Small bank with big ambition (2488)

SNG Seow Wah, group CEO of Alliance Bank Bhd, has the challenging task of ensuring that this smallest bank in term of assets, continues to enhance shareholder value and delivers consistent and sustainable financial results.

To do that, he lays down definitive rules and standards, opens up channels of communications and encourages staff to go beyond their normal calling.

His report card, since taking over in the middle of 2010, is something to shout about although he keeps a low profile most of the time.

Over that period, the holding company Alliance Finance Group's (AFG), market capitalisation has risen from RM4.5bil to more than RM6.7bil. The share price hit a record high of RM4.35 on July 10. In this regard, Alliance Bank is no longer the smallest bank by market capitalisation.

Recalling his early days at Alliance, he says: “Just to formulate and sharpen our strategy took six months. The other banks are bigger than us, and our challenge is how to win in the marketplace,” Sng tells StarBizWeek.

Progress so far

Clear parameters had to be set on how to be better than the competitors, and return on equity (ROE) became a key beacon point.


“We had to be clear about our medium-term targets, like cost to income ratio, non-interest income ratio and asset quality. We have to clearly identify the opportunities for cost reduction and revenue growth in the Malaysian market, as well as to use the balance sheet more effectively.

“We needed to focus on productivity,'' he says. “We needed to leverage on our distribution channels, such as the branch network, call centre, Internet banking and other alternate delivery channels, to re-engineer processes to improve our services and reach out to our customers.”

The bank's customer focus is re-emphasised throughout all communication channels. Two customer segments consumer and small and medium-scale enterprises (SMEs) became the focus and efforts were placed on how to build these customer segments better by leveraging on infrastructure and resources.

When there was a mismatch in terms of the skill sets required to service the various customer segments, the bank implemented various development programmes to re-train the people.

“The most difficult task for me initially was to persuade our people down the line, to do things differently, to think out of the box, do not accept mediocrity, and be more innovative and enterprising so that we could improve on our customer service,” says Sng. “We needed to be very communicative to ensure that all the staff buy-in to the strategic priorities.”

Strategies for sustainability

As part of this communication process, town hall meetings continue to be held at each of the regions. In the Klang Valley, for example, the bank has between 1,600 and 1,800 people attending the town hall session at a time, to be briefed by senior management. Sng also conducts “pulse lunches” with staff on a fortnightly basis to hear directly their views on different topics, as well as their concerns and suggestions for improvements.

Sng has been often asked whether Alliance can sustain its market niche, while remaining as the smallest of the pack.

“If we were a big bank, we could not have moved with such traction and speed within a short period of time, to effect the changes required to achieve our medium term targets and aspirations,” he says. “The bank is well capitalised; profitability has been improving, and AFG's share price had risen more than 30%, last year”.

He asks if there is anything wrong in being small, especially when the bank has delivered in significant terms?

“Sustainability comes from knowing what you want, executing it relentlessly and staying focused.


Sng: ‘We have to be clear about our medium-term targets.’
Sng asks if some of the best banks in town are doing anything fanciful? “Probably not, but they are good at doing certain things well and consistently.”

“The SME and consumer business if we keep doing it well, there is no reason why we cannot sustain and grow our market share,” says Sng.

Towards this end, the bank has defined three major strategic aspirations this year:

To deliver consistent and sustainable results;

To be the best customer service bank; and

To develop engaged employees with right values.

“We continue to streamline the processes, and improve working conditions for the staff. We take staff feedback very seriously, and we do a Voice of Employees survey every year. We take prompt action, where possible on the issues of concern to staff, or act on the suggestions from staff. Our human capital is really the key to help us deliver a consistent and sustainable results,” says Sng.

Emphasising on the importance of values, he points out that some of the Western banks, for example, have recently been facing issues due to the breakdown in corporate values and governance standards.

“We must ensure that there is organisation alignment in terms of values,” says Sng, adding that the bank has implemented a clear communication strategy, the balanced score card, and more importantly that rewards are based on performance.

The balanced scorecard has three main dimensions:

Financial performance;

Franchise building; and

Human capital.

“Once the budgets and goals have been set for the year, we track these very closely, through regular performance reviews with the heads of division. This helps us to know very early if we are behind plan and ensure that prompt corrective actions are taken, including responding to the changes in the external environment.”

Speaking on senior management, he stresses that “we try to hire the best, not just in terms of skill sets, but also our defined values respect, integrity, teamwork and a passion for excellence. The senior management staff must work collectively and cohesively as a team, and must place the interest of the organisation first, above their own self-interest.”

Diversity

Alliance Bank in the past used to have the bulk of its lending portfolio concentrated mainly in housing loans, but the ROE was relatively low as margins for housing loans are very thin.

“In the last 18 months, we managed to get the cylinders firing away in all our areas of business consumer, SME, wholesale banking and financial markets. For example, treasury, instead of just concentrating on funding the balance sheet, has now become more trading and customer focused selling foreign exchange and other treasury and investment products, into the SME, consumer and corporate segments.”

The idea is to ensure that Alliance Bank generates recurring non-interest income rather than just one-off products.

In terms of non-interest income, the plan is for a 30% contribution in the medium term; last year, it was 26.3% compared with a low of 21% in FY2011.

A large part of non-interest income is derived from commissions and fees that are charged for loans, payment transactions, bank guarantees, treasury sales and wealth management. Bancassurance is also coming up very nicely Alliance Bank has signed an agreement with AIA in March this year.

Alliance Bank also aims to beef up its stockbroking and capital markets activities.

“These are areas that we have not been very focused on in the past. A lot of our customers currently are trading with other investment banks,” says Sng.

Alliance Investment Bank has launched an electronic platform where its customers can trade regional stocks. “With this trading platform, we could see our market share increasing in future,” he says.

“We are streamlining all branch broking operations to keep costs low, and we are currently not looking at opening new branch broking offices. We intend to leverage on the bank's existing branches to expand the retail brokerage business.”

Personal drivers

Sng's past bosses tell him that he tends to be direct and straightforward.

“I have adopted this style because I find it the easiest,” he says. “Most times, direct communication is more effective because people don't have to second guess me. I have been known to be very goal-oriented and execution-focused. I've been told that I tend to be demanding but fair.”

“I'm hands-on. A couple of my direct reports, during their recent performance appraisal with me, asked if I could be less hands-on,” Sng relates. He likes it when his staff gives him constructive feedback, whether solicited or otherwise. To him, it means that the management team has reached a level of trust and respect for each other.

Motivating seniors

Sng's direct reports are with senior people. What is it that motivates them?

“They want to know what is expected of them; the strategic direction; the near-term goals for the next two to three years, and that if they execute well and deliver on the commitments agreed, they will be recognised for their effort.

“I am a big believer in this ... if a staff achieves the goals that have been agreed, they should be appropriately rewarded,” he says.

But the caveat is that for the senior staff, it is not just goal orientation and achieving the targets at all costs; it has to come with the intended results of building the group's long term franchise.

“My senior people have to be exemplary they must be mature, and able to collaborate well and work seamlessly with each other.”

“Silos are not tolerated. Teamwork is very important. For example, when I see an email saying your people and my people' I immediately put a stop to it,” he says.

“When a particular branch fails an audit, my immediate action is to go down to the branch, not to take punitive action but to let the staff at the branch know that it matters to me when any part of our business has not kept up with the standards expected,” says Sng.

Sng pays a lot of attention to little things where a bit of effort gives him a lot of leverage.

“I admire my senior people who put up their hands for strategic projects. Between myself and the senior management team, there are 17 or 18 key projects ongoing currently, dealing with branches, improving processes and productivity, re-crafting and cascading the core values and developing the human capital, in order to achieve the bank's strategic direction.”

Each of these projects must have a clear owner, someone who is responsible to get things organised and executed according to plan. “I am a firm believer of setting up cross-functional teams with staff from different departments for the implementation of important projects,” says Sng.

The project team has to conclude a proposal and a detailed implementation plan which has to be presented for approval. Once approved, the progress of the project will be closely tracked to ensure that it is well executed, and delivers the desired benefits.

“I spend time to help guide and coach people, who are motivated beyond their daily job functions. These people are really building lateral skills and diversity for themselves, and hopefully prepare themselves for bigger assignments later on,” says Sng.

Sng encourages people to gather multiple skills in their working life. “A person who has done the same job all his life, by the time he is 50, it is hard to instil other skills. But if a person who has done a lot of different things throughout his career, he may well make a very good general manager,” says Sng.

Job rotation

Why do people who do the same thing become redundant or stagnant in their compensation?

“Every job has its benchmark salary out there. I have been encouraging our people to look for job rotation as part of their career development.”

As an example, he cites the success of the current process, whereby the group human resources (HR) department will send out an e-mail to all staff, informing them of the current vacancies in the bank, and encouraging the staff to apply to fill the position. If within two weeks, there is no internal response, only then can the position be filled through an external hiring.

If the staff is successful, the HR department will make sure that the person is able to move seamlessly across to the new department, with adequate notice being given to his incumbent boss, who cannot stop the process.

This arrangement has been very popular with the high performers, looking for new opportunities and challenges for their personal development. “If you don't give them this opportunity to move within the organisation, we may not be able to retain them,” says Sng.

As far as I know, Alliance Bank is not for sale, says Sng.

“If the share price is moving, it means that investors and shareholders are happy. I would like to think that it is because of what the management team is doing, and not because we are an M&A target.”

To the question on what DBS will bring to the table, he says, “I would imagine that DBS Bank can add value to the Alliance Bank Group franchise, but at the moment, it is premature to think of it. DBS still needs to obtain the regulatory approvals for the transaction to buy over the stake in the parent Alliance Financial Group from Temasek,” he says.

Banking Sector

The banking sector in Malaysia is healthy, although the economy may register slower growth,” says Sng. In terms of banking strength, two of Malaysia's top banks are already bigger than some of the Western banks, he says, referring to the top 1,000 banks in the world.

“That indicates weakness in the banking industry in Europe, reflecting the impact of the euro crisis. A lot of cash from Europe is already flowing into Asia; the shift to Asia is not to be under-estimated,” he says.

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