ASEAN banks should merge to survive

ASEAN banks should merge to survive

Eileen Ng, Agence France-Presse, Kuala Lumpur

Southeast Asian banks must seek regional alliances and mergers
in order to survive stiffer competition in the globalisation era,
industry experts said Thursday.

Banks in the Association of Southeast Asian Nations (ASEAN),
having survived the 1997-1998 Asian financial crisis, are faced
with a new "crisis" on how to cope with competition with
international banks which have economies of scale and financial
resources, bankers said.

The Association of Banks in Malaysia chairman Rozali Mohamed
Ali said the crisis exposed weaknesses such as over-gearing,
internal inefficiencies and poor financial risk management and
there were "no clear success stories".

"The last words on the Asian financial crisis of 1997 have not
yet been written but it is clear that the crisis was a watershed
for the region," Rozali told a two-day ASEAN banking conference
here.

He said ASEAN banks must discard obsolete practices and become
"more diverse, competitive and constantly innovative" to cope
with market liberalisation under the World Trade Organization.

To survive, they must deepen cooperation and build strategic
alliances to enlarge their markets, enhance skill transfer and
increase efficiencies to compete with the foreign big boys, he
said.

"The challenges facing ASEAN banks are great... cross-industry
mergers and alliances are expected to be a global trend in the
industry to capitalise on synergies," he said.

"Strategic reengineering will be a key success factor for
banking of the future. We will need to redefine our strategic
business focus and in the process find our own markets."

Rozali urged ASEAN banks to outsource non-core activities to
service providers to cut investment in infrastructure and
expertise, and improve efficiency.

They must boost transparency and disclosure and leverage on
information technology to reshape delivery channels, he added.

ASEAN Bankers Association chairman Rudjito said banks were now
gripped by an uncertain global economy and increasing
competition.

"The challenges in the new era are great. How we come out will
depend on what we do in the next one or two years. One wrong move
may mean the end for our institutions," he warned.

The biennial conference, attended by some 150 participants, is
aimed at exploring ways to boost regional banking alliances.

"ASEAN banks are picking up the pieces after the 1997 crisis
and we must now evaluate to see what's in store for us," Nik
Hassan Nik Mohamad Amin, Malaysia's Bumiputra-Commerce Bank vice-
president, told AFP.

"We must be ready before the floodgate opens. We must change
the way we do our business and build new operating models to
survive."

Malaysia, which has whittled down its 54 banks and financial
institutions into 10 core groups, has said it expects a second
round of mergers in the coming years.

Central bank governor Zeti Akhtar Aziz was quoted as saying by
Thursday's Business Times that market forces, rather than
government pressure, were expected to nudge banks into further
consolidation.

"Further mergers are expected to take place in the next few
years resulting in three to four larger banks... competing on
equal footing with foreign banks," she said.