OCBC Bank sees better consumer repayments than before pandemic
06 Jul 2022, 03:00 pm
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Leh: It’s not just about footfall, but how we engage with our clients. We have rolled out across our business segments our multi-channel strategy, through which our clients have multiple means of reaching, transacting and doing business with us.

This article first appeared in The Edge Malaysia Weekly on June 27, 2022 - July 3, 2022

DESPITE the economic challenges of the Covid-19 pandemic and its impact on banks’ asset quality, OCBC Bank (Malaysia) Bhd’s consumer financial services (CFS) segment has seen an improvement in repayments compared with the rate before the coronavirus hit the world more than two years ago.

OCBC’s head of CFS Anne Leh tells The Edge in a virtual interview that having emerged from the moratorium mandated by Bank Negara Malaysia, the banking group’s data shows that borrowers who pay the minimum principal and interest payments make up about half of its segment’s portfolio, while the other half consists of borrowers who repay their loan in advance.

This gives the Singaporean bank confidence that its customer base is able to weather rising costs of living as well as the impending overnight policy rate hike.

“[We do our part by] ensuring that our repayments are healthy and that we are able to help those in need. As such, we observed a 1% improvement in consumer repayments compared with the pre-pandemic rate,” Leh says, declining to disclose the quantum.

“The improvement in the repayment rate comes from helping our customers manage better via measures such as post-moratorium payment reminders, personalised calling to gather insights, situational assessments and financial advisory as well as proactively offering customers post-moratorium assistance, including tenure extensions and step-ups. This was done alongside our setting-up of a dedicated team within the business to engage with our loan customers and assist them.”

Taking the helm of the foreign bank’s CFS business in the midst of a pandemic has been “excitingly challenging”, Leh quips.

“By the second year of the pandemic, we had learnt to operate and live with it better. A notable evolution in consumer banking since the pandemic started has been the automatic adoption of going digital. During the period when Covid-19 cases were on the rise before full vaccinations came into play, being able to handle all of our simple banking transactions and enquiries on digital platforms, especially the handphone, became absolutely necessary,” she says.

As such, 10% of total CFS’s operating revenue this year is allocated for digital investments.

Digital adoption has been critical for OCBC, as the consumer banking industry has since “converted the bulk of its simple transactions into digital or electronic forms”.

“[Surprisingly], after two years of the pandemic, the highest penetration [of digital adoption] across three key segments in consumer banking in Malaysia turned out to be our private client segment. We once thought digital adoption would be challenging for [this group of] mature clients, but this has not been the case,” Leh says.

“For us, a direct measure of the bank’s digital adoption rate is the 20% year-on-year growth of mobile banking from 2020 to 2021, which is slightly above the industry’s mobile penetration growth rate of 18%.”

While digital adoption naturally led to a decline in footfall in the bank’s physical branches, outlets continue to be important platforms to service complicated transactions for the CFS sector, Leh stresses.

Compared with pre-pandemic levels, OCBC’s footfall at branches declined by 17% in 2020, and a further 20% in 2021. This year, having entered endemic management of Covid-19, footfall has picked up “a little”. However, Leh does not expect it to go any higher than pre-pandemic.

“It’s not just about footfall, but how we engage with our clients. We have rolled out across our business segments our multi-channel strategy, through which our clients have multiple means of reaching, transacting and doing business with us. There is even the ‘RM Chat’, which is designed to be a conversation in a WhatsApp chat,” Leh explains.

Inevitable impact of digital banking

On April 29, Bank Negara announced five successful applicants for digital bank licences as approved by the Minister of Finance Malaysia.

Whether offerings by these digital banks have the potential to eat into the share of market segments typically serviced by conventional banks rests heavily on factors such as security, Leh explains.

It is understood that the licence granted to digital banks is for the primary and strategic purpose of serving the underserved and underbanked, which is an altogether different focus from that of OCBC’s.

“However, at an industry level, digital banks may erode into the market share of traditional banks, especially from the perspective of digital lending, which I imagine would be the current primary focus beyond deposit collection,” Leh says.

In the midterm, perhaps certain market segments may turn to digital banks for innovative offerings and convenience. However, “digital banks would need to ensure top-notch security first, given the emphasis and expectations for it”, she stresses.

“[Moreover], the amount of investment required to establish a fundamental security framework will not be cheap. However, once that solid infrastructure is in place, there is no denying how digital banks will erode the market share of digital lending. But I do not expect to see any significant impact in the next 12 to 18 months,” she adds.

In any case, Leh observes that the average ticket size of transactions on a digital platform tends to be smaller compared with a face-to-face platform.

“As banks such as OCBC continue to enhance their digital platforms, there is no need to create a digital bank ourselves,” Leh says.

Meanwhile, OCBC’s environmental, social and governance (ESG) investments have been ongoing. From the bank’s total investments for the year, 73% of its assets under management are sustainability-linked funds.

“That’s strong, and [the journey] took place over three to five years prior to the pandemic. It has been through our strategic focus on wealth management which garnered us feedback from the affluent and private levels that we ought to have our investments ESG-related and sustainability-linked,” Leh explains.

According to OCBC’s website, the bank recorded a net profit of RM303 million for the financial period ended March 31, 2022, a year-on-year increase of 2.3%, or RM7 million.

The bank said this was mainly due to net writebacks in expected credit loss allowances of RM75 million as opposed to a net charge of RM3 million on the back of better economic prospects in 2022.

“The group and the bank remained well capitalised with Common Equity Tier 1 capital ratios of 15.563% and 15.008%; Tier 1 capital ratios of 15.563% and 15.008%; and Total Capital ratios of 18.158% and 17.594% respectively,” OCBC said.

“Last year was very good for OCBC, [therefore,] we want to capitalise on the entire wealth management’s institutionalised platform. In 2021, from a fee perspective, CFS Malaysia contributed 46% to the bank’s non-interest income — driven primarily by wealth management fees — and 30% of revenue,” Leh says.

CFS Malaysia’s bottom line was challenged, however, owing to the many ongoing moratorium packages, she adds.

“As a Singapore-based bank, we had to adhere to MAS [Monetary Authority of Singapore] Notice 612 guidelines, which is an accelerated provisioning that we have to recognise in the books. That said, this year is looking good. We have a healthy portfolio, which will benefit from decent writebacks, as our loan quality is good,” she says.

This year, she forecasts a stronger consumer business net profit before tax (NPBT) for OCBC compared with the pre-pandemic figure. While Leh did not disclose the expected quantum of improvement to NPBT, she attributes it to anticipated provision writebacks.

“It was 5% in 2020,” she says, adding that 2019 saw revenue and bottom line contributions of 28% and 9% respectively.

“We expect positive earnings, as interest rates being on an uptrend will benefit our portfolio, such as the current account/savings account [segment].”

 

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