans with near-instant credit decision-making by analysing the massive accumulated customer behavioural data in their possession," he said.

Besides that, ecosystem players and fintechs such as Grab and AirAsia are strong brands with large propriety customer bases that are moving into payments and will want to venture into other financial products.

"Fintechs, on the other hand, are entrepreneurial companies sprouting every day all over the world, trying to find the next banking product or service that can be made cheaper or more efficient. Lest we forget, Alipay was a little fintech not long ago at all," he added.

Hence, Nazir called on banking institutions to take up the challenge and respond accordingly to the changes in the industry.

"The most important historical lesson from past industrial revolutions is that businesses that do not respond to the disruptive challenges, or get the answers horribly wrong, can die," he said.

He urged banks not to find themselves exposed to large borrowers that will not survive the onslaught of the Fourth Industrial Revolution.

"The first strategic challenge for banks is to look into the future and identify which parts of banking are defensible and which are not. Corporate advisory and bespoke banking are more defensible; stockbroking and similarly low-value intermediation are not," he added.

Nazir also pointed to the main issue within the banking industry is that banks are generally slow to adapt to these changes.

For example, banks have been slow to use large customer data to their advantage, slow to get into smart partnerships to deliver more products, and slow to embrace fintechs to be more efficient and innovative.

He added that banks have also been slow to respond in the war of talent as the best and brightest are turning to more exciting work environments at platform and technology companies and venture capitalists.

"They (banks) need to be able to transform institutional mindsets to become fast and agile, experimental and iterative, inclusive and open, because that is what the challengers are doing," Nazir added.

 

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