Chu Kok Wei, group head, treasury and markets at CIMB Group, explores how technological changes brought about by the Covid‑19 pandemic will impact traditional bricks-and-mortar banking, and how Association of Southeast Asian Nations (Asean) banks are particularly well prepared for this transformation, allowing them to act as a societal pillar of stability.
South-east Asian markets have been among the most volatile amid the Covid‑19 aftermath, with some countries grappling with the biggest GDP contractions and the worst-performing currencies.
CIMB Group, with a presence in all 10 Asean territories – and serving all customer segments from individual consumers, and small and medium-sized enterprises to corporates, multinational corporates and international investors – has proven its ability to help regional Asean and international clients navigate cashflow squeezes, execute large amounts of plain vanilla transactions and pioneer new products referencing risk-free rates.
In 2020, CIMB has shown resilience and garnered Asia Risk house of the year awards in three Asean country categories: Malaysia, Indonesia and Thailand. The judges cited the bank’s strong discipline in trading and risk, as well as its close ties with authorities.
In this Q&A, Chu Kok Wei shares how the bank has achieved this award-winning performance under extreme market and operating conditions in the past 12 months. He also looks at the next steps for Asean institutions, and advises on the appropriate business strategies and the banking sector’s responsibility for greater financial inclusiveness in the ‘new normal’ brought about by the pandemic.
How has Covid‑19 impacted CIMB and its clients?
Chu Kok Wei: Everyone has their respective challenges arising from the pandemic. CIMB is focused on taking care of all of our client segments and stakeholders’ needs, such as maintaining and ensuring financial stability in all of the local markets in which we operate.
Over the past few months, our work has centred around helping our borrowing customers navigate their cashflow challenges, because many of them suffered from temporary business closures.
Investors and depositors, on the other hand, have been facing equal challenges because of the co‑ordinated decline in global interest rates. While inflation is nearly negative in most countries – with some even experiencing deflation – most savers and depositors worry about earning viable returns on their capital. This is where the traditional area of wealth management structured products stand out to ensure customers have access to traditional products, despite some physical branches being temporarily shut down. Our services have gone digital – the same investment products can now be accessed online.
At the same time, we are grappling with the social distancing rules. Offices cannot accommodate as many staff as they did previously. For some parts of the financial market, it is now more challenging from the perspective of record-keeping, surveillance, and regulatory and compliance requirements. CIMB has been able to redeploy more than 70% of its staff to work from home while meeting nearly all compliance requirements via the employment of various technological tools.
One of the first and most important aspects of this type of working environment is secured remote access to key systems. These include our information dissemination systems, trading and risk management systems. For a dealing room environment, recorded communication is a key requirement.
We have successfully transitioned into working remotely with sufficient technology investment to likely support us for an extended period. However, we need to be cognisant of the human factors, such as staff motivation or tensions arising from extended periods of working from home. Organisations worldwide are assessing if this is going to be a permanent, transitory or some kind of hybrid arrangement going forward. Regulatory inputs will also be very important on this issue.
The pandemic has forced everyone to adopt technology faster and even forced some regulatory and compliance issues to the surface – necessitating a definitive stance on some of these considerations. These matters will be key for engagement with the primary regulators in our markets.
We have stabilised our platform – we are in the position to operate on it for an extended period of time. Whether that is desirable in the long term or if we will move into a more permanent arrangement is currently under consideration.
What is CIMB’s regional approach?
Chu Kok Wei: We are a regional financial institution with a footprint across Asean. We standardise most of our work processes, systems and platforms as much as possible. This immediately provides us with economies of scale – especially when rolling out fixes and upgrades or when troubleshooting.
Generally, around 80% of the core platforms are standardised. That helps us in implementation and gaining local approvals because the solutions would have already been tested and proven effective in other jurisdictions.
We include quite a bit of local customisation, factoring in local regulatory and client nuances in each country. It has proven extremely helpful on the investing side of businesses because the Asean countries are very attractive to international investors. Being able to present an entire set of Asean solutions to our regional and global investing clients is a key strength for us. Our sales team can provide a one-stop-shop type of service to satisfy their investment needs in at least four of our core territories: Malaysia, Singapore, Indonesia and Thailand.
Earlier this year, at the height of the pandemic, we saw high volatility in all of the currencies and local currency bond yields – whether Malaysian ringgit, Indonesian rupiah, Thai baht or, to a lesser extent, Singapore dollar. With a lot of these inflows, outflows and intra-Asean rebalancing flows of investors, we believe our clients found it productive to talk to an Asean regional, yet local, bank that is able to provide access to local markets and a significantly varied customer base, compared with our international peers.
Which products and strategies have worked for the bank during the Covid‑19 pandemic?
Chu Kok Wei: A key observation in the past six to nine months is that investors have gone on to invest in even simpler products. Much of the time, the value of those products is their liquidity. As we saw in the second half of March – even in the international markets in Europe and the US – some traditional products that would not normally be questioned over their liquidity, such as treasury, treasury repo or the S&P 500, have been extremely illiquid. Each has undergone traumatic bouts of illiquidity. The ability to execute plain vanilla transactions liquidly, in large quantities with minimum price slippages, is all our customers ask for.
We have not seen too many structured transactions, partly because the model for correlation-based transactions would have broken down in the past few months. The demand for such transactions is rare.
What is at the top of CIMB’s regulatory watchlist?
Chu Kok Wei: Top of the list is the transition away from Libor and margin reform. CIMB as a group will likely be included in phase five of the margin reform. Momentum on awareness of the cessation of Libor and transition has been significant over the past few months. You see this in places such as Singapore, where the transitions are more advanced with the introduction of the Singapore overnight rate average (SORA) and Hong Kong, where the Hong Kong dollar overnight index average (Honia) is coming out in the market. We have seen a lot of development efforts in the past few months from the likes of the Asia Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association, and the Asia‑Pacific Loan Market Association, as well as local trade associations.
In Thailand, CIMB pioneered the first Thai overnight repurchase rate (Thor) overnight index swap and Thor medium-term interest rate swap. More recently, in Malaysia, CIMB also executed the very first ringgit-to-US-dollar secured overnight financing rate (SOFR) cross-currency swap.
Until a few months ago, the reaction to Libor transition in the local currency market was lukewarm. But now, the speed of the markets waking up and co‑ordinating themselves to prepare for Libor transition has been impressive – and local trade associations play a big role in this. Despite the market being fragmented, most Asean markets have pretty good local trade associations that collaborate with local regulators. Once they are determined to implement Libor transition, it can happen quite fast.
What is next for CIMB in the next six to 12 months?
Chu Kok Wei: For the next six months, we will be very busy with local customers, primarily with the borrowing customers because I expect they will continue to need support in the post-pandemic world.
In the meantime – while we are busy helping our customers and managing the non-performing loan ratio – we should not lose sight of the structural changes that are happening. While a lot of the changes are technology-driven, most Asean countries still have a large segment of customers who are not technologically savvy. The inclusiveness of financial services will be a major topic.
While banks remain commercial organisations, supporting the real side of the economy and society is important. This is the time that the call to action on financial inclusiveness is most important. I don’t see these as conflicting goals. I see them as complementing each other in the medium term.
As we go undergo technological changes, traditional bricks-and-mortar banking will not disappear. It will transform and it will be an exciting time. Asean banks are generally entering this period from a position of strength in terms of liquidity, capital ratios and other financial stability metrics. As a result, most of the Asean banks are in a position to help society through these challenging times.
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