Malaysia: Non-banks seen as threat to established banks
Petalying Jaya, Malaysia, March, 14 2007 -
Non-bank entities that offer easier access to consumer credit, insurance products and other financial services could pose a threat to established financial institutions in the long run, several analysts argue.
However, some contend these institutions serve niche markets that larger players tended to ignore because they were not often deemed profitable.
The rising number of players offering financing for specific target markets gives diversity to the financial market and possibly provide competition to the existing players.
The non-bank players include AEON Credit Services Bhd, Tune Money Sdn Bhd and the upcoming BMW Financial group.
A local analyst said Tune Money offered low-cost solutions for customers.
“This will possibly impact the market and affect players involved in the insurance and unit trust businesses. Existing players may have to adjust margins with the entry of players such as Tune Money,” he told StarBiz.
He added that as long as these non-bank institutions took risks that they could manage, profitability would not be an issue.
”Niche markets always present a business opportunity, but they need to find an average credit risk to sustain the business,” he said.
Last year, the BMW group announced it planned to offer one-stop sales and financing resources. The German marque signed an agreement with Sime Darby Bhd to acquire SimeLease (M) Sdn Bhd and SimeCredit (M) Sdn Bhd for the venture. About two years ago, US-based General Electric International Inc (GE) also expressed interest in starting a consumer finance business in Malaysia by 2008.
The analyst said this type of financing or service was not for all consumers, as demand would still exist for ongoing products. However, he said offering such solutions to customers would definitely bridge the gap ignored by the larger players.
“Larger players or banks are cautious in offering such easy solutions, so these players are capitalising on these opportunities,” he said.
The analyst also said micro-financing or micro-credit services were successful in Hong Kong and the United States, and this trend might pick up locally.
OSK Research manager Chan Ken Yew, however, said players such as AEON Credit would not pose a threat to larger players as the business was focused on a small segment of the market.
“Rather, I find these services complementary to AEON's existing retail business. It is unlikely to compete with banks as they cover a segment banks might have neglected,” he said.
Chan said these financial services were offered to boost existing margins and help cut costs of doing business.
Another analyst at a bank-backed research house agrees with Chan. He said such services were based on a high risk and high return business model, so the service providers would not be able to compete with banks.
“Sustainability is not an issue with these services as there will always be demand for them, but the impact on existing financial markets is minimal,” he said.