THE Covid-19 pandemic has been a “wake-up call” for the banking industry to do more for its customers even if it comes at a cost, OCBC Bank (Malaysia) Bhd CEO Datuk Ong Eng Bin tells The Edge.

“It calls for a significant change in mindset. The high number of customers applying for the [national] relief programmes may seem worrying, but as a bank for the long term, this is a lifetime opportunity to help our customers.

“If a customer has a 35-year housing loan, what is it to the bank to help him or her out for a year or two? By doing so, the customer will remember your help when it mattered most!” Ong stresses.

“As such, it is crucial that the banking industry undergoes the necessary shifts in its role and mindset. Banks have seen many crises and have the resilience to weather them,” he adds.

Ong says it is time to “shift the fixation on profits purely” to a more holistic perspective in benchmarking the institution’s health — one with a greater emphasis on sustainability efforts.

After all, banks and other companies have begun looking into sustainable areas, Ong says, as well as to measure success anchored on environmental, social and governance (ESG) principles.

While much is expected of banks in terms of their contribution to the nation and the economy, their role in keeping businesses and individuals going during a crisis is seldom highlighted.

So deep are the nation’s monetary woes that even with Putrajaya’s RM150 billion National People’s Well-Being and Economic Recovery Package (Pemulih) — which included a direct fiscal injection of RM10 billion — announced on June 28, rolling lockdowns continue to cause dozens of businesses to shutter amid record-high Covid-19 infections in the nation.

Notwithstanding the negative outlook in terms of the impact on gross domestic product (GDP) and employment, the banking industry has actually made great strides, Ong says.

“When we look at the role of banks, we always say they exist for both sunny and rainy days but people don’t really believe it [the latter]. But the reality is, this safety umbrella is very much needed now,” he stresses.

Compared with other countries where government fiscal injections have been substantial, Malaysia, given its fiscal constraints, has relied more heavily on the banks for help by way of the various moratorium and restructuring schemes, Ong points out.

“In that sense, the banking industry’s contribution to the nation is very critical,” he says, acknowledging Bank Negara Malaysia’s efforts in making sure that various parties — from its credit bureau’s Central Credit Reference Information System (CCRIS) to accounting bodies — are “in sync with provisioning requirements to help the system and, ultimately, the customers”.

And since Malaysia still has to deal with the coronavirus pandemic, OCBC is expecting further provisioning requirements as a buffer going into the second half of the year.

For the financial year ended Dec 31, 2020 (FY2020), OCBC Group’s impairment allowance and provisions tripled to RM675.8 million from RM217.3 million in FY2019.

According to its FY2020 financial statements, the group and bank recorded Common Equity Tier 1 capital ratios of 15.686% and 15.281%, Tier 1 capital ratios of 16.539% and 16.337% and total capital ratios of 19.113% and 18.908% respectively after deducting proposed dividends.

NPL rose to 3.35% in June 2021 from 2.4% last year, while cost-to-income ratio inched down to 42% from 45.9% in June 2020.

“Although provisions came down by 30% to 40% this year, OCBC continues to provide buffers and overlays amid the prolonged market recovery,” Ong says, explaining that the treatment for Pemulih accounts (moratorium applicants) will be reasonable and that the elevated level of NPLs will “likely be transitory for a six- to 12-month period until those accounts can be upgraded”.

Interestingly, he observed that liquidity in the banking system is “still robust judging by the year-on-year growth of RM100 billion in deposits”.

The liquidity position of banks has remained healthy despite the deferment of close to 90% of retail loan repayments under the automatic moratorium, according to Bank Negara Malaysia in its latest Financial Stability Report (see chart). This has been supported by the strong initial buffers of banks as well as higher deposit growth from precautionary cash holdings, particularly among individual depositors in the second quarter, notes the regulator.

“When people don’t service the bank, they aren’t doing much else. While they may shop online, they can’t spend too much money since they can’t travel and so on. Hence, the RM100 billion y-o-y liquidity growth in the banking system is a lot!

“Customers do have liquidity but it could be skewed towards the richer people, while the Bottom 40 group is struggling. We are committed to assist those affected by the pandemic and we are looking to approve all eligible sign-ups on the very same day,” Ong affirms.

Sustainability and ESG efforts

Moving forward, OCBC wants “to grow more sustainably”, and Ong says the group is targeting for 15% of its loans in Malaysia to be sustainable by 2025.

“While solar projects are the norm in Malaysia, we will also focus on sustainable investing activities for consumers. Ultimately, we want to influence our customers and the marketplace, which can be done via lending or investing,” Ong says.

Among the group’s sustainability efforts were its Islamic arm OCBC Al-Amin Bank Bhd’s undertaking of a US$800 million novel sustainability-linked Islamic financing effort for Axiata Group Bhd in May 2020, and OCBC Malaysia’s role as the structuring coordinator of an unrated medium-term notes programme of up to RM10 billion in nominal value for Sunway Real Estate Investment Trust’s (Sunway REIT) SunREIT Unrated Bond Bhd (SUB) in June this year.

Apart from keeping its oversight and governance committee abreast of the requirements for its “15% by 2025 goal”, the bank has also worked with RAM Holdings Bhd to benchmark its own ESG rating.

“Before preaching to customers, we need that holistic check on ourselves to lead by example and understand our customers’ pain points before asking them to embark on their ESG journey,” Ong says.

OCBC Group began its green journey in 2007 by adopting recycling and energy-saving measures in its buildings in Singapore, whereas its Malaysian counterpart, taking into account limitations, has pivoted towards structuring products for waste management, and water and energy conservation management.

“We try to ensure it cuts across all our segments. In Singapore, we have products for solar rooftops so we are making them available in Malaysia, bearing in mind the market differences here,” Ong explains.

“It is one thing to be aware and another to actualise those principles as a way of life. This involves everyone — from the individual or company to the government and so forth. During a major conference on climate change before the pandemic, a [speaker] from the World Wide Fund for Nature commented that governments’ fixation on GDP and economic activities may not always have the same positive impact on the environment and community.

“One of the biggest challenges to ESG and sustainability is greenwashing, which may make a company look good but it stops there. It is a journey [for all]. It is true that the organisation has to be able to deliver profits in order to be able to continue investing in environmental efforts. It is only when our customers do well that we do, too. After all, we are riding on their coattails,” Ong says.

“Hopefully, when we get to record better profits in 2022 or 2023, it will be because our customers have recovered and are faring better. When they do, we will look at their practices and try to do better ourselves as it always takes external and internal pressure to move forward.”

Meanwhile, news of Citi Malaysia’s consumer banking asset disposal attracting suitors hit newsstands in recent months, with banking analysts and industry observers noting that foreign banks were seen as the better fit for the business up for sale.

At S$1.09 billion (RM3.38 billion), Malaysia is the second-largest contributor to OCBC Group, based on its total operating profit before allowances and amortisation of S$5.7 billion in FY2020, after Singapore, which contributed S$2.89 billion. Greater China contributed S$857 million, followed by Indonesia (S$495 million).

 When The Edge asked OCBC Group in May about its interest in Citi, its CEO Helen Wong said the group was “always open to opportunities in the markets in which it had operations”, adding that Malaysia was among OCBC’s core markets.

Now, three months on, when asked if there is any conclusion to the Citi Malaysia sale, Ong says “OCBC Malaysia will grow organically, in keeping with its current strategies”.