The banking sector had to contend with moderate growth in 2018. Malaysian corporate activities were subdued throughout the year, as businesses waited for policy clarity following the 14th General Elections.
Meanwhile, external headwinds in the form of China-US trade and oil price uncertainties are expected to keep markets on its toes going into 2019.
For Affin Islamic Bank, one of Malaysia’s smaller banks, it is looking out for pockets of opportunities in the SME and education areas with better margin prospects.
CEO Nazlee Khalifah tells that it is looking to carve a niche in education financing to drive growth in the coming year. “We won’t be too aggressive. We expect the market to remain soft next year,” he says. “We will be mindful of the risks.”
He also weighs in on the rise of fintech and how Affin Group as a whole intends to be ‘more digital’ in 2019.
Carving A Niche In Education Financing
“This financing package that we are providing to students is more flexible than other financing products in the market. This is an area that we’ll be pushing for next year,” says Khalifah of its Affin Education Financing-i, which provides up to RM400,0000 in private loans (an increase from the initial RM150,000).
If you look at the number of private university and colleges in the market, PTPTN cannot cover it all. In some cases, PTPTN only provides 40 to 50 percent of the tuition fees. We will then come in to bridge the gap there
“When we engaged with private colleges, they say a lot of students had to stop halfway to work. Some of them come back after two to three years, some don’t come back at all,” Khalifah adds. “So, we wanted to contribute by providing more flexible financing to allow access to higher education.”
Since the product was launched in the first quarter of 2018, Affin Islamic has disbursed over RM10 million worth of loans to 176 accounts, from its panel of 40 private university and colleges.
The bank is only partnering with local private higher education institutions now, as the tuition fees are more expensive compared to public universities.
He says that while students tend to opt for the National Higher Education Fund (PTPTN) loan with among the lowest interest repayment, Affin is targeting to bridge the funding gap, particularly for costlier education courses like medicine.
“If you look at the number of private university and colleges in the market, PTPTN cannot cover it all. In some cases, PTPTN only provides 40 to 50 percent of the tuition fees. We will then come in to bridge the gap there.”
Banks Must Be Customer-Centric
A Bigger Slice of the SME Pie
At the moment, Affin Islamic contributes 39 percent to the Affin Group. Khalifah says he expects the figure to increase to 43 percent by end 2019.
Mortgages contribute about 90 percent of it but Khalifah is wary of a softer housing market next year. As such, it is also looking to increase contributions from the SME financing market.
In 2018, we launched our first CGC Portfolio Guarantee. So, we are basically spreading or sharing the risk, which make its more ‘tolerable’ for the bank
Competition in the sector is rife, he admits, but Affin Islamic is not deterred as the SME pie is still growing and there are financing gaps that remain untapped fully.
“We are working closely with the conventional side to come up with at least two products that would allow us to penetrate the SME market in 2019,” says Khalifah.
There are many SMEs that are still ‘unbanked’ - lack of financial track record but in need of funding and banking facilities.
“One of the way for us to handle this is to partner with another organisation such as Credit Guarantee Corp (CGC). CGC will provide guarantee to those without any collateral or sufficient track record,” says Khalifah.
“In 2018, we launched our first CGC Portfolio Guarantee. So, we are basically spreading or sharing the risk, which make its more ‘tolerable’ for the bank. That will help open up access for financial assistance that SMEs need.”
Under the partnership, CGC will guarantee agreements of up to RM100 million. So far, it has approved financing for 44 SMEs amounting to RM26 million.
Not Too Late to Catch Up
One thing that Khalifah admits the bank to be lacking compared to its peers is a digital presence. Affin Group plans to roll out a full-fledged mobile banking app in 2019.
“We expect our push towards digital and internet banking would bear fruit 2019 onward,” says Khalifah.
“I want to take Affin Bank to greater heights. We should be able to focus more on the unbanked portion but to have a connection with this, we have to be on mobile.”
“We don’t have mobile capabilities now. So by next year, we will have a firmer understanding on what we want and can do,” Khalifah adds.
Finding the Right Partner in Fintech
Without a doubt, many tech giants and fintech startups are disrupting the legacy banking system.
Khalifah views that while fintechs excel in areas where traditional banks do wrong - they are not customer centric, slow to adopt new technology, and respond nimbly to change, banks still have the advantage in terms of infrastructure, institutional relations and customer base.
He says partnering with fintech can help banks to think outside of the box.
“We cannot treat fintech as competitors, we need to work together. They have the capability to look at things differently from a bank. What is important for banks is to find the right fintech partner,” says Khalifah.
“I think fintech firms also realised in some markets you cannot go head on with the bank. Because the trust in banks have been there.”
“Fintechs are very agile. When they come up with something, it’s always from the customers’ point of view. While banks tend to think of risk appetite first. The trick is marrying the two and make the best out of it.”
We Cannot Treat Fintech As Competitors
Khalifah’s Outlook for 2019
“We cannot afford a major disruption. China-US trade war will definitely have an impact. At this current situation, there is still room for us to grow but a major disruption or external shock won’t be good for the Malaysian economy.”