Monday, August 17, 2009

Asian banks sought for deals

Monday August 17, 2009

PETALING JAYA: In the aftermath of the global financial crisis, Asian banks are increasingly being sought after for deal-making and capital raising.

“The financial crisis has been an eye-opener,” said RHB Investment Bank chief executive officer Chay Wai Leong.


“International liquidity has been very tight and in recent large fund raising exercises, domestic liquidity had played a crucial role.”

Many things that were literally unheard of in the past are happening:
·Asian banks going on international roadshows for local clients; and
·Increasing number of requests to participate in bilateral and syndication loans.

“The investment banking community reacts very quickly,” Chay told StarBiz.
Seeing the successful capital raising and backstopping in recent rights issues, global banks now appear to have “more respect” for local banking names.

“We know where the distribution is,” said Chay.

“Asian liquidity is very strong and is likely to play a big part in the upcoming initial public offering of the Asian life unit of American International Group Inc.”

The recent oversubscription to the substantial rights issues of Malayan Banking Bhd (RM5bil), TM International Bhd (RM5.25bil) and DBS Bank (S$2.8bil) indicates the power of domestic liquidity and the dynamic role of local banks.

“In the past, it could not be done,’’ said Chay. “That has opened the eyes of a lot of people that local banks are capable of handling huge deals and that has become a lasting impression.’’

“We are being invited to do deals beyond Malaysian shores,” said Maybank Investment Bank CEO Mohammed Rashdan Yusof.

“We are also getting requests from foreign companies outside of Asean.”

Previously the domain of prominent global names, the deal-making and banking markets are now increasingly being opened to Asian banks that are now big names themselves.

“There is a lot of lending from the banking market as capital markets are still tight,” said Rashdan, adding that requests for funding involved infrastructure, utilities and property development in the region.

Pointing to a renewed focus on Islamic capital markets, Rashdan said a funding mix of syndication loans as bridgers during the construction period and bonds in the form of Islamic finance were also becoming popular.

Chay sees the potential for more bond deals, pointing to the resurgence in the ringgit bond and sukuk markets. RHB had completed a roadshow in Kuwait, Qatar and Saudi Arabia where interest in the Malaysian sukuk market was still strong.

Global offerings

In terms of global offerings, Asian banks are growing in prominence. “The Asian bid is getting much larger in proportion to the global order book especially for strong Asian credits,’’ said Lee Kok Kwan, deputy CEO and group treasurer of CIMB Bhd.

CIMB has just brought to market Petroliam Nasional Bhd’s global US dollar offering of five-year sukuk and 10-year bonds for which issuance was upsized to US$4.5bil, representing the largest issuance to date out of South East Asia in 2009.

“The Asian bid of the order book was particularly strong and respresents a solid turnaround for future issuances of Malaysian credits,’’ said Lee. “It is also a clear example of the coming of age of some Asian banks to competently bring global issues to the market for corporate clients in terms of syndication, distribution and execution.’’

Moreover, the far-reaching impact of the Asian recovery, post-crisis, is not just on investment but also commercial banking.

“Coming out of this recession, the East has piled up savings to invest in its own economies,” Lee said.

Upcoming trends, according to Lee, include the faster rate of recovery for Asia and the BRIC (Brazil, Russia, India and China) countries; higher intra-Asian investments coupled with a potentially more inward-looking region, which bodes well for further expansion in infrastructure development.

Hard infrastructure is likely to be the emphasis in India and Indonesia, while China, having built much of its hard infrastructure, is focusing on its soft infrastructure such as rural development.

Due to sheer proximity, Asian banks are projected to be the major beneficiaries especially in terms of their retail and mortgage businesses, regional activities and movements.

“Credit decisions can be made faster by Asian banks that understand local companies better,” said Lee, adding that moves by Asian countries to develop their own currencies, loans and deposits as well as capital market systems would benefit local banks.

“This will reduce funding costs,” Lee explained, adding that local banks had a higher competitive advantage in their ability to raise local currency deposits.

“Once the push to domestic economies gathers steam, the full array of banking activities from retail to corporate will rise,” he said.

This will enable Asian banks to realise their vision of becoming regional champions.

So far, it appears that vast opportunities await Asian banks in terms of further business development. In terms of mergers and acquisitions (M&As), it may be a different ball game.

“If we take Asia to include Australia, the recent acquisition of the Asian operations of the Royal Bank of Scotland by the Australia and New Zealand banking group indicates that a fairly strong Australian bank has achieved its target of becoming a super regional bank,” said Rashdan.

Otherwise, M&As remain challenging for South East Asian banks, some of which had just completed large acquisitions as in the case of CIMB and Maybank.


Rashdan suggested a Chinese or Indian bank could embark on an acquisition, which may not be easy to execute, as seen in the integration and cultural issues faced by Nomura Holdings when it acquired the Asian operations of Lehman Brothers.


http://biz.thestar.com.my/news/story.asp?file=/2009/8/17/business/4530770&sec=business

Banks ready to implement new framework by January 2010

Monday August 17, 2009

On track for advanced Basel II approaches

PETALING JAYA: The country’s banks are on track to adopt advanced Basel II approaches by January next year and a delay in the implementation is not expected.

John Lee, KPMG head of Asia Pacific financial risk management and head of Malaysia financial services, said many banks were at various degrees of Basel II projects, covering enhancements of risk management governance and framework, and ongoing improvements in risk assessment, measurement and mitigation.

“Basel II is a pivotal milestone to achieve better risk and capital management,” he said.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz had said Malaysian banks were well positioned for the advanced implementation of Basel II in 2010.

Most banks, which have chosen to comply with the less sophisticated approaches of Basel II Pillar 1, which focuses on minimum capital requirements, are already in compliance with Basel II since January 2008.

However, some of the country’s banks such as Malayan Banking Bhd, OCBC Bank (M) Bhd and United Overseas Bank (M) Bhd have chosen to skip the adoption of the standardised approach and move towards the advanced approaches such as the internal rating based (IRB) approach for credit risk, where compliance is by January 2010.

Lee said that besides the Basel II Pillar 1 requirements, all banks were also working towards complying with Basel II Pillar 2 which focused on banks’ internal capital management and Pillar 3 on disclosure of risk management and market discipline, where the deadline indicated by Bank Negara was the beginning of 2010 (for banks which have adopted the standardised approach).
“These banks are certainly occupied in preparing and ensuring that various critical milestones are fulfilled to meet the impending timeline,” he added.

Malayan Banking Bhd project director (Basel II) Ariffin Morad said the group had obtained Bank Negara’s conditional approval to adopt the IRB approach in 2010.

“Bank Negara is in the process of reviewing our preparations and we expect final IRB certification before we implement,” he said.

According to Ariffin, Maybank has also made preparations for Pillar 2 and Pillar 3, in line with regulatory requirements.

“We have submitted a high-level Internal Capital Adequacy Assessment Process framework to Bank Negara in 2008.

“We will implement IRB disclosure requirements as set out by Bank Negara for Pillar 3,” he said.
OCBC Bank (M) Bhd and OCBC Al-Amin Bank Bhd plan to be ready to adopt Basel II IRB for credit risk by the stipulated deadline pending the release of the finalised IRB rules by the central bank.

OCBC Bank country chief risk officer Choo Yee Kwan said: “We are currently on track to comply with Bank Negara’s IRB rules by January 2010.”

Pillar 2 for credit risk would follow a year after implementation of Pillar 1, he added.
“Although Pillar 3 for the credit risk timeline in the country has yet to be determined, OCBC, at group level, has included Pillar 3 market disclosure in its 2008 annual report,” he said.
United Overseas Bank (M) Bhd director and chief executive officer Chan Kok Seong said the bank was also currently preparing the necessary processes to implement the IRB approach for credit risk.

“Where reporting to the local authority is concerned, we still report under the Basel I regime and will need Bank Negara’s certification to migrate to the advanced approaches for credit risk.

“We are ready to adopt Basel II from 2010 onwards, subject to Bank Negara’s validation,” he said.

KPMG’s Lee noted that locally incorporated foreign banks, such as OCBC and UOB, had the necessary infrastructure to comply with the advanced approaches of Basel II as their parents, which are international banks, would have already adopted the approaches in other countries.
“These banks have a slight advantage because of this. However, they will need to work on localising the approaches according to Bank Negara’s requirements,” he said.

Meanwhile, Alliance Bank Malaysia Bhd, which had adopted the Basel II standardised approach in 2008, is building capabilities towards the more advanced Basel II IRB approach, which enables rating models to be developed to enhance its business decisions.

Group chief executive officer Datuk Bridget Lai said: “We are continuously enhancing our risk management capabilities and making preparations for the more sophisticated Basel II approaches.”

Some of the key challenges banks cited in adopting Basel II include the collection of data history for the development of IRB models, availability of skilled resources and sufficient investment in IT infrastructure to implement Basel II.

Nevertheless, Basel II, with its linkages between risk and capital, is expected to enhance the resilience of domestic banks.

http://biz.thestar.com.my/news/story.asp?file=/2009/8/17/business/4525770&sec=business

New rules to boost insurance

Monday August 17, 2009

Lifting of restriction on tie-ups to improve penetration rate, insurers’ revenues

PETALING JAYA: The lifting of the restriction on foreign insurers’ tie-ups with local banks is expected to improve the penetration rate of insurance, apart from boosting insurers’ revenues.
Before the liberalisation of the financial sector in April, foreign-owned insurers were only allowed to tie up with local banks to market bancassurance products.

Foreign insurance companies are now able to partner as many local and foreign banks that they want to sell insurance products. Life Insurance Association of Malaysia (Liam) president Md Adnan Md Zain said the measure would increase the distribution channels for life insurance as consumers could have access to a wider range of products. This augur well for the Malaysian public as the percentage of people with life insurance protection was still around 41%, he said in an interview with StarBiz.

With the restriction removed, Liam sees the bancassurance channel playing a more important role in distributing insurance, as foreign-owned insurers would now be more active in bancassurance.

“The traditional agency channel will remain an important distribution channel for insurance companies. Experience so far in Malaysia shows the bancassurance channel has its strength in distributing short to medium-term single premium products.

“For regular premium products, the agency distribution channel is still the dominant channel. This is due to the complexity of regular premium products which the agency channel currently has a relative advantage in terms of experience and knowledge over their bancassurance counterpart,’’ Adnan said.

For the life insurance industry, the bancassurance market share of total new business premium increased from 2% in 1994 to 42% in 2008.

Last year, the share of bancassurance in single premium products was 65% while in regular premium products it was 7%.

Bancassurance contributed RM2.47bil in single premiums and RM185mil in regular premiums in 2008. The corresponding figures for 2007 were RM3.17bil and RM130mil.

According to Adnan, the recent financial turmoil had affected the single premium business to an extent and, hence, the performance of bancassurance would be affected in the short term as well. However, with the liberalisation and the subsequent economic recovery, bancassurance was expected to grow positively in the medium to long term, he added.

As of June 30, there were 15 life insurance companies which had tie-ups with banking institutions. In the same period, a total of 7,375 bank staff selling life insurance were registered with Liam.

Great Eastern Life Assurance (M) Bhd collaborated last month with OCBC Bank to launch its first regular premium bancassurance product.

Before the liberalisation, Great Eastern was only involved in marketing credit life-related products through banks.

Great Eastern director and CEO Koh Yaw Hui said the new bancassurance partnership with OCBC would enable the company to market a full range of life insurance products through the bank. With this partnership, Great Eastern is expected to generate total new business premiums of about RM100mil by the year-end.

The tie-up would see bancassurance contributing 8% to 9% of the company’s total portfolio by year’s end, Koh said.

Lonpac Insurance Bhd adviser Tee Choon Yeow said the company would consider more tie-ups for bancassurance if the opportunities arose. Currently, Lonpac’s main partners for this business are Public Bank Group, United Overseas Bank (M) Bhd and EON Bank.

“The liberalisation will afford the insurers to have more outlets to reach their potential clients. With more than one financial institution in partnership, they will be able to design and market bancassurance products as well as provide the insurer greater opportunities to expand its market,’’ Tee said.

The company’s bancassurance premiums grew from 5% in 2005 to 10% as at June 30.

http://biz.thestar.com.my/news/story.asp?file=/2009/8/17/business/4490024&sec=business