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2004
(Issue No. 126)
Synopsis
Global
Bankers Move Towards Insourcing
by Divya Patel
Of late, a number of concerns have been raised with regards to traditional
outsourcing, more so by banks who are notoriously pedantic with issues of
control and confidentiality. These concerns have resulted in banks resorting to
insourcing, which is the offspring from the matrimony between outsourcing and
innovation. Instead of transferring the function to a third party, banks are
setting up centralized processing hubs to fulfil their backoffice operations.
These processing hubs maybe wholly-owned subsidiaries of the bank or joint
ventures with third parties. In this way, quality and control may be
maintained. While this move may result in a healthier bottomline for banks,
employees and consequently trade unions are not overly enthusiastic about
insourcing, which is understandable when labour intensive functions are moved
to less expensive offshore zones.
Bank
Outsourcing: The Way Forward?
by Lee Khee Joo
Bank outsourcing is gaining momentum and it appears to be the way forward in
Malaysia. It may entail loan processing, cheque processing, call centre, human
resource payroll, credit card collection, medical benefit processing, ATM
management, cash management, payment processing and central mailing services.
While banks have outsourced their non-core operations for various reasons, they
must not overlook the risks of outsourcing as well as the impact of
outsourcing. This is largely because outsourcing may not be the magic bullet
that it is sometimes made out to be.
Top
Evolution
of Performance in the Banking Industry
by Saravanan Ramasamy
To counter stiff competition from foreign players, banks in Malaysia are
increasingly undertaking technological, operational and even organisational
innovations. One noteworthy innovation that has captured many commercial
bankers?attention is the formation of Line-of Business (LOB). Traditionally,
most banks, even the large ones, have been organised and managed as one common
business. The profitability of their branches was then ‘rolled up?to obtain the
bank-wide profitability. Banks soon realised the need to focus on their
customers from different segments. They began to organize and manage themselves
not as a unit but a collection of disparate business units, each with its own
customers, distribution channels and products. While the creation of separate
LOBs and business units enabled greater management focus and specialisation, it
also gave rise to new issues concerning performance measurement, risk
management and resource allocation, which warranted a new profitability
measurement approach, based on products, customers and distribution channels.
To achieve this, banks started to implement Value-Based Management (VBM)
approaches, such as Activity-Based Costing (ABC) and Fund Transfer Pricing
(FTP). The implementation of the FTP methodology not only allows an individual
LOB's performance to be accurately measured by providing accurate Net Interest
Margin (NIM) information but also provides a wealth of information on product
pricing strategy. With the use of FTP, management is able to solicit
appropriate behaviour within the LOBs based on strategic direction of the
organisation and market conditions. What originated as a management accounting
technique has now evolved to be a strategic management approach.
Top
Value
of Shared Services
by James Chong & Christina Teh
Shared services provide another approach to improve performance by reducing
operational cost, obtaining operational flexibility and also by enhancing
efficiency and effectiveness. Shared services often focus on backoffice
business processes which are normally transaction-oriented and repetitive in
nature. Not be confused with centralization, which wrestles for business
controls by implementing stringent policies and reporting requirements, shared
services emphasize on providing efficient and effective services to its
internal customers by pulling together all scattered activities across business
units or geographical locations. The writers believe that y adopting the shared
services approach, firms would be able to streamline their operations and focus
on their core competencies to improve their overall efficiency and hence
performance.
Effect
of Ownership Structure on Corporate Performance
by Dr Tan Hui Boon, Hooy Chee Wooi and Tan Lai Kin
This paper investigates whether ownership structure has a significant effect on
the performance of public-listed companies in Malaysia. The research focuses on
stock returns rather than Tobin's Q ratio as a measure for firm performance,
covering 48 sample companies that were selected based on the Kuala Lumpur Stock
Exchange's Composite 100 shares Index listed link (KLSE CI). The results show
that insider ownership of the sample companies is not as large as institutional
ownership. The average of 2.2% share held by insider owners is substantially
lower than the 71.4% shares held by institutional investors. This indicates
that the degree of concentration of institutional ownership is much higher than
insider ownership. In addition, corporate performance is positively and
significantly correlated to institutional ownership, indicating that
institutional investors have the incentive as well as the autonomy in
monitoring and controlling the behavior of managers.
Top
Intellectual
Capital and its Contribution to Business Performance
by Dr Wan Fadzilah Wan Yusoff & Prof Muhamad Jantan
This paper explores performance from an intellectual capital perspective. It
highlights the increasingly rapid diffusion of new technology and the knowledge
revolution. As a result, bank management is suddenly forced to develop
strategies that represent the right balance of autonomy and control,
consistency and flexibility, protect and yet share key knowledge. All these
need to happen almost simultaneously. The empirical investigation draws
information from a selection of 183 financial institutions to examine
intellectual capital constructs, to enable greater comprehension of the
component specificity and non-appropriability created by their interactive
nature. The results confirm that key driving forces in the contemporary
business environment have moved from the management of tangible resources to
the exploitation of intangible resources manifested in the knowledge and
expertise possessed by employees. Other intangibles which have become prominent
players in this performance preview are the leveraging of organizational
learning through codification of implicit and explicit knowledge and also the
availability of specific platforms for the sharing of knowledge through social
relations and networking. The writer argues that static tangible resources
alone are no longer capable to achieve and sustain competitive advantage, and
recommends that firms strike an optimal balance between their utilization of
tangible and intangible resources.
Leveraging
on Intellectual Property Rights for Business Advantage
by John Chong
Intellectual property has emerged as a powerful and valuable business asset.
This article gives a brief introduction on what intellectual property is, some
myths that surround it, and how companies can leverage on intellectual property
for business advantage.
Top
Wireless
Technology: A Prescription for Banking in Malaysia
by Deepak Pareek
In recent years, the capital and money markets have been undergoing rapid
changes, reflecting a number of underlying developments. Internet, wireless
technology and global straight-through processing have created a paradigm shift
in the banking industry. The adoption of wireless communication services has
increased exponentially in the last few years, especially in Southeast Asia.
Malaysia's mobile market has seen remarkable growth over the last few years.
There were 11 million mobile phone subscribers as of end-2003, and is expected
to reach 15 million by end-2004. As new technologies overcome existing
limitations, consumers are increasingly using the wireless channel to
communicate as well as to gather information or conduct transactions over the
mobile Internet. This is why financial services have been embraced by mobile
consumers and are expected to grow rapidly. This paper argues that wireless
financial services will be one of the key beneficiaries of the mobile Internet
revolution and discusses how financial institutions can use this opportunity to
provide better services.
Top
Basel
II: Its Developments and Implications for Malaysian Banks
by Dr John Lee
This paper reports the findings of a KPMG global survey to determine
banks?readiness for Basel II compliance. These findings are pertinent in view
of the requirement on Malaysian banks, which are adopting the Foundation
Internal Rating Based (FIRB) Approach, to submit a comprehensive implementation
plan to Bank Negara Malaysia by January 2008 and complete implementation by
2010. The survey evaluated 303 banks from 39 countries. The findings indicated
that Malaysian banks were generally behind the implementation timeline, more
notably in the area of operational risk. Most Malaysian banks are only starting
to assess the requirements for operational risk. In the corporate credit risk
area, Malaysian banks are comparatively more advanced and are reported to be
involved in calibrating their models for probability of default (PD), loss
given default (LGD) and exposure at default (EAD) calculations. Nevertheless
the same cannot be said for retail credit risk. When economic capital
management (Pillar 2) was examined, Malaysian banks fared poorly.
Top
Whistleblowers:
Openness and Accountability in the Workplace
by Lim Heng Seng
Previously, there is no special legislation in Malaysia that deals with
employees making unauthorised disclosures of wrongdoings or malpractices that
occurs in the workplace. Parliament, however, vide the Securities Industry
(Amendment) Act 2003 has introduced some essential elements of protection for
whistleblowing coming from the ranks of key officers of a public listed
companies who report breaches of securities laws and listing rules or matters
that adversely affect the financial position of such companies. Viewed in the
context of the Government's renewed commitment to integrity, ethical standards
and transparency, the amendments to the Securities Industry Act 1983 herald the
beginning of new initiatives for the establishment of good if not best
practices in the workplace as a complementary and necessary component of good
corporate governance.
Bank
Guarantees: Some Legal Considerations When a Guarantor is Illiterate
by Noor Inayah Yaakub
This paper examines some legal aspects when a guarantor, who does not
understand English, seeks legal address to set aside a transaction based on
undue influence. It first explores the position of a guarantor, who is
English-illiterate, in order to identify problems with banking-guarantee
transactions in Malaysia. The findings suggest that the main cause of the
problem is the status of the English language in Malaysian courts, particularly
when there are conflicting interpretations as to the position of the language
in courts. Another problem arising from such a proposition is that a guarantor
cannot insist on his bank to prepare banking documentation in Malay. Banks will
not agree to it since exhibits in English are accepted by the courts. This
paper offers several solutions. Based on the premise that it is the role of the
courts to promote the use of the national language, the exhibits tendered must
also be in the Malay language. If financial institutions choose to follow the
forms and guarantee documents that are in English, they must have them
translated into Malay. Alternatively, in the first instance, they can prepare
them in Malay.
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