Of Malaysian banking granddads and disruption

This isn’t one of those posts about an elderly person being scammed by a phishing text or some get-rich-quick scheme. Those stories are a dime a dozen, but we’ll save them for coffee-shop talk.

Public Bank founder Teh Hong Piow. Pic credit: Public Bank

On Monday, Public Bank founder Teh Hong Piow died. He was 92 years old. Teh founded the bank when he was 35 years old and it grew to become Malaysia’s second-largest bank by market value on the local bourse, outmatched only by Maybank.

Fun fact: Teh was born in Singapore but came to Kuala Lumpur for work. I know, I know, such tales are rare these days because the reverse is more common: Malaysians running across the causeway to that island of milk and honey (or money). But I digress.

I remember Teh because he was not only a mainstay in any top billionaires’ list but also because he ran Public Bank conservatively.

It’s a shareholders’ favorite as the stock has always yielded generous dividends and the bank has always outperformed its peers on a number of metrics, such as return on equity, cost efficiency, and asset quality.

All this was due to Teh’s “boring” style of running a bank. In fact, he was media shy even by bankers’ standards. I could never secure a one-on-one with him no matter how favorable the interview pitch was.

But Teh’s death also shines a spotlight on bank ownership and this is what I want to talk about today.

The privileged few

There are only three men who have been given the right to own more than 10% of a local bank. Teh is one of them. The other two are Hong Leong’s Quek Leng Chan and Ambank’s Azman Hashim.

All three men founded their banks and are afforded this exemption by Malaysian banking laws.

Why? Because they held outsized control of their companies before Malaysia’s central bank, Bank Negara Malaysia (BNM), enforced a law on bank ownership. This exemption is called the grandfathering rule.

Here’s the catch: This privilege cannot be passed down – not even to family members. In Teh’s case, none of his family members are in the business, so there’s no succession there. As for Quek and Azman, they are getting older, but it’s still too early to tell whether their children or grandchildren will take up the business.

Industry folk I spoke to think that Teh’s shares, which are worth 19.9 billion ringgit (US$4.49 billion) at the time of writing, will be put in a family trust. How that will be configured around ownership laws will be an interesting case study.

Spanner in the works

But time is running out for Malaysia’s banking grandfathers. Besides the family-trust route, the other option is to sell one’s stake, as is the case with Azman of Ambank.

A shot at disruption