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Untold costs of integration


Bank mergers

"Wedding over, marriage begins"

Untold costs of integration
While technical problems are always a possibility, Malaysian banks have the advantage of tapping the expertise of multinational IT consultants who have extensive hands-on experience in bank mergers worldwide. "They can share the best practices with banks in Malaysia. You don't have to reinvent the wheel," says Unisys' Philip, adding that the best time to reengineer processes is during a merger and acquisition situation.

"We are not doing something in Malaysia that has not happened before. In terms of network integration, anything can be done in IT. It is not rocket science," he adds. Unisys has been involved in various large bank mergers worldwide, including the Union Bank of Switzerland.

While the government has been pushing hard for mergers, there have been no official estimates on how much the industry will eventually have to fork out for integrating disparate IT systems. "No one has a clue," says Philip who estimates the big merged banks will each spend over a RM100 million (US$26.3 million).

This is confirmed by Bumiputra-Commerce's Lazaroo, who revealed the bank has budgeted RM120 million to RM140 million (US$31.5 million and US$36.8 million) for its IT integration program. This includes costs for consulting, contract programmers, upgrading of hardware and migrating to the new network, he adds. Ultimately, the total bill will depend on the size of the merging banks, the similarity of their IT platforms, and the extent of new applications and hardware that must be installed.

Like the Y2K bounty, Malaysia's bank mergers represents a one-time windfall for the major players in the global IT industry, which are already jostling for a piece of the merger pie. While the rewards will be great for companies getting the contracts, there is also a downside. "Eventually you will have a smaller market to work with," says Chow of Andersen Consulting, which has been involved in numerous bank mergers worldwide.

Unisys' Philip believes the merger process will lead to a level playing field. By leveraging on technology coupled with smart strategies to roll out better products and customer services, the smaller banks have the potential to upstage their bigger rivals. Citing Citibank as an example, he says that with only two branches in Malaysia, it has "conquered" the credit card and the corporate solutions markets because of its emphasis on customer service.

He suggests that banks with even the best IT systems could fail if they have poor marketing strategies. Banks have to know their customers to determine which services to roll out, and who to target. "The first thing we advise banks to do is put in a powerful data warehouse and a customer relationship management system," says Philip.

Better service and products--that would certainly be what millions of Malaysians are hoping for, now that previously mollycoddled local banks will have to invest hundreds of millions of ringgit to stay competitive in an increasingly liberalized financial environment.



Lee Min Keong is a regular contributor for various regional magazines and has been a journalist for over 15 years. He heads Asia-Pacific Editorial Consultants, a Kuala Lumpur-based editorial services firm. Email us your comments.


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