Future Branch

Banking in SE Asia

Presenter:
David Hovenden

Managing Director SE Asia

Booz & Company

The ASEAN business environment is exciting but

challenging aiming for a single market by 2015
Association of Southeast Asian Nations (ASEAN)

A geo-political and economic organisation of ten

SE Asian countries, first established on 8 August
1967

Myanmar
Laos

Thailand

Vietnam
Philippines

Cambodia

Brunei
Malaysia

Singapore

Indonesia

Focus has changed from promoting peace and

harmony among its members to community
building to cope with increasing political and
economic competition in a globalised world
At the 12th ASEAN Summit in January 2007, the
Leaders affirmed acceleration of an ASEAN
Community by 2015 and signed the Cebu
Declaration

Waves of Change Oceans of Opportunities 7 8 October 2013 Hilton Kuala Lumpur Hotel
2

Responding to these changes, banks

are looking at regionalisation and domestic growth
How much should you regionalise in the next 5 years?
Legend
25th to 75th Percentile Range

Key

Median

1 Marginally
2 At least 25% of revenue
3 At least 40% of revenue
4 At least 50% of revenue
5 At least 75% of revenue

Overall ASEAN

1.00

Malaysia &
Singapore

2.50

4.00

4
3.50

Indonesia

2
1.75

Thailand

3
2.50

4.00

3.25

Comment
Malaysian and Singaporean banks are planning
to regionalise aggressively due to domestic
market limitations
Malaysia and Singapore have smaller
populations relative to other SEA nations
High competition and a mature market in
those countries present limited domestic
growth options
In comparison, Indonesian and Thai banks are
predominantly domestically focused and plan to
have less than 40% of revenue coming from
regional sources in the next 5 years

1.00 1.25
1)
Number of respondents
Source: Management Interviews, Booz & Company analysis

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Despite growth opportunities, bankers

believe profitability will be pressured
ASEAN Banker Opinions on Growth and Profitability
Growth
What is your opinion of
the impact of ASEAN
2015 on the growth of
the main client
segments and
products?

Typical Emerging Asia Bank ROE and Expected Changes

Per Cent

14-18%

Highly
negative
1

Highly
positive

Neutral
2

2-3%

3.00

5
5.00

0.2-0.3%

0.3-0.4%
12-15%

Profitability
What is your opinion of
the impact of ASEAN
2015 on the profitability
of the main client
segments and products

Highly
negative
1

Highly
positive

Neutral
2

2.00

25th to 75th Percentile Range

Median
Source Booz & Company SE Asian Banking survey, McKinsey & Company

4.00

Typical retail Impact by

banking ROE
Basel III

Impact by
higher risk

Impact by
changing
customer
preferences

Potential
ROE

Waves of Change Oceans of Opportunities 7 8 October 2013 Hilton Kuala Lumpur Hotel

And although branches are a

constant in Banking
Plus a change, plus c'est la mme chose"
"the more things change, the more they stay the
same,
Jean-Baptiste Alphonse Karr (1808 to 1890)

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They must evolve given these and

other contextual changes
ASEAN banking environment 2015 and beyond
Increasing bankability will drive volumes
Increasing affluence change in customer needs
Growth in self directed ATM and internet channels

Central Banks across the region have reducing the reliance on

cash and cheques as a major agenda

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Many banks in the region enjoy higher

NIMs but have low productivity and high C/I
Net Interest Margin v Cost to Income Ratio

CIR (%)

FY12, sample of top banks in region

70

BII
Thanachart

60

TIMB
Maybank
Hong Leong Financial
50
DBS

Indonesia

Permata

Tisco
RHB Capital
Bangkok Bank
Hong Leong Bank

Malaysia

CIMB Malaysia
Ayudhya

Thailand

Negara Indo
Danamon

Central Asia
CIMB Indonesia

Pan
Kasikornbank

Affin

Singapore

Mandiri

Rakyat

Bubble size represents assets (FY12)

Siam Commercial

40

Ambank

Krung Thai
OCBC

Public Bank

30

United Overseas

20
0

10

NIM (%)
Source: Bloomberg, Company Reports, Broker Reports, Booz & Company analysis

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The C/I of deposits,

particularly for Mass remains high
Heat-map of C/I for each Product Segment Combination

Deposits

Mass

Affluent

HNW

SMEs

Corporate

Total C/I

Savings Accounts
Current Accounts
Term Deposits
Credit Cards

Loans

Mortgage
Trade Business
Auto finance
Others

Short Term Revolving Credit

Forex
Global Markets
KEY

C/I > 200%

85% < C/I < 200%

40% < C/I < 85%

C/I < 40%

N/A

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Handling cash at branches dominates

service costs 20% of transaction/ 80% of cost
# of Financial Transactions for CASA products
9%

9%

10%

8%
1% 1%

6%
3%

14%

11%

20%

20%
31%

17%

15%

19%

15%
22%
5%

0%

3% 0%

5%

62%
35%

2%

19%

14%

2%
13%

59%

0%

71%

1%

6%

8%

Overall

Mass

Affluent

HNW

47%

38%

35%

9%
20%

49%

34%

14%

3%

Service Cost

3% 1% 3% 1% 6% 2% 4% 2% 2% 0% 5%
1%
8%
2%
8% 0%
20%
2% 12% 1% 9%
15%
7%
0%
2%
1%
5%
2% 4%
7%
2%
0%
5%
28%
9%
15%

10%
10%

7%
4%
51%

2%
12%

Service Cost by Channels by Type of Activity

(for CASA only)

# of Monthly
Transactions

25%

11%

13%

9%

Overall

Mass

5%

SME/BB Corporate

Internet Fund Transfer

ATM Cash Withdrawal

ATM Fund Transfer

Branch Cheque Deposits

ATM Cheque Deposits

Branch Cash Deposits

ATM Cash Deposits

Branch Cash Withdrawal

28%

25%
9%

Affluent

HNW

SME/BB Corporate

Waves of Change Oceans of Opportunities 7 8 October 2013 Hilton Kuala Lumpur Hotel

Future growth in bankability will

challenge traditional models and C/I
Regional Comparison of Banking Product Penetration
% of Population Aged 15+

98.2

Singapore
Thailand
Malaysia
Indonesia

72.7
66.2
58.4
42.8
37.3

35.4

19.6

15.3

19.4
11.2

Account at Formal
Financial Institution

Savings1

10.0

Loans2

8.5

11.9
4.5

0.5

Credit Card

1)
Saved at a financial institution in past year
2)
Loan from a financial institution in past year
Source: World Bank Global Findex, Booz & Company analysis

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Increase in affluence will change

customer demand beyond basic products
Retail banking Expected evolution of customer objectives
Wealth Consolidators
Funds Management
Wealth Management
Securities Trading

GDP / Capita
US$
$40,000
$30,000
$20,000
Indonesia has a greater
reliance on net interest
income relative to
peers (83% of income)

Active Savers
Savings
Time Deposits
Checking Accounts
Payments
Safe Deposit Boxes

Malaysia

Thailand

<$5,000

Cambodia

Vietnam

Safekeeping of
Savings/Transaction Needs

Indonesia

Aspiring Affluent
Mortgages
Auto Loans
Consumer Loans
Credit cards
Insurance

Lifestyle Financing /
Protection

Singapore

Illustrative Income
Growth

Singaporean banks have

greater capability in the funds,
wealth management and
securities trading areas

Wealth Accumulation /
Preservation

Consumer Objectives

Basic Net Interest

Income Products

Increased Fee /
Advice Income
Products
Decreasing net interest margin
Waves of Change Oceans of Opportunities 7 8 October 2013 Hilton Kuala Lumpur Hotel

Branches that have high transactions

have lower sales productivity
Client sales staff time allocation
vs. best practice
Weekly time

Simple transactions over the counter vs

sales productivity

90

allocation

85
100%

80
75

95%
90%

70

85%

65

80%
75%

60

20%

18%

70%

55

65%
60%

50
Branch
productivity 45
(sales / FTEs)
40

55%
50%
45%

35

4%
5%
5%

20

25%
20%

15

15%

10

10%
5%

Internal meetings

12%

Training

9%

Sales processing

65%

Sales and lead generation

22%

30%

25

Enquiries / complaints

2%

1%

40%
35%

30

100%

Unproductive time

37%

0%

0
0

50

100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850

Bank A

Best Practice

Daily simple over the counter transactions

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However, customers prefer alternate

channels over branch for some transactions

Withdrawal

Check Deposit

Cash Deposit

Channel Preferences

9%

72%

Mass

28%

84%

Small Business

16%

34%

66%

62%

Small Business

Small Business

19%

91%

Small Business

Mass
Transfer

81%

Mass

Mass

100%

39%

38%

8%

44%

10%

43%

2% 6%

Branch

ATM

49%

Call Center

Online

Waves of Change Oceans of Opportunities 7 8 October 2013 Hilton Kuala Lumpur Hotel

13

As transactions leave the

branch, the focus moves to sales
Potential Future State Branch Formats

Potential
Branch
Model

Traditional Branch

Mass Affluent Branch

Business Intensive Branch

Mass Market

Mass Affluent

Small Business Segment

Lisc.
Banker

Imaging
ATM

BM

Remote Product Specialists

Investment Center
Support

Loan
Officer

Lisc.
Banker

Imaging
ATM

BM

Product Specialists
Loan
Officer

Financial
Advisor

Business RM

Imaging
ATMs

BM

Product Specialists
Treasury

Merchant
Services

Standard Hours

Select Branches with Extended Hours

Extended hours

Moderate Service Level e.g., clients

may have longer wait times during
peak times

Dedicated service for premium clients

Dedicated service personnel for

business clients

Source: Booz & Company analysis

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And new advisory-style branches

improving customer experience
Advisory Centre Branch Layout and Flow

Concierge acts to triage

transactional customers to
self-service channels

Worldwide Branch Trends

Low-value transactions shifting to self-service channels

High value
customers (loans,
SME, new business)

Transactional
customers

Focus of international banks is acquisition and advisory

relationships in branches, serving high-value customers
(SME, home loan, wealth)

Branch
entrance

European and US branches becoming more customercentric

Personal banker relationship focus in-branch

Concierge

Improved customer
experience with relaxed
lounges to wait or
interact with the bank

Analytics use across all channels

Waiting area

24hr transaction
area

New in-branch selfservice systems for

simple transactions
available 24 hours

Brokers are an important channel in Australian market

Security is the leading reason consumers avoid digital
channels in favour of branches
Low value customers channelled to self-serve channels
and, in the future, multi-function ATMs

Semi-private and private

offices to discuss mortgages
and personal finance

Sales / advisory area

Videoconferencing to sales specialists

Videoconferencing to
access advisers, planners
and financial specialists

Source: Booz & Company analysis

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Australian banks have begun

experimenting with new branch styles
Advisory Centre Branches
Westpac

Customer lounges

CBA

Concierge greeting area

WBC spending $280Mn on pilot branches in regional

areas

Offices for advisory

services

Self service tellers

CBA has rolled out a flagship branch in Brisbane and is

planning additional innovative branches

Source: Company websites

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Bank business models are diverging to

become digitally-oriented branch networks
Bank Channel Sophistication Positioning Map
Selected Examples

Level of Branch
Sophistication

ILLUSTRATIVE

Branch of the future

high tech branches
focused on channelling
by customer value

Cashless branches,
geo-payments,
sophisticated apps
targeted to
customer needs

Small / emerging / niche

financial institutions

Traditional branch
network

Embedded online
analysis tools,
online access to
specialists for
scaled / holistic
advice

No network
Limited functionality website only

Second-gen digital: online,

mobile

Multi-channel integrated: online,

mobile, tablet; functionality
integrated across channels

Digital multi-channel with

embedded features (e.g. virtual /
video advice, spend analysers or
budgeting tools

Level of Digital
Sophistication

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Banks are adopting mobile banking

options to complement branch channels
Mobile Banking Functional Differentiation
Increasingly differentiated capabilities
Basic internet equivalent

Bank

Application

Maybank

M2U App

CBA

Kaching

Westpac

Mobile Banking

CIMB

Clicks
GoMobile

Barclays

PingIT

CHASE

Mobile

Barclays
UAE

Mobile

DBS

mBanking

ANZ

goMoney

Check
balances

Transfer
between
accounts

Locate ATM

Unique to mobile platform

Pay bills

Locate
Branches

Locate
Rewards
partners

Peer to Peer payments irrespective of bank

Pay anyone
(mobile)

Pay anyone
(email)

Pay anyone
(Facebook)

Contactless payments

Pay pass
(NFC)

Wireless
payments

Waves of Change Oceans of Opportunities 7 8 October 2013 Hilton Kuala Lumpur Hotel

Branches can be improved to become

an effective part of a multi-channel bank
Transform branches to focus on advice and
value added services
Branch Format

High value interactions, advice and customer

acquisition given priority through branch
relationship managers

Branches likely to require fewer employees if

an effective multichannel strategy is
employed
Staff

Transactional interactions channelled to selfservice / online

Branch Density

Branch footprint should match target

segment density combined with analysis of
customers willingness to travel rather than
just traffic flows

Opportunities to improve efficiency /

utilisation within branches
Shift of staff expertise to sales rather than
transactional processes

Customers able to transact across channels

of their choice
Channel Integration

Minimise customer process repetition across

channels
Analytics monitors, serves and makes offers
to customers across all channels

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