Layoffs in Malaysian banks a symptom of slowing regional economy

BY BOO SU-LYN

Jayant Menon, a lead economist at the Asian Development Bank said banks would need to undertake cost-cutting measures due to slowing economic growth in the region. — Picture by Saw Siow Feng
KUALA LUMPUR, Nov 1 — The recent string of restructuring by several banks in Malaysia is due to an unexpectedly bigger impact from slowing economic growth in the region amid falling government revenues, analysts have said.

Asian Development Bank lead economist (trade and regional cooperation) Jayant Menon said the sluggish economy in the region, chiefly in China but with a larger than expected effect on its trading partners such as Malaysia, would affect many sectors of the economy, including services like banking.

“With dwindling government revenues following the oil and commodity price decline, the government-linked banks can no longer expect large subsidies to weather the slowdown, and will need to undertake cost-cutting measures, such as retrenchments, to remain competitive,” Jayant told Malay Mail Online.

Bloomberg TV Malaysia reported on Tuesday that Hong Leong Bank Bhd announced its mutual separation scheme on October 21, following other banks like CIMB Group Holdings Bhd, RHB Capital Bhd and Affin Bank Bhd that had laid off workers.

Government-linked CIMB Group Holdings reportedly cut 11.1 per cent of its total workforce earlier this year, or 3,599 employees, while RHB Banking Group reportedly said last September that there was no specific target on the number of staff that RHB Capital would retrench.

RAM’s co-head of financial institution ratings Wong Yin Ching noted that some Malaysian banks have embarked on merger and acquisition exercises over the last few years that have resulted in a bigger workforce, besides relying more on technology.

“Hence, as banks pursue greater cost efficiency in this increasingly competitive environment, we have seen various measures being implemented to reduce their workforce.

“These have been undertaken with greater urgency now given the softer earnings outlook in this more challenging economic environment with slower loan growth and continued margin compression,” Wong said.

Maybank Investment Bank group chief economist Suhaimi Ilias also pointed to the mergers and acquisitions in the banking sector that have led to excess staff, like at CIMB Investment Bank following the Royal Bank of Scotland (RBS) Asia Pacific acquisition, as well as the RHB-OSK and Affin-Hwang mergers.

“Amid pressure on interest income and intense competition for fee-based income, banks have to manage their costs-income ratio (CIR) and boost revenue per worker as well as overall productivity.

“The future of banking is also changing as information and communication technology play increasing role in the provision of services,” Suhaimi said.

- See more at: http://www.themalaymailonline.com/malaysia/article/layoffs-in-malaysian-banks-a-symptom-of-slowing-regional-economy-analy#sthash.51WHcbVH.dpuf