Charting future of banking and finance in a new era
DESIRED OUTCOMES: Financial sector contribution to GDP to rise up to 12pc in 2020
THE financial system is expected to grow at an annual rate of eight per cent to 11 per cent over the next decade, increasing the depth of the financial system to six times of the gross domestic product (GDP) in 2020, from 4.3 times of GDP in 2010.
The financial sector contribution to GDP is also expected to increase from 8.6 per cent in 2010 to between 10 per cent and 12 per cent in 2020.
These are the desired outcomes for the financial services industry as laid out in the Financial Sector Blueprint 2011-2020 by Bank Negara Malaysia. Do we have what it takes to achieve these goals?
There seems to be a continuous flow of unfortunate financial and economic news in the international press. Alhamdulillah, our domestic financial industry has been spared of similar news. We are safe, sound and secure.
And we are safe, sound and secure because our authorities maintained their vigilance. They have in place the necessary checks and balances to keep things on an even keel and ensured that our regulatory framework remained robust.
Just as crucially, our financial services industry has also remained calm and free from the turbulence prevailing elsewhere because the members of our banking and financial community have themselves maintained high ethical and governance standards. This is something that all of us must be proud of.
As we head towards the year 2020, the domestic financial services industry will see a number of catalysts being introduced. These catalysts are meant to shape our domestic financial services industry in the years to come.
Looking ahead, we wish to see our financial services industry having the capacity to support a high-income economy. We wish to see our financial services industry having the capacity to support an economy that has greater regional and global linkages than it has now.
We want to have a competitive financial services industry that has the ability to serve an innovative, liberalised, high-value economy and able to serve an increasingly sophisticated retail market that will demand institutional quality products and services.
In this regard, I envy the chief executive officers (CEOs) of our banks. I envy them because they would have the rare opportunity to shape not only their respective organisations, but that of the industry itself, in ways and means that none of their predecessors could.
The operating environment of the banking system, the ecosystems that are emerging now will continue to form in the next few years, will represent one of the most significant transformations our financial services industry had faced since the last thirty years.
These developments will take place against a backdrop where the forces of liberalisation and globalisation will have the banks facing greater market pressure to enlarge their capital.
At the same time, the traditional banking products, the basic bread and butter of our banking industry in the last thirty years will be increasingly commoditised.
With the enlarged capital bases, banks will be compelled to invest their shareholders fund into new and innovative higher margined businesses.
This is a good thing, we hope these new businesses will be integral to a vibrant risk-capital ecosystem within our transformed financial and banking industry.
All these would mean our banking institutions would not only be larger but also, at the same time, nimbler. This requires the CEOs perform a balancing act, an act that requires a highly evolved set of management and strategic skills.
Yes, I reiterate, we have done very well thus far. Our banking system, our capital markets have been largely and relatively free of gross malpractices and major mismanagement.
But today, I must put forth a word of caution here. Things are going to change. The operating environment will change. As such, we need to ensure that sound risk management and corporate governance practices are continuously developed in line with the coming change.
For our regulators, this is a critical agenda — the integrity of our banking and financial system must never be compromised. This is not negotiable.
It is only too obvious that for all the compliance and complex risk management systems that were in place in the west, their model failed miserably.
If we are to develop a more sophisticated risk management and corporate governance system, it may be wise for us to consider developing a model that is closer to our community values and belief systems, a model that reflects our unique Malaysian corporate values and Asian ethical standards.
We, Asians, have a strong sense of community. We believe that our community is greater than the sum of us individually. We are not as important as the group that we represent.
In this regard, I am always pleased and extremely proud of our financial institutions’ sense of national purpose. This must be continuously promoted and nurtured.
A bank is not just another profit- seeking entity. A bank is a critical component of an economy. A bank is an extremely important channel in mobilising savings into productive activities. As such, a bank has the fiduciary duty to ensure that the assets that it acquires are sound and robust, more so in times of stress and friction.
Risks will get complicated. New technologies, international laws, standards and requirements and dynamic global inter-dependencies will make risk a lot more complex. In this context, I cannot over emphasis the importance of risk management for our lending institutions.
Certainly, there will always be space for lenders to remain in their traditional spaces, but our domestic market is limited. The next eight years, up to the year 2020, will be one of the most exciting times for our economy — for our generation, these will be our golden years.
The advent of the Asean Economic Community in 2015, the growth of China, on our left, and India on our right, with Indonesia at our door step, will present us with opportunities that we cannot ignore. We have the first mover advantage in many areas; we must capitalise on these advantages.
I have full confidence in our financial and banking industry to fully take up the challenge that our future will bring.
I have not the slightest doubt that our financial and banking industry, made up of diverse cultures and ethnicity, with a variety of skills and talents, will rise to the challenge — united in common purpose and a singular vision — to bring this country higher prosperity and a better life to all those dwell in it.
And I strongly believe the targeted outcomes in the blueprint are well within reach of our financial services industry.
The key towards ensuring these goals are met is to have in place a robust monitoring framework to monitor the progress of the blueprint implementation.
Datuk Seri Ahmad Husni Hanadzlah is the Minister of Finance II, who delivered the opening speechat the Asli Banking Summit 2012 in Kuala Lumpur yesterday.