Migrating to the digital world

Mark Desmond Hughes

Hong Leong Bank Cambodia sees fintech as the future

It takes less than six minutes to open a digital account with Hong Leong Bank (Cambodia) Plc, enough for the financial service to boast it is making solid progress on the retail side in the virtual banking world.

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It happily says this empowers customers to manage their transfers and payments through the internet locally and internationally through their mobile phones or computers, without a tiresome trek to an ATM or branch, 24 hours a day, seven days a week.

Nonetheless it is retaining several cash deposit machines alongside its ATMs for those who still need or prefer to deal in cash.

Needless to say, this initially involves a degree of capital expenditure and it has come up with a five-year plan for the future to keep up with and, if possible, beat the competition.

“For our next five-year journey we are investing more than $10 million in capital expenditure in both more physical branches and digital technologies, platforms, products and fintech [financial technology] partnerships,” says Australian Joe Farrugia, chief executive officer of the bank.

“This financial year ending June 30, 2020, on the business side you will see a corporate internet banking platform rolled out and, on the retail side, you will see further enhancements to our mobile banking app allowing new bank customers to open an account online, make payments at merchants digitally through QR codes or debit cards, receive discounts at selected merchants and earn loyalty points.

Farrugia expects a 33 percent uplift in revenues with these digital enhancements, and our forecasted loan growth, which is still being carried out partially manually in the early stages of the process as data is checked and proven to be trustworthy. However, Farrugia says once the relevant information is captured and confirmed, the bank will seek to automate and digitalise as many processes past this point to enhance productivity and revenue streams.

It’s a well-known fact that most banks rely on small and medium enterprises (SMEs) and housing loans for future growth in income and Hong Leong is no different.

“Our two core lending growth segments are SMEs and mortgages, currently with a 50/50 split in portfolios and we will continue to focus on both of these segments moving forward,”says Farrugia.

“To further support the SME business we will also be rolling out our business internet banking platform to allow them to manage funds and payments better, provide payroll and also trade services.

“For SME loans we offer term loans, overdrafts, bank guarantees and trade facilities, while on the mortgage side we offer home loans, home investment loans, equity loans and commercial home loans.”

When asked to be more specific about loans growth in the 2019 financial year and what share of the SME and mortgage loan market he expects to achieve, he replies: “Both SME and mortgage loans segments are expected to grow by about 30 percent each this financial year, supported by the strong continued economic growth in the industry and the booming supply of residential properties, both landed and non-landed. Currently our market share for SME loans is 1 percent and mortgages is around 5.5 percent.”

Non-performing loans

One of the banes of the banking world is non-performing loans (NPLs). On the subject, Farrugia had this to say about the bank’s status and strategy to deal with them: “Overall NPLs for our bank are in good stead at the moment with a percentage of only 0.27 percent and, with good credit criteria being exercised, we don’t see this being an issue for the foreseeable future.”

Currently, the bank has six branches operational with its head office in Duan Penh and others in the Olympic Market, Toul Kork, Pet Lok Sang, Mao Tse Toung and Boeng Snor within its working partners property development compound, Peng Huoth.

“We will also be opening a seventh branch early next year in Sen Sok and have future plans in 2020 to also look into opening further branches within the provinces,” he adds.

“All of our branches offer digital services to our customers, some more than others on the acquisition side. However, all customers will walk away knowing their ongoing banking needs can be handled digitally this year.

“All future branches moving forward will be fully digital, from engagement to acquisition and usage via online banking platforms.

“Ultimately our aim is for our customers not to spend too much time coming into the bank unless they want to or need further detailed wealth management advice from our expert relationship staff.”

A step back in history

HLB was originally incorporated as Kwong Lee Mortgage and Remittance Company in 1905 in Kuching, Sarawak and later as Kwong Lee Bank Limited in 1934, bearing the heritage of the oldest local financial institution in Malaysia.

The company granted loans against the security of export commodities such as pepper, rubber and other indigenous products.

It also provided the services of remitting money of overseas Chinese to their families in the Southeast region of China.

Kwong Lee Bank Berhad was acquired by the MUI Group in May 1982 and renamed Malayan United Bank Berhad on Feb 2, 1983.

In 1989, it was renamed as MUI Bank. Under the MUI Bank banner, it grew from 11 to 35 branches nationwide.

On January 3, 1994, Hong Leong Group acquired MUI Bank Berhad through Hong Leong Credit Berhad (now known as Hong Leong Financial Group Berhad) and renamed it Hong Leong Bank Berhad.

Leaps and bounds

Hong Leong Bank Berhad (Hong Leong Cambodia’s parent company) was listed on the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia Bhd) on Oct 17, 1994, and since then has grown by leaps and bounds, organically as well as through mergers and acquisitions.Its merger with EON Bank Group in 2011 placed Hong Leong Bank (HLB) as Malaysia’s fifth largest banking group with more than 180 billion ringgit ($42.88 billion) in assets as of June 30, 2016.

On the regional front, HLB became the first Malaysian bank in 2008 to enter the Chinese banking sector with a 20 percent strategic shareholding in Bank of Chengdu Co Ltd. In December of the same year, HLB became the first Malaysian and Southeast Asian bank to be granted a licence to incorporate and operate a 100 percent wholly owned commercial bank in Vietnam. It also operates in Singapore and Hong Kong. In 2013, HLB launched its 100 percent wholly owned commercial bank in Cambodia.

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