SLOWDOWN AHEAD: Malaysian banks cutting staff

PETALING JAYA: There is a sense of urgency among banks to become more cost-efficient amid the current challenging landscape, with the focus on reducing their workforce to an optimal level.

RAM Ratings co-head of financial institution ratings Wong Yin Ching said the measures implemented to reduce their respective workforce were being undertaken with greater urgency now, given the softer earnings outlook amid a challenging economic environment with slower loans growth and continued margin compression.

A head of research at a local bank-backed brokerage concurred, saying that a softer economic outlook was most likely the main reason for cutting down on staff.

“I don’t think (industry) growth is going to be coming back in a significant way anytime soon. So, it doesn’t look like they’re undertaking these downsizing exercises to streamline costs in preparation for the next phase of growth,” he said.

Instead, he believes that banks which are implementing job cuts are making the most of the current capital market weakness to optimise their staff strength and get their expenses (and ultimately cost-income ratios) right.

RAM’s Wong noted that over the last few years, some Malaysian banks had embarked on merger and acquisition exercises in a bid to build market share, which had also resulted in an expanded staff force.

“In addition, banks are employing more technology in their operations these days. Hence, as banks pursue greater cost efficiency in this increasingly competitive environment, we have seen various measures being implemented to reduce their workforce.”

RHB Capital Bhd (RHBCap) is the most recent banking group to embark on a rightsizing exercise by offering its 17,500 employees a career transition scheme (CTS).

It had earlier said that there was no definitive target on the number of staff it would be releasing under the scheme, as this would depend on the response it gets from its employees. The bulk of its staff are in Malaysia.

RHBCap’s cost-to-income ratio stood at 55.5% for the first half of 2015, which is on the high side against the industry’s average of 49%, according to analysts. It had previously set a near-term cost-to-income ratio of less than 51%.

Analysts said the CTS exercise was expected to bring the ratio down to about 53%.

CIMB Group Holdings Bhd was the first local bank in recent times to rationalise its staff when it completed an RM443.3mil mutual separation scheme (MSS) in July.

The MSS involved 1.1% of its workforce in Malaysia and Indonesia and the target is to achieve yearly savings of RM292mil for the overall group.

Of the 3,599 approved applications, the majority – 1,891 – were from CIMB’s Malaysian operations, while the remainder were from Indonesia.

Affin Holdings Bhd’s investment banking arm, Affin Hwang Capital, is currently undergoing a rationalisation exercise, following the merger between the investment banking businesses of both Affin and HwangDBS (M) Bhd, which took place in 2014.

Affin group chief executive officer Kamarul Ariffin Mohd Jamil said that at the point of the merger, a rightsizing exercise was identified as a necessary measure towards generating synergies from the merger. “There is a plan by the group to reduce headcount for positions which are redundant, arising from the merger of the investment banking group.”

Moving forward, the group will scale up efforts to optimise costs by continuously leveraging on technology and investment in various IT systems to improve operational efficiency, Kamarul told StarBiz.

He said the cost-to-income ratio of the group for the financial year ended Dec 31, 2014 (FY14) stood at 53.9%, primarily due to the one-off transaction and funding cost incurred from the merger.

Excluding these one-off costs, the cost-to-income ratio of the group for FY14 would have been about 50%.

Kamarul said Affin was doing its “utmost” to bring down the cost-to-income ratio further, in order to be in line with the industry average. “The volatile economic climate and stiff competition in the industry continue to have an impact on the banking sector as a whole.”

However, the group remained optimistic on long-term prospects as it maintained its focus on sustainable growth, he added.

Meanwhile, some banks appear to be adopting a wait-and-see attitude for now, albeit remaining cautious, while others said there were no plans to slash jobs.

A spokesperson at Alliance Bank Bhd said as the bank operated in an extremely competitve environment, it would continue to assess skill sets and staffing requirements to support the business plans and direction.

Hong Leong Bank Bhd CEO KK Tan said despite a challenging operating environment, Hong Leong Bank was able to sustain its asset quality position and that it was “business as usual for us”. “We have not set any hard targets for cost-to-income ratios. However, we will strive to continue improving from our current 44.6% ratio.”

Tan said the bank continued to work on productivity and efficiency improvements while on the investment side, it had focused much of its spending on innovation.

Malayan Banking Bhd group president and CEO Datuk Abdul Farid Alias, meanwhile, had said earlier this month that it would not be cutting staff.

The bank is, however, “rationalising and reorganising” its branches by closing down some branches that are situated near to each other, with the staff of these branches being relocated to other branches or units within the bank.

While each banking group will have its own reasons for downsizing, the head of research said that there was more motivation for banks that were “bloated” with higher-cost employees to do so.

“CIMB was the first to do it because its cost-income ratio is notoriously high, and it is very stacked up with investment banking staff it had ‘bought’, which probably cost a lot more than normal. And because capital market activities have slowed, shouldering that cost indefinitely is a pain,” he said.

RHBCap is likely doing the same as a result of its merger with OSK Holdings Bhd, given the ensuing overlaps. “Both need to do it bank-wide though, to streamline costs,” he added.

Moving ahead, he said growth in the banking industry would probably be muted over the next one to two years, as consumers take out fewer loans due to the rising cost of living.

“Volatility in the capital markets could help certain segments of the non-interest income business, although broking income could be impacted.”-TheStar