This article first appeared in The Edge Financial Daily, on October 21, 2015.

KUALA LUMPUR: Hong Leong Bank Bhd (HLB), which has one of the lowest cost-to-income ratios (CIR) in the industry, yesterday joined its peers to announce the implementation of a mutual separation scheme (MSS).

Its managing director and chief executive officer Tan Kong Khoon said the MSS is to improve the banking group’s operational efficiency.

Analysts said this reinforced the view that banks are operating in a tough and highly competitive environment. 

When contacted by The Edge Financial Daily, the group’s spokesman said the MSS is entirely a voluntary exercise and it will depend on the responses of the employees  — which they would not know at this juncture.

“We are unable to provide the number of employees affected because the MSS is purely voluntary and we can only know the number of staff who applied upon the closing date,” she replied in an email.

Staff cost accounts for over 50% of the group’s operating costs. HLB, which includes Hong Leong Islamic Bank Bhd, has a total workforce of about 9,287 staff.

Several banks have announced job cuts this year, for instance Standard Chartered Bank, which has recently cut its Malaysian workforce by 11%; CIMB Group Holdings Bhd (3,599 employees, or 11% of its headcount); RHB Capital Bhd (2,700 employees, 15% of workforce). It was reported that AffinHwang Capital Sdn Bhd is working on retrenching employees as well.

MIDF Amanah Investment Bank’s banking analyst Kelvin Ong is of the view that HLB’s move signals the revenue growth for banking industry has slowed down significantly, and one of the current trends is to reduce the operating expenses in order to sustain earnings growth.

Another indicated trend is that most banks are moving to IT advancement which will reduce the need for workforce, according to him. “This is the direction of the financial market sector plan, which is to bring more IT advancement into banking services,” Ong added.

However, this may not be the case for Public Bank Bhd, whose CIR has outperformed the industry, standing at 31.1% as at June 30 this year.

“In my opinion, banks that have done M&A (mergers and acquisitions) earlier, may tend to cut workforce. The chances for banks like Public Bank are relatively low,” Ong said, citing that CIMB Group had in the past been aggressive in pursuing M&A as an example.

Hong Leong Bank completed the merger with EON Bank Group in 2011. 

A banking analyst said HLB’s move is out of her expectation as the bank’s CIR is considered low, which is at 45.2%. “The savings may not be reflected immediately, but we should see the bank benefit in long term,” said the banking analyst.