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RETAIL BANKING | Cesar Tordesillas, Malaysia

Asian banks warned of profit ‘pressure’

Lenders have to work much harder.

This is true for Malaysian banks, including its counterparts in Asia, despite continued growth, according to global management consulting firm McKinsey & Co.

The firm calls it may experience pressure on profitability. 

Its Asia banking practice director, Joydeep Sengupta, said several imminent challenges that might put pressure on profitability included the difficult economic environment which would lead to higher risk costs, the changing regulatory requirements and the increasing shortage of capital that would put pressure on capital costs and consequently returns.

He said another challenge was the increasing sophistication of Asian consumers and decreasing levels of loyalty to their current banks.

“This would mean banks would have to work much harder to enhance levels of customer service and experience,” he said.

In terms of capital, Joydeep said for example in Malaysia, with the increasing pressure on availability of capital and diminishing profitability, banks would need to manage their capital much more aggressively.

This would involve reducing “wastage” of capital through operational inefficiencies, allocating capital more effectively and being much more strategic about pricing and products, he noted.

Despite Asia remaining a growth environment, he added that banks in Malaysia as well as in the region would need to be much more “granular” in identifying the “hot spots” and “pockets of growth.”

This, he said, would require much better segmentation, deeper understanding of micro-markets within cities and tailoring of business models to these micro-segments.

“Given the rapidly evolving technology landscape and the emergence of a large segment of “digital consumers,” many Asian banks find themselves ill-prepared to meet this challenge.

“They have to act quickly and decisively to leverage the new interactive technology to enhance their business productivity as well as re-orient their business models to cater to the needs of the new digital' consumer,'' Joydeep added.

Therefore, modernising the credit assessment system to enhance upfront credit acquisition quality, establishing strong early warning systems and investing in collections and workout capabilities were important priorities for Asian banks.

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