Malaysia's financial sector is one of the most diversified in the global banking industry. The industry comprises of insurance companies, capital market intermediaries and banking intermediaries. By the year ending 2011, the Malaysian banking sector held an overall asset base of close to 400% of GDP (International monetary fund 2013). The industry has 54 banking intermediaries that cover at least 50% of the total assets of the financial systems. Bank Negara Malaysia (BNM) controls the banking system that constitutes investment banks, Islamic banks and commercial banks (Ang 2008) accounting for 5%, 20% and 75% of the banking system assets respectively. The current banking structure has undergone considerable consolidation where out of 22 domestic commercial banks that thrived in 1986, only six made it through 2011.
Merchant banks, securities firms and discount houses amalgamated to form the current investment banks while finance entities merged to form commercial banking groups. Financial analysts suggest that the consolidation marked the revolution of the sector making it more resilient and stable by realising economies of scale and rationalising costs (Joshi, Cahill, Sidhu and Kansal 2013). The consolidation saw the number of domestic commercial banks decline while the asset base per institution grew to RM 128 billion from an average of RM 16 billion. The international commercial banks also increased from 13 to 17 enhancing improved knowledge and product innovation (Paresh 2015). In the year 2011, a report from BNM indicated that Malaysia was the third largest market in Islamic banking where the Islamic capital market grew by over RM 1.05 trillion in one decade. The Islamic banking increased to 22% from 6% of the banking sector. Malaysia has also been actively involved in in the formation of global financial entities like the International Islamic Liquidity Management Corporation (IILM) and Islamic Financial Services Board (IFSB) in the effort to enhance the international financial stability of the Islamic financial system (Muhammad and Ismail 2009).
According to the international monetary fund (IMF) report in 2013, the financial sector has experienced high interconnectedness through ownership and funding sources. The mutual fund, banks and non-bank financial entities are linked via the wholesale funding market. Financial conglomerations have seen major banks own insurance companies, security firms and fund management companies. The workforce in the sector is small accounting for at least 2.5% of the national employment. The industry however employs highly skilled personnel who are paid a considerably high income. However, the sectors development plan projects growth in business opportunities leading to 229,000 new jobs by 2020 (International monetary fund 2013). Owing to the global economic and financial crisis, the Malaysian banking industry has experienced a reduction in aggregate demand. Between the years 2008 and 2010, the GDP experienced negative growth. In response to mitigate the risk in the future, the banking sector resulted in cost-cutting strategies that aim at improving profitability posing both positive and negative effects on the banking industry employees.
Problem Statement
Due to the competitive nature of the banking industries, financial institutions employ cost-cutting strategies with the objective of increasing profits (Jeucken and Bouma 2017). Some of the procedures used lead to negative implications for employees. Cost-cutting measures include reducing employee pay, laying off staff, downsizing to smaller offices, changing of hours of service, lowering monthly bills, and adoption of technology in service delivery to replace human labour (Nimocks, Rosiello and Wright 2005), among other strategies. A majority of banks in Malaysia as well as internationally has in the recent past implemented the termination of employees and programs like employee training in the effort to scale down operational costs. Laying off workers reduces the payable burdens of an organisation leading to profitability. However, laid off employees are rendered unemployment where some workers undergo stress as they try to cope with the challenges associated with joblessness. The recent trend of employee reduction in the banking industry has inflicted fear in the remaining workforce enhancing workers to advance their education to be above the layoff minimum qualifications in the future. As a result, the professionals in the banking industries have become more and more competent leading to the overall growth of the sector. Reducing employee pay has been another common strategy applied by the banking sector (Fuller 2016). The motivation level has however decreased leading to a reduced production rate of employees.
The Malaysian banking system strategic plan forecasts growth in employment and therefore considers alternative cost-cutting strategies other than employee layoff. Adoption of digital technologies has led to the growth of the financial sector in the recent past with employees required to acquire the necessary skills to fit in the current banking model (Bouma, Jeucken and Klinkers 2017). A majority of employees have therefore advanced their education level leading to a more efficient banking sector. Innovation has improved owing to employees improved education leading to the development of new, secure and efficient banking strategies that have led to the growth of the industry and consequently the income levels of the employees.
References
Ang, J.B., 2008. Are financial sector policies effective in deepening the Malaysian financial system? Contemporary economic policy, 26(4), pp.623-635.
Bouma, J.J., Jeucken, M. and Klinkers, L. eds., 2017. Sustainable banking: The greening of finance. Routledge.
Chan, T.K. and Abdul-Aziz, A.R., 2017. Financial performance and operating strategies of Malaysian property development companies during the global financial crisis. Journal of Financial Management of Property and Construction, 22(2), pp.174-191.
Fuller, G.W., 2016. Introduction. In The Great Debt Transformation (pp. 1-24). Palgrave Macmillan, New York.
International monetary fund. 2013. Malaysia: financial stability assessment. IMF country report No: 13/52. Washington DC.
Jeucken, M. and Bouma, J.J., 2017. The changing environment of banks. In Sustainable Banking (pp. 24-38). Routledge.
Joshi, M., Cahill, D., Sidhu, J. and Kansal, M., 2013. Intellectual capital and financial performance: an evaluation of the Australian financial sector. Journal of intellectual capital, 14(2), pp.264-285.
Muhammad, N.M.N. and Ismail, M.K.A., 2009. Intellectual capital efficiency and firm’s performance: Study on Malaysian financial sectors. International journal of economics and finance, 1(2), p.206.
Nimocks, S. P., Rosiello, R. L., & Wright, O. (2005). Managing overhead costs. The McKinsey Quarterly, 2, 106-117.
Paresh K.N., 2015. An assessment of the Malaysian financial services sector. Australia: Deakin University.
