Malaysia’s Hong Leong Bank: New competitors keep Fuda on his toes

Hong Leong Bank, Malaysia’s oldest home-grown bank at the grand old age of 113, is in the middle of a profound cultural change as it attempts not merely to confront the digital era but to embrace it.

The man leading the transformation is a tech-savvy Italian-Australian, Domenic Fuda, who originally hails from southern Italy, a country that – like Malaysia in 2018 – knows a thing or two about changing governments.

Given his Mediterranean pedigree and his rarity as a foreigner running a Malaysian bank, Fuda might seem an unlikely choice to reform one of southeast Asia’s storied banking brands. But take a closer look and it’s evident that Fuda may have more in common with his new employers, the Malaysian-Singaporean Quek-Kwek dynasty, than initially meets the eye.

The son of a Calabrian tailor, Fuda was transplanted as a teenager from southern Italy to the sprawling Sydney suburbs in the early 1980s. The young Fuda couldn’t speak English when he got to Sydney, and struggled with it for some time after. Even today, 37 years and an international banking career later, his conversation is accented.

“It took about seven or eight years, by the time I got to university, to adjust,” Fuda recalls.

But Fuda got through English lessons and an economics degree to start a banking career; first with Australia’s CommBank, then Barclays in Sydney before landing at Citibank’s Australian division, where he spent 16 years, including brief stints in Kuala Lumpur and Singapore.

“When I went to Citi, it opened up my mind,” Fuda tells Asiamoney. “It was a global company.”

Fuda’s last job at Citi was as chief operating officer for southeast Asia Pacific, Australia and New Zealand. He joined DBS in Singapore in 2010 as an executive in its consumer banking and wealth management divisions, before coming to the Queks’ attention in 2016 for the top slot at Hong Leong Bank in KL.

Fuda’s journey from the hardscrabble of Italy’s impoverished Mezzogiorno region to the sleek boardrooms of some of the world’s richest people has been an immigrant success story that Hong Leong’s Quek clan themselves would readily understand and appreciate. 

Two generations earlier, clan patriarch Kwek Hong Png – a penniless, 15-year-old son of a Chinese peasant from impoverished Fujian province – landed in Singapore in 1928. The young Kwek was uneducated and struggled with local tongues but was no less determined to seek his fortune.

Kwek started off by helping in his brother-in-law’s humble hardware store, and by the time of the Second World War, he had founded a small trading company, which he called Hong Leong, the terms denoting abundance and prosperity.

Kwek would come to have plenty of both: when he died in 1994, Kwek was one of Singapore’s richest men, with interests across property and finance in the fast-developing city-state, and famously controlled Singapore’s largest private land portfolio.

Today, Hong Leong is a household brand name across Singapore and Malaysia. Kwek’s heirs and relatives front all-but-separate sister empires in Singapore and Malaysia, gathered under the mutual Hong Leong banner.

Quek Leng Chan, 77, runs Hong Leong Malaysia, while his cousin Kwek Leng Beng, also 77, stewards the group’s Singapore operations. Collectively, the cousins are estimated to be worth around $15 billion.

Hong Leong Bank has been in the family fold only since 1994. But it started out more than a century ago as a remittances shuffler for Borneo’s Chinese trader diaspora; from those humble Sarawakian roots, HLB eventually became Malaysia’s fifth-biggest bank.

It’s a franchise anchored in Malaysia’s commercially active Chinese community, who make up about a quarter of Malaysia’s population of 32 million, behind the majority ethnic Malay community. Serving conservative Chinese communities and family business networks across Malaysia, HLB vies for the Chinese sector’s attention with market leader Maybank and third-placed Public Bank, which is still run by its 88-year-old founder, Teh Hong Piow. That conservatism is evident in HLB’s non-performing loans, which at a marginal 1% are the second-lowest among Malaysian banks after Public Bank.

The bank came into the Queks’ orbit when they bought Malayan United Bank, or MUI Bank, in 1994 from fellow Malaysian tycoon Khoo Kay Peng. Rebadged Hong Leong, the bank has since become a key plank of the wider family’s substantial wealth, particularly in Malaysia. According to Anand Pathmakanthan, analyst at Macquarie Research, 95% of the bank’s loan book is domestic Malaysian.

Under Fuda, HLB has adopted the slogan ‘digital at the core’. It’s a task that the 51-year-old Fuda, a self-described techie, has taken up with some gusto. It’s a facelift, Fuda says, that’s not just designed to shore up HLB’s defences from franchise-threatening fintechs, but to position HLB as Malaysia’s leading digital bank in the 21st century – and stay there.

“We’ve been around for more than 100 years, and the biggest thing we have is culture,” Fuda explains. “We are a traditional bank, (but) fintech and the big tech, they’re putting a lot of emphasis on the customer. It’s changing our culture, the way we work. You can’t sit on the sidelines.”

As he explains it, “everything the customer does, we’re trying to do digital. And everything else behind is the traditional way. So we have this thing, it’s digital at the core, so even internally, whether it’s HR, training, the way we collaborate, the workspace we are creating or whatever, has to change for us to be digital. But the core banking system will not be changing.”

As he surveys Kuala Lumpur’s sprawl from his executive eyrie in suburban Damansara Heights, Fuda points out that “there are dangers coming from all over the place. Once upon a time, you could sit here, look out the window and you could physically see your competitors; CIMB, Maybank… now who’s your competitor? You can’t always see them, they are all over the place.”

The plan is to position HLB as a fintech hothouse, a tech laboratory with the idea that the startup atmosphere will infuse HLB’s culture.

“The fintechs are finding slivers of business lines, through remittances, peer-to-peer lending, small business, small payments, that type of stuff,” Fuda says. “But startups don’t have the customers, so we say you can come and work with us, some of my guys become mentors. We give access to our own technology, so they can actually test the product with our customer base. So hopefully that gives them another leg up in getting a better product to market.”

Fuda wants the experience to inspire staff at HLB.

“Sometimes you’ve got to show staff that this is what other people are doing, the way they work it, agility, everything on the cloud, whatever. So I get my people in front of them and, hopefully, we carry some of that thing back into the bank, the enthusiasm, the energy. We’ve got to change the culture.”

Fuda is one of the few Westerners to ever run a Malaysian bank, and the first one to helm HLB – though not the first foreigner, as Fuda took over as chief executive from the Singaporean Tan Kong Khoon, who now heads Hong Leong Financial Group, HLB’s parent.

His digital transformation of HLB is being noticed, both on the bottom line and in the market.

“We regard HLB as being one of the leaders among its Malaysian peers in terms of articulating a clear digital bank transformation strategy,” notes Citi banking analyst, Robert Kong, in a recent report. “This means not only the transformation of the customer experience, but middleware and back-end systems as well. HLB’s transformation has begun to save HLB real money.”

Kong says in his report that HLB’s transformation from a conservative traditional bank isn’t just a “front-end digital makeover but instead encompasses a well-thought-out medium-term view, making pervasive changes to the entire technology platform, business strategy and even company culture.”

Digital transactions now account for around 70% of HLB’s total transactions through its 250-strong physical branch network, up from 60% in 2016.

Fuda says the branch network is steadily being upgraded and transformed. Greater digitalization means that 70% of branch staff are now dealing directly with customers, he says, which allows for a more personal user experience and enhanced opportunities to cross-sell HLB products.

Citi analyst Kong approves, describing the HLB upgrade as “radical personalization”, adding that it enables “persuasive user engagement at the right time”.

“Suppose a customer purchases a flight ticket,” Kong posits. “The system can make a decision whether this customer can be offered to buy insurance or to book a hotel through their credit card. This is ostensibly more effective and a large improvement from sending batch product offers without any context.”

Kong sees profits at HLB soaring as a result of its transformation, from the RM2.145 billion ($521 million) it posted in the 2016/17 financial year, to RM3.012 billion by 2020.

DBS analyst Sue Lin Lim expects net profit of RM2.89 billion for HLB by 2020.

Italian by birth, Fuda nevertheless keeps a close eye on matters in his adopted home down under, in particular Canberra’s ongoing royal commission into misconduct in the Australian financial sector. He sees lessons in it for his own patch in Malaysia, and Asian banking beyond.

“We looked into it,” Fuda says of the Australian banking inquiry. “I don’t know the ins and outs of the whole inquiry,” but he says he asked the auditors to look into the matter to make sure everything was sound.

“One of the things we have is trust, as a system… it will take banks in Australia years to recover. I feel that Asian regulators are much more hands-on,” he says. “I think Malaysia, actually not just Malaysia, Asia, is very well banked. It’s extremely competitive. So you’ve got to be on your guard, on your toes.”