Introduction

Hong Leong Bank is a bank in Malaysia. Mr. Lam Ji Chiew is the founder of

Hong Leong Bank and this bank start its operation on 1905 in Kuching, Sarawak

under the name of Kwong Lee Mortgage & Remittance Company. The company that

starts operate in early 1900’s had granted loans against the security of export

commodities such as pepper, rubber and other indigenous products. It also provided

the services of remitting money of overseas Chinese to their families in Southeast

region of China.

Kwong Lee Mortgage & Remittance Company went through a difficult period

of growth a number of economic crises occurred in the initial years. The Post-war

Recession of 1920-1921 set in. The company opened its branch in Sibu in 1923 after

the recession and three years later another branch was opened in Singapore in 1926.

The Great Depression that start in year 1929 and last till 1933 caused a sharp fall in

the export earnings of commodities and many business concerns, including some

banks, were in financial difficulties.

Kwong Lee Mortgage and Remittance Company able to survived from all

these setbacks because it have strong cash reserves and its conservative operational

policy. Immediately after the Depression, on 26 October 1934, the company was

converted into a public company under the name Kwong Lee Bank. The third branch

of Kwong Lee Bank was opened in Sarikei in 1937 shortly after they converted into a

public company.

The Second World War caused a temporary disruption in the currency and

banking system. Reconstruction and rehabilitation is one of the immediate tasks for

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Kwong Lee Bank right after the war. In this connection, Kwong Lee Bank played an

important role to revive confidence and business activities by providing financing to

enable old businesses to be resumed and new ones to be set up. The aftermath of the

war saw the continued expansion of the Bank, and another branch was opened in 1973

in Bintangor.

Expansion in Peninsular Malaysia

In the late 1977, Yang Amat Mulia Tunku Osman Ibni Tunku Temenggong

Ahmad, a member of the royal family from the State of Johor took over the control of

the bank and changed the direction of its expansion. From four banking offices in

Sarawak and one in Singapore, the Bank expanded its operations to Penisular

Malaysia when it opened its first branch in Kuala Lumpur in May 1978 and this was

followed by another branch in Johor Bharu during the same month. Over the next four

years, a total of six branches were opened in Labis, Segamat, Bintulu, Kota Tinggi,

Kota Kinabalu and Kluang and on 1 January 1982, the Head Office was relocated

from Kuching to Kuala Lumpur.

Kwong Lee Bank Berhad was acquired by the MUI Group in May 1982 and

renamed Malayan United Bank Berhad on 2 February 1983. Later it was renamed

MUI Bank Berhad. Under the MUI banner the Bank grew from 11 branches

(including Singapore) to 35 branches.

On 3 January 1994, MUI Bank Berhad is acquired by the Hong Leong Group

Malaysia through Hong Leong Credit Berhad and renamed it as Hong Leong Bank

Berhad (HLBB). HLBB is then listed on the Kuala Lumpur Stock Exchange on 17

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October 1994 with its total paid up capital enlarged to RM 470 million. Since then,

the growth of the Bank has been remarkable.

The consolidation of the banking institution to meet the requirements of Bank

Negara Malaysia marks another milestone for Hong Leong Bank Berhad. The

completion of the merger of Hong Leong Bank with Wah Tat Bank and Hong Leong

Finance with Credit Corporation Malaysia on 1 January 2001 marks the emergence of

a larger banking group.

HLBB is a member of the Hong Leong Group. The Group has diversified

businesses in financial services, manufacturing, and property and infrastructure

development.

Vision

Hong Leong Group proves that vision together with determination, innovation

and the ability to respond to challenges and opportunities present a powerful and

compelling force resulting in growth and success in business. Hong Leong Group is

proud of their heritage as an entrepreneur - a heritage that will continue to be the

guiding principle for the Group into the future.

Today, Hong Leong Group is built on the commitment of a global staff force

to quality and professionalism. With the world as its market, the Group will continue

to drive towards building a group of businesses that is viable, resilient, globally

competitive, sustainable and scalable.

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Regulations and Supervision of Hong Leong Bank

Banking and Financial Institution Act ,1989

BAIFA 1989 is divided into 16 parts and covers a wide spectrum of subject

matters related to the banking industry in Malaysia. The Act provides a framework

that enables BNM to supervise and regulate three broad groups of financial institution

is Scheduled institution, licensed institutions and Non-scheduled institution.

Scheduled Institution comprising non-bank sources of credit and finance,

which include issuers of charge or credit cards and travellers’ cheques, operations of

cash dispensing machines, development finance institution, building societies and

housing credit institutions, factoring companies, leasing companies, representative

offices of foreign bank or foreign institution which carry out the business or activities

similar to the scheduled institution. Hong Leong Bank is involved in a wide range of

manufacturing and distribution activities. The turnover for manufacturing and

distribution related companies are USD2.6 billion. The Group’s manufacturing and

distribution operations and products are represented and distributed by a worldwide

network of branches, appointed distributors and agents. Hong Leong Industries

Berhad, also a listed company, manufactures and distributes ceramics tiles. It offers a

complete range of concept based lifestyle products-glazed floor and wall tiles,

porcelain tiles and crafted fashionable decorative accessories under the brand name.

Licensed institution comprises the commercial banks, merchant banks, finance

companies, discount houses, money brokers and foreign exchange brokers. Hong

Leong Financial Group Berhad, the holding company for Hong Leong Group’s

banking and financial services, has over the years grown in strength and size through

sound and focused business strategies aided by strong management and financial

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disciplines. Through Hong Leong Bank Berhad, the Group provides comprehensive

services in personal financial services, treasury, corporate and commercial banking

and Islamic financial services. With more than a century of embedded presence and

banking experience and with a wide network of branches nationwide, Hong Leong

Bank Berhad has a solid market position and a well recognised business franchise.

Non-scheduled institutions comprising all other statutory bodies and

institutions involved in the provision of finance and credit.

Islamic Banking Act 1983

In Malaysia, separate Islamic legislation and banking regulations existed side-

by-side with those for the conventional banking system. The legal basis for the

establishment of Islamic banks was the Islamic Banking Act(IBA), which came into

effect on 7 April 1983.The first Islamic bank establised was Bank Islam Malaysia

Berhad, which commenced operations on 1 July 1983. The Central Bank may with the

approval of the Minister make such regulations as may be required from time to time

for carrying into effect the objects of this Act.

Hong Leong Islamic Bank Berhad is a fully fledged Islamic Bank providing

comprehensive Islamic banking and wealth management services. With innovative

solutions converting areas of structured finance, capital market, corporate and

commercial financial services and takaful, Hong Leong Islamic Bank is ready to play

a prominent role in the Malaysian government’s vision to transform Malaysia into a

global hub for Islamic Financial Services.

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Insurance Act 1996& Takaful Act 1984

The Insurance Act 1996 which became effective on 1 January 1997, has

incorporated amendments made to the Insurance act 1963. The subsidiary legislation,

the Insurance regulations 1996(regulations)saw several changes in 1999 in respect of

minimum capital requirement as follows the minimum paid-up capital prescribed for a

licensed local insurer underwriting direct insurance business, or surplus of assets over

liabilities in the case of a licensed foreign insurer is set at RM50 million from 31

December 2000 and the absolute minimum margin of solvency for each class of

insurance business of direct and local professional reinsurers is set at RM50 million

from 1 January 2001.

Hong Leong Assurance Berhad , one of Malaysia’s foremost home grown

insurance companies, provides both life and general insurance services in Malaysia

and in Hong Kong through its subsidiary Hong Leong Insurance(Asia) Ltd. formerly

known as Dao Heng Insurance. With several decades of business in Malaysia, Hong

Leong Assurance continues to be true to its commitment of providing security and

peace of mind to its customers.

CURRENT TREND OF HONG LEONG BANK

Fraud-detection technology

This technology can improve the systems to combat the potential threat of

fraud efficiently as well as the growing importance of the end electronic payment

channel. Fraud Detection lets users monitor transactions for suspicious behavior,

analyze data to identify new patterns, refine fraud alert systems and manage potential

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fraud cases through notification of the authorities. Besides, it enables the bank to

establish a set of parameters based on things such as dollar amount, check numbers

and the wrong signature count.

Hong Leong Bank fraud detection technology is not good enough to detect

cheats and perfect, it can’t detect fraud instantly and fraudulent transactions were

happened frequently, it enticing and comfortable for thieves in possession of stolen or

falsified credit card information to go on a spending spree. Besides, it empowered to

verify with customers due to suspicious transactions, and it will block the further

account. The technology is expensive and requires more time and energy to develop,

manpower training. Therefore, the rule-based system is not intelligent detection of

fraud, but also has a very high false positive rate.

Electronic payment system

Electronic payment system is needed for compensation for information, goods

and services provided through the Internet such as access to copyrighted materials,

database searches or consumption of system resources. It acts as a convenient form of

payment for external goods and services such as merchandise and services provided

outside the Internet. It helps to automate sales activities, extends the potential number

of customers and may reduce the amount of paperwork. The technologies to be used

are electronic cash, software wallets, smart cards, and credit or debit cards. Electronic

payment system is a familiar and convenient form of payment for the consumer. The

payment is made quick, easy and efficient, so it can save a lot of time.

Hong Leong bank use of e-payment schemes through more efficient business

operations, cost reductions, enhanced security and wider payment channel choice. It

show improvements which resulted from the introduction of large-value payment

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systems, such as the payment versus payment infrastructure for the settlement of

Malaysian ringgit (RM) foreign exchange trades and the delivery versus payment

settlement for US dollar securities that are issued, deposited and traded in Malaysia.

The development of the domestic payment system is becoming more important in

the development of a deep and active domestic financial market that promotes

financial market stability and the reinvestment of savings in the country. Closer

financial market integration in the region and closer cooperation and policy

coordination among the monetary authorities in the region is becoming increasingly

important.

Nowadays, fraud is an ongoing concern. Internet and e-commerce fraud would

continue to remain a threat due to hacking, key-stroke logging and other forms of

dishonest attacks where consumers were at risk when performing such transactions.

The disadvantage of electronic payment systems is identity theft. There is a great

risk involves in the theft or the closing of the smart card. In case the cards fall in

unsafe hands, there is a danger of the expenditure of the customer’s entire bank

balance. The time between losing the card and informing the authorities is critical

because unauthorized users may carry out transactions in your name during this

period of time.

Online banking

Online banking allows customers to conduct financial transactions on a secure

website operated by Hong Leong Bank. With Internet banking facilities, the customer

will be able to perform a variety of banking transactions online. Internet banking

allows them to check their balances and statements, submit applications for new

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accounts, credit cards or loans, place fixed deposits, transfer funds between accounts,

pay bills, credit cards, loans and insurance premiums, create, change and cancel

standing orders, request for cheque books and statements, check status or stop

payment of your cheques, apply for bank drafts and telegraphic.

In addition, Hong Leong Bank continues to make investments in electronic

and alternate channels to expand E-Banking as a serious alternate in our integrated

multi-channel distribution strategy. This effectively drives Hong Leong for scalability

and cost efficiencies in serving more customer transactions with the Bank.

Rising Competition

Nowadays, the competitors of Hong Leong Bank are increasing, for

examples, CIMB Bank, RHB Bank, Am Bank, Public Bank, Affin Bank, and

Maybank.

Competency between Hong Leong Bank and Maybank is one of the clear

examples of the rising competition within these few years. Maybank is listed as top 10

in Malaysia and the second largest in Malaysia Stock Exchange and Bursa Malaysia.

Maybank have 374 domestic branches and 90 international branches. It has

the correspondent banking relationship with 700 foreign banks throughout the world

as well as strong performance as the experts in their industry share their experience

with the employees. Moreover, Maybank have many other investments from other

companies.

However, Hong Leong Bank has poor customer service due to the problems

caused during transactions. Hong Leong Bank manages more than 150 branches in

Malaysia and 1 branch in Singapore. Hong Leong Bank has regional constraint and

minimal impacts on Islamic businesses.

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Service Proliferation

Hong Leong Bank recently launched the new Hong Leong Online (Business),

the enhanced business online banking which marks the beginning of Hong Leong

Bank’s journey in innovating and strengthening its Cash Management Services that is

offered to its valued customers. Some important account management functions such

as current account, foreign currency accounts, loan accounts and fixed deposits

balance inquiries, transaction history, statement download and cheque status inquiries.

Apart from the improved system performance and the additional functions,

customers can expect the new benefits such as the ability to view subsidiary

companies' accounts with a single sign-on and the ability to view outstanding foreign

exchange and money market contracts.

RECOMMENDATION

Fraud Detection Technology

The fraud-detection technology used by Hong Leong Bank was not good

enough to cope with the threats and detect the cheats. Due to it is not capable of

detecting fraud immediately as it allows the fraudulent transactions to go through and,

upon verification with customers due to suspicious transactions, will block further

relevant accounts.

Hong Leong Bank can offer more technology training to its employees and

hire more professions from Information Technology field. With these human

resources and technology available, Hong Leong Bank can minimize the fraud

transaction by tracking customer’s transaction record and keep an eye on suspicious

transaction.

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Furthermore, Hong Leong Bank can focus more on recognition or verification

on customer’s identity through fingerprint device and signature checking. Hong

Leong Bank could have check the sources of dollars make into transaction and

background of it. Hong Leong Bank can also try to implement the more secure and

modern software program for its running application to reduce crime cases such as

money laundering.

Electronic Payment System

There is a great risk involves in the theft or the lost of the credit cards or ATM

cards. Hong Leong Bank should improve their cards. Credit card is convenient and

normally use in purchases. Consumers can do purchases without paying cash and they

can make payment after the purchases. Hong Leong Bank can add in fingerprint

system into the credit card detector or check the signature of consumer to confirm

their identity. The specific individual fingerprint has to be recognized in order to use

the credit card and make purchases. By applying this invention, even the credit card is

stolen or drop accidentally to the individual, they can’t misuse the card because the

fingerprint of the individual is different with each other and unique. This system

ensures the card will not be used by other, especially fall in the unsafe hand.

Besides that, Automated Teller Machine (ATM) provides withdraw services by

using ATM card. Customer needs to enter the specific pin number to login their

individual bank account. But with only one pin number, the thief can track the pin

number easily using the current high technology. Therefore, the bank should make it

double secure by applying a specific pin number and also eye recognition function

into it. Everyone have their individual eye pupil and different with each others.

Identity can be verified by identification of the eye pupil.

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Online banking

Hacking is one of the fraud that always happened to online banking because

the technology is getting more and more improved recently, hackers can hack

through customer’s bank account easily when they using the online banking to do any

online transaction. Hackers can track the customer bank account information by using

the new hacking program that purposely created.

Hong Leong Bank should change the login system from using password into

voice recognition or applying both together. It is because everyone sound wave and

the sound pitch is different from others. It can be differentiate by using the technology

of voice recognition. Customers may login their online banking account by saying out

their own voice. Password still needed after the voice recognition because it can be

used to strengthen the secure level when login to the account. This can minimize the

hacking cases. It is better and secure for the customer to use the online banking

services. Besides, the IT technician of Hong Leong Bank should have always updated

their anti-hacking software from time to time.

Rising Competition

Hong Leong Bank’s poor customer service is the main weakness and become

less competitive among its competitors such as Public Bank and Maybank. It puts

Hong Leong Bank to be in stress when it is facing so many competitors that provide

good and better customer services.

Hong Leong Bank is recommended to provide more training to their customer

service staff. Staff should be given more training on the human interaction and

communication to gain the knowledge on how to face different kind of customer with

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a correct and suitable attitude so that the customer will be satisfied with the services

provided. This will create the image of Hong Leong Bank and improve the good will

among the competitors.

Hong Leong Bank may also start planning to increase the coverage of

branches into the international level such as Europe. Besides, it ensures that they can

compete with other bank competitors to attract the customers to invest and building

the trust of customers.

Furthermore, Hong Leong Bank should put more effort to develop Islamic

businesses. Islamic businesses may bring more profit to Hong Leong Bank in future

because the market of Islamic businesses is wide in Asia.

Service Proliferation

In line with the government’s direction in migrating cheques to electronic

payments, Hong Leong Bank will also be enabling electronic payment of SOCSO

contributions, on top of the existing salary payments and EPF contribution payment

capabilities. With the introduction of HLB’s Online Payroll Services, there will be

even more corporate customers who will be using Hong Leong Bank to pay salary and

EPF and SOCSO Contributions.

We recommend Hong Leong Bank to take online banking steps further than

competition by constantly introducing offerings and promoting even more aggressive

promotions to ensure continued patronage while attracting even more new users.

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Conclusion

Hong Leong Bank is a famous commercial bank and namely financial

intermediary in Malaysia. Hong Leong Bank will get the investments from the saver

and issue to who need the funds. The biggest income of Hong Leong Bank is come

from the loans. Other than that, Hong Leong Group proves that vision together with

determination, innovation and the ability to respond to challenges and opportunities

present a powerful and compelling force resulting in growth and success in business.

Hong Leong Bank is practicing the Banking and Financial Institution Act 1989

Islamic Banking Act 1983.

There are some current trend Hong Leong Bank doing such as Fraud-detection

technology. Fraud- detection technology is using the technology recently to avoid the

fraud as much as possible. But Hong Leong Bank is still not good enough in this area.

We recommend that Hong Leong Bank should hire more Profession in Information

Technology field to help Hong Leong Bank strengthen the Fraud-detection

technology. Apart from that, the current trend of Hong Leong Bank is electronic

payment system. The electronic payment system helps to automate sales activities. It

is a great way and convenient for Hong Leong Bank’s customer getting their

transaction done through ATM machine but cheats are unavoidable. We recommend

Hong Leong Bank apply fingerprint system to his credit card detector and add eye

recognition function to the ATM machine to minimize the frauds. This can make sure

that the cards can be use by the owner only.

Unique fingerprint and eye pupil can identify individuals characteristic and verify the

identity of individuals accurately.

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Online banking also is a current trend of Hong Leong Bank. Online Banking

will be able customer to perform a variety of banking transactions online. We

recommend Hong Leong Bank to add in voice recognition to identify its customers. It

is due to using the voice recognition can be more secure compare to password log in

system. Voices of individual are specific and it’s not easy copy by others.

Hong Leong Bank is also facing rising competition. Because customer

services of Hong Leong Bank is poor compare to other competitor. We recommend

Hong Leong Bank let his customer service employees to have more training in how to

communication with customer in order to gain experience in facing the customers.

The last current trend of Hong Leong Bank is Service Proliferation. Service

Proliferation is government’s direction in migrating cheques to electronic payments.

We recommend Hong Leong Bank should keep on doing innovation on attractive loan

package and introduce more on investment package to gain the good images of

customers.

As a conclusion, Hong Leong Bank still has plenty room for improvement,

especially on the customer service. Hong Leong Bank should continue move forward

to keep its ability in competencies. It’s important to understand and keep track on the

competitors such as, CIMB Bank, RHB Bank, Am Bank, Public Bank, Affin Bank,

and Maybank.

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References

1. Clifford Neuman, University of Southern California (USC), & Information

Sciences Institute (ISI). (1999). Tutorial 5: Electronic payment systems.

Retrieved July 5, 2010, from

http://www.ra.ethz.ch/WWW/www8/tutorial_5.html

2. Disadvantages of Electronic Payment Systems. Retrieved July 7, 2010, from

http://www.buzzle.com/articles/disadvantages-of-electronic-payment-

systems.html

3. Internet Banking Comptoller’s Handbook. (1999, October). Retrieved July 7,

2010, from http://www.occ.treas.gov/handbook/intbank.pdf

4. Banking and Financial Institutions Act 1989. (1989, August). Retrieved July

9, 2010, from http://www.bnm.gov.my/index.php?

ch=14&pg=17&ac=14&full=1

5. Islamic Banking Act 1983. (1983, Mar). Retrieved July, 9, 2010, from

http://www.bnm.gov.my/index.php?ch=14&pg=17&ac=16&full=1

6. E-banking. Retrieved July 12, 2010, from

http://www.hlb.com.my/eb/ebmain.jsp?flag=ebmain

7. About Hong Leong Group. Retrieved July 12, 2010, from

http://www.hongleong.com/about.html

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