Banking Sector in Malaysia: Professional Education and Training

Interview with Tay Kay Luan, Chief Executive of Asian Institute of Chartered Bankers

Can you give us a brief history of the Institute and some of its major milestones?

The Asian Institute of Chartered bankers was established back in 1977. It was formerly called the Institute of Bankers, Malaysia. It has been recently renamed. It has 4 roles. They are Education, Training, Dissemination of information and an Advisory role. Recently we have started on a transformational journey to enable us to adjust and re-position us with the changes that have taken place in the industry. These changes include such things as the changing demographics. Secondly, there have been a lot of changes in the industry regulations recently. Thirdly, consumer demands have been rapidly evolving. Lastly, the delivery systems of the banking sector have also changed, with a move to more electronic banking and technology.

We want to play a more proactive role in a number of key areas in the industry. Financial inclusion is one such area. We can make a positive contribution in the area of educating consumers etc. If you look back at our history, you can see we have played a big role in the development, design and execution of a number of key education initiatives. We also play a part in the certification process. We have taken an active role in industry capacity-building initiatives etc.

One of the main points of the changes has been to take a new look at our capacity and our capabilities going forward. We have gone through a series of consultations with our major stakeholders including regulators, the industry itself, various organizations and institutions affiliated with us, universities etc. We realize that professional education is the key to raising standards within the industry and to ensure the development of future capabilities. It was a deep and extensive consultation process.

Then in 2011, we produced a draft blueprint with directions for the future.

One of the major outcomes has been the separation of professional bodies within the industry. One body is the Asian Institute of Chartered Bankers, whose primary role is to focus on engaging the members and inclusion of professional standards. It will also participate in an education capacity and in examination, certification and awards. The second entity is called the Asian Banking School. This body will be in charge of delivery systems, customer service, education, training, development and research activities. It will also be in charge of leadership initiatives. The School will be operational in a separate premises on January 1st, 2015. The professional body will stay here. It will focus on continuing to increase professionalism among the prevailing capacity in the industry.

As of January 1st, will you be taking on a new designation or will you be staying in your current capacity?

From January 1st, the education and training activities will take place in the banking school. Right now we are setting up the facilities for the banking school. It is not far from here. It is a state of the art facility where we are using advanced technology and applications. We are aiming for paperless applications. There will also be virtual teaching. We are interested in the development of our intellectual capital. We are investing in our people, so they will turn to research, become mentors, teachers, facilitators and authors of study materials, tutorial guides etc.

The award or certification side of the business, which includes examinations, education policies and standards, will remain with the professional body. It will become more complete with the inclusion of several areas we are focusing on, like the development of the code of ethics, development of professional standards for capabilities, and cooperation with various affiliated organizations to increase capabilities of the workforce within conventional banks.

Can you tell us about Malaysia becoming the banking hub for the region? And how are you contributing to raising industry standards?

Malaysia is a leading member of the ASEAN economic community. In 2015 Malaysia will take over the chairmanship. There is also our long term vision of opening the market, to be more transparent, more open. More importantly, you will see an acceleration in the convergence of standards, the harmonization of rules and the breaking down of trade barriers. This will allow better movement of goods, services and people.

We see great opportunities ahead. We are one of the leading trading partners, both within the ASEAN region and the larger Asia-Pacific region.

The education part of the business is a very important part of the whole value chain. We want to become the leading player in the education, training and the banking sector. I sit on the permanent education Committee of the ASEAN Bankers Association. We meet once a year. In the last 5 years, we have agreed on technology exchange, capacity sharing and assistance to neighboring countries. In the last year or so we have worked very closely with our Cambodian partners in improving their banking infrastructure and industry development. We are also in joint consultations with our Indonesian partners. We have signed a Memorandum of Understanding with our partners in Jakarta.

We have had discussions with our potential partners in Myanmar and Vietnam. Next week I will be visiting our partners in Singapore. We will be discussing the best way to share our plans on standards convergence and face our common challenges. We will focus on areas like anti-money laundering compliances, audits and assurance. These are all relevant and topical issues.

Do you think that Malaysian banking is on par with the best global practices of regions like Europe and the US? What are the regional differences?

We are very pleased to have a tier 1 Governor. She has been named one of the top 10 central bank governors in the world consistently. Her leadership comes together with our will to embrace and converge the banking standards. We aim not only to be on par with Europe and the US, but to exceed their standards in some areas. One of our achievements is that all Malaysian banks are committed to comply with the terms of the Basel Treaty. Another example that shows us exceeding global standards is our commitment towards financial inclusion.

Because of the demographics shift, it is necessary to raise the standards of individual consumer and industry standards. As an example, last year we produced an easy-to-read guidebook for the SME sector. This helps entrepreneurs understand the concept of access to finance, the available assistance facilities etc. Another area of our focus is the process of microfinance. It’s a fairly common phenomenon in emerging markets. In Malaysia we have turned it into a conventional facility for those who need it, especially in rural communities.

Such initiatives will continue to grow in the next few years, moving towards our national goal of becoming a high income society by 2020. We need to increase productivity, raise competitiveness in the service sector. Those are our greatest challenges. Through education, training, raising standards and an embrace of the best practices, we have a fair chance of getting there. We have a National Transformation Agenda. We want to be more effective in the execution of strategy, and achieve a more efficient usage of resources.

We are not a large nation, with a population of just 28 million, with a medium sized economy. We need to increase our exports, to grow our businesses, domestically and regionally. That is why we are transforming this institution to be more regional. We have to be more regional in operations, how we think, and how we deliver our services. We have coined a term, ‘following our members’. Already a number of our leading banks have a footprint in the ASEAN region, but beyond that, also in the Asia Pacific region.

We have come a long way since the global financial crisis. Malaysian banks, particularly the local ones, are in a healthier state than many. We are still recording growth.

We have achieved some balance between ensuring consumer interest and embracing capital safeguards. I think we are in good hands.

What is the outlook for the banking sector? Do you foresee greater growth or more consolidation?

That depends on who you ask. I think the next few years will see a series of consolidations within the sector. We have twin problems. On the one hand we have high indebtedness among consumers and on the other hand we have the pressure on margins among the banks. These are big challenges.

As an industry, banks will have to be more innovative, more efficient in their use of resources, but also at the same time explore new markets, offer new products to remain competitive. One of the key drivers of growth in the last decade has been the consolidation within the sector.

About 15 years ago, we had more than 30 local banks. Today we have about 8.

In the coming years, we may have no more than 5. The few that are left have an efficient infrastructure and the skill to reach out regionally. Scalability is very important. They have to rise up to the twin objectives of meeting shareholder demands and the needs of the national agenda.

In your international travels, what has struck you as the biggest misunderstanding about Malaysia and its banking sector?

Many people do not know how far we have come. They do not know the sophistication of our products, beyond retail market offerings. They do not know the brand positioning of our local banks. Thankfully we have made great strides in the last few years. Our main banks, particularly the top 3 have made their brand more visible among consumers outside Malaysia. We are doing a lot roadshows to showcase our brand among our external friends, our regional friends.

We have made great strides internationally with our brand of Islamic banking. It’s reassuring to know that we are not renowned for the wrong reasons. Our banking sector is not known for the wrong reasons like a lack of professional ethics or public scandals, as you read almost every day in the Financial Times, about some of the European or US based banks. It’s good to know we are in good hands.

We have seen a steady rise in problems in the banking sector in China. There are a number of non-performing banks. Could that have a regional effect, or effect the banking sector in Malaysia?

There is a balance between a healthy risk appetite and growing a business. The banks here in Malaysia have to meet very strict guidelines. In a regulated environment like this, there is less chance of banks going rogue. I don’t guarantee that there won’t be any. The central bank here takes a very proactive stance to ensure that what happened elsewhere or what has happened in the past will not be repeated.

Is there anything else you would like to highlight or stress? Perhaps something about future plans?

Let me start by saying this. We operate in a very complex and increasingly unpredictable environment. Our contribution is to maintain protective measures against the kind of things that have gone wrong elsewhere. We also have to protect the public interest. The focus on professionalism and ethics is the most important thing for us, to ensure that we don’t see the kind of credit and loan problems that happened in other countries. This is also a problem in the accountancy sector, like the one we saw when the Enron scandal erupted in the early years of the millennium. Since then the reporting standards and the ethics of the accountancy sector have been raised.

Likewise in the banking sector. Our institute is placing an emphasis on professionalism and ethics. We have embraced the concepts of professionalism and ethics into our syllabus. We have introduced the concept of the Chartered Banker qualification to the industry. Successful candidates, on achieving the qualification and required experience, are awarded Chartered banker membership. The qualification requirement is split into 3 levels.

The first level is Executive Banker. It is aimed at the entry level, management trainees, and apprentices, up to those with 5 years of work experience. Students are required to take 3 modules. One of these modules includes instruction in regulations, professionalism and ethics. On completion of this level, the individual moves up to the Professional Banker level. This level is aimed at people in supervisory capacities, the middle management level. Here the individual can choose 3 papers out of 7 available. These focus on retail banking and commercial banking. Depending on a person’s specialization or preferences, you can choose to specialize on them.

By the time a person has completed this level, they would have moved into a senior position. They can then enter the Chartered Banker module. There are 3 papers to be taken. They are Risk Management, Understanding Contemporary Issues and Understanding Ethics. This is very challenging. The individual has to achieve a broad based understanding of the banking sector. After completing the module, the individual has to fulfill a number of other requirements. These will include areas that have been well tested in other sectors. Important areas are continuing education, code of ethics, professional standards etc. After completion of all the requirements, the individual is awarded membership as a Chartered Banker.

We believe this is the right way to go. We are now Joint Examiners with the Chartered Bankers Association, headquartered in Edinburgh. It is the oldest banking institute in the world. Together with them, we jointly award the Chartered Banker membership. This membership denotes credibility, responsibility and trustworthiness. Our challenge is to make sure that all future members meet the strict requirements of the global banking sector. They need to win the public trust and be credible. The global banking sector must make this a number one priority. All this is to keep us in line with global developments. For the future, with the support of our central bank and its Governor, we aim to be the number one education provider globally. We want to be the global hub of professional education in banking. We want to share this with our regional and global friends.