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.