This article first appeared in The Edge Malaysia Weekly on December 19, 2022 - December 25, 2022

KEENLY aware of how homogenous banking has become over the years, Standard Chartered Bank Malaysia Bhd’s (StanChart) new chief, Mak Joon Nien, is on a mission to ensure that the bank, the country’s first and oldest, moves early to differentiate itself in terms of how it competes.

This is necessary to secure a solid future for itself in Malaysia, from which an increasing number of long-established foreign banks have exited in recent years. Citibank Bhd, for example, only recently exited the highly competitive retail banking space while The Royal Bank of Scotland Bhd, a profitable entity, made a complete exit in 2016.

StanChart, a subsidiary of London-headquartered Standard Chartered plc, has a 147-year history in Malaysia, having set up its first branch on Beach Street, Penang, in 1875.

“Our brand, our products and services, have carried us a long way. [But] over the years, banking has become quite commoditised, quite homogenised, so much so that you have to really differentiate yourself in terms of how you compete,” Mak, managing director and CEO, tells The Edge in his first media interview since taking the helm on Aug 18.

“So, we did some reflection and undertook a kind of SWOT analysis, if you will, to look at where we can really play to win, areas that we’re a bit weak in, and how we should improve.”

The 50-year-old, who has been with the group throughout his 25-year banking career, is its first Malaysian CEO. He took over the reins from Abrar A Anwar, who continues to be a board member until the year end.

According to Mak, the bank’s strategy is to focus on six strategic areas, namely its network business, the affluent, mass retail (through a pivot to a partnership model), business banking, sustainability and Islamic finance. Overarching all this will be an increasing push towards digitalisation.

Without going into the details, he provides a broad outline of the bank’s focus.

He says the bank’s network and affluent businesses are key competitive differentiators, and both are strong generators of higher-return income streams. As a group, Standard Chartered — known for its strong focus on Asia, the Middle East and Africa — has a presence in 59 markets globally and serves clients in a further 83.

“A lot of these are emerging markets, developing markets, so it’s a very unique footprint. If you look at it from the context of competition, [that’s how] we differentiate ourselves significantly from the local banks and the regional banks. That’s one of our strengths,” Mak explains.

“We look at digitisation as being very important for us. We’re using our capabilities on a global basis and bringing it to the local market. You look at our network ... and how we can be supporting exporters, because that’s really where our competitive advantage lies, vis-à-vis the competition.”

The mass market business, though competitive, is one that the bank continues to want to play in, albeit in a differentiated way.

“The way we’ll ‘attack’ the mass retail market is through a partnership model. It’s about us trying to build so-called hyper-ecosystems. Given our [limited] branch network in the country — we have 28 branches, four of which are under our Islamic banking subsidiary Standard Chartered Saadiq Bhd — it’ll be difficult for us to get the kind of distribution outreach compared with some of the other competitor banks, so we need to kind of play along the partnership model.”

Mak adds: “Three to five years from now, when you look back at the business, you’ll see a different [retail] composition than your traditional mortgage and credit card kind of business. You’ll see more of a partnership-based business.”

Last October, Standard Chartered invested in, and entered into, a 10-year partnership with Singapore-based Atome Financial. The latter operates Asia’s largest buy-now-pay-later (BNPL) platform, Atome, and Indonesian digital lending platform Kredit Pintar. “We’re plugging in with Atome on BNPL — that will drive a very decent mix of net interest income and fee income [for us going forward]. We’ll be starting an e-commerce platform that will enable SMEs to procure financing not necessarily from us, but also from other financing sources, and also give them a platform to grow and link up with their anchors, in terms of buyers and sellers. So, it’s like an e-commerce ecosystem marketplace, if you like,” he reveals.

“In addition to Atome, you will in 2023 hopefully hear about one or two more pretty significant partnerships that we’re looking at in Malaysia.”

In its latest financial statements for the third quarter of the year ending Dec 31, 2022 (3QFY2022), StanChart highlights that the pivot to digital and partnerships will be instrumental in scaling up its mass retail franchise profitably.

On financial targets, Mak says StanChart is committed to contributing to its parent’s objective of achieving 10% return on tangible equity (ROTE) by 2024.

“For Malaysia, if you look at our financials, we will hit the 10% target by this year; but if you drill down to the details, it is due to some of the writebacks [on provisions] we’ve enjoyed this year. So when you look at it on a core basis, we’re still not there.”

However, he is confident that the bank will reach the target by 2024.

“Translating [our strategy] into execution plans will enable us to get to 10% ROTE by 2024 on a core basis. And actually, my personal agenda is to try to overachieve [the target]. It all boils down to execution,” he says.

StanChart’s earnings over the last few years have been volatile because of hefty provisions it made over the course of the Covid-19 pandemic. It slipped into a net loss of RM61.56 million in FY2020 after setting aside RM706.15 million in provisions, and returned to the black in FY2021 with a net profit of RM135.17 million on a lower provision of RM249.7 million.

For the first nine months of FY2022, it made a net profit of RM447.64 million, which already beats its entire FY2019 pre-Covid-19 net profit of RM433.47 million. The robust nine-month profit was bolstered by a writeback of RM197.77 million.

Of its RM33.93 billion loan book as at end-September, just over half (RM18.56 billion) comprised household loans. Home financing accounted for the biggest portion, or 37.2%, of its total loans.

Asked about StanChart’s exposure to potentially troubled oil and gas (O&G) corporate accounts, Mak says it does not have anything on its books that is cause for alarm. StanChart is widely understood in the market to be one of the lenders with exposure to financially troubled O&G services provider Serba Dinamik Holdings Bhd and/or its related companies.

“A lot of our O&G [lending] is to companies that have strong parentage. So, the short answer is, we’re not alarmed or concerned. I would rather not comment on specific client exposures,” Mak says.

The bank’s gross impaired loan ratio is expected to improve further this year from a peak of 4.5% in 2020. “It’ll probably go back to the 3% handle by the end of the year,” he says. The ratio was at 3.7% as at end-September.

“You’ve seen a more amplified provisioning over the last couple of years, but this year, it will start to normalise. Given the very targeted profile of our client base, I’m not expecting anything untoward going into 2023 and beyond, based on what we can see today.”

In the corporate and institutional space, the bank targets only financial institutions, multinationals and large corporates. Meanwhile, only about 3% of its total assets continue to be under its loan relief programme compared with 8% before, he says.

For now, Mak is not overly concerned about how the gloomier economic outlook, including the likelihood of a global recession, might impact the bank. “We’ve been through it all in our 147 years here, so I’m sure we will take this in our stride.”

RAM Ratings, in a rating note on StanChart on Aug 16, said: “While the downside risk on its asset quality profile has eased, it remains susceptible to lumpy delinquencies as it serves mainly large corporate customers and multinationals.”

It went on to say that lighter provisions and a broader net interest margin amid interest rate hikes will lift its profitability this year, while the government’s Cukai Makmur (prosperity tax) will weigh on its net income to some extent.

Mak has taken the helm of StanChart at a time when foreign banks in Malaysia are increasingly losing market share to local ones.

Foreign banks’ share of assets in the banking system fell from 22% as at end-2013 to 19% as at end-July 2022, while their share of loans fell from 21% to 17%, based on Bank Negara Malaysia data.

“In the traditional parameter of loans and deposits, you are right that foreign banks’ [market share] has been flat or on a decline. But if you [look deeper] at StanChart specifically, we’ve consistently been [among the] Top 4 in foreign exchange market share. In terms of secondary bond trading, we’re No 1 or 2, depending on which year. We have a disproportionately high market share in terms of distribution of retail bonds.

“So, that says a lot in terms of where we are and where we’ve played. We’re certainly not losing relevance in the market … we’ve just moved away from the traditional areas of loans-and-deposits play,” he remarks.

To ensure that it continues to remain relevant, it is important that the bank changes the way it operates.

“Fifty years ago, yes, maybe people wanted to be associated with a foreign bank because of the brand or because local banks did not necessarily have those products [that we had]. But today, everyone’s on pretty much the same playing field.

“I’ve mentioned the partnership model — this is where we want to go. If we stood still and did nothing, then we’ll lose our relevance, and maybe one day, we might have to do a bit of soul searching. This is why it is important for us to change the way we operate, to change our value proposition,” he concludes.

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