By Fiona Hutchinson Malayan Banking Berhad (Maybank) is the largest banking group in Malaysia, and has led the industry there for more than 40 years. As the industry opens up to foreign competition, the bank has undertaken numerous initiatives to maintain its leadership, such as increasing efficiency and becoming more customer-centric.

In 2003, as part of its drive to improve efficiency, Maybank signed a US$342 million IT infrastructure outsourcing agreement with CSC, the biggest outsourcing deal in Malaysia. CSC is providing services through its affiliates, Computer Systems Advisers (M) Berhad and CSA Automated Pte Ltd.

Laying the foundation

The outsourcing agreement covers Malaysia and Singapore, Maybank’s major markets. The banking group provides a complete range of financial services products in these markets, including commercial banking, consumer banking, investment banking, funds management, hire purchase, and insurance. It also has offices in New York, London, Bahrain, Hong Kong, and Shanghai, and is a major player in the regional market, with branches in Vietnam, Cambodia, Indonesia, the Philippines, Papua New Guinea, and Brunei Darussalam. Maybank is also a leader in Islamic banking practices in Malaysia.

As a member of the World Trade Organization, Malaysia will have to open its financial industry to new foreign competition by 2008. The competitive threat comes from two sources: Institutions that do not  currently have a presence in the country may be granted licenses to operate in Malaysia; and the playing field will be leveled for the institutions that are already in the country, like HSBC and Citibank. These global players are much bigger than Maybank. They also had better infrastructure and technology as well as better resources, which can be leveraged into Malaysia very quickly. Local banks need to catch up, and Maybank’s foresight in pioneering IT outsourcing reinforces the group’s competitive edge in the new financial landscape.

A brief history of local banks

When Malaysia gained independence in 1957, the country was dominated mainly by a few British banks. The new government set out to foster a domestic financial industry, and the 1960s saw the rapid growth of local banks. Maybank was established in 1960, with the aim of assisting in financing new industries under the government’s development program and of extending banking facilities to underserved rural areas.

In recent years, recognizing that Malaysia will have to liberalize its financial services industry, Bank Negara (Malaysia’s central bank) encouraged the country’s many small banks to consolidate into larger institutions that would have better economies of scale and higher productivity. By setting minimum capital requirements, Bank Negara succeeded in getting more than 50 domestic banks to merge into nine “anchor” banks. Maybank is the largest of the anchor banks.

Gearing up for the global economy

Consolidation in the local scene gave Maybank more capital and a bigger market share. But it also brought with it the need to manage even more computer systems.  Strategically, Maybank recognized that finding a partner to outsource their IT infrastructure would achieve several aims: quick transformation of the infrastructure environment, greater access to skills, reduced costs, and increased operational efficiency. The path to outsourcing, however, was not an easy one.

IT outsourcing is still a recent development in Southeast Asia. Companies there have many of the same doubts expressed by Western companies 15 years ago. Companies worry that turning over their IT departments to a computer services vendor means losing control over them. They may not be completely satisfied with the departments’ performance, but they are still reluctant to do away with familiar processes and personnel. Employees have their own worries: that they will either lose their jobs or find them dramatically changed. Managers also lose sleep over the safety of their proprietary information once they turn their computers over to a vendor.

On the other hand, those companies also have the kinds of problems that outsourcing was designed to solve, such as creaky legacy systems, high overhead costs, and a limited range of technology skills. More and more, the promise of solutions to such problems is leading companies to see the benefits of outsourcing.

Maybank is ahead of the game. It took a bold step by outsourcing its IT, and it has freed itself to improve its competitive position by focusing more of its energy and resources on its core business and on improving customer service. Outsourcing has also allowed the bank to move some fixed costs to variable costs as part of business realignment, reduce operational costs, better manage technology risks, and to tap into modern technology skills and business capabilities from around the globe. The agreement also includes an innovation program, which is designed to leverage CSC’s thought leadership and develop high-value business solutions for Maybank.

Industry analysts have welcomed Maybank’s IT outsourcing agreement, and it is likely more banks will follow suit when they see the business results. Maybank continues to become more secure, more efficient, and faster, consistently delivering value to all stakeholders. It is more than ready for the competition.

Fiona Hutchinson is a writer in CSC’s Corporate Communications & Marketing department.