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Singapore and Hong Kong, July 14, 2014 – The Malaysian banking regulator gave the go-ahead on 10 July 2014 for CIMB Bank to start talks for a potential merger between CIMB Bank, RHB Capital and Malaysia Building Society (MBSB) to form one the largest banks in the Southeast Asian region.
If the merger pushes through, Maybank will be dislodged from the top spot as Malaysia’s largest bank, and the fourth largest in ASEAN.
The merger may portend a race for size for banks not only within Malaysia (as IDC Financial Insights does not expect Maybank to sit idle), but also within the Association of Southeast Nations (ASEAN) especially in the context of the ASEAN Economic Community (AEC), which begins in earnest in 2015.
The Malaysian financial services industry has long hinted at the need for a ‘local super-bank’ or an ‘Islamic mega-bank’ and the CIMB-led merger has finally substantiated it. Malaysia’s last financial institutions merger of note was in 2011, when Hong Leong and EON Bank merged to form Malaysia’s fourth-largest bank by assets.
While there will be much analysis in the next months on the strategic synergies of the deal, IDC Financial Insights would like to focus on the technology implications of the deal:
The Rise of Regional Platforms. CIMB has been lauded on multiple occasions by the analyst community (IDC Financial Insights notwithstanding) as a champion for ‘super-regionalization’, that is the push by local Asia/Pacific banks to build a network of operations across several markets in the region. Alongside this bid for multi-jurisdictional expansion is the opportunity to build super-regional technology foundations, or IT platforms that are integrated enough to viably support and grow the operations in multiple geographies.
This was what CIMB was building towards with its 1Platform initiative. The five-year old program (now drawing to its conclusion) involved, among others, the creation of a single core banking system with enough local market customization capabilities, as well as the formation of various ‘centers of excellence’ for application development, delivery and production. The merger will be the first real test for how CIMB’s years-long transformation stands to the tests of scalability and integrability, never mind that the three-way merger involves counterparties with a largely-domestic footprint.
IDC Financial Insights has been calling attention to implications of this super-regionalization of technology, and the precedents it sets on hot-button areas like virtualization, networks, shared services, and Cloud Computing. We also advise the vendor community to prepare for even more centralized decision-making similar to the approaches being made by the likes of HSBC and Standard Chartered.
Growth in IT Budgets in Malaysian FSI Tops Out. RHB itself is currently undergoing a core banking refresh of its own, and prospects of this merger will threaten to undo about a year’s worth of effort. Alongside this are also several major slated projects including datawarehousing, channels and customer-centricity platforms that promised significant deals for technology server providers and topped up IDC Financial Insights projections for IT budget growth in Malaysian financial services. Should the merger carry through, the market can expect to witness reiterated (and protracted) spending directed toward integration and calibration of such technologies, more so than in its absence. At a recent CIO Roundtable, IDC Financial Insights discussed how the market will grow 8% on a CAPEX basis and OPEX at 5% in 2014 over 2013.
CIMB Technology Has the First-Mover Advantage. From the perspective of super-regionalization, RHB has recently been making good on its promise to grow beyond Malaysia, with forays into north-ASEAN (Thailand and Cambodia). However, it has not rolled out a project in the mould of CIMB’s 1Platform, thus making the latter the only feasible, plug-and-play candidate for the common core system of the new entity.
CIMB’s sustained technological leadership also provides an invaluable repository of skill sets in innovation, and more importantly, the deployment of innovation to the mix. Perhaps the best way to measure the worth of such an advantage is to realize that it took three years (‘only three years’ or ‘three years too long’ is another debate) since the bank’s last major restructuring exercise in 2006 before any semblance of a coherent product and IT management framework was seen – though the subsequent success stories are, as they say, history. IDC Financial Insights see that these years-spent will translate to years-saved for the merged organization.
Business/Technology Synergies Abound. The three parties involved have suitably different technology successes and aspirations. CIMB has also been recognized for diverse initiatives in digital banking, social media (“social banking” is their term), mobile account origination, low-dependency transactions, card-less withdrawals as well as integrated online banking.
Meanwhile, RHB Capital has seen, in turn, the region’s most successful IT-enabled growth stories in the past five years. ‘Easy by RHB’ which was a mass market banking proposition was a feat attained through the use of low-maintenance branch models, revised account creation workflows, and competitive loan pricing. Its other investments in consumer banking (particularly in cards and payments) also paid dividends. MBSB, on the other hand, is a well-diversified financial service provider, with strengths in property financing and corporate/wholesale banking – but without the high-profile technology successes of the other two players in the deal.
Bearing such diverse portfolios in mind, it is easy to extrapolate that the post-merger company will be a universal bank with multiple competitive advantages in strategic segments. On the other hand, more prudent observers may speculate that such a capital venture could possibly weaken the brand affinity of the individual organizations.
Growing pains aside, IDC Financial Insights is excited for, at the very least, the number of technological precedents that CIMB-RHB-MBSB would potentially set. From the vindication of aggressive-yet-visionary IT investments of the past, to how technology might expedite the stabilization of the post-merger organization, pundits will have much to preoccupy themselves with for some time to come.
Michael Araneta is a Consulting and Research Director with IDC Financial Insights Asia/Pacific. Michael leads the Asia/Pacific Banking Strategies Practice and the Asia/Pacific IT Strategies Practice.
Ho Sui-Jon is a Market Analyst for IDC Financial Insights Asia/Pacific. He anchors the Financial Insights Innovation Awards program, as well as research on emerging technologies within Asia/Pacific’s financial sector.
About IDC Financial Insights
IDC Financial Insights assists financial service businesses and IT leaders, as well as the suppliers who serve them, in making more effective technology decisions by providing accurate, timely, and insightful fact-based research and consulting services. Staffed by senior analysts with decades of industry experience, our global research analyzes and advises on business and technology issues facing the banking, insurance, and securities and investments industries. International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology market. IDC is a subsidiary of IDG, the world’s leading technology, media, research, and events company. For more information, please visit www.idc-fi.com, email email@example.com, or call 508-620-5533. Visit the IDC Financial Insights Community at http://idc-insights-community.com/financial
International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 1,000 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries. For more than 50 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world’s leading technology media, research, and events company. You can learn more about IDC by visiting www.idc.com