…One of the things we like about Bank Rakyat is its relatively higher-return micro-finance segment. Micro-finance accounted for around 34% of the total loan book in full-year 2018, and grew at a faster rate than its other segments. With its focus on growing this segment, the bank aims to increase its agent and loan officers to further penetrate the rural and lower-income areas. This is an attractive segment, with growth opportunities. However, given the nature of micro-finance, the continued success of the bank’s strategy will depend heavily on its ability to maintain healthy asset quality, to attract and retain capable agents and loan officers, as well as its ability to develop strong controls and compliance frameworks. Naturally, then, these are areas of focus for us as we speak with the bank.
A recent meeting with the bank gave further insights into its risk-mitigating initiatives. It has digitalized its loan writing process and enhanced it with its proprietary risk analytics program. Loan officers use the system to conduct ‘know your customer’ checks and risk screens, to send documents, to assess the borrower based on the internal checklist, and to obtain approval from the branch office before they can advance a loan. A loan supervisor, whose primary role is to ensure the integrity of the process, has to be present on the ground during loan initiation.
Not only does this ensure compliance with controls and processes, it also cuts down on unnecessary travel time and costs. At the same time, the risk management team monitors the loans so that timely provisions are set aside in the event that the loans are showing an increased probability of turning bad.
Aside from this, we spoke to Bank Rakyat on its employee turnover rates. We were pleased to learn that the loan officer turnover rates are relatively low, at around 3% per annum. The bank’s ability to maintain such a low rate was largely because of its robust programs to upskill and train its loan officers through its seven regional training centers. Career progression is actively discussed with its employees, further increasing employees’ willingness to stay with the bank. The conversation gave us comfort. However, we are planning for a deeper discussion with the bank on cyber security, given increasing digitalization of its processes.