| Hakim Hayat |
GLOBAL banking giant HSBC’s decision to exit the Brunei market has prompted several observers yesterday to call for a careful re-evaluation of the financial regulatory measures that they said may have affected the bank’s profits.
Following the banking group’s strategic review, HSBC said in a press statement on Tuesday, it is winding down its retail, commercial and global banking services in Brunei.
The bank said this is part of its global review of businesses and this represents a significant step in HSBC’s stated goal to optimise its global network and reduce complexity.
The bank, however, assured that the decision is not a reflection of the current economic environment in Brunei, which the central bank Autoriti Monetari Brunei Darussalam (AMBD) also reiterated in a statement.
“HSBC’s decision was part of its global strategy to focus on its core business in fewer markets and not due to the economic environment in Brunei Darussalam. Since 2011, HSBC has wound down its businesses in 83 countries, including the sale of its business operations in Brazil last year,” AMBD said yesterday, while pointing out that HSBC Brunei’s financial performance remains “robust and satisfactory” with an increase in profitability of 11.4 per cent from $25.7 million in 2014 to $28.7 million in 2015.
In an interview yesterday, an economic expert who declined to be named, told the Bulletin that HSBC Brunei’s profits have gradually fell over the last few years, which he said may be one of the reasons for the wind-down move. “Back in 2011, HSBC Brunei announced pre-tax profits of $68.9 million and in 2015, and this has dropped significantly to $28.7 million – which is a big difference,” the expert pointed out.
HSBC branch in Bandar Seri Begawan. – DEAN KASSIM
He added that although HSBC has over the years wound down several of its businesses, the decision to exit the Brunei market is obviously on the grounds that the profits the banking group is making at its Brunei branch is “insignificant” compared to the whole group’s profitability. “I think it is only natural that they exit the market here because it is no longer contributing a big chunk to the group’s profits,” he added.
He further raised his concerns over the country’s image to foreign investors following the news, saying that it might impact their decision to come and do their business here. “If you look at it, companies with international presence would want to invest in a country that has a bank with international presence, to ensure quick access to facilities and services and even capital when they set up their businesses in the country,” he said.
The expert claimed that strict financial regulations imposed over the years is the main reason for falling profits. In 2008, the country’s financial regulator issued a directive to clamp down on excessive lending though credit cards and loans by banks by mandating stricter requirements and credit assessment procedures. This has successfully and significantly reduced the number of household debt in the country and ensured responsible lending borrowing by banks.
“Back then, a big chunk of the profits made by banks here were derived from interest rates on credit cards and loans and the banks were having a field day back then… but ever since this was strictly regulated, it has hurt banks’ profits and made them shift to other opportunities in the financial industry that are less profitable such as investment products,” he said.
Therefore, the expert said, HSBC has reduced its operations and downsized the number of its staff over the years. HSBC Brunei announced the closure of its car hire purchase arm, HSBC Finance in 2013 and has over the years visibly reduced the number of its staff of just over 1,000 back in 2009 by half.
Although the credit card and loan directive was relaxed at the end of last year by the AMBD, he believes that the bank has already made significant losses over the years, leading to the decision to exit the Brunei market. He called for the central bank to continue being proactive by providing robust guidelines and regulations to create a stable and balanced environment in the financial industry that is fair for all stakeholders, and also in giving customers various options over different financial products and creating an environment of adequate and healthy competition.
This is not the first time an international bank announced its exit from the Brunei market. In 2013, Citibank Brunei closed down its branch here after 41 years, due to what it said “the result of an in-depth strategic review of our overall business.”
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