Rise of Malaysian megabank spells megabucks for IT players?
By Michael Araneta & Sui-Jon Ho July 16, 2014
- Merger may portend a ‘size race’ for banks in Malaysia and even within Asean
- May also set a number of technological precedents in the banking industry
THE Malaysian banking regulator (Bank Negara Malaysia) gave the go-ahead on July 10 for CIMB Bank to start talks for a potential merger with RHB Capital and Malaysia Building Society (MBSB) to form one the largest banks in the South-East Asian region.
If the merger pushes through, Maybank will be dislodged from the top spot as Malaysia’s largest bank and the fourth largest in Asean (the Association of South-East Nations).
The merger may portend a race for size for banks not only within Malaysia (as IDC Financial Insights does not expect Maybank to sit idle), but also within Asean, especially in the context of the Asean Economic Community (AEC), which begins in earnest in 2015.
The Malaysian financial services industry has long hinted at the need for a ‘local super-bank’ or an ‘Islamic mega-bank’ and the CIMB-led merger has finally substantiated it.
Malaysia’s last financial institutions merger of note was in 2011, when Hong Leong and EON Bank merged to form Malaysia’s fourth-largest bank by assets.
While there will be much analysis in the next months on the strategic synergies of the deal, IDC Financial Insights would like to focus on the technology implications of the deal:
The rise of regional platforms
CIMB has been lauded on multiple occasions by the analyst community (IDC Financial Insights notwithstanding) as a champion for 'super-regionalisation,’ that is the push by local Asia Pacific banks to build a network of operations across several markets in the region.
Alongside this bid for multi-jurisdictional expansion is the opportunity to build super-regional technology foundations, or IT platforms that are integrated enough to viably support and grow the operations in multiple geographies.
This was what CIMB was building towards with its 1Platform initiative. The five-year old programme (now drawing to its conclusion) involved, among others, the creation of a single core banking system with enough local market customisation capabilities, as well as the formation of various 'centres of excellence' for application development, delivery and production.
The merger will be the first real test for how CIMB’s years-long transformation stands to the tests of scalability and ‘integrability,’ never mind that the three-way merger involves counterparties with a largely-domestic footprint.
IDC Financial Insights has been calling attention to implications of this super-regionalisation of technology, and the precedents it sets on hot-button areas like virtualisation, networks, shared services, and cloud computing.
We also advise the vendor community to prepare for even more centralised decision-making similar to the approaches being made by the likes of HSBC and Standard Chartered.
IT budget growth in Malaysian FSI tops out
RHB itself is currently undergoing a core banking refresh of its own, and prospects of this merger will threaten to undo about a year’s worth of effort.
Alongside this are also several major slated projects including data warehousing, channels and customer-centricity platforms that promised significant deals for technology server providers, topping up IDC Financial Insights projections for IT budget growth in Malaysian financial services.
Should the merger carry through, the market can expect to witness reiterated (and protracted) spending directed toward integration and calibration of such technologies, more so than in its absence.
At a recent CIO (chief information officer) Roundtable, IDC Financial Insights discussed how the market will grow 8% on a capex (capital expenditure) basis and opex (operating expenditure) at 5% in 2014 over 2013.
CIMB technology has first-mover advantage
From the perspective of super-regionalisation, RHB has recently been making good on its promise to grow beyond Malaysia, with forays into north-Asean (Thailand and Cambodia).
However, it has not rolled out a project in the mould of CIMB’s 1Platform, thus making the latter the only feasible, plug-and-play candidate for the common core system of the new entity.
CIMB’s sustained technological leadership also provides an invaluable repository of skill sets in innovation, and more importantly, the deployment of innovation to the mix.
Perhaps the best way to measure the worth of such an advantage is to realise that it took three years (‘only three years’ or ‘three years too long’ is another debate) since the bank's last major restructuring exercise in 2006 before any semblance of a coherent product and IT management framework was seen – though the subsequent success stories are, as they say, history.
IDC Financial Insights see that these years-spent will translate to years-saved for the merged organisation.
Business/ technology synergies abound
The three parties involved have suitably different technology successes and aspirations. CIMB has also been recognised for diverse initiatives in digital banking, social media (‘social banking’ is their term), mobile account origination, low-dependency transactions, card-less withdrawals as well as integrated online banking.
Meanwhile, RHB Capital has seen, in turn, the region’s most successful IT-enabled growth stories in the past five years.
‘Easy by RHB,’ a mass market banking proposition, was a feat attained through the use of low-maintenance branch models, revised account creation workflows, and competitive loan pricing.
Its other investments in consumer banking (particularly in cards and payments) also paid dividends.
MBSB, on the other hand, is a well-diversified financial service provider, with strengths in property financing and corporate/ wholesale banking – but without the high-profile technology successes of the other two players in the deal.
Bearing such diverse portfolios in mind, it is easy to extrapolate that the post-merger company will be a universal bank with multiple competitive advantages in strategic segments.
On the other hand, more prudent observers may speculate that such a capital venture could possibly weaken the brand affinity of the individual organisations.
Growing pains aside, IDC Financial Insights is excited for, at the very least, the number of technological precedents that CIMB-RHB-MBSB would potentially set.
From the vindication of aggressive-yet-visionary IT investments of the past, to how technology might expedite the stabilisation of the post-merger organisation, pundits will have much to preoccupy themselves with for some time to come.
Michael Araneta is a consulting and research director with IDC Financial Insights, while Sui-Jon Ho is a market analyst with IDC Malaysia. IDC Financial Insights provides fact-based research and consulting services to financial service businesses and IT leaders.
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