Tuesday March 31, 2009
PETALING JAYA: Key changes are imminent at several local banks which will see the exit (and entry) of prominent bankers even as the global economic woes add to the challenges faced by the country’s finance sector.
According to sources, Bank Pembangunan Malaysia Bhd president and group managing director Datuk Tajuddin Atan is tipped to take over the helm at RHB Banking Group from Michael J. Barrett. It is believed that the appointment has the approval of Bank Negara.
Barrett joined the group in January 2005 as CEO of RHB Bank Bhd and was appointed group managing director of RHB Capital Bhd on Oct 8, 2007. He is currently also group managing director of the RHB Banking Group. His term would expire in June this year, a source said.
The Employees’ Provident Fund owns 57.55% and Abu Dhabi Commercial Bank a 25% interest in the banking group. RHB Capital recently released its financial year 2008 results which showed a 47% year-on-year improvement in net profit to RM1.049bil, in line with estimates. Still, there are concerns that the global economic slowdown may crank up the pressure on the group’s asset quality.
Tajuddin, who has 25 years’ experience in the sector, was CEO of Bank Simpanan Nasional before being appointed to helm Bank Pembangunan on Dec 1, 2007.
It is also widely speculated that EPF head of strategic planning unit Johari Abdul Muid may be appointed chief operating officer of the banking group. “There’s no news or confirmation of that appointment,” a source said.
EPF is under pressure to perform well and provide good returns against a tough operating climate that has seen a drastic fall in equity values. It declared a 4.5% dividend for 2008 versus 5.8% the previous year. It is also believed that Affin Bank Bhd managing director and CEO Datuk Seri Abdul Hamidy Abdul Hafiz’s term will come to an end in June; there is no word yet on whether he will continue heading the bank. Hamidy is also chairman of the Association of Banks in Malaysia.
Affin Bank’s parent company, Affin Holdings Bhd, is the flagship financial services subsidiary of Lembaga Tabung Angkatan Tentera (LTAT), which is its major shareholder.
Hamidy was appointed to the top seat at Affin Bank in June 2003, when the bank was going through a trying time, with rising bad loans that reached a staggering 25%. He has since managed to bring the non-performing loans to a more manageable level of under 5%.
Elsewhere, EON Bank Bhd is also set to have a new boss. In response to a news article, parent company EON Capital Bhd announced that the bank’s CEO Albert Lau Yiong “has indicated his desire to retire from the group” when his term of appointment expires on April 26. Lau is also group CEO and executive director of EON Capital. He has been with the group for more than 24 years.
It is understood that Michael Lor, who heads the bank’s consumer banking business, will be the acting CEO.
According to sources, Lau may have opted to retire for personal reasons. It is generally perceived that he is closely tied to EON Capital’s major shareholder, Rin Kei Mei. The company’s largest shareholder is Hong Kong-based private equity firm Primus Pacific Partners LLP.
http://biz.thestar.com.my/news/story.asp?file=/2009/3/31/business/3590721&sec=business
Tuesday, March 31, 2009
Saturday, March 28, 2009
Safest capital for banks
Saturday March 28, 2009
REGULATORS and investors globally are beginning to look at banks’ shareholders funds as the safest form of capital that the financial institutions may use.
As losses have begun to wipe out shareholders funds, some Western banks now see they make up less than 1% of Tier-1 capital.
Tier-1 capital is widely considered the core measure of a bank’s financial strength, but not when shareholders fund is only 1% of the total, Jupiter Securities Sdn Bhd research head Pong Teng Siew tells StarBizWeek.
According to Pong, the reason for this is partly the use of structured products as Tier-1 capital, also known as innovative Tier-1 capital by some large multinational banks.
“You cannot be operating on structured products as capital. Losses can be absorbed by shareholders funds but not by these structured (products).”
Looking at Malaysian banks, the same problem does not exist with shareholders funds, as defined in the balance sheet, exceeding the total value of Tier-1 capital.
Pong agrees that Malaysian banks, being more conservative, are not facing the same problem and still stand up well in the light of this new benchmark measure.
He points out that Bank Negara in its annual report on Wednesday has expressed similar sentiments.
In fact the central bank mentions that Malaysia has begun using innovative Tier-1 capital instruments as well, although likely to a smaller extent.
“Despite the more active capital management activities by banking institutions in recent years and introduction of more innovative Tier-1 capital instruments, approximately 90% of Tier-1 capital comprised ordinary shares, share premium, statutory reserves, general reserves and retained earnings (net of unaudited losses) less goodwill,” Bank Negara says in its annual report.
As a result of the high use of share capital, the equity to assets ratio of the banking system is at 10% of total risk-weighted assets or 6.8% of total assets. Even for investment banks, the equity to assets ratio remains manageable at 6.9% to 47.7%.
“This still compares favourably with the benchmark used by the US regulators that deem any Tier-1 capital to total assets ratio of more than 3% to 4% as strong.
“Arising from the current crisis, there has been greater emphasis on traditional capital (ordinary shares and reserves) to gauge the capital strength of banking institutions,” Bank Negara says, adding that it will monitor closely international developments in this area.
http://thestar.com.my/news/story.asp?file=/2009/3/28/business/3567560&sec=business
REGULATORS and investors globally are beginning to look at banks’ shareholders funds as the safest form of capital that the financial institutions may use.
As losses have begun to wipe out shareholders funds, some Western banks now see they make up less than 1% of Tier-1 capital.
Tier-1 capital is widely considered the core measure of a bank’s financial strength, but not when shareholders fund is only 1% of the total, Jupiter Securities Sdn Bhd research head Pong Teng Siew tells StarBizWeek.
According to Pong, the reason for this is partly the use of structured products as Tier-1 capital, also known as innovative Tier-1 capital by some large multinational banks.
“You cannot be operating on structured products as capital. Losses can be absorbed by shareholders funds but not by these structured (products).”
Looking at Malaysian banks, the same problem does not exist with shareholders funds, as defined in the balance sheet, exceeding the total value of Tier-1 capital.
Pong agrees that Malaysian banks, being more conservative, are not facing the same problem and still stand up well in the light of this new benchmark measure.
He points out that Bank Negara in its annual report on Wednesday has expressed similar sentiments.
In fact the central bank mentions that Malaysia has begun using innovative Tier-1 capital instruments as well, although likely to a smaller extent.
“Despite the more active capital management activities by banking institutions in recent years and introduction of more innovative Tier-1 capital instruments, approximately 90% of Tier-1 capital comprised ordinary shares, share premium, statutory reserves, general reserves and retained earnings (net of unaudited losses) less goodwill,” Bank Negara says in its annual report.
As a result of the high use of share capital, the equity to assets ratio of the banking system is at 10% of total risk-weighted assets or 6.8% of total assets. Even for investment banks, the equity to assets ratio remains manageable at 6.9% to 47.7%.
“This still compares favourably with the benchmark used by the US regulators that deem any Tier-1 capital to total assets ratio of more than 3% to 4% as strong.
“Arising from the current crisis, there has been greater emphasis on traditional capital (ordinary shares and reserves) to gauge the capital strength of banking institutions,” Bank Negara says, adding that it will monitor closely international developments in this area.
http://thestar.com.my/news/story.asp?file=/2009/3/28/business/3567560&sec=business
World stuck with dollar
Saturday March 28, 2009
THE dollar is, and will remain, the US’ currency and its own and everyone else’s problem.
The idea of creating a global currency, as espoused by China earlier this week, is interesting, has a certain amount of merit and is simply not going to happen any time soon.
The US’ desire for free access to the cookie jar that being the world’s reserve currency represents will be too strong, especially given its need to finance huge amounts of debt reasonably cheaply. As well practicalities are fearsome, even if consensus was more or less there.
Chinese central bank head Zhou Xiaochuan on Monday called for the creation of a new “super-sovereign” global reserve currency, advocating building on an International Monetary Fund instrument called Special Drawing Rights.
Zhou echoed a call by Russia last week, when it indicated it would raise the issue at the upcoming Group of 20 meeting in London on April 2, saying the idea had support from emerging market economies including Brazil, India, South Korea and South Africa.
There is no doubt that the current system breeds instability, but it enjoys the great advantage of entrenchment and sticking with it allows the US, and others, to avoid making hard choices and paying true market prices for their economic decisions.
No surprise then that President Barack Obama knocked the idea down in blunt terms. “I don’t believe that there’s a need for a global currency,” Obama said, terming the dollar “extraordinarily strong right now.”
Exactly. Too strong by some margin, especially when one considers the coming effects of both quantitative easing and a massive long-term need to fund the costs of the debt binge that exploded and the ever increasing bailout to clean up the aftermath.
In fact, you could say the dollar’s “extraordinary” strength can only be fully explained when you take into account the fact that foreign central banks keep piling up huge reserves of the thing and that it is the international medium of exchange for commodities and energy, well really for global trade and financial intermediation.
Treasury Secretary Timothy Geithner said on Wednesday the US dollar is still the world’s reserve currency and will remain so for a long time, but expressed openness to greater use of IMF SDRs.
The dollar’s central role has two main implications, both rather ugly but also very seductive for those involved.
For the US, it’s a bit of a free ride as far as debt financing goes. People buy and hold treasuries more and the US gets cheaper financing that would otherwise be the case. Of course, that’s a bit like an alcoholic bartender getting a discount at work; a real benefit, but not a true one. It also means that even if the US has the will to take away the proverbial punchbowl or drive the dollar down, it doesn’t always have control, as what it does at the short end of the interest rate curve can be confounded by foreign purchases that keep the long end and financing costs down and the dollar up.
The US reserve status also opens up the opportunity for mercantilist countries, like, say China, to keep its own currency cheap, building up huge dollar stocks and force-feeding the American milch cow with cheap credit with which to buy imported goods.
That may not work any more anyway, as all of the cow’s stomachs are full and the milk’s gone thin.
There is a temptation also to build up reserves as protection against bad times and bitter IMF medicine. Many Asian leaders seem to have vowed after 1997 that they would do what was needed, which often included building up dollar reserves, to avoid having to meet an IMF director’s plane at the airport and accept the accompanying prescription.
That rather indicates that the old system, with the US as global reserve currency, is dying, but I doubt it will do so without a fight and with cooperation among nations willing to cede part of their sovereignty, even for a greater good.
It is amazing and encouraging that China speaks of ceding control of a portion of its foreign reserve assets to IMF management, but I have a hard time seeing it happening widely soon.
So, we will have to get through the next year or two without a super-sovereign currency and with global imbalances being worked out, or around, under the current system.
My best guess is that things actually go in the right direction, more or less. The dollar should weaken as a result of US policy even without a deliberate push downhill from the Chinese. Asian exporting nations will see slowing reserve growth generally, which should translate into diminished flows into the dollar and Treasuries.
That’s going to be painful all around. The Chinese and others will see their investments dwindle, even as they have to resist the impulse to sell into the fall. For the US the process of implementing monetary policy and paying for fiscal policy will be made that much more difficult.
So, goodbye and perhaps good riddance to dollar hegemony, but don’t expect a stable system of global cooperation to rise easily and quickly in its place. – Reuters
http://thestar.com.my/news/story.asp?file=/2009/3/28/business/3575268&sec=business
THE dollar is, and will remain, the US’ currency and its own and everyone else’s problem.
The idea of creating a global currency, as espoused by China earlier this week, is interesting, has a certain amount of merit and is simply not going to happen any time soon.
The US’ desire for free access to the cookie jar that being the world’s reserve currency represents will be too strong, especially given its need to finance huge amounts of debt reasonably cheaply. As well practicalities are fearsome, even if consensus was more or less there.
Chinese central bank head Zhou Xiaochuan on Monday called for the creation of a new “super-sovereign” global reserve currency, advocating building on an International Monetary Fund instrument called Special Drawing Rights.
Zhou echoed a call by Russia last week, when it indicated it would raise the issue at the upcoming Group of 20 meeting in London on April 2, saying the idea had support from emerging market economies including Brazil, India, South Korea and South Africa.
There is no doubt that the current system breeds instability, but it enjoys the great advantage of entrenchment and sticking with it allows the US, and others, to avoid making hard choices and paying true market prices for their economic decisions.
No surprise then that President Barack Obama knocked the idea down in blunt terms. “I don’t believe that there’s a need for a global currency,” Obama said, terming the dollar “extraordinarily strong right now.”
Exactly. Too strong by some margin, especially when one considers the coming effects of both quantitative easing and a massive long-term need to fund the costs of the debt binge that exploded and the ever increasing bailout to clean up the aftermath.
In fact, you could say the dollar’s “extraordinary” strength can only be fully explained when you take into account the fact that foreign central banks keep piling up huge reserves of the thing and that it is the international medium of exchange for commodities and energy, well really for global trade and financial intermediation.
Treasury Secretary Timothy Geithner said on Wednesday the US dollar is still the world’s reserve currency and will remain so for a long time, but expressed openness to greater use of IMF SDRs.
The dollar’s central role has two main implications, both rather ugly but also very seductive for those involved.
For the US, it’s a bit of a free ride as far as debt financing goes. People buy and hold treasuries more and the US gets cheaper financing that would otherwise be the case. Of course, that’s a bit like an alcoholic bartender getting a discount at work; a real benefit, but not a true one. It also means that even if the US has the will to take away the proverbial punchbowl or drive the dollar down, it doesn’t always have control, as what it does at the short end of the interest rate curve can be confounded by foreign purchases that keep the long end and financing costs down and the dollar up.
The US reserve status also opens up the opportunity for mercantilist countries, like, say China, to keep its own currency cheap, building up huge dollar stocks and force-feeding the American milch cow with cheap credit with which to buy imported goods.
That may not work any more anyway, as all of the cow’s stomachs are full and the milk’s gone thin.
There is a temptation also to build up reserves as protection against bad times and bitter IMF medicine. Many Asian leaders seem to have vowed after 1997 that they would do what was needed, which often included building up dollar reserves, to avoid having to meet an IMF director’s plane at the airport and accept the accompanying prescription.
That rather indicates that the old system, with the US as global reserve currency, is dying, but I doubt it will do so without a fight and with cooperation among nations willing to cede part of their sovereignty, even for a greater good.
It is amazing and encouraging that China speaks of ceding control of a portion of its foreign reserve assets to IMF management, but I have a hard time seeing it happening widely soon.
So, we will have to get through the next year or two without a super-sovereign currency and with global imbalances being worked out, or around, under the current system.
My best guess is that things actually go in the right direction, more or less. The dollar should weaken as a result of US policy even without a deliberate push downhill from the Chinese. Asian exporting nations will see slowing reserve growth generally, which should translate into diminished flows into the dollar and Treasuries.
That’s going to be painful all around. The Chinese and others will see their investments dwindle, even as they have to resist the impulse to sell into the fall. For the US the process of implementing monetary policy and paying for fiscal policy will be made that much more difficult.
So, goodbye and perhaps good riddance to dollar hegemony, but don’t expect a stable system of global cooperation to rise easily and quickly in its place. – Reuters
http://thestar.com.my/news/story.asp?file=/2009/3/28/business/3575268&sec=business
Monday, March 23, 2009
Banks give advice on appropriate risk management
Monday March 23, 2009
BANKS have turned cautious on trade financing for which demand has dropped by as much as 70% in certain cases.
While these facilities remain largely available, banks are requiring customers to be more aware of the factors that could affect the viability of their business plans.
According to HSBC Bank Malaysia Bhd director (trade and supply chain) Vivek Gupta, the bank has been extending trade finance as usual but with additional advice on appropriate risk management.
“Clients need to understand and anticipate much better than ever before in this challenging economic climate. They need to be aware of the changes in foreign exchange, bank and country risks and impact of falling demand on their cashflows.
“Enlightened clients engage effectively with banks and gain easier access to trade financing,” he told StarBiz.
In line with the slowdown in business, banks are also expected to experience a decreased demand for trade financing.
Gupta said the sluggish business environment was due to lower demand in terms of the number of units sold and the plunge in global commodity prices.
“Consequently, customers do not require as much working capital now as they used to before the financial crisis,” he said.
“Generally, for customers dealing in commodities, the average trade financing required from banks has now fallen by 60% to 70% from peak requirements,” he said.
Citi Malaysia head of treasury and trade solutions, global transaction services, Noel Saminathan, said trade financing for established exporters would remain available under the current sluggish economic conditions.
“Banks continue to assess applications based on viability of business plans, which among others, take into account the health of the export markets. Trade financing will continue to be offered competitively, yet prudently, by banks,” he said.
He added that export credit insurance could also help exporters improve the risk profile of their cashflow to gain better financing terms from banks.
“Global banks have the ability to assess and assume cross-border risks through our international networks. Risk premiums have risen generally across the world and we expect costs for credit protection to be elevated for the rest of the year,” he said.
Saminathan said credit costs were reflective of risk premiums, besides underlying cost of funds.
“The difficult interbank credit markets globally have increased costs for financing in international currencies but local currency financing remains less affected.
“Trade financing costs for medium to large Malaysian companies are among the most competitive in the Asia-Pacific region,” he said.
OCBC Bank (M) Bhd head of global trade finance, group transaction banking, Chuang Boon Kheng said that although trade financing in terms of letters of credit and pre-shipment financing were among the core products of banks, customers’ needs now might be skewed towards credit enhancement and credit protection solutions.
“Customers’ need for trade financing may have slipped since the financial turmoil due to reduction in orders while manufacturing companies may be resorting to ‘just in time’ inventory control practices.
“But we believe that in any economic environment, there will be industries that flourish and new enterprises will emerge with viable business plans. At the same time, there will be industries that might face a tougher operating environment and businesses that fail to plan for their survival.
“Individual banks will have their own target segments and expertise to continue to support viable enterprises,” she said.
Recently customers seemed to have regained confidence following the various positive initiatives put in place by the Government, Chuang said.
“We have seen customers start to order consumables, necessities and spare parts in small quantities from the start of this month. However, the volume of trade financing may not be there due to an ease in (product and commodity) prices,” she said.
· About 90% of world trade valued at US$14 trillion is funded via trade finance.
· Trade finance is also needed to bridge the gap between the time exporters deliver the products and receive payment from buyers.
· The most common trade finance facility is the letter of credit (LC) that includes pre-shipment finance, post-shipment finance and import finance.
http://thestar.com.my/news/story.asp?file=/2009/3/23/business/3465379&sec=business
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