Editor’s note: This article is part of “A Year of Evolution: CFOs on 2021” series featuring insights from finance leaders across industries, and their COVID-19 lessons and 2021 plans. To receive weekly updates on this series, sign up for our CGMA Advantage newsletter.
Most banks continued to operate throughout the pandemic despite lockdowns and social-distancing rules. But many have had to revise and re-implement their regulatory and compliance functions, manage customer expectations while managing liquidity and revenue, and deal with interest rate cuts. This year has also seen more people globally conducting bank transactions online due to lockdowns. For banks, offering enhanced experiences will become a crucial feature to maintain their customer base.
FM magazine spoke to Syed Ahmad Taufik Albar, FCMA, CGMA, the group CFO of RHB Bank in Malaysia, to find out how he and his colleagues coordinated their interdepartmental collaborative efforts to execute a six-month loan repayment holiday the Malaysian banks granted to individuals and to small and medium-size businesses, while continuing to meet customers’ needs.
How did you manage to maintain business continuity when the first wave of the pandemic hit?
Albar: Bank Negara Malaysia, our central bank, together with all the banks operating in Malaysia, decided to offer a blanket moratorium, which is an automatic repayment holiday, to all individual and SME customers on all the loans they have with Malaysian banks (other than credit cards) for six months starting 1 April. That's been a huge help to the customer base in Malaysia. What does it mean for the banks? Obviously, there is an impact on our cash flow. We also needed to do a lot of system changes within a very short period because our systems are not set up to give a six-month payment holiday without affecting customers’ credit profile.
We have a variety of platforms, a variety of products, from midterm loans to revolving credit to overdrafts. Some are on the reducing balance method whilst others are based on Rule 78 [a method of estimating interest charges on a loan where the borrower pays a greater portion of interest in the earlier part of the loan cycle]. We have secured loans, unsecured loans, Islamic loans that are compliant with sharia principles, which provide yet another dimension that we needed to manage. We had to ensure that whatever restructuring we do, we still complied with the sharia laws in addition to the banking regulations and agreements that we have with our customers.
A significant amount of work had to be done within a short time between end of March to mid-April to execute the moratorium. And it was only possible because there was a concerted effort by various teams to find a solution and execute the process changes required to implement the moratorium.
It wasn’t something that the IT team could do alone. It wasn’t something that the retail and SME businesses could do alone. It wasn’t something that finance or treasury could do alone. It required a meeting of minds where every key department had to come together. And this was at a time when all of us had to work from home and did not have the benefit of face-to-face discussions. It really was our spirit of collaboration, all of us trying to take into account the viewpoints, concerns, and constraints each department had, without losing sight of the ultimate objective to help customers — that was the recipe for success.
How did you manage cash flow?
Albar: We had the benefit of starting from a position of strength with the relevant liquidity ratios well above the minimum required by the regulator. Still, we had to carefully assess our position before executing the moratorium. That involved a detailed analysis. We ran multiple projections with different scenarios to check and double-check if we have sufficient liquidity to cope with the reduced repayment, which we did.
Since October, customers have started repaying the loans, and our liquidity position is now stronger.
The world today is very different than the world we had envisioned when we had planned our businesses for 2020. But we have to roll with the punches. We know it’s not possible to achieve some of our original targets, and that's all right. We still have to keep our staff motivated and try and get as close as possible to those targets and improve upon them in the next year.
But it's not all doom and gloom. Due to the low-interest-rate environment, there has been a higher demand for wealth management products, which is part of our longer-term strategic focus anyway. The stock market has also experienced a boom in trading volume in the last few months because of the repayment holiday and people suddenly had excess cash. That helped with our brokerage business.
But to me, the biggest positive this crisis has given us includes a major leap forward on our readiness to cope with disrupted operations and also the way it energised our efforts in the digital space.
What is your most important priority now?
Albar: We are not out of the woods yet. Until a vaccine for COVID-19 is found and deployed at scale worldwide, there will still be some parts of the economy that will not be firing on all cylinders. Under this situation, we have a very strong focus on asset quality, which is our loans and financing to our customers. We have thousands of SMEs and retail business clients, and not all of them have been able to resume repayment in October because of jobs lost, reduced income, and reduced business volume.
We are trying to reach out to each of them individually, offering as much help as we can. We are prioritising the SMEs in the more vulnerable industries, such as tourism, and engaging with them to see how their businesses are doing — what’s their volume compared to before, how’s the cash flow, what help they need, whether they need another payment deferment from the bank, or if a reduced instalment would be helpful, or if they need to restructure their loan. It’s no longer a blanket moratorium but a targeted repayment assistance. This is our number one priority today.
What are the biggest threats to your business now, and how are you overcoming the threats?
Albar: Economic volatility is a key risk — and it is not just driven by COVID-19. It depends on a variety of factors, such as the stand the US takes on China, the different domestic government policies at any given time. With economic volatility, whether domestic or global, we have to be nimbler and more flexible in the way we respond. We need to have that collaborative spirit where we are not only individually agile but also intuitively collaborative with each other. Naturally coming together as a team, and having that intuitive propensity to collaborate, I think, is key.
There are also other challenges that are relevant for banks these days. We have to be extremely vigilant against cyberthreats and must continue to invest in the next-generation technology that can help protect ourselves. We must invest in top-notch talents who really know how to manage these threats. Then there are the various frauds and scams our customers are exposed to, and we need to find a way to work together not just as individual banks, but as an industry, and together with the regulators.
What approach are you taking to budgeting and forecasting for 2021? How is that different from past years?
Albar: There is not going to be a fundamental change to the way we do our business planning and budgeting, but we need to inject more flexibility of realigning or reprioritising our objectives during the year. We may have a certain view now, as we are finalising our budget for 2021. But 2021 may be a very different year than what we envision it to be now. So we need to be able to inject checkpoints and review on a quarterly basis whether our assumptions are still valid. If the world changes dramatically, that would render our assumptions irrelevant. If that’s the case, we’ll have to ask, “What can we do differently?” We must remain vigilant and flexible to respond to changing circumstances during the year.
How will the pandemic impact RHB’s and the finance department’s digital transformation journey?
Albar: RHB had already started its digital transformation journey since the end of 2016. There are many ways to go about this, but if I were to simplify them, banks have two main ways of doing this: either set up a separate digital bank or digitalise our core business. At RHB, we chose the latter and had started to digitalise our core business from the end of 2016. Now, with COVID-19, we realised that there are certain things that we need to accelerate further, especially the digital part that has an immediate impact on customers’ access to our services and their experience with it.
We also listened to customer feedback and accelerated our digital investments to ensure that we are able to address their pain points quickly because with COVID-19, more customers are dependent on our digital platform.
Underlying that digital investment is our IT infrastructure, which is something the customer doesn't see. It’s the engine that lies in the background. We are committed to elevating it to world-class standards and have made substantial investments in that regard. This would enable us to take the next step, which is applying machine learning and artificial intelligence in our applications, which in turn will help us better address cyberthreats, give us a better platform to address fraudulent attempts on our customers, and can really propel RHB forward in the coming years.
Rapid fire questions
What has been your biggest lesson from the pandemic?
To put the customer front and centre in everything we do. Banks have to do this anyway, but the pandemic strongly reminded us of this.
What one piece of technology is a must-have in your 2021 budget?
Any technology that can enable a faster and more user-friendly experience for our customers each time they contact us through any channel — physically at the branches, digitally, or by calling our customer call centre.
Looking ahead, what is one skill you want to develop in your team?
My finance team already work well with each other and with other teams. But can we be even more collaborative? Absolutely! We need to be even more collaborative with each other and with our business partners outside of finance.
— Swati Sanyal Tarafdar is a freelance writer based in India. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at Alexis.SeeTho@aicpa-cima.com.