Brunei banking: staying strong in a declining oil market

A stronger focus on diversification may be one positive effect in Brunei of low oil and gas prices, says Baiduri Bank's Pierre Imhof

July 29, 2015

Brunei’s banking sector remains resilient, according to Standard and Poor’s. Pierre Imhof, CEO of Baiduri Bank, explains how Brunei’s government is investing in a diversified economy, and what the Brunei banking sector is doing to assist small and medium private businesses.

World Finance: Despite the recent financial crisis, and now a fall in oil prices worldwide, one banking sector that remains resilient is that of Brunei: according to the global rating firm Standard and Poor’s. Joining me now is Pierre Imhof, CEO of Baiduri Bank, one of the leading banks in the country.

Pierre: falling oil prices have slowed the Sultanate’s economy. Why has this not impacted the banking industry?

Pierre Imhof: There is definitely a sharp decline in oil and gas prices. But Brunei is a country where the economy is mainly driven by government spending.

And therefore, this year the government has decided to keep the budget – and therefore the spending – at a level very close to last year’s. For the year 2015-16 the budget will be reduced only by around four percent, so it’s very small.

Of course, the income will not be at the same level as last year, so the deficit, the budget deficit, will be covered by part of the accumulated reserves of the country.

So this budget remaining more or less at the same level will definitely help the domestic economy. And therefore, being a local bank with all our activity within the country, we expect that we will not suffer too much from the oil prices.

World Finance: So what challenges does the banking industry face, and how does Baiduri approach these?

Pierre Imhof: If the prices of oil and gas remain low for a long period, the country will probably have to adapt and adjust. The government may not be in a position to maintain such a level of its budget for too long.

The second challenge is that the oil and gas industry – and the operators in such an environment – are trying to reduce their costs. And that may affect the private sector. There might also be some delay in infrastructure developments by the government.

So all these will be challenges that the banks will have to face during this difficult time.

World Finance: Staying competitive is of course a major issue for any bank, and that often means really staying on top of the latest technological innovations. Does this relate to Baiduri? And how do you adapt to customer needs?

Pierre Imhof: Technology is definitely an important part. But our absolute priority is to give to our clients – when they deal with Baiduri Bank, whether they use one of our branches, or electronic channels – to always give them the best customer experience.

We have launched in Brunei the first Café branch. Nothing to do with banking. Our clients come to a branch, and they can relax, sit in a sofa and have a coffee while they are transacting.

We want also to give them a choice. If they want to come to a branch, we have the branch network. If they want to go through the internet, we are also able to offer them the internet.

We have been the first in Brunei in many services and many products. The latest one is the Visa payWave. So now our clients use their Visa card: just tap and pay.

The last example I would like to give is in terms of security. We pay a lot of attention, and we make a lot of investments, to make sure that our clients data are protected.

World Finance: Ninety percent of private businesses in Brunei are SMEs – how do you cater to this market, and how does this translate to the economy as a whole?

Pierre Imhof: First, our services – and especially financing – are customised for these clients.

Secondly, we are a local bank. The decision making process is in Brunei. It allows us to be more flexible, and faster, taking a decision in granting a facility, in structuring financing.

Third, SMEs need very specific financing. We have micro-finance schemes, and enterprise facilitation schemes, which we offer to SMEs in collaboration with the Ministry of Industry and Primary Resources. And these are schemes which are designed for SMEs: they are cheaper, and companies which might not be eligible to other schemes can still access financing through such schemes.

World Finance: In 2014 Brunei implemented the Local Business Development programme in the oil and gas sector. Can you elaborate a little bit on this, and how will this really impact the banking industry?

Pierre Imhof: It definitely impacts the banking industry a lot. This programme – Local Business Development – was developed by the authorities in Brunei to encourage economic players to rely more on local resources and to develop more local contacts. It has the objective to encourage local employment: 99 percent of Baiduri Bank’s employees are locals.

When its activity grows, definitely it’s an opportunity for Baiduri Bank to employ more people. So in that respect Baiduri Bank is contributing to local business development. But Baiduri Bank is also benefiting from this local business development programme. A number of companies would now under this programme be encouraged to deal with a local bank. And we have definitely in that respect benefited from it a lot.

World Finance: Finally, what trends do you foresee really impacting the banking industry in Brunei, as we move toward the second part of 2015?

Pierre Imhof: If the oil and gas prices remain at the present levels, I think that the country will not be able to rely forever on oil and gas income to maintain and develop further its economy.

The positive effect is that it may lead to accelerating the policy of diversification in the country. And the banks will have a lot to benefit from diversification: first of all it will give them opportunities in the country, but diversification will also mean, beyond the Brunei borders, Asian economic integration. Brunei and Brunei companies may have a role to play; and banks in Brunei therefore may also have a role to play.

We spoke about technology, and definitely in the future we need to continue offering our clients the latest technology.

Even though we are a small country, we cannot miss this technological challenge.