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Small banks face challenges from higher fixed costs: Sibos panel

Tuesday, October 13, 2015 - 11:04
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Small banks have had basic services trimmed by global banks, as a result of heightened regulations, said panel participants at Sibos 2015 on Tuesday.

SMALL banks have had basic services trimmed by global banks, as a result of heightened regulations, said panel participants at Sibos 2015 on Tuesday. And this, according to larger banks, is a result of higher fixed costs that must be incurred regardless of the size of the corresponding bank.

Ferry Robbani, Bank Mandiri's head of international banking and financial institutions group, said the bank has had basic services such as cheque clearing retracted by global banks, as a result of higher regulations.

And smaller payments from the salaries of Indonesian migrant workers living in the Middle East and South-east Asia are also commonly flagged by corresponding banks, leading to higher costs as well, he said.

By leaning towards the big guys, the "small guys" get kicked, said Andrew Yiangou, managing director of global transaction banking solutions at National Australia Bank.

DBS's group head of compliance Lam Chee Kin said the fixed cost of compliance remains, regardless of the size of the bank. And that cost looks unlikely to be trimmed further from here on.

Citi's head of business compliance and risk Jack Jared made a similar point, noting that smaller banks cannot produce large enough revenues to cover the cost.

This also comes as regulations have created a perception of "zero tolerance" towards errors, he added, despite the calls for banks to determine business relationships on a risk-adjusted basis.

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