Asian Banking and Finance

Issue #73 DISPLAY TO DECEMBER 30, 2013

Abf awards 2013 Asian Banking & Finance

NOMINATIONS HIT RECORD HIGH

dim sum, lose some

malaysian smes snub HEDGING PRODUCTS singapore bank nims

still stuck

Award winners inside

sector report Asia’s bustling demand for trade finance solutions

BIG ISSUE MAS’ tighter rules on unsecured credit

COUNTRY REPORT Are Hong Kong banks tipping into a credit trap?

PEOPLE PROFILE The 2015 Asia strategy of SWIFT’s Patrick de Courcy

PAge 08

PAge 10

PAge 20

PAge 24

FROM THE EDITOR Publisher & EDITOR-IN-CHIEF ASSOCIATE PUBLISHER Assistant Editor Art Director

Laarni S. Navida Jason Oliver Jonn Martin Herman

Editorial Assistant

Queenie Chan

Editorial Assistant

Alex Wong

ADVERTISING CONTACTS

ADMINISTRATION Advertising Editorial

The Asian Banking and Finance hosted the seventh Retail Banking Awards and the second Wholesale Banking Awards this year. We are delighted to reveal that with your support, this year saw the largest ever number of countries in the region participating in the awards with a new record number of nominations, beating last year’s figures. Learn more about the winning banks in this special issue.

Tim Charlton

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We have also prepared a trade finance sector report where we talk about the bustling demand for trade finance solutions. We found out through the Asian bankers we have been in touch with that the main challenge for banks in the region is to upgrade their systems to mirror the developments in supply chain management.

Our channel checks with analysts and experts also reveal the worrisome China exposure of Hong Kong banks that make their creditworthiness at risk. Are Hong Kong banks tipping into a highly dangerous credit trap? Find out in our comprehensive country report on Hong Kong.

We have a lot in store for you in this issue so start flipping the pages!

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MICA (P) 249/07/2011 No. 67

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CONTENTS

ISSUE The effects of MAS’ tighter 22 BIG rules on unsecured credit

20 FINANCIAL Can Asian corporates sustain

STORY 42 COVER Asian Banking and Finance Awards 2013

FIRST 08 Bankers complain of night calls 08 Malaysian SMEs snub hedging products

09 The yin and yang of Qianhai 10 China moves from WMPs to AMPs 10 Singaporean bankers expect bigger bonus

12 Bond markets: Dim sum, lose some 14 Singapore bank NIMs still stuck 12 Standard Chartered gives Hang Seng a run for its money

their debt capital spree?

ANALYSIS

OPINION

26 Here are scary risks of Hong

Kong banks’ China exposures

Creditworthiness of many Hong Kong banks are at risk.

32 Asian banks set sights on

lucrative trade finance

With Asia seeing bustling demand for trade finance solutions, banks in the region are scrambling to capture a piece of the transactional pie.

72 An over-engineered finance industry has gone too far

74 How banks will benefit from infrastructure services in India

76 Why we should rethink the

ethics of finance

78 Unlocking the synergies between

the affluent and SME banking units

80 Reforming business compliance for the APAC banking industry

82 CNH’s onshore deregulation and

offshore expansion

14 Why UOB is treading cautiously in Thai territory

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 06-09 E, Maxwell House 20 Maxwell Road Singapore 069113

For the latest banking news from Asia visit the website

www.asianbankingandfinance.net

News from asianbankingandfinance.net Daily news from Asia most read

LENDING & CREDIT

Shadow banking now 40% of China’s GDP The Chinese Academy of Social Sciences estimates that shadow banking was the equivalent of 40% of China’s gross domestic product in 2012. It put the size of the shadow banking sector at US$3.35 trillion in 2012.

Shadow banking covers all shadow-lending activities from wealth management products and trusts to interbank business, finance leasing and private lending.

RETAIL BANKING

RETAIL BANKING

What you need to know about Malaysia’s midcap banks Hong Leong’s sector-leading credit quality, liquidity and capital ratios underpin its defensive attraction amids macro volatility, according to CLSA. The stock has struggled YTD but CLSA believes the underperformance will reverse.

RHB’s asset quality issues will continue to weigh on the stock as higher NPLs translate into sustained higher bad debt charge off rates.

Here’s what boosted OCBC’s third quarter results According to Maybank Kim Eng, OCBC’s 3Q13 results of SGD759m were lifted by larger contribution from Great Eastern, which benefited from mark-to-market gains as credit and swap spreads narrowed amid a recovery in the financial markets.

The underlying trend was mixed with a 14% jump in non-performing loans being a major surprise. Similar to DBS, trade loans remained one of OCBC’s key loan drivers.

Should Taiwan join the race of depreciaiton?

BY EUGENE CHEN The issue of currency depreciation has been discussing in Taiwan for a long time.This is because Korea has successfully depreciated Won assisting export to overtake Taiwan a few years ago.

Why can’t Taiwan Dollar (TWD) be depreciated in line with Korean Won?

Overcoming Asian fragmentation to improve standardisation and automation

BY MADALENE SOON As discussed in a previous post, the fragmented nature of Asia Pacific’s financial services market leads to numerous challenges for banks when trying to create a standardised approach to the processing of corporate actions.

FROM THE BLOG Flaws of Black Scholes Model people don’t know

BY RAHUL MAGAN In 1973, Fisher Black, Myron Scholes and separately Robert Merton derived the Black-ScholesMerton (BSM) model, which was rewarded the Nobel Prize in 1997.

Despite its limitations, the model has survived until today as the dominant pricing model for standard and exotic European style options.

6 ASIAN BANKING AND FINANCE | DECEMBER 2013

AS A REGIONAL BANK WITH GLOBAL STANDARDS, WE’RE WINNING MORE THAN JUST BUSINESS.

Best Transaction Bank Best Corporate Bank

Best New SME Product Best Trade Finance Offering Best Cash Management

2013 Trade Finance Bank of the Year

Highly commended for Best Trade Bank in MENA Best Trade Bank in the ME Silver posiiton

Award-winning Wholesale Banking from ADCB. Our ongoing commitment to provide the best possible products and services continues to be recognised by the industry.

For more details about our services and to discuss how ADCB can partner with you, please visit us on stand E58 at Sibos. adcb.com

FIRST BANKERS COMPLAIN OF NIGHT CALLS

While most people believe that “money makes the world go round,” workaholic Hong Kongers are living proof that money makes the world sleepless.

Nearly 4 in 10 financial services employees in Hong Kong confess to have been woken up during the night by a phone call from a colleague or client, over two thirds have their holiday interrupted, of which over a third had to cancel it.

A recent survey by global career site eFinancialCareers reveals that even when they are not in the office, 42% of professionals in financial services are contactable at all times of the day and night, and during their weekends and holidays. Talk about working 24/7!

Sleepless nights Almost half are working outside their contracted hours twice or more times a week to coordinate with overseas stakeholders.

This appears to be due to requirements such as communication purposes, mainly joining conference calls involving people in other countries.

George McFerran, Managing Director APAC at eFinancialCareers, believes that the working culture in Financial Services is closely linked to the market-to-market nature of the industry.

He said: “Financial Services is a truly global industry and many organisations are now operating around the clock. In a hub like Hong Kong, from where business is being done all over the world, it’s important to coordinate with colleagues overseas. When transactions are taking place in different time zones that can mean working longer hours or always being on call, but we’re also seeing many employers operating global shift systems to ensure 24/7 cover. ” In fact, according to the survey results, more than 1 in 4 (28%) of the workforce in financial services operates on a shift basis. At the start of their day they have work handed over to them by a colleague in a different country, and at the end of the day over a quarter (26%) pass it on to someone else.

A similar proportion (27%) are contracted to work unconventional hours to service clients and stakeholders in different time zones.

8 ASIAN BANKING AND FINANCE | DECEMBER 2013

Western Union’s ‘mind share’ still at a low base

Malaysian SMEs snub hedging products

A

sia is full of Small and Medium Sized trading businesses and while the use of Spot FX is increasingly universal, engagement with hedging products such as FX Options and Forward FX is currently less widespread, according to market research firm East & Partners.

In East & Partners’ first Asian Small Business FX Markets review, 1,400 businesses across four jurisdictions: Hong Kong, Malaysia, Singapore and the Philippines, were interviewed.

The research revealed that while 100% of the businesses are using Spot FX products, only one fifth (19.4%) are using FX Options and 21% Forward FX. The average product cross sell ratio was 1.4, meaning that the average Micro or SME business in Asia is engaging with 1.4 FX products.

Singapore and Hong Kong lead In terms of product penetration, businesses in Singapore and Hong Kong tended to be more engaged with these products.

Singapore, for example, accounts for 30.3% of Forward FX product penetration of the four jurisdictions,

The research revealed that while 100% of the businesses are using Spot FX products, only one fifth (19.4%) are using FX Options and 21% Forward FX.

and 30.9% of foreign exchange options trading.

Malaysian businesses are the least engaged, with penetration of around 18% for both products, although the report also delivers evidence that some Malaysian businesses are using Singapore as their FX hub.

The report also looks at the market share of the major providers, and while there are several global banks which are prominent across all four markets, each market has a number of local players taking significant market share.

Boutique providers AMEX and Western Union have a presence across the region and while their market shares are both in the single digits their customer satisfaction levels are high, even though their Mind Share – the number of businesses which recall them first in association with foreign exchange products – is still at a low base.

ANZ’s Pan Asian strategy and market leading wallet share Also of interest is the performance of Australia’s ANZ, which is five years into its “Pan Asian” strategy and is building regional business both organically, and off the back of its 2009 purchase of some RBS assets.

Although not strongly focussed on these small business segments and whilst ANZ has a patchy market share performance in Spot FX across the four markets, it does have a much stronger foothold in both FX Options and Forward FX on a regional basis.

Not only is its market share in these products encouraging, but it enjoys market leading wallet share. This means that customers doing their FX Options and Forwards trading with ANZ are spreading their wallets much less than customers of other risk solutions providers.

Whole of region product penetration

Source: Asian small business foreign exchange markets

FIRST Qianhai is said to be in the second stage of the ‘three-stage’ development plan designed for it.

This means that from 2013 to 2015, development projects are determined and investments are attracted.

Wong notes that currently more than 600 companies with RMB100bn+ capital are registered in Qianhai, of which 80% are financial institutions and 10% are from Hong Kong.

Analysts warn that competition is bound to increase by the depth but the breadth of the RMB market should continue to grow.

Looming challenges On the other hand, Mr Ma Weihua, Chairman of Wing Lung Bank, sees slowing economic growth, challenges from stakeholders and changing customer needs as the top three challenges for the banking industry.

Tse Yung Hoi, Chairman, BOCIPrudential Asset Management, noted the progress of development of the Qianhai special economic zone as a pilot testing ground for internationalisation of China’s financial industry and opportunities it presents for the Hong Kong Banks.

RMB cross-border use becoming more widespread

The yin and yang of Qianhai

W

ith the China’s State Council approving the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone in mid-2012, both opportunities and threats loom for Hong Kong and Qianhai.

Analysts warn that competition is bound to increase by the depth but the breadth of the RMB market should continue to grow.

According to Nathan Chow, an analyst with DBS Group Research, the scheme provides Hong Kong banks a new attractive avenue for RMB fund investments; the growth of which has far been lagging behind that of other offshore RMB products.

He notes that the total outstanding RMB loans in Hong Kong merely amounted to RMB88 bn, compared with the dim sum bond market’s RMB500 bn.

Potential opportunities With Qianhai to become the pilot district for RMB cross-border use, Barclays analyst Sharnie Wong reveals that Hong Kong banks have opportunities to develop business in four areas including bilateral crossborder RMB loans, underwriting bond issuance of Qianhai companies in Hong Kong, custody business, and wealth management for wealthy people from mainland.

Hong Kong RMB

Source: DBS Group Research

The Chartist: Indonesian banks’ profitability Indonesia’s Big Four banks have higher profitability than their domestic peers but the most profitable one is Bank Rakyat Indonesia. Moody’s says this is supported by its unrivaled franchise in the highly profitable microlending business which is reflected in BRI’s very high NIM. Such profitability means strong internal capital generation capacity, providing a high loss-absorption cushion.

Moody’s reveals that Bank Mandiri’s profitability has risen over time, on the back of improving asset quality, loan growth, a greater focus on noninterest income and cost discipline.

NIM: Top 4 banks over the past five years

Source: Banks’ financial reports, Moody’s

Three year average for cost-to-assets and cost-to-income ratios

Source: Banks’ financial reports, Moody’s

ASIAN BANKING AND FINANCE | DECEMBER 2013

9

FIRST

China moves from WMPs to AMPs

Bumpy Basel III bonds

E

leven Chinese banks will be allowed to pilot direct debt financing instruments (DDFIs) and asset management plans (AMPs) on a trial basis with each bank provided RMB500mn-1 bn quota. May Yan, Barclays’ Head of Banks Sector, Asia ExJapan Equity Research reckons the pilot may be intended to allow banks’ off-balance sheet funding to be closer to the real economy and to help banks reduce “implicit guarantee” by swapping WMPs into AMPs. Regulators will allow banks to use DDFIs to transform the non-tradable and non-standard debt assets to standard credit products traded on a new interbank platform; and issue open-ended asset AMPs in which investors shoulder gain/loss. The intention is for banks to have investors swap out of WMPs into AMPs. A challenging ‘swap’ However, Yan warns the “swap” may be difficult as WMPs are “deposit” products and potential loss-bearing AMPs may not be deemed a suitable replacement unless the regulators shut down WMPs over time or lower the attractiveness of WMPs. The AMPs’ initial impact may be small as the pilot size is small (only RMB 8.3bn), and the quota control on AMPs will remain.

“We believe WMP and AMP may co-exist for the foreseeable future. Hence, total social financing may not be negatively affected.”

Yan believes the pilot program will SURVEY

Making the big swap

empower banks and hurt trust & securities companies, the current vehicles for banks’ WMPs to invest in securities. If the pilot rolls out, banks may possess more diversified financial businesses and re-mediate the financial sector.

“We estimate if banks can handle the investment process of transferring their WMPs through the new AMPs, they can save RMB1.2 bn in expenses from trust & securities companies. Banks have extensive networks to distribute the products, hence they will be a threat to trust companies, who rely largely on asset management for profits.”

Singaporean bankers expect bigger bonus Nearly 8 in 10 bankers in Singapore are confident that they will receive a bonus this year. This makes Singapore’s outlook one of the most positive in the world when it comes to the amount of people expecting a bonus, second only to Hong Kong and Germany (83%).

According to a survey conducted by eFinancialCareers, half of survey participants say their bonus will increase compared to last year, and over a quarter (28%) expect a bonus that will match last year’s. Most cited personal performance (34%) or company performance (26%) for the main reasons for the bonus increase.

This means that 2013 could be financially rewarding for financial services professionals in Singapore. Of those who said their basic pay had changed over the past year, nearly 9 in 10 reported an increase. Singapore finance professionals also expect their basic salaries to increase again in 2014. Half the respondents indicated that they expect their base salary to increase in the next six months, of which the vast majority (76%) anticipate a pay rise of up to 10%. See infographic on page 16.

10 ASIAN BANKING AND FINANCE | DECEMBER 2013

Most Asia-Pacific investors see several challenges to investing in Basel III-compliant capital instruments. This is not a surprise, according to Fitch Ratings, as the issuance of such instruments is at a nascent stage across the region, and there are growing – though varying, country-specific – reasons for raising fresh capital.

The inaugural Fitch Ratings APAC Senior Fixed-Income Investor Survey reveals that the main issue identified by survey participants was the uncertainty over lossabsorption trigger points at the point of non-viability (PONV).

Another important concern was the appropriate balance of risk/reward. Of less concern was the issue of investment mandate restrictions hindering purchases of these instruments, and whether such instruments were riskier than their legacy counterparts.

Uncertainty over PONV Fitch analyst Monica Insoll adds that Investor uncertainty around PONV, as it relates to Basel III Tier 2 instruments, has arisen as APAC regulators have followed global trends by not defining what events would trigger this.

The recent ICBC Asia subordinated USD bond is interesting in that it included two triggers: one at the discretion of the Chinese authorities on the parent bank ICBC, and one for the Hong Kong regulators on the issuing subsidiary.

This compares to ICBC Asia’s first Basel III Tier 2 deal where Qthere was only one PONV trigger set by the Hong Kong regulators.

Coordination between the authorities seems likely in such cases, while Fitch generally expect regulators will assess each potentially problematic financial institution on its own merits before calling PONV. Therefore, precise trigger points are bound to vary across the region’s issuers and markets.

“More Chinese banking groups are expected to approach the market for new capital so it will be interesting to see if a similar template will be followed,” says Insoll.

The second biggest issue for investors was concerns about pricing for risk. In Asia private banks/investors have been important buyers of these securities to such as extent that institutional investors have effectively stayed away. Private investors have been attracted by the high yields in a still very low interest rate environment, but the market concern remains in terms of whether there is adequate compensation for the risks in these new instruments.

FIRST

Bond markets: Dim sum, lose some

H

igh-yields resulting from better sentiment, a spill-over from the robustness of US peers and limited supply, caused CNH bonds to enjoy stable total returns in September, according to HSBC Head of China Research Zhi Ming Zhang.

CD issuance returned to its April level when banks were preparing for the quarter-end liquidity shortage and investors were happy to accept a 3.1-3.3% annual return, Zhi added.

“In 4Q, we expect CNH bonds to trade up at first, followed by a mild correction.

This should bring full-year total returns to 5-7%. If the audit on local government debt confirms reports that it has doubled to c40% of 2012 gross GDP, sentiment will likely be dampened when the details are released.”

A conducive market environment The dim sum bond market is on a tear and with the Chinese government taking more steps to spur the development of the market, we can only expect a more conducive environment for dim sum issuance.

Ivan Cheung, Vice President - Senior Credit Officer at Moody’s Investors Service, notes that the Chinese central government will move in the coming weeks or months to develop the dim sum bond market further by allowing a more diverse group of companies to issue these bonds.

This expectation is based on indications from the government that it wants to foster the growth of the offshore renminbi (RMB) bond market.

“We believe some of the companies will

be based in China and owned by regional and local governments.

The central government will likely allow these state-owned entities, which have no experience raising offshore funds and no offshore funding structures, to tap the dim sum market directly without going through the usual regulatory approval process for offshore USD bond issuance,” he adds.

Cheung reckons that increasing yields in the US dollar bond market and in China’s onshore funding market will increase the dim sum market’s appeal as an alternative funding channel and motivate more Chinese companies to issue dim sum bonds.

The increased supply of these bonds and diversity of issuers will likely attract institutional investors who are seeking RMB-denominated investments.

The increasing the number and type of companies that can issue dim sum bonds reflects Chinese government’s support for development of this market. Such initiatives, says Cheung, are essential in developing the RMB as an asset class and possibly even a reserve currency.

“We expect the government will introduce more policy initiatives to reduce the barriers that have hindered the development of the dim sum market, such as the difficulty remitting issuance proceeds back to China,” he adds.

Positive investor sentiment The inaugural Fitch Ratings APAC Senior Fixed-Income Investor Survey reveals that investors are upbeat about the growth of the renminbi onshore and offshore bond markets. Investor optimism

OFFICE WATCH

OCBC unveils a 6-storey China headquarters

Oversea-Chinese Banking Corporation opened its RMB1 billion (about S$208 million) corporate office in Shanghai’s increasingly prominent financial district of Pudong, making it the first Singapore bank to operate and own a headquarter building in China. It is also the Bank’s largest fixed asset investment to date in the country.

The six-storey OCBC Tower, which serves as the head office of fully-owned subsidiary OCBC China, provides for 18,000 sq m of office space and has enabled the consolidation of the full range of banking divisions - including the consumer and corporate banking units, the middle office and support functions - under one roof.

OCBC Bank’s presence in China dates back to 1925 with the opening of a branch in Xiamen.

OCBC China commenced business in August 2007, after the Bank received the regulatory nod for local incorporation and has since ramped up its presence in the country to include 16 branches and subbranches across nine cities, up from five branches and representative offices.

12 ASIAN BANKING AND FINANCE | DECEMBER 2013

Opening ceremony of OCBC Tower

6-storey hub in China

Expect more policies to come

in the dim sum market has remained intact despite the drop in corporate issuance this year.

Over three-quarters of participants expected both the on- and offshore bond market to increase by between 25% and 50% in the year ahead.

This optimism was accompanied by 55% of respondents highlighting the Chinese renminbi’s appreciation potential as a key driver of interest in local-currency markets – a stronger level of currency confidence than for all other regional bond markets.

Outside of Singapore, China and the Greater China region as a whole; Malaysia and Indonesia are markets that the Bank has earmarked for future expansion and growth.

FIRST DEAL WATCH

Basel III execution delayed in Korea

Korean banks are making the most of the delayed implementation of Basel III by raising cheaper regulatory capital, according to Fitch Ratings.

Elements of the current fundraising initiatives are considered as pre-funding, as banks recognize the likelihood of increased costs of issuing Basel III-compliant capital securities amid continuing investor uncertainty about risk-pricing and the Point of Non-Viability (PONV).

PONV is the point where a bank is deemed to have failed. Basel III implementation for Korean banks has been postponed to December. As a result, issuance activity in the current quarter, comprising old-style Basel II securities, has remained busy, driven by both refinancing needs as well as pre-funding for next year. Fitch reckons issuance has been supported by a couple of reasons.

Will regional growth be better?

Singapore bank NIMs still stuck

B

ack in the second quarter, analysts comforted the market with expectations that Singapore bank net interest margins (NIMs) would hit rock bottom and proceed to immediately rebound by the start of 2014.

But that much-anticipated NIM expansion, which would help spur Singapore banks towards a slow and steady structural recovery, might take quite a bit longer than expected due to prevailing macro risks and pressure in the region.

“Much of the earnings optimism around Singapore banks post the 2Q13 results has been driven by the guidance from banks that NIMs are now probably closer to their cyclical bottom and could probably start improving in FY14,” said Credit Suisse analyst Anand Swaminathan.

Too bullish about FY14 This view has been further supported by the recent spikes in longer-term government bond yields, which in theory should help banks’ NIMs improve going forward. But looking at the underlying drivers in various markets, we believe the consensus might be getting too bullish about FY14 NIM prospects.”

Swaminathan explains that NIM improvement optimism has been driven by forecasts that the loan

14 ASIAN BANKING AND FINANCE | DECEMBER 2013

growth in regional markets would improve relative to Singapore, the lowest NIM market for Singapore banks. But regional loan growth “is unlikely to be much superior” than Singapore due to increasing macro risks in the region as banks adopt a more conservative stance, at least for the next few quarters.

NIM compression in Asia For example, in Malaysia, NIM compression is expected to subside due to easing funding cost pressure and a relative cooling in loan pricing competition. Yet “we are unlikely to see an expansion anytime soon,” said Swaminathan. In Thailand, banks like UOB foresee further NIM pressure in the near term on the back of tighter funding competition, targeted higher pace of loan growth and possible policy rate cuts.

Still, even though Singapore bank NIMs run the risk of spending several more months in the doldrums, CLSA analyst Asheefa Sarangi believes this is but a slight snag before a strong recovery sustained by rising interest rates come 2015. “We are hopeful that the stabilisation in key profitability drivers such as NIM is the beginning of a slow and steady structural recovery before the banks start to benefit from rising interest rates in 2015,” said Sarangi.

We are hopeful that the stabilisation in key profitability drivers such as NIM is the beginning of a slow and steady structural recovery.

Issuance activity in Korea First, banks have substantial capacity for issuing securities - along with refinancing maturing securities which has been under-utilised in the past relative to regulatory caps.

Second, the investor base for such non-core capital is predominantly domestic, familiar with these investments, and with established pricing and liquidity norms.

In contrast, Fitch notes that elsewhere in Asia where the Basel III regulatory framework is now in place there is currently considerable investor uncertainty about the Basel III-compliant securities. Established market norms are still evolving with respect to each regulator’s stance around loss-absorption triggers, the means of loss-absorption, and the level of regulatory capital buffers.

“Investor concerns were highlighted in our recent survey of Asia-Pacific senior investors, where 65% of the respondents cited uncertainty about lossabsorption triggers of Basel III capital instruments as an issue.

Moreover, risk-pricing and secondary market liquidity were other areas of significant concern.” These issues mean that it makes sense to stock up on such old-style instruments, especially as newer instruments are likely to prove more costly.

FIRST NUMBERS

Bankers’ hopes of bigtime bonuses ESCALATE

50% of Singapore finance workers are actually confident their bonuses will increase this year.

Hong Kong banks’ profitability improved

Standard Chartered gives Hang Seng a run for its money

H

ang Seng Bank remains the most profitable bank in HK but Standard Chartered is emerging as a tough competitor.

According to Bernstein Research, the first half of 2013 was, overall, a good environment for the HK banks as their profitability – as measured by their return on assets (ROA )– improved HoH for 6 of the 8 HK banks examined. Only Dah Sing and HSBC reported a sequential decline to their ROAs in 1H and both were relatively minor.

Bernstein Research estimated that the average ROA for the HK Banks was 1.26% in 1H , up 16bp HoH. On a YoY basis, the improvement is more moderate at +9bp but it noted that this is the strongest Average ROA for the group since 1H08.

DBS, driven by strong NIM expansion and a good trading result, reported the strongest HoH increase to its ROA in H1 ‘13 at +39bp.

Standard Chartered was a close second as its ROA improved 38bp HoH. ROA and ROE In terms of both ROA and return on equity (ROE), Bernstein Research said that Hang Seng emerged as the most profitable at 2.16% and 24.3%, respectively. However, the research firm pointed that Standard Chartered gave the Hang Seng – the perennially most profitable bank in HK – a run for its money.

16 ASIAN BANKING AND FINANCE | DECEMBER 2013

Standard Chartered booked an ROE of 23.7%, just 60bp lower than Hang Seng. Bernstein Research said that this is the closest a bank has come to Hang Seng in more than 10 years. “The narrowing ROE premium at Hang Seng is largely driven by the bank’s decision to no longer account for its 11% stake in Industrial Bank under the equity method.”

StanChart was most impressive With regard to the HoH improvement in ROE, Bernstein Research noted that Standard Chartered’s 1H results were the most impressive; its ROE increased 720bp to 23.7% . Dah Sing and BEA reported minor ROE compression, falling 20-40bp.

In terms of the absolute profitability levels, the rank-order for the group’s ROE was similar to that of the banks’ ROAs, with one notable exception – StanChart. While StanChart’s ROA ranked inline with the group average, its ROE was the second strongest in the group and 900bp higher than the group average.

Bernstein Research noted that thedifference was driven by the high leverage ratios that StanChart maintains in its Hong Kong operations of 18.9x vs. 10.6x, on average, for the other HK banks.

The bank with the next highest leverage ratio is BOC(HK), which had a leverage ratio of just 11.8x, well below the level of StanChart.

They even believe bonuses will rise up to 10% in 2014.

Source: eFinancial careers

FIRST The Analysts’ call

What is UOB’s strategy to become Thailand’s biggest small bank?

OCBC - Carmen Lee

Building a branch in Bangkok

Why UOB is treading cautiously in Thai territory

B

angkok may be a long way from Buangkok, and as UOB is finding out, building a banking franchise in Thailand is a lot different to Singapore. Analysts are concerned that Thailand has built up a consumer debt based on populist policies but UOB still dares to expand its exposure in the country as it aspires to enter the mid-sized league of Bank of Ayudhya, Thanachart Bank, and

We think that the Thai operations are still sub-scale but are on the right track.

TMB. UOB Thailand is the largest among the small banks in Thailand, with a similar number of branches to CIMB Thai but more branches than HSBC, Standard Chartered and ICBC. UOB Thailand currently has around 156 branches, 358 ATMs, and employs about 4200 people as of June 2013. UOB’s optimism about its business, presence, and growth in Thailand is supported by rising regional trades (trade financing), transactional banking activities, and the trend of more Thai corporates and SMEs growing outside of the domestic market, according to OCBC analyst Carmen Lee. “The emphasis on quality new clients and its prudent credit criteria 18 ASIAN BANKING AND FINANCE | DECEMBER 2013

have enabled its Thai operation to enjoy reasonable margin and volume, both from retail and SME clients.

The main products are consumer loans, SME loans, trade-related products/services, and cross border transactions advisory/structuring services,” adds Lee. CIMB analyst Kenneth Ng notes that UOB’s strategy is not to compete with the large local banks, but to focus on the affluent consumer segment and to bank on its regional platform in serving corporates and SMEs. He adds that UOB Thai currently generates 4.2% of group pretax profit. It has 2.4%-3.0% deposit and loan market share but the bank aims to double its market share to ~4% in 2015. “We think that the Thai operations are still sub-scale but are on the right track,” says Ng. UOB’s Thailand presence started with the acquisition of Radanasin Bank following the post-Asian financial crisis. The subsequent Bank of Asia acquisition in 2004, propelled UOB to its current position as the eighth largest bank in Thailand.

“UOB has been relatively slow and conservative in building both its Thai and Indonesian franchises, which turns out to be positive now that Indonesia faces major macro headwinds and Thailand is slowing down. It will not be easy for UOB Thai to grow into the size of BAY and TBANK unless there are franchises to buy in the coming years,” says Ng.

Management intends to be a medium-sized bank in Thailand. Some of the key areas of emphasis include PFS (growing its market share for deposits, credit cards, personal loans, housing loans, etc), Corporates and SMEs. The former is also seen in the rise in the number of privilege banking clients - 11,462 with AUM of THB115.3b in FY12 to 12,996 with AUM of THB121.3b in 1H13. The SME market is dominated by family businesses doing domestic business, and could benefit from imports/ exports growth and higher trade activities.

CIMB - Kenneth Ng

Management emphasised that UOB Thai was not going to be all things to all people and it was not going to compete in the league of the large local banks. UOB Thai has a focused strategy, concentrating on: 1) the upper-tier retail segment, 2) the SMEs, and 3) the cross-border transactions of large corporate clients.

UOB Thai views StanChart, HSBC, CIMB and ICBC as its key competitors in Thailand.

The examples of its focused strategy across divisions include: 1) In the personal financial services space, UOB believes that its key competitive advantage in mortgages is its fast turnaround time. The origins of its Thai mortgage business stem from serving UOB Singapore Privilege Banking clients’ demand for investment property.

2) In the SME segment, the six local banks dominate 90% of the market. KBANK is the leader. This is an attractive segment as loan yields can be as high as 6-7%. As such, UOB Thai is certainly interested to increase its presence in this space. UOB sees low risk in this segment (credit costs at 30-40bp of loans) as 48% of its loans were for working capital purposes, while the other lending is typically collateralised or matched with a credit guarantee by the Bank of Thailand.

3) In the commercial and corporate banking segments, the strength of the Thai franchise is its ability to capitalise on its regional franchise and provide a differentiated offering.

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FINANCIAL INSIGHT

Securing debt capital becomes harder

Can Asian corporates sustain their debt capital spree?

Widening credit spreads and uncertainty are pushing investors away from funding high-risk corporate bonds towards safer picks.

E

ven as debt capital market, or DCM, volume in the region remained at par in 2013, Asia Pacific firms may soon find it harder to secure debt capital due to shifts in international macroeconomic policy.

The foremost of these is the looming winding down by the US Federal Reserve of its quantitative easing programme. The investor recoil has already begun in recent weeks with emerging markets being hit the hardest, according to analysts.

“India and Indonesia bore the brunt of the pressure as investors retreated from countries with big current account deficits; the Philippines and Malaysia were also affected,” said Richard Turner, managing director, head of investors, Thomson Reuters, Asia.

“As credit spreads widened, local currencies and stocks fell, investors are starting to become more cautious toward companies in the region that 20 ASIAN BANKING AND FINANCE | DECEMBER 2013

Investors are now developing a lower risk appetite, and will soon shift their preference from highyield corporate bonds to lowerrisk investmentgrade sector issues.

have come to depend on regular access to the capital markets after a funding spree in recent years. Asian corporates, thanks to easy access to cheap money in the recent past, have accumulated a steady rise in debt and as a result now hold among the most heavily leveraged balance sheets globally.”

Risky corporate debt has been accumulating briskly since 2009, when Asia Pacific high yield corporate bond proceeds stood at just $1.3 bn before ballooning to a record $19.9bn in 2011. Volume crashed in 2012 to $8.8bn but rebounded strongly to $16.6bn in 2013.

Lower risk appetite Turner said investors are now developing a lower risk appetite, and will soon shift their preference from high-yield corporate bonds to lowerrisk investment-grade sector issues in developed markets such as South

Korea, Hong Kong and Singapore.

Sovereign bonds will also become more appealing as an alternative for investors seeking safer havens.

“Meanwhile, high yield bonds (bonds not rated as investment grade) in Asia will likely come under pressure as Asia heads to slower growth and tighter credit availability, which will negatively impact already highly leveraged balance sheets.

Meanwhile, as banks in the region continue to tighten their lending standards, higher default rates and forced supply pressures in corporate bond markets may come into play,” said Turner.

Among Asian developed markets, South Korea seems to appeal the most to investors.

“The shift to more developed markets is seeing South Korea once again dominate the flow of new US dollar bonds from Asia, with policy banks and power companies especially keen to refinance their maturing debt,” said Turner.

Investment-grade issuers, wary of impending rate increases, have been recently rushing to secure deals.

Turner cited Thailand’s PTT Exploration and Production raising US$500m on 9 September, and the

FINANCIAL INSIGHT rumoured capital raising efforts of Chinese lender ICBC’s Hong Kong unit. Meanwhile, high-yield corporate issuers are resorting to bank guarantees to lower their risk and attract cautious investors.

“Car dealer China ZhengTong Auto Services used a guarantee from Bank of China to lure investors to its first US dollar bond, a US$335m fiveyear rated BBB+, five notches higher than ZhengTong’s own BB – rating,” said Turner.

Signs of this waning bond investor appetite could also be seen in the region’s relatively slower DCM volume growth.

Asia Pacific (ex Japan) DCM during the first half of 2013 (1H 2013) stood at $509.7bn or just on par with the first half of 2012 (1H 2012), according to latest Dealogic data. This is despite 1H 2013 seeing 200 more deals than the previous period.

China leads, Southeast declines In the Asia Pacific (ex Japan) region, China continued to lead in volume in 1H 2013, with India and Thailand growing fast. Australia and the rest of Southeast Asia, however, suffered contractions.

China DCM volume led the region with a 1H record volume of $232.4bn, up 19% from $196.2bn raised in 1H 2012, and its highest 1H volume and activity ever. China DCM volume now constitutes 45% of the total volume in the region, as companies in the Mainland look to fund their business expansion nationally and globally.

China Development Bank Corp handled the largest share of DCM volume at 7% amounting to $16.2bn, followed by CITIC Securities (5.7%, $13.2bn) and ICBC (5.4%, $12.6bn).

Notably, China high-yield DCM volume also reached $12.2bn in 1H 2013 via 35 deals, the highest semiannual volume and activity on record.

This is more than double the $5.9bn volume seen in 2H 2012 via 17 deals.

While China leads the region in volume, India has one of the fastestgrowing markets. India DCM volume spiked to $33.1bn via 291 deals in 1H 2013, up 56% on the $21.2bn (232 deals) raised during 1H 2012 and the highest 1H volume on record, Dealogic data revealed.

International DCM volume reached $11.3bn via 25 deals in 1H 2013 – the highest 1H volume and deal activity on record and more than quadruple the $2.6bn in the same 2012 period. AXIS Bank took on the largest share of DCM volume at 11.8% amounting to $3.9bn, trailed

by Standard Chartered Bank (8.3%, $2.76bn) and ICICI Bank (8.3%, $2.76bn).

Along with India, Thailand also saw a volume increase in 1H 2013 of 44% to $12.2bn from $8.5bn in the same 2012 period. But overall, the South East Asia region seems to be losing funding momentum fast. South East Asia DCM volume dropped to $53.8bn in 1H 2013, which represents a 23% dip from the same half-year period in 2012 when it issued $70.1bn.

HSBC led the South East Asia bookrunners, snagging a 7.9% share amounting to $4.2bn, followed closely

by Standard Chartered Bank (7.7%, $4.2bn) and Goldman Sachs (6.8%, $3.7bn).

Australian activity declines Australia, too, saw its DCM activity decline, which while not as steep as the dip in South East Asia, has brought it to near-term record lows.

Australia DCM volume dropped 13% to $88.8bn in 1H 2013 from the $102.6bn issued in 1H 2012, the lowest 1H level since 2010 ($67.1bn).

Westpac handled the largest share of Australia DCM volume at 13.5%, equivalent to roughly $12bn, with CBA (10.8%, $9.6bn) and Citi (9.7%, $8.6bn) taking up the second and third positions, respectively.

Mike Bass, Head of Financial Markets, Asia - based in Singapore, says that Westpac is bullish that DCM in Asia will remain buoyant in the near term. This sense for the opportunity is based on the growth of savings invested into the funds sector.

“Funds are the natural providers of long term capital to the corporate sector, with banks playing an essential role in the relationship as an intermediary through debt capital markets. The opportunity has evolved further with challenges in the form of capital and regulatory requirements on banks, as well as investors not having a multi-faceted relationship

Mike Bass

Richard Turner

with the borrower,” he said.

Bass notes that around 45% of borrowers currently obtain their funding from debt capital markets and – this is expected to increase further.

“In Asia, we are seeing more opportunities to bring investors in to participate in deals. A major inhibitor in the past was that structured products have been too complex, which has meant Asian investors only had sporadic involvement in deals. We are overcoming this by establishing intimate knowledge and multi-faceted relationships with the borrowers as well as leveraging our institutional research insights, to better match funding needs with debt market appetite,” Bass added.

Japan DCM deteriorates Meanwhile, Japan DCM volume also deteriorated, dipping to $76.9bn via 238 deals in 2Q 2013, its third consecutive quarterly volume drop.

But Dealogic noted that this was actually up 8% on 2Q 2012 and surpassed 2Q 2009 ($73.2bn via 195 deals) as the highest 2Q volume on record.

Mizuho dominated the bookrunner rankings list with 23.1% or $35.9bn in the 1H 2013. Nomura is at a relatively distant second with 17.1% amounting to a $26.5bn value, followed by Morgan Stanley with 12.6% equivalent to $19.6bn.

While DCM volume slipped somewhat, Japanese corporate bond activities in were on the rise during this period, partially offsetting the weaker overall Japanese debt market environment, said Thomson Reuters.

Proceeds increased by 23.8% to ¥4.9 trillion from 209 deals compared to the same period last year.

Asia Pacific (ex Japan) DCM Issuance

Sources: Urban redevelopment authority, Knight research

ASIAN BANKING AND FINANCE | DECEMBER 2013

21

BIG ISSUE 1

Could tighter rules mean worse headaches?

The effects of MAS’ tighter rules on unsecured credit

Find out if the new rules will have a significant impact on loan growth.

S

ingapore households spending beyond their means and taking on too much debt seem to have alarmed regulators with one in five households breaching the 60% total debt servicing ratio limits. Credit card charge-off rates have been rising and the Monetary Authority of Singapore is quick to take action with new rules on credit cards and unsecured credit designed to rein in debt in certain segments.

These rules will be implemented in stages beginning 1 Dec 2013.

The rules indicate MAS’s concerns of overleveraging in some households, according to CIMB analyst Kenneth Ng. “We see them as pre-emptive moves by MAS before rates start to rise. But we do not believe they indicate any major stress in household or individual debt servicing,” he adds.

Avoiding mounting debt Under the new rules, financial institutions in Singapore are now required to review a borrower’s total debt and credit limits before granting a new credit card or unsecured credit facility; disclose the cost of rollover debt to individuals 22 ASIAN BANKING AND FINANCE | DECEMBER 2013

“The rules indicate MAS’s concerns of overleveraging in some households.”

who roll over credit card debt; get a borrower’s consent before any credit limit increase; not grant further credit to individuals whose debts are 60 days past due; and not grant further credit when cumulative unsecured debt across FIs exceeds 12 months of income.

Desmond Ch’ng, an analyst with Maybank Kim Eng, notes that banks are disallowed from granting further unsecured credit to individuals whose outstanding unsecured debt aggregated across banks exceed 12 months of the individuals’ incomes for 90

days or more. MAS has granted a transition period of 18 months before the limit is effected, to give borrowers time to pay down their debt to within the limit. Banks will still have the discretion to extend credit to individuals who exceed the limit, if the borrower’s annual income is at least SGD120k or net personal assets exceed SGD2m.

This measure takes effect from 1 Jun 2015.

“The impact of the 12-month rule is difficult to gauge as yet because it refers to the aggregate borrowings of an individual across all banks. Currently, a CC holder’s outstanding balance cannot exceed 8 months of income,” notes Ch’ng.

As for the 60-day limit, a borrower who pays the required minimum payment due date will not be regarded as past due.

Loan growth impact Analysts with OSK-DMG views the latest measures as a move to ensure that asset quality stays intact over the long term. The latest measures, however, do not pose any significant impact on the banks’ loan growth.

OSK-DMG says this is because, firstly, the changes will be implemented in stages and MAS has given borrowers a reasonable time frame to pare down their existing unsecured debts to within the revised limits. Secondly, credit card and unsecured borrowings are not too significant; based on July statistics, credit card receivables only accounted for 1% of total system loans while consumer loans categorised as “others” made up 7%.

Singapore credit card charge-off rates (%)

Source: CIMB Research Company

BIG ISSUE 2 chance for labour issues to arise, as a domestic merger would result in substantial branch overlap particularly in the cities. Other potential obstacles are capital market conditions and any change in the political agenda after the election set provisionally for June 2014,” notes Chang.

“We are also less optimistic about the sale because the government has been attempting to sell its whole controlling stake in the group for the past decade. However, we believe Korea’s intention to sell is much stronger now, as there is pressure to raise funds for the welfare initiatives that President Park Geun-hye laid out in the presidential election campaign,” he adds.

Suitors are starting to flee

What challenges loom for Woori Bank’s privatisation?

Here are 3 reasons why Woori is not attractive to potential buyers.

T

he Korean government unveiled its plan to sell Woori Financial Group in three parts. Analysts reckon that selling the two regional banks and the brokerage subsidiary are likely to be easy but the privatisation of Woori Bank has tons of challenges ahead.

Based on the announced plan of Woori Finance Holdings (WFH) privatization by the Korean government, HongTaik Chung, a researcher with Standard & Poor’s believes the sell-off of two regional bank subsidiaries and Woori securities would be relatively easy given some interested potential buyers in the market. But, Chung thinks the sell-off of Woori Bank (Woori) could be difficult.“In our view, there may not be significant potential buyers for Woori. The potential acquisition size of Woori will still remain quite large-scale considering the bank accounts for roughly 80% of total consolidated assets of WFH,” says Chung.

Not so attractive to potential buyers So why will potentially interested parties find Woori not so much 24 ASIAN BANKING AND FINANCE | DECEMBER 2013

“We believe the government’s exit from WFH would benefit governance and operations.”

attractive? Firstly, the bank’s credit profile is relatively weaker compared to other major domestic peers. Some competitive nonbanking business could have also been disposed earlier from the group level.

Chung also thinks both the global and domestic banking/ economic environment may turn into unfavorable for such largescale acquisition in the coming few years. “Additionally, if a major domestic peer acquires Woori, they may face some difficulty to generate significant synergy given many overlapping branches in Korea,” he adds.

Meanwhile, Heakyu Chang, financial institutions director at Fitch Ratings, says the size of Woori Bank, and the government’s intention not to sell it to a foreign buyer, means a complete sell-down of the state’s stake will remain very challenging. Domestic purchasers of sufficient scale may lack the financial flexibility to make such an acquisition, especially with the tougher Basel III capital standards being phased in from December 2013.

“We believe there is also a high

A ‘sensible’ plan The government is also looking to sell a non-controlling stake in Industrial Bank of Korea for the same reasons. Chang expects the government to remain price sensitive, although less so than before.

The plan to sell the non-core units first is sensible, says Chang, but could under some conditions place some financial stress on the holding company. In a declining stock market, more of WFH’s minority shareholders are likely to cash in their rights through the put-back options they will receive upon each split and sale of noncore subsidiaries.

“We believe the government’s exit from WFH would benefit governance and operations. Many of the bank’s key managers are replaced whenever there are major political changes, leading to a lack of consistency in long-term strategy. Political influence also means that the group has often acted as if it were a policy bank. We expect sold entities to become more commercially driven,” he adds.

The new plan, Chang reveals, designed to expedite the state’s exit from WFH, is for the two regional banks to be spun off as separate bank holding companies before they are divested. The securities firm will remain in WFH until it is sold. The last stage involves the holding company being merged back into Woori Bank before its sale.

BIG ISSUE 3

These banks should be getting the jitters by now

Here are scary risks of Hong Kong banks’ China exposures Creditworthiness of many Hong Kong banks are at risk.

M

oody’s recently revealed that Mainland China exposures of Hong Kong banks have increased significantly to 16.5% of consolidated total assets at end-2012, up from 9.8% at end-2009 and this trend is set to continue, as banks expand their onshore presence and support the cross-border trade and investments of Mainland corporations.

Moody’s warns that while this is an opportunity for the banks and their corporate customers, it also entails risks, with future credit performance likely to be different from past experience.

Nevertheless, the nature of Hong Kong’s banking system is changing rapidly as banks increase their China-related lending and Hong Kong companies derive an increasing part of their business from China.

Risks to creditworthiness Whereas in the past Hong Kong banks mainly lent to Hong Kong customers who set up operations across the border, they are now increasingly lending to Chinese customers in diverse industries 26 ASIAN BANKING AND FINANCE | DECEMBER 2013

“We believe a significant portion of Hong Kong banks’ credit exposures to mainland China have been transferred back to Chinese banks, which could mitigate credit losses in a downside scenario.”

and geographies, says Moody’s analyst Sonny Hsu. They are also increasingly supporting their business customers’ longer term investments and property purchases in addition to financing their trade activities.

Policy initiatives have also created new avenues for Hong Kong banks to lend to Mainland borrowers. In early 2013, Mainland authorities allowed Hong Kong banks to lend offshore RMB funds directly to Mainland companies registered in the Qianhai district in Shenzhen. The gradual liberalization of China’s capital accounts will also broaden demand for offshore banking services.

For the most part, Hsu notes that Hong Kong banks have mitigated risks on their Mainland exposures by seeking collateral for onshore lending and bank guarantees on offshore lending, and only lend on an unsecured basis to large blue chip companies or stateowned enterprises. Nevertheless, the rapidly changing loan profile of Hong Kong banks creates risks that future credit performance may differ from past experience.

Meanwhile, Qiang Liao, Director, Financial Services Ratings at Standard & Poor’s, notes that growing China exposures present one of major risks to creditworthiness of many Hong Kong banks.

“We see high credit risks in China’s lending market relative to Hong Kong’s. That said, we believe a significant portion of Hong Kong banks’ credit exposures to mainland China have been transferred back to Chinese banks, which could mitigate credit losses in a downside scenario,” he added.

Risk assessment Moody’s risk assessment for the banks stands in contrast to their broadly stable and strong financial metrics. Hong Kong banks continue to rank among the highest-rated banks globally, and their credit strengths include their solid capitalization, sound funding profile, conservative loan-to-value ratios and established retail franchises. These strengths, according to Hsu, create buffers that will protect the banks if and when asset quality deteriorates. Our outlook is a directional view on credit quality and should be understood in the context that we consider Hong Kong’s banking system as one of the strongest globally.

Hong Kong banks’ mainland exposures

Source: Hong Kong monetary authority

PEOPLE PROFILE

Westpac’s new Asian institutional banking head eyes building Australia’s first bank in Asia Singapore-based David Koh is dead set on building a strong team across Asia and a robust client-centric platform.

David Koh Head, Corporate and Institutional Banking, Asia

F

ind out what his other 2 goals are. Westpac Institutional Bank recently appointed David Koh as Head of Corporate and Institutional Banking, Asia.

David will be based in Singapore and will join Westpac’s leadership team in Asia, reporting to both Bala Swaminathan, General Manager, Asia, and Andrew McDonald, General Manager of Corporate and Institutional Banking.

“Attracting a senior executive with David’s breadth of experience is testament to the strong reputation we are building in Asia,” Mr Swaminathan said.

Mr Koh previously worked at JP Morgan where he was Managing Director, Treasury Services for Greater China, leading a team of 250 people across nine branches.

Prior to this, he worked for Deutsche Bank in Shanghai and was at HSBC earlier in his career.

Asian Banking and Finance interviewed 45-year old David Koh to learn more about his future plans and business philosophies.

28 ASIAN BANKING AND FINANCE | DECEMBER 2013

ABF: What three goals are you focused on?

Koh: First and foremost, I’m focused on making sure that my colleagues and I are being a true partner to our clients; by growing and deepening our presence in the region and broadening our product offerings to provide better service to them.

Secondly, I’m focusing on connecting our customers in Australia and Asia to the increasing trade and capital flows.

We are in a unique position to do this thanks to the strength of our franchise in Australia & New Zealand, our ability to directly trade AUD/CNY in China and our capabilities in trade and structured commodity finance, FX and commodities.

Last but not least, I’m concentrating on building Australia’s First Bank in Asia.

Westpac will be celebrating its 200th birthday in 2017 and we are really focused on doing all the right things to make sure that Westpac will have another solid 200 years - with Asia being a bigger part of the story.

ABF: What will you do differently in this position?

Koh: For our clients, bringing the opportunity and connection between Australia and Asia together in a seamless way. Not that Westpac have not been doing so already but you will find us being more proactive in engaging a larger number of Asian companies to do business in Australia and New Zealand and vice versa.

We want to ensure they get the right advice upfront and have a smooth, seamless experience in a new market with the Relationship Bank that can offer the best advice

in our home market.

ABF: What changes are you planning for?

Koh: I am not looking to change anything for the sake of change. If anything, the key will be ensuring we have a strong team across Asia.

And to build a truly robust clientcentric platform, that will enable us to be here for our clients in the long term.

I expect there will be continued volatility in the global markets that will bring about constant changes to the Asian business environment. We will have to ensure we are strong, yet nimble enough to help our clients continue to succeed and prosper through these changes.

ABF: What are your key business philosophies?

Koh: There is a phrase often used in business: “It’s not personal, it’s only business”. I do not agree with this. At the end of the day, business is a very personal thing for all stakeholders. We need to treat people with respect and earn their trust and loyalty to establish a real relationship.

Another key business philosophy would be the importance of alignment of personal values with those of the firm for whom we work to achieve success. What has impressed me We want to most since I joined Westpac is the ensure they get culture, and how my colleagues the right advice really embrace the values. upfront and Right across the organisation have a smooth, there is a spirit of One Team, of seamless having the fortitude to conduct experience in a new market with ourselves with the courage and the Relationship integrity to do the right thing, to delight our customers and to give Bank that can back to the communities in which offer the best we operate. This is why I believe advice in our Westpac will be successful in Asia. home market.

PEOPLE PROFILE

Here’s the ambitious 2015 Asia strategy of SWIFT’s new deputy chief executive for Asia Pacific Hong Kong-based Patrick de Courcy sets his eyes on breaking new ground for SWIFT in terms of their product portfolio.

RMB, real-time payment solutions in Australia, a new generation of domestic payment systems in India, more integrated payment and securities infrastructures in ASEAN: these are examples of projects we’re working on in the region. It’s broad, and ultimately relevant to the development of the region’s economy.

Patrick de Courcy Deputy Chief Executive Asia Pacific

S

WIFT revealed that it will be maintaining its strategic programmes in greater China, India and ASEAN, while investing more staff in its core competency of supporting the backbone of the financial industry – market infrastructures – not just in mature and growing economies but also in frontier markets.

As a result of these changes, Patrick de Courcy was named Deputy Chief Executive, Asia Pacific, in addition to maintaining his role as Head of Markets & Initiatives, Asia Pacific. He is also Acting Head of Sales, Asia Pacific until that position is filled.

Asian Banking and Finance interviewed Patrick to learn more about his plans following his appointment.

ABF: What makes you excited about your new position? de Courcy: It’s all about delivering what our customers need and to support them in the changes and growth that we’re experiencing in the region. We provide infrastructure that allows them to process transactions more efficiently, with less risk and more scalability, and connect them to the rest of the world.

The internationalisation of the 30 ASIAN BANKING AND FINANCE | DECEMBER 2013

ABF: What three goals are you focused on? de Courcy: To successfully execute our strategy: We have an ambitious 2015 Asia strategy that calls for achieving greater relevance domestically in the fast growing markets of China, India and in the overall ASEAN region.That in turn, means breaking new ground for SWIFT in terms of how we compete, the product portfolio we deliver and adapting to the realities on the ground. Achieving our strategic goals in the region is important for our customers and shareholders globally.

Bringing more customers to SWIFT: Our business is a network business, and the value of a network is in the number of endpoints.

We need to expand our footprint to include, beyond banks, more buy-side firms, regional and domestic brokers, and corporates.

So it is critical for us to bring to market new low-investment, cloud based solutions to connect to SWIFT, to broaden our local presence in emerging markets, and to develop new partnerships and sales channels.

Increase our revenue streams: SWIFT is a cooperative company, we return any surplus in a given year to our customers in the form of rebates, and we reduce prices by 50% every five years. So why increase revenue? It is the measure of the value we deliver to customers in the region, and I want that value to grow, significantly.

ABF: What will you do differently in this position? de Courcy: Spend less time in the office! We have evolved our organi-

sation in the region and globally to be less monolithic, more agile and better able to respond to customer needs, especially to needs from specific segments or domestic and regional markets.

I’m looking forward for us to develop more intimacy with our customers so that we respond with the right solutions, at the right time.

ABF: What changes are you planning? de Courcy: We recently announced organisational changes in Asia, which are in line with the needs of our customers and industry. While maintaining our strategic programmes in Greater China, India and the ASEAN region, we are investing more staff in our core competency of supporting the backbone of the financial industry – market infrastructures – not just in mature and growing economies but also in frontier markets.

We are also revamping the relationship management organisation to focus on geographic areas, with greater emphasis on ASEAN markets, and reinforcing our on-theground presence in eight offices across the region.

All of these changes reflect our continued commitment to supporting the growth of the region’s real economy and the development in the global financial industry.

ABF: What are your key business philosophies? de Courcy: I am a firm believer in collaboration, collaboration that comes from clarity of purpose and the will to achieve shared goals. It We have an is the key driver to the industry’s ambitious 2015 success as well as our own. As a Asia strategy member-owned cooperative, we that calls for are founded by and for the finanachieving cial industry. For 40 years, we have greater relevance been bringing the community together to work collaboratively domestically in the fast growing to share market practice, define standards and consider solutions markets of to issues of mutual concern and inChina, India and terest. I am confident that through in the overall collaboration, we can achieve much more.

ASEAN region.

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SECTOR REPORT: TRADE FINANCE or distribution,” explained Hang on why alternative financing options are becoming so important for corporate clients.

In fact, technology systems have become the defining advantage of international banks in certain supply chain initiatives, and domestic banks looking to grab a larger share of the transactional pie must close the gap through upgrades, reckons Sanjay Tandon, Regional Head for Trade, Asia Pacific, Treasury and Trade Solutions, Citi.

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Asian banks set sights on lucrative trade finance

With Asia seeing bustling demand for trade finance solutions, banks in the region are scrambling to capture a piece of the transactional pie.

O

ne of the key challenges for Asian banks is to quickly upgrade their systems. Doing so allows Asian banks to service their corporate clients with more comprehensive supply chain finance (SCF) solutions and faster information delivery.

“Customers increasingly ask for end-to-end solutions, quicker cash conversion, and close to real-time information relative to their supply chain requirements,” said Christine Grace A. Bandol, Vice President, Trade Finance Department, Bank of the Philippine Islands (BPI) of the Asian market.

“The main challenge for Asian banks is to upgrade their systems to mirror the developments in supply chain management.”

Major challenges in SCM Supply chain management has grown by leaps and bounds in recent years due to evolving practices and 32 ASIAN BANKING AND FINANCE | DECEMBER 2013

“The main challenge for Asian banks is to upgrade their systems to mirror the developments in supply chain management.”

increasing efficiencies. That is why Asian banks will have to spend on significant system upgrades, such as expanding their network breadth, if they hope to effectively cater to their clients’ advanced supply chain demands, said Clara Hang, Head of Global Trade Finance, Global Transaction Banking, OCBC. Banks who manage to catch up will be able to broaden their cross border trade flows, and take advantage of lucrative opportunities in the market. Foremost of these is the ability to provide alternative financing options to corporate clients beyond traditional trade finance and improve working capital, said Hang.

“Large suppliers have the option to provide liquidity to their buyers to increase their sales. The weaker suppliers can rely on the strength of their buyers for credit availability. Buyers can benefit from ensuring there will be no interruption in the supply of goods or materials for manufacturing

Local adaptation Asian banks must also develop SCF solutions that take into account the unique financial conditions in each country.

“Opportunities of SCF are different between key markets like China, India, Singapore, and Hong Kong with more established financial markets, versus countries like Vietnam, Bangladesh, and Cambodia where the companies, especially SMEs, do not have same level of capital access,” said Dang Tuyet Dung, Head of Wholesale Banking Division, Techcombank.

And while it is true that for the region as a whole, Asian banks will largely expand their SCF services to cater to small and medium enterprises (SMEs) and family-owned companies with limited resources, there are nuances of doing business per country that will shape the kind of services banks will need roll out.

Dung cited as an example less developed markets like Vietnam where there is still some hesitation to avail of SCF services, so it lies on Asian banks to communicate the advantages which include lower cost of goods sold, improved cash flows and better relationship management with multitudes of buyers and sellers.

Asian banks must also take into consideration the prevailing government regulatory framework, and Frontier markets in Asia like Vietnam have reliable credit bureaus, and providing finance to clients like SMEs will be more strictly considerable, more expensive and require more complicated procedure of collateral, while SCF is linked to sales and can provide much cheaper source of funding.

Asian banks must also address

SECTOR REPORT: TRADE FINANCE prevailing barriers to adoption such as perceived higher expenses and complicated procedures related to SCF services.

“In order to serve the market better, Asian banks should commit more resources (money, people, time, and marketing strategy) to their SCF platforms, and cooperate more closely with European and American banks that have implemented SCF for a long time to gain valuable knowledge and experience in managing and developing their own services.

Thus, they can better demonstrate the benefits of SCF solutions to suppliers who may today think it is too good to be true,” advised Dung.

Structured trade financing The increasing demand for SCF solutions suggests that corporate are beginning to prefer relatively safer structured trade financing and working capital solutions than plain vanilla debt financing, according to analysts.

“Plain vanilla debt financing faced intense competition and price compression; this is especially prevalent in the Singapore market. It is logical to focus on structured trade financing as it is generally less risky compared to plain vanilla,” said OCBC’s Hang.

With this in mind, Hang said corporations are now keen on partnering with the right bank who can offer solutions to improve operational efficiencies or trade financing to accelerate order to cash.

Citi’s Tandon said that structured solutions help Asian banks’ clients unlock more cash and credit, and, in turn, use these freed up resources to accelerate their growth expansion plans. “Most corporations have set working capital improvement goals focused primarily on preserving capital, asset productivity and improving liquidity. This has driven the need for more structured solutions which assist these firms to optimise cash conversion cycles through reducing day sales outstanding or supply chain financing solutions where payables cycle is being extended,” said Tandon.

According to Kai Fehr, Head of Trade Finance at Barclays’ Corporate Bank in Asia, a treasurer in Asia will look into ways on how to fund the organisation. It could be long

term, and it could be working capital.

“What we try to do at Barclays is to understand the business of our clients end to end, to understand how the DNA of the client works, and how his supply chain and the working capital cycle works. Analysing and understanding the client needs then offers a couple of instruments we can use to raise working capital by monetising the clients assets,” he added.

One example is receivable finance solutions. Fehr notes that a lesser rated client can use its asset book to secure funding by monetising these assets at a much better price against his own rating. A bank needs to understand the motivation of the client.

“This is just one example of how a bank can work on a different alternative for the client’s funding outside the normal vanilla debt financing by using the clients asset book. I see that this is actually a trend in the industry, in particular, in Asia. The clients are getting more into a dialogue with the bank, particularly their trade finance partner to look for different kinds of alternatives to fund their business,” said Fehr.

Asian slowdown impact Even though several key Asian markets, most notably China, are expected to slow down their growth pace in the coming years, some analysts believe this will not heavily lower demand for trade financing at least for the near future.

“As some industry sectors and economies are going through their cyclical lows, while there is a flight to quality, overall availability of trade financing is unlikely to be severely

Christine Bandol

Clara Hang

Kai Fehr

Dang Tuyet Dung

Sanjay Tandon

affected,” said Citi’s Tandon.

“Given the short term nature of financing closely linked to cash conversion cycle of the borrowers and where financing is linked to sales being self- liquidating, financial institutions generally prefer trade financing over general working capital loans.”

Tandon attributes the still-robust appetite for trade financing to the abundant liquidity in the market due to very low interest rates maintained for U.S. dollar borrowings. But if Asia’s slow growth persists in the long-term, then banks may have to grapple with widening interest spreads and lower liquidity.

Dire repercussions More pessimistic analysts like Techcombank’s Dung believe a slowergrowing Asia will have more dire repercussions. “The slowing growth and changes in Asian market does clearly impact on the risk profile of the market and the way the international counterparts look at them from readiness to trade finance solutions,” said Dung.

With heightened volatility comes increased risk, concurs OCBC’s Hang, so Asian banks must become more stringent in selecting their customers.

Meanwhile, optimistic analysts like BPI’s Bandol take into account the increasing consumption in Asia as well as nascent resurgence in Western markets as positive signs for continued trade growth. “For the Philippines, the country’s robust economic growth in an increasingly globalized economy can only mean more opportunities for trade.”

Some rights reserved by epSos.de ASIAN BANKING AND FINANCE | DECEMBER 2013

33

COUNTRY REPORT: HONG KONG

Photo by Francisco Diez

Are Hong Kong banks tipping into a highly dangerous credit trap?

Hong Kong banks’ accumulating risk borne from their rising China exposure has analysts worried.

H

ong Kong banks are expected to remain profitable in years to come, basking in stable funding and flush liquidity that puts them still among the world’s best-rated banks. But they may be biting off more than they can chew as they rapidly lend to expansionary Mainland firms and strive to become the world’s foremost offshore renminbi (RMB) hub.

Analysts believe HK banks are building up enough risk to threaten their asset and credit quality in the long run, especially if the domestic economy takes a turn for the worse.

These emerging risks were enough to convince the credit rating agency, Moody’s, to revise its banking system outlook for Hong Kong to negative from stable for the next 12-18 months until 2014.

“This reflects our assessment that growing imbalances have increased the probability of adverse future credit conditions for Hong 34 ASIAN BANKING AND FINANCE | DECEMBER 2013

Hong Kong banks will be put to test if and when the US authorities tighten monetary policy, particularly if adjustments were abrupt and unexpected.

Kong banks,” said Sonny Hsu, Vice President – Senior Analyst, Moody’s Investors Service.

Asset quality deterioration There is no arguing that HK banks continue to rank among the best in the world due to their solid capitalization, sound funding profile, conservative loan-to-value ratios and established retail franchises, said Hsu, and these strengths should help shield the banks should asset quality deteriorate.

Their non-performing loan (NPL) ratios are also at historically low levels, edging out peers worldwide.

But Hsu foresees problem loans piling up soon.

“We think latent risks are building in the system, as domestic leverage rises and Mainland exposures grow.

It is never easy to predict the exact timing of such turning points but we would expect conditions to become more challenging for Hong Kong banks towards the end of our 12-18

month outlook period, particularly if US policymakers begin to tighten monetary policy,” he said.

In recent months the US Federal Reserve has been warming up to the idea of slowing down its bond-buying program and economic stimulus as the US economy shows signs of recovery. Unemployment has been decreasing, albeit in small spurts, and more jobs are being created each month—certainly not as dire a situation as in years’ past.

Should the US Federal Reserve push through with its stimulus easing, which may begin as early as the end of the year, could trigger sharp asset price declines.

“Hong Kong banks will be put to test if and when the US authorities tighten monetary policy, particularly if adjustments were abrupt and unexpected,” said Sabine Bauer, Senior Director, Financial Institutions, Fitch Ratings.

“Rising interest rates and potential-

COUNTRY REPORT: HONG KONG ly declining asset prices will certainly impact borrowers’ ability to repay mortgages and, more broadly, depress system-wide confidence,” she added, and will ultimately hurt Hong Kong banks.

Moody’s analyst Hsu said that the majority of HK bank loans to smalland medium-sized enterprises (SME) is collateralized with commercial real estate, which are in turn vulnerable to price corrections. “Current high valuations of property collateral have increased the risk that recoveries on future impaired SME exposures will be lower than historical experience, given the heightened risks of a reversal in the property market,” said Hsu. High asset prices Asset prices have climbed so high because of the persistent low interest rates as major developed markets adopted easy monetary policies, combined with the limited land supply in Hong Kong, said Hsu. Hsu said the value of residential, commercial, and industrial real estate, parking spaces and taxi licenses have all more than doubled since early 2009 and reached record levels in the past year.

Total consumer loans have also increased by 47.4% in the four years to end-March 2013. Because interest rates have remained very low, credit quality indicators on consumer lending such as delinquency levels and debt service ratios have remained healthy, noted Hsu. But HK banks’ credit quality on consumer loans will easily plummet should interest rates start to climb, a possible result from the US quantitative easing.

Not as dire But more optimistic observers believe the impact of the US quantitative easing will not be as dire due to the likely chance of US interest rates remaining low.

“Although there are growing expectations that the US Federal Reserve will scale down its bond purchase programme this year, we believe the chances of higher US interest rates in the second half of 2013 are low,” said Pearlyn Phau, Managing Director, Head of Consumer Banking Group and Wealth Management, DBS Bank (Hong Kong) Limited.

“If Hong Kong follows a US inter-

est rate hike, spreads would widen, boosting interest income in the second half period. As the developed economies are showing signs of recovery, we are optimistic about the market performance and the health of corporate earnings in the second half,” added Phau.

Rising Mainland China exposures Aside from the specter of asset bubbles, HK banks should also be wary of their rising Mainland China exposures, said analysts.

“Hong Kong banks have substantially increased their Mainland China exposures to 16.5% of consolidated total assets at end-2012, up from 9.8% at end-2009,” according to Moody’s analyst Hsu. “This trend is set to continue, as banks expand their onshore presence and support the cross-border trade and investments of Mainland corporations.”

Hong Kong banks are starting to lend more to Chinese customers, attracted by their growth potential, and less to their traditional clients of Hong Kong customers expanding to the Mainland.

The shift in lending demographic has been encouraged recent policy changes, noted Hsu. In early 2013, Mainland authorities lifted the veil for Hong Kong banks to start lending offshore RMB funds directly to Mainland companies registered in the Qianhai district in Shenzhen.

HK banks realize that by ramping up their Mainland lending, they also amplify their risks. Hsu said that the banks have adopted some measures to mitigate risks such as seeking collateral for onshore lending and bank guarantees on offshore lending. But this might not be enough to ward off potential credit deterioration.

“The nature of Hong Kong’s banking system is changing rapidly as banks increase their China-related lending and Hong Kong companies derive an increasing part of their business from China. While this is an opportunity for the banks and their corporate customers, it also entails risks, with future credit performance likely to be different from past experience,” said Hsu. Already, HK banks are feeling the pinch from negative developments in the Chinese banking system, such as during the middle of the year when

Hong Kong banks have substantially increased their Mainland China exposures to 16.5% of consolidated total assets at end-2012, up from 9.8% at end-2009.

China underwent a liquidity squeeze.

As Hong Kong banks further increase their exposure to China, HK banks should brace for quicker and stronger reverberations.

“Spill-over effects can be huge given Hong Kong’s small relative size – its banking system just accounts for 8% of that of China,” warned Fitch’s Bauer.

Bauer also considers a possible China-linked credit collapse to be a bigger threat to HK banks than a possible local property market crash, with the former requiring banks to better manage return and risk.

“We consider banks’ exposures to the domestic property market as less risky than their China activities as the former remains prudently managed and actively regulated. Property loans only accounted for 12% of systemwide assets at end-June 2013 compared with China-related risks of 28% at end-March 2013,” said Bauer.

“Over the medium term, the key challenge for the system and each individual bank will be to implement a suitable China strategy taking advantage of opportunities while adequately balancing return and risks…

Collateral enforceability and corporate governance remain prominent China-related risks,” she added.

HK as an offshore RMB hub Aside from effectively managing their China loans exposure, HK banks will also be pre-occupied with figuring out how to grow their offshore RMB businesses while containing risks.

Hong Kong is set to become the world’s top offshore RMB hub with support from the government.

Last July, the Hong Kong Monetary Authority enhanced its RMB liquidity facility to be able to provide overnight funds to HK banks on the day of request, shaving off one day of wait.

This change alone should address potential unexpected funding short-

Hong Kong banks’ mainland exposures

Source: Hong Kong Monetary Authority

ASIAN BANKING AND FINANCE | DECEMBER 2013

35

COUNTRY REPORT: HONG KONG ages, such as when customers and counterparties fail to make payments as scheduled and will increase market participants’ confidence in HK banks’ RMB funding positions, according to Moody’s analyst Hsu. Hong Kong already has the largest pool of offshore RMB deposits, said Hsu. The liquidity upgrade should only raise its profile as the top choice among offshore RMB loan borrowers, particularly Mainland corporates who require large funding for their aggressive growth and expansion plans.

“However, further growth in the banking system’s RMB loans and exposures to mainland corporates will also increase its susceptibility to adverse economic developments in mainland China,” warned Hsu. This means HK banks must tread with care.

Extra precaution is a must The promise of lucrative transaction profits will tempt HK banks but, ultimately, some analysts believe the attached risks will not be worth it.

“Profit contributions from payment processing and renminbi cross-border trade will undoubtedly grow alongside increasing volumes,” said Fitch’s Bauer.

“We expect that over the next two to three years revenue from offshore renminbi activities, including dim sum bond underwriting and lending will remain small and very likely be outweighed by related costs.”

A pick-up in renminbi loan demand should have the biggest profit impact but Fitch does not foresee a material increase over the near term.

This is because demand from outside of China may be held back by perceived currency risks and restrictions on cross-border renminbi

Hong Kong already has the largest pool of offshore RMB deposits

lending.

Investor advice Investors looking to come out ahead in the Hong Kong banking sector need to be cautious but still ready to pounce on opportunities, according to Pearlyn Phau, Managing Director, Head of Consumer Banking Group and Wealth Management, DBS Bank (Hong Kong) Limited. Investors also need to be partnered with banks brimming with wealth management insight in order to ride emerging investment waves and score profits.

With one wrong decision capable of turning an investment sour, wealth

Property prices have increased strongly despit macroprudential measures (December 2006 = 100)

Source: Ratings and valuation department, Hong Kong Government

36 ASIAN BANKING AND FINANCE | DECEMBER 2013

We expect that over the next two to three years revenue from offshore renminbi activities, including dim sum bond underwriting and lending will remain small.

management advisors now place a premium on being able to deliver sound advice and execute transactions as fast as possible. In the case of DBS Hong Kong, Phau said the bank’s wealth management team has kept up with this rapid demand for information by evolving their mobile and Internet technology.

Investors can choose to stick to the “Big Three” HK banks, comprised of The Hongkong and Shanghai Banking Corp. and its subsidiary Hang Seng Bank, Bank of China (Hong Kong) Limited, and Standard Chartered (Hong Kong) Limited, which boast of strong credit profiles and have a high likelihood of systemic support. “We expect the three large banking groups to retain their superior profitability. The average ROAA for the three largest banks rose to 1.42% in 2012 from 1.32% in 2011.

They continue to benefit from lower funding costs and more diversified revenue sources,” said Hsu, adding that the Big Three should continue to dominate in market share.

On the other hand, investors can take on more risk with the potentially faster-growing HK subsidiaries and branches of Mainland banks.

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ANALYSIS: the rise of qianhai

Qianhai - a 15km2 financial center on the rise in Shenzhen

Why fears of Qianhai jeopardizing Hong Kong’s position are overblown The zone has already entered into an expansion period. By Nathan Chow Hung Lai

I

n mid-2012, the China’s State Council approved the development of the Qianhai ShenzhenHong Kong Modern Service Industry Cooperation Zone. Four industries were focussed upon: finance, logistics, information services and science & technology services. Particular emphasis was placed on finance, for which the government designated Qianhai to be built into an experimental zone for financial innovation and further opening-up to the outside world.

Back then, market watchers found it difficult to associate the mudflat with such bold plans. We, however, have been optimistic about the project. Specifically, we stated in earlier report that the zone’s development would be kicked off by the launch of a cross-border RMB lending scheme.

In Jan13, only nine months after the approval has been granted, fifteen Hong Kong banks were authorized to offer a combined RMB2 bn of loans 38 ASIAN BANKING AND FINANCE | DECEMBER 2013

Shenzhen became an expansion outlet for Hong Kong manufacturers and the timing could not have been better.

for Qianhai companies. More impressively, the first Qianhai land auction was held in July and construction is planned to start by October. It signals that the zone has already entered into an expansion period.

Analogy of Shenzhen SEZ in 1980s While many were previously skeptical about Qianhai’s future, they have now turned to the other extreme of worrying that its rise might jeopardize Hong Kong. Such fears are overblown. In our view, the Qianhai project is similar to the establishment of the Shenzhen Special Economic Zone (SEZ) in the 1980s, which has, in fact, bolstered Hong Kong’s competiveness.

Three decades ago, Hong Kong’s manufacturing industry was hit by soaring costs. Factory rents and manufacturing labor wages ballooned 140% and 170% respectively during 1980-90. The city’s international competiveness was being challenged

by several lower-cost developing countries in the region. For instance, the manufacturing labor costs in Indonesia at the time was only onefourth that of Hong Kong.

Shenzhen became an expansion outlet for Hong Kong manufacturers and the timing could not have been better. The availability of abundant inexpensive land and labor in Shenzhen made it possible for Hong Kong manufacturers to move labor-intensive processes across the river. Meanwhile, more skill-intensive business activities such as R&D, marketing, and management continued to be performed in Hong Kong. Such division of labor had resulted in Hong Kong’s continuous prosperity and a significant transformation of economic activities. The manufacturing sector’s share in GDP decreased from 23% in 1980 to 6% in 2000, while that of the service sector’s increased from 69% to 86%.

Another trend is the increasing use

ANALYSIS: the rise of qianhai

g’s position? 6 Sep 2013

to strengthen Hong Kong’s role as an Qianhai, a 15 of Hong Kong’s financial services by and there is an abundance of high offshore RMB centre. The aforesq km district China. In addition to providing finan- quality, grade-A space available. But mentioned cross-border RMB loan located on the cial advices and consultation services, a significant movement from Hong scheme is a milestone in this regard.

Hong Kong has become a center Kong to Singapore has yet to be seen; western side The scheme provides Hong Kong of Shenzhen of fundraising for Chinese firms. in part due to the enviable location banks a new attractive avenue for Mainland-backed companies began Hong Kong enjoys as a gateway to the with just an RMB fund investments; the growth hour’s drive raising capital in Hong Kong’s stock mainland. of which has far been lagging behind market through share placements in Qianhai, a 15 sq km district located from Hong that of other offshore RMB products.

1987. Also, the first Chinese enteron the western side of Shenzhen with Kong’s central 6 sSep For instance, the total outstanding prise listed its H shares in 1993. With just an hour’ drive 2013 from Hong Kong’s business district RMB loans in Hong Kong merely the development of local-serving central business district (CBD), could (CBD), could be amounted to RMB88 bn, compared considered as a and internationally oriented banking be considered as a solution. The with the dim sum bond market’s services, Hong Kong has emerged to recent land auction of 14 million sq ft solution. the China’s State Council approved the development of the QianRMB500 bn. a global financial center just as New GFA (gross floor area) of commercial en-Hong York, KongLondon, Modern Zone.toFour The limited size of RMB-settled andService Tokyo. Industry Cooperation space, comparative the existing ere focussed upon: finance, logistics, information services business for Hong Kong companies grade-A office marketand in Hong Kong’s chnologyPersistent services.cost Particular finance,step forin a scheme is a major factor that attributes to the problememphasis was placed CBD, is aon significant CNH: Will Qianhai jeopardize Hong Kong’s position? 6 Sep 2013 overnment Qianhai to be builtthat into an alleviate experimental weak RMB loan growth, according The designated cost problem has never subsided, could the severe shortancial innovation toage theofoutside world. to a survey constituted to the DBS however. Inand the further past threeopening-up years, Hong Kong’ s office space.

RMB Index for VVinning Enterprises Hong Kong has ranked the world’ s In addition to land, Qianhai also market watchers found it difficult to associate the mudflat with such (DRIVE). lendingwith is just most expensive office market.

The offers relatively cheap human reQianhai, a 15 sq km district located on the Cross-border western side of Shenzhen We, however, have been optimistic about the project. Specifically, an hour’s drive from Hong Kong’s business (CBD), could be conthuscentral essential in district improving the desituation will probably become more sources.

In spite of the 30% growth in earlier report that the zone’s development would be kicked off by sidered as a solution. The recent land auction of 14 million sq ft GFA (gross floor mand and yield on the offshore acute in the years ahead given the low average wage over the past three years area) of commercial space, comparative to the existing grade-A office RMB market of a cross-border RMB lending scheme (see “CNH: RMB lending set stepand in a subsequently scheme that couldthe alleviate deposit; RMBthe rate of new office completions. The (compared with 20% in Hong Kong), in Hong Kong’s CBD, is a significant der in pilot plan”, 16 April 2012). In Jan13, only nine months after severe shortage of Hong Kong’s office space. circulation in Hong Kong. stratospheric rental cost erodes the labor cost in Shenzhen currently is l has been granted, fifteen Hong Kong banks were authorized to In addition to land, Qianhai also offers relatively cheap human resources. In competiveness of today’s Hong Kong’s still about half that of Hong Kong. spite of the 30% growth in average wage over the past three years (compared bined RMB2 bn of loans for Qianhai companies. More impressively, cost in Shenzhen currently Cheaper offshore RMBis still about half financial and other service industries, And thanks to the huge investment with 20% in Hong Kong), labor that of Hong Kong. And thanks to the huge investment made on education by nhai land auction was held in July and construction is planned to On the other hand, the significantly scheme in the which takes up over 90% of GDP made on education by the governthe government, the quality of Chinese labor has improved ober. It signals that the zone has already entered into an expansion past decade. In particular, theprovides number ofacollege Guangdong directgraduates channelinfor Qianhaiin altogether. ment, the quality of Chinese labor 2012 has quadrupled the level seen in 2002. Therefore, relocation to the zone firms to access cheaper offshore To trim operating costs, some has improved significantly in the past allows firms in lowering operating costs as well as tapping the mainland growing pool of qualified labors. RMB funding; thereby enhancing companies decade. of Shenzhen SEZare in seeking 1980s to reconfigure their operating margin. Small- and their office footprints in Hong Kong.

In particular, the number of college Strengthens Hong Kong’s role were previously about Qianhai’s future, have nowin 2012 has Apart from easing the physicalmedium-size enterprises problems faced by Hong Kong,(SMEs), another imporThis often skeptical takes the form of movgraduatesthey in Guangdong tant task for Qianhai is to strengthen Hong Kong’s rolestruggled as an offshore he other ing extreme of worrying that itstorise might jeopardize those who have long to RMB mid-to-back office functions quadrupled the levelHong seen in 2002. centre. The aforementioned cross-border RMB loan scheme is a milestone in raise funds from the large state banks, fears aredecentralized overblown.areas In our view,tothe projectrelocation is similar this regard. in order free Qianhai up Therefore, to to the zone seebanks particular benefit.avenue The smaller hment ofmore the Shenzhen Special Economic (SEZ) 1980s, Another important task for The scheme provides Hong Kong a new attractive for RMB fund expensive space for front office Zone allows firmsininthe lowering operating is to strengthen investments; the growth of which has faraccessible been lagging behind that of other amounts from Hong Kong n fact, bolstered Hong Kong’s services. However, suitablecompetiveness. premises costs as well asQianhai tapping the mainland Hong Kong’s role as an offshore RMB products. For instance, the total outstanding RMB loans in Hong banks with more established SME offshore RMB centre Kong merely amounted to RMB88 bn, compared with the dim sum bond marare difficult to source locally. Relocagrowing pool of qualified labors. es ago, Hong Kong’s manufacturing industry was hit by soaring ket’s RMB500 bn (Chart 4). The limited size of RMB-settled business for Hong lending policies will be of greater tion thus becomes another option.

Kong companies is a major factor that attributes to the weak RMB loan growth, y rents and manufacturing labor wages ballooned 140% and 170% value according to a survey constituted to to thethem.

DBS RMB Index for VVinning EnterSingapore is often touted as an Strengthens Hong Kong’s role during 1980-90. The city’s international competiveness was being prises (DRIVE). Cross-border lending is thus essential in improving the demand Besides loans, the scope of RMB alternative to Hong Kong’s high rental Apart from easing the physical and yield on the offshore RMB deposit; and subsequently the RMB circulation by several lower-cost developing countries in the region. For inbusiness between two jurisdictions is in Hong Kong. prices and lack of supply. Rents are problems faced by Hong Kong, manufactursetprovides to be further expanded.

In para direct channel for Qianhai firms to only close to half of Hong Kong’s another important task for Qianhai is On the other hand, the scheme

ai jeopardize Hong

sts in IndoneChart 1: Transformation of HK economic activities me was only Transformation of HK economic activities during 1980-2000 during 1980-2000 that of Hong 90%

30%

ecame an exlet for Hong manufacturers ng could not better. The of abundant land and lazhen made it Hong Kong ers to move ive processes river. Meane skill-inten-

Manufacturing 25%

Service (rhs)

Hong Kong RMB Chart 4: Hong Kong RMB financing RMB bn

600

20% 80% 15%

500

Outstanding dim sum bonds Outstanding RMB loans

400

75% 10%

300 200

70%

5%

100 0 2009

2010

2011

2012

2013 YTD

65%

0% 1980

1984

Source: DBS Group Research

ow@dbs.com

85%

access cheaper offshore RMB funding; thereby enhancing their operating margin. Small- and medium-size enterprises (SMEs), those who have long struggled to raise funds from the large state banks, see particular benefit. The smaller amounts accessible from Hong Kong banks with more established SME lending policies will be of greater value to them.

1988

1992

1996

2000 Source: DBS Group Research 3

ASIAN BANKING AND FINANCE | DECEMBER 2013

39

ANALYSIS: the rise of qianhai

ticular, the Qianhai Equity Trading Center will provide lending facilities to enterprises registered in the zone by launching RMB-denominated wealth management products in the Hong Kong capital market.

The authorities are also planning to allow Qianhai companies to directly issue dim sum bonds in Hong Kong.

Furthermore, individual investors in the zone might be allowed to participate in the RMB-denominated Qualified Domestic Instisition? version 6 Sepof2013 tutional Investor program (RQDII2).

Chinese regulators have also reportedly given the green light for offshore companies to set up private equity funds in Qianhai. The capital market e scope and of financial RMB business institutionsbetween in Hong two jurisdictions is set to ded. In particular, the Qianhai Equity Kong should continue to benefit from Trading Center will prosuch liberalization initiatives. in the zone by launching RMBities to enterprises registered

alth management products in the Hong Kong capital market Dissimilarity ai to offer CNH trust products”, 16 May 2013). The authorities Despite the fact that the Qianhai to allow Qianhai companies to directly issue dim sum bonds program is a mimic of the Shenzhen rthermore, individual SEZ model, the twoinvestors are differentin in the zone might be allowed the RMB-denominated version of Qualified Domestic Instione aspect. In 1980-90s, Hong Kong manufacturers were able to lower program (RQDII2). Chinese regulators have also reportedly Proposed structures in Qianhai operatingcompanies costs successfully light fortheir offshore tobyset up private equity funds moving northward. apital market and financial institutionsFDI in (USD5.35 Hong Kong should bn) than the targeted And their selling prices were kept fit from such liberalization initiatives. amount set for 2000 (USD1.5 bn).

high since the vast majority of prodToday, however, exportation was ucts were exported to high-income no longer focused in the west. Much countries (i.e., the US and Western effort was put to selling within China. that theEurope).

Qianhai program is a mimicInof the Shenzhen SEZ 2012, 54% of Hong Kong’s exports That was best demonstrated by the re different in one aspect. were destined for the mainland, a tresteady rise of the city’s export unit increaseoperating from 6% in 1980; value during the period.

The huge g Kong manufacturers were able to mendous lower their whilst exports to advanced econoamount of inward investment in selling prices were kept high by moving northward.

And their mies have fallen to 32% from 71%.

Shenzhen can also be seen as a result jority ofof the soaring profit margins. By 1994, Arguably, China is now one of the xportedShenzhen had already utilized more most hypercompetitive markets in Chart 5: HK export unit value index (US)

ountries 107 Western HK export unit value index (US) was best 105 by the he city’s 103 e during 5). The 101 inward henzhen 99 as a reg profit 97 4, Shen95 dy utiUSD5.35 93 argeted 1992 1993 1994 1995 r 2000

1996

1997

1998

Source: DBS Group Research

exportation was no longer focused in the west. Much effort g within40 China.

In AND 2012, 54% of Hong Kong’s exports were ASIAN BANKING FINANCE | DECEMBER 2013 mainland, a tremendous increase from 6% in 1980; whilst ex-

the world. Market penetration has been a major challenge for non-Chinese enterprises.

Conclusion The experience in 80s has proven that the high level of complementarity in factor endowment led to dynamic economies of scale that are mutually beneficial. Hence, the rise of Qianhai today should not be considered a zero-sum game. Given its geographical proximity, Qianhai provides a unique platform for Hong Kong’s enterprises to overcome regional and systemic barriers; thereby increasing their presence in Shenzhen.

Meanwhile, as an experimental area of modern service industry, Qianhai will provide valuable references for the nation, in which the service sector is playing an increasingly important role.

On financial development, Hong Kong will benefit from the rise of In 2012, 54% RMB business with the establishment of Hong Kong’s of Qianhai as a test bed for RMB inexports were ternationalization. The Qianhai’s sucdestined for cess, on the other hand, will produce the mainland, a demonstration effect in exploring a tremendous increase from 6% the path for capital account liberalization in China. in 1980.

COVER STORY

Asian Banking and Finance Awards 2013

A

sian Banking and Finance has indeed established the integrity of the Retail Banking Awards and Wholesale Banking Awards with a new record number of nominations, beating last year’s figures.

Nominations sent by top Asian banks were judged by Dominic Nixon from PwC, Egidio Zarrella from KPMG, Mohit Mehrotra from Deloitte Consulting, Liew Nam Soon from Ernst and Young Advisory LLP, and Andrew Pitcher from Accenture.

Publisher Tim Charlton said, “This is the seventh year of the Retail Banking Awards and the second year of the Wholesale Banking Awards. This year saw the largest ever number of countries in the region participating in the awards. Congratulations to all the winners.”

ABF salutes all the winning banks:

Asian Banking and Finance Wholesale Banking Awards 2013 Australia Domestic Cash Management Bank of the Year Westpac Banking Corporation China Cash Management Bank of the Year Standard Chartered Bank (China) Limited Indonesia Domestic Cash Management Bank of the Year PT Bank CIMB Niaga TBK International Cash Management Bank of the Year Citi Malaysia Domestic Cash Management Bank of the Year CIMB Investment Bank Philippines Domestic Cash Management Bank of the Year Unionbank of the Philippines Singapore Domestic Cash Management Bank DBS Bank Thailand Domestic Cash Management Bank of the Year KASIKORNBANK PCL. UAE Domestic Cash Management Bank of the Year Abu Dhabi Commercial Bank (ADCB) Vietnam Domestic Cash Management Bank of the Year Bank for Investment and Development of Vietnam JSC Bangladesh Domestic Trade Finance Bank of the Year Janata Bank Limited China Domestic Trade Finance Bank of the Year Bank of China Hong Kong Domestic Trade Finance Bank of the Year Hang Seng Bank Limited India Domestic Trade Finance Bank of the Year ICICI Bank

Thailand Domestic Trade Finance Bank of the Year KASIKORNBANK PCL. UAE Domestic Trade Finance Bank of the Year Abu Dhabi Commercial Bank (ADCB) Vietnam Domestic Trade Finance Bank of the Year Techcombank Bangladesh Domestic Project Finance Bank of the Year Janata Bank Limited Bhutan Domestic Project Finance Bank of the Year Bank of Bhutan Limited India Domestic Project Finance Bank of the Year ICICI Bank Limited Laos Domestic Project Finance Bank of the Year Banque Pour Le Commerce Exterieur Lao Public Philippines Domestic Project Finance Bank of the Year Security Bank Corporation Singapore Domestic Project Finance Bank of the Year DBS Bank Thailand Domestic Project Finance Bank of the Year Siam Commercial Bank PCL. Bhutan Domestic Technology and Operations Bank of the Year Bank of Bhutan Limited Cambodia Domestic Technology and Operations Bank of the Year ABA Bank China Technology and Operations Bank of the Year Standard Chartered Bank (China) Limited Indonesia Domestic Technology and Operations Bank of the Year PT Bank OCBC NISP Tbk International Technology & Operations Bank of the Year Citi Laos Domestic Technology and Operations Bank of the Year Banque Pour Le Commerce Exterieur Lao Public Pakistan Domestic Technology and Operations Bank of the Year National Bank of Pakistan Philippines Domestic Technology & Operations Bank of the Year Philippine Business Bank Singapore Domestic Technology and Operations Bank of the Year DBS Bank Australia Domestic Foreign Exchange Bank of the Year National Australia Bank Indonesia Domestic Foreign Exchange Bank of the Year PT Bank OCBC NISP Tbk Malaysia Domestic Foreign Exchange Bank of the Year RHB Bank – Global Markets Philippines Domestic Foreign Exchange Bank of the Year Security Bank Corporation Singapore Domestic Foreign Exchange Bank of the Year DBS Bank

Indonesia Domestic Trade Finance Bank of the Year PT Bank CIMB Niaga TBK

Asian Banking and Finance Retail Banking Awards 2013

International Trade Finance Bank of the Year Citi

International Retail Bank of the Year Citibank

Malaysia Domestic Trade Finance Bank of the Year Malayan Banking Berhad (Maybank)

Domestic Retail Bank of the Year - Bangladesh Janata Bank Limited

Philippines Domestic Trade Finance Bank of the Year Bank of the Philippine Islands

Domestic Retail Bank of the Year - Brunei Baiduri Bank

Singapore Domestic Trade Finance Bank of the Year OCBC Bank

Domestic Retail Bank of the Year - Cambodia Cambodian Public Bank

COVER STORY Domestic Retail Bank of the Year - Hong Kong DBS Bank (Hong Kong) Limited

Corporate Social Responsibility Program of the Year - Silver Maybank Singapore

Domestic Retail Bank of the Year - Indonesia PT Bank OCBC NISP Tbk

Corporate Social Responsibility Program of the Year - Bronze Bank Islam Malaysia Berhad

Domestic Retail Bank of the Year - Kazakhstan Eurasian Bank JSC

Credit Card Initiative of the Year - Malaysia Alliance Bank Malaysia Berhad

Domestic Retail Bank of the Year - Kuwait Burgan Bank

Credit Card Initiative of the Year - Philippines BDO Unibank, Inc.

Domestic Retail Bank of the Year - Laos Banque Pour Le Commerce Exterieur Lao Public

Credit Card Initiative of the Year - Singapore Citibank Singapore Limited

Domestic Retail Bank of the Year - Malaysia Public Bank

Credit Card Initiative of the Year - Taiwan Taishin Bank

Domestic Retail Bank of the Year - Oman bank muscat

Credit Card Initiative of the Year - Vietnam Maritime Commercial Joint Stock Bank

Domestic Retail Bank of the Year - Pakistan National Bank of Pakistan

Employer Award of the Year - Gold Bank of the Philippine Islands (BPI)

Domestic Retail Bank of the Year - Philippines Bank of the Philippine Islands (BPI)

Employer Award of the Year - Silver Bank of Bhutan Limited

Domestic Retail Bank of the Year - Singapore DBS Bank

Employer Award of the Year - Bronze Metropolitan Bank & Trust Company

Domestic Retail Bank of the Year - Sri Lanka National Development Bank PLC

Online Banking Initiative of the Year - Brunei Bank Islam Brunei Darussalam Berhad

Domestic Retail Bank of the Year - Taiwan Taishin Bank

Online Banking Initiative of the Year - Hong Kong DBS Bank (Hong Kong) Limited

Domestic Retail Bank of the Year - UAE Abu Dhabi Commercial Bank

Online Banking Initiative of the Year - India ICICI Bank Limited

Domestic Retail Bank of the Year - Vietnam Techcombank

Online Banking Initiative of the Year - Korea Standard Chartered Savings Bank Korea

Domestic Finance Company of the Year - Hong Kong PrimeCredit Limited

Online Banking Initiative of the Year - Laos Lao Development Bank

Domestic Finance Company of the Year - Korea Standard Chartered Capital (Korea) Co., Ltd.

Online Banking Initiative of the Year - Malaysia Maybank

Domestic Finance Company of the Year - Singapore Hong Leong Finance Limited

Online Banking Initiative of the Year - Philippines Rizal Commercial Banking Corporation

Domestic Finance Company of the Year - Vietnam DongA Money Transfer Company

Online Banking Initiative of the Year - Singapore United Overseas Bank Limited

Advertising Campaign of the Year - Hong Kong Standard Chartered Bank (Hong Kong) Limited

Online Banking Initiative of the Year - Thailand Bank of Ayudhya (Krungsri)

Advertising Campaign of the Year - Sri Lanka HSBC Sri Lanka Advertising Campaign of the Year- Oman bank muscat Advertising Campaign of the Year- Philippines Citi Philippines Advertising Campaign of the Year- Thailand Bank of Ayudhya (Krungsri) Branch Innovation of the Year - Gold Standard Chartered Bank (Hong Kong) Limited Branch Innovation of the Year - Silver DBS Bank Branch Innovation of the Year - Bronze KASIKORNBANK PCL Core Banking System Initiative of the Year - Laos Lao Development Bank Core Banking System Initiative of the Year - Philippines Rizal Commercial Banking Corporation Corporate Social Responsibility Program of the Year - Gold Standard Chartered Bank (Thai) Public Company Limited

Online Securities Platform of the Year - Singapore OCBC Securities Pte Ltd Asean SME Bank of the Year OCBC Bank SME Bank of the Year - Hong Kong DBS Bank (Hong Kong) Limited SME Bank of the Year - Philippines Rizal Commercial Banking Corporation SME Bank of the Year - Sri Lanka National Development Bank PLC SME Bank of the Year - Thailand Siam Commercial Bank PCL. SME Bank of the Year - Turkey Turk Ekonomi Bankasi SME Bank of the Year - Uzbekistan Open Joint Stock Commercial Bank “Hamkorbank�

Website of the Year - Malaysia Maybank Website of the Year - Philippines Bank of the Philippine Islands (BPI)

Deven Balsara, Murali Subramanian & Kumar Muthiah of Abu Dhabi Commercial Bank

Vivek Batra & Sandra Stonham of DBS Bank

Phanxana Khoungnuvong & Khamhou Thoongthavy of Banque Pour Le Commerce Exterieur Lao Public

Md. Shirajul Islam, Sk. Md. Zaminur Rahman, Md. Afzalul Bashar & Md. Shamsul Alam of Janata Bank Limited

Dau Tri Dung of Bank for Investment and Development of Vietnam JSC

Aileen Chua & Raul Victor De Guzman of Security Bank Corporation

Thomas Sudarma & Steven Lohendy of PT Bank CIMB Niaga

Lucas Chew of CIMB Investment Bank, Malaysia

Vivek Batra & Yin Fong Lum of DBS Bank

Axel Boye-Moller of Westpac Banking Corporation

Chew Soo Huat & Sandra Stonham

Andrae Krishnawan of PT Bank OCBC NISP Tbk

Mohit Mehrotra of Deloitte Consulting giving his speech on behalf of the judges

Edwin R. Bautista & Joyce Gonzalez of Unionbank of the Philippines

Tony Chao of Standard Chartered Bank (China) Limited

Michael Lim with colleagues from RHB Bank

Lee BoonHuat of Techcombank

Vikram Sud & Melvyn Low of Citi

Linus Goh of OCBC Bank

RHB Bank – Global Markets Team

Networking Dinner

Mahadir Manap of Malayan Banking Berhad (Maybank)

Sutharntip Phisitbuntoon & Kamalkant Agarwal of Siam Commercial Bank PCL.

Keith Chan of Philippine Business Bank

Abu Dhabi Commercial Bank Team

BDO Unibank Team

Fuschia band

OCBC Bank Team

Maybank Team

Rico Hizon of BBC World News

Westpac Team

Asian Banking & Finance Team

Dau Tri Dung of BIDV

Preeti Shah, Rupesh Kumar & Ashish Goel

Girish Suryaprakash & Subramanian Balakrishnan of Abu Dhabi Commercial Bank

Đặng Tuyết Dung of Techcombank

Francesco Lagutaine & Jacquelyn Tan of Citibank Singapore Limited

Mogul Posayapisith of Kasikornbank PCL

Tran Van Trung & Trinh Hoai Nam of DongA Money Transfer Company

Sevilay Chanthachamsay & Khamsing Sengkeomahavong of Lao Development Bank

Bertrand Gossart & Alla Shevchenko of Eurasian Bank JSC

Philip Tan & Salisa Hanpanich of Bank of Ayudhya (Krungsri)

Khamhou Thoongthavy & Phanxana Khoungnuvong of Banque Pour Le Commcerce Exterieur Lao Public (BCEL)

Ronnie Lim of Alliance Bank Malaysia Berhad Oliver Shang & Christy Shyy of Taishin Bank

Dorothy Newn of Baiduri Bank

Hisham AL Zadjali of bank muscat

Fidelina Corcuera of Bank of the Philippine Islands

Maria Nannette Regala of BDO Unibank, Inc.

Dr Gyorgy Ladics of Bank Islam Brunei Darussalam Berhad

Reynaldo Orsolino & Brigitte Capina of RCBC

Susanna Liew of PrimeCredit Limited

Standard Chartered Bank Team

Citibank Team

Linus Goh, In Cher Boh & Andrae Krishnawan of OCBC Bank

Peter Cheong of Public Bank

50 ASIAN BANKING AND FINANCE | DECEMBER 2013

Sutharntip Phisitbuntoon of Siam Commercial Bank PCL.

Wendy Teo of United Overseas Bank Limited

Russell De Mel & Raj Aboobucker of National Development Bank PLC

Venkatakrishnan Menon of Burgan Bank

Md. Shirajul Islam, Md. Afzalul Bashar, Sk. Md. Zaminur Rahman & Md. Shamsul Alam of Janata Bank Limited

Lim Kuo Siong, Corrinne Tan & Allen Ng of Maybank

Yet Pek Yeen of Hong Leong Finance Limited

Lao Development Bank Team

Anil Wadhwani of Citi

Lim Chu Chong, Frankie Liow, Gary Tan & Wei Chye Tay of DBS Bank

ASIAN BANKING AND FINANCE | DECEMBER 2013

51

Asean SME Bank of the Year

OCBC Bank - Committed to Supporting SMEs

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trength in History OCBC Bank is the second largest financial services group in Southeast Asia by assets and one of the world’s most highly-rated banks, with an Aa1 rating from Moody’s and ranked by Bloomberg Markets as the world’s strongest bank in 2011 and 2012. It was formed in 1932 from the merger of three local banks and is the longest established Singapore bank. OCBC Bank has been a committed supporter of SMEs and has consistently been ranked as the Best SME Bank by various award publications. It recently won this publication’s title of “ASEAN SME Bank of the Year” for the 3rd consecutive year.

Wide Network Capabilities In Singapore, small medium enterprises (SMEs) form 99% of all businesses OCBC Bank in Singapore and employ 7 out of 10 workers. These significant numbers form the backbone of and wealth management services for business owners themselves. Great Eastern Singapore’s economy. In a recent survey, it was found that two-thirds of SMEs in Holdings, OCBC’s insurance subsidiary, is the largest insurance group in Singapore Singapore and the region are already doing and Malaysia by assets. business outside of their home markets, with Lion Global Investors, is one of the over 90% focused on ASEAN and China.

Additionally, the increase is contributed by largest private sector asset management younger SMEs venturing overseas in their companies in Southeast Asia, and Bank early years. Unlike previously where they of Singapore is one of the leading private banks in Asia. OCBC Bank is a one-stoptypically do so only after building up their shop to service corporate, credentials domestically, consumer, insurance and local SMEs are beginning to “With a network of the asset management target key regional markets 450 branches and such as Malaysia, Indonesia representative offices needs of business owners. and Greater China as their in 15 countries and first step overseas. territories, OCBC Bank Innovative Products and Solutions Such growth is not serves customers Over the years, OCBC Bank surprising, given the who are venturing has capitalised on various increasing business costs abroad by delivering opportunities to grow its and manpower constraints local market knowcustomer base and deepen faced by local SMEs in the how and providing customer relationships by past two to three years. accessibility.” focusing on developing With a network of 450 branches and representative offices in 15 innovative products and enhancing service countries and territories, OCBC Bank delivery capabilities.

Recently, the Bank leveraged customer serves customers who are venturing abroad by delivering local market know-how and insights gained from extensive customer surveys to launch differentiated products providing accessibility. This is combined and services in line with its philosophy of with a single relationship view across “simple, fast and convenient”. Highlights of different markets. recent initiatives include a 40% reduction in the number of signatures required for Leveraging on Subsidiaries business account opening forms and a 60% OCBC Bank is not only able to support business goals, but through its subsidiaries, reduction in loan approval turnaround time across various products. offer a broad array of specialised financial

Supporting the Business Community Today, OCBC Bank has one of the most comprehensive wealth management businesses in the region, with extensive offerings across multiple product and distribution platforms to serve the diverse needs of different customer segments. Firmly committed to the cause of promoting entrepreneurship, OCBC Bank also supports various business awards that aim to give due recognition to deserving entrepreneurs and enterprises, ranging from emerging businesses to large corporates. This underscores the Bank’s commitment in helping SME customers achieve their ambitions at different stages of growth throughout their business life cycles.

With a holistic array of initiatives, OCBC Bank helps customers achieve their business ambitions and expansion plans by going beyond financial solutions. Through the Bank’s focus on understanding the needs of SMEs and supporting them at every stage of their development, it has strengthened partnerships with its customers and gained a loyal following both locally and regionally.

CONTACT Oversea - Chinese Banking Corporation Limited 65 Chulia Street, OCBC Centre, Singapore 049513 Tel: +65 6538 1111 www.ocbc.com

OCBC Business Banking

Together we can make your business a success From financing new business ideas to overseas growth, you can rely on our partnership to customise winning solutions that help you realise your business ambitions.

ollaboration To find out more, call our Business Banking Commercial Service Centre at (65) 6538 1111 or visit www.ocbc.com

Best SME Banking International Excellence in Retail Financial Services Awards The Asian Banker – 2012

Co. Reg. No.:193200032W

ASEAN SME Bank of the Year Asian Banking and Finance – 2011-2013

Best SME Bank in Singapore Global Banking & Finance Review – 2012, 2013 Alpha Southeast Asia – 2010, 2011, 2013

Domestic Finance Company of the Year - Singapore

Hong Leong Finance is crowned as the Singapore’s SME specialist

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ince its humble beginnings as a small services to SMEs. With the recent opening & medium enterprise (SME) in 1961, of 2 more SME Centres @ Branches, there Hong Leong Finance has become are a total of 7 centres to serve the needs of Singapore’s largest finance company with businesses.

28 branches. As the financial services arm To stay relevant with changing times, of the Hong Leong Group Singapore, Hong Hong Leong Finance continues to develop Leong Finance offers an extensive suite of new customer-centric financial solutions to financial products and services, spanning help SMEs succeed. from deposits and savings, corporate and For instance, in a rising business cost consumer loans, government assistance environment, the company introduced a programmes for SMEs to corporate finance Fortune Dragon SME Package last year and advisory services. to support SMEs in coping with their Hong Leong Finance is different from costs for capacity building and cash flow other finance companies in Singapore in management by lowering loan interest rates that it has more than 50 years of experience and fees. in offering professional and expert services Further, in conjunction with the as a SME Specialist. It understands SMEs’ Government’s Quality Growth Programme needs as the company started as one in (QGP) that aims to assist businesses 1961 and has since grown and listed on the upgrade, create better jobs and raise Singapore Stock Exchange in 1974 and rewages, Hong Leong Finance has rolled out listed in 1981 as then Singapore Finance a Productivity Loan Promotion to assist Limited.

SMEs that leverage on the QGP, to raise Hong Leong Finance always strives to their productivity. go the extra mile in meeting the needs of These companies that take up loans with customers. With the belief and capability in Hong Leong Finance to fund productivity consistently delivering excellent customer initiatives such as financing the purchase service, Hong Leong Finance has been of new factory units equipped with the recognised for its best-of the-best practices latest facilities to precision equipment to and long-standing excellence among the raise production standards, will receive financial industry’s key players at this year’s encouragement gift worth up to $1000 Asian Banking and Finance Retail Banking from the company.

Awards. It has earned the coveted “Domestic Hong Leong Finance “Hong Leong Finance Finance Company of the is also a firm supporter has made Year” title and it is the third of the Government’s a difference to the consecutive years that the financing initiatives and success of company has been bestowed programmes for SMEs. It many SMEs.” with the prestigious award. has been a pioneer in the Local Enterprise Financing Helping SMEs succeed Scheme administered by Spring Singapore Hong Leong Finance is the only finance and is a longstanding active participant in company in Singapore that provides the annual Singapore Chinese Chamber corporate loan customers with business of Commerce and Industry Infocomm current accounts and corporate advisory Commerce Conferences. services.

With its latest Catalist Full Sponsor Future plans License, SMEs aiming to be listed on the In the coming years, Hong Leong Finance Catalist Board can now also benefit from its will remain as a valuable and committed financial advisory and fund raising services. partner to SMEs to facilitate them to scale To expand the footprint in the business greater heights. It will roll out even more community, Hong Leong Finance has been SME Centres as a comprehensive one-stop progressively setting up more dedicated answer for SMEs. SME Centres in strategic locations around “We will not hesitate to put in more Singapore to provide convenient financial SME Centres to provide further financial

Ian Macdonald President, Hong Leong Finance

service convenience whenever we see an opportunity to help the time-strapped SMEs,” said Mr Ian Macdonald, Hong Leong Finance’s President.

Besides being close to its customers, Hong Leong Finance aims to also understand their needs so as to provide them with the right kind of financing solutions.

There will be integrated SME outreach initiatives to create awareness amongst SMEs the importance of obtaining tailored professional financial advisory services from established SME specialists to help them succeed in a competitive environment.

Indeed, Hong Leong Finance has made a difference to the success of many SMEs and has proved to be a deserving awardwinning SME specialist. No wonder, Hong Leong Finance is also conferred the “Best Finance Company in Singapore 2013” by Global Banking & Finance.

CONTACT Hong Leong Finance Limited 16 Raffles Quay, #01-05 Hong Leong Building, Singapore 048581 Tel : 1800-3388 338 Email: CUSTOMER_SERVICE@hlf.com.sg Website: www.hlf.com.sg

Susanna Liew of PrimeCredit Limited

Asian Banking & Finance 2013 Employer of the Year

BPI: Because People are Important For the Bank of the Philippine Islands, its acronym, BPI, will always also mean “Because People are Important”. Thus, the bank’s mantra for making it easy for customers and employees alike.

BPI believes that business results will flow naturally from its highly-engaged people. beli So, it has continued to invest in the wellness of its employees. Tailor-fit training programs have been developed across all job levels. Professional, physical, emotional, spiritual and psychological growth is given equal attention through activities, communications, counseling and interest clubs. All of these nurture a culture of excellence and camaraderie within the organization.

By banking and investing on employees, BPI continues to break new ground, i one of which is to earn the distinction of being the Philippines’ only investment-grade local bank as rated by Fitch.

Experience banking made easy with Bank of the Philippine Islands, winner of the 8th Asian Banking and Finance Awards for: Best Domestic Retail bank of the Year Employer of the Year, Gold Website of the Year, Philippines Peter Cheong of Public Bank

Visit www.bpiexpressonline.com Wendy Teo of United Overseas Bank Limited

Domestic Retail Bank of the Year - Laos

Banque Pour Le Commerce Exterieur Lao Public (BCEL)

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CEL was established at the end of 1975, following the independence of the Lao People’s Democratic Republic, as a specialised branch of the former State Bank (Central Bank). It was assigned to monopolise and provide solely international banking services as well as to manage the grants and loans provided by foreign countries and international organisations to the Lao government.

In November 1989, BCEL transformed into the fully commercial bank. Until in 2011, BCEL has gone through a transformation from a state-run to a publicly owned bank, making it the first bank in Laos to register on the Lao Securities Exchange in January 2011.

As a public company, BCEL is now 70% owned by the Lao government, 10% owned by the strategic partner, COFIBRED a subsidiary of the BRED Banque Populaire from France. The government has put the remaining 20% of the share up for sale in the Lao Securities Exchange for investors and staffs.

BCEL is the leading bank in the Lao PDR with total assets of 15,187 billion Lao Kips (approximately 2 billion USD) as of June 2013. BCEL has 18 branches, 48 service units (outlets), and 11 foreign exchangers nationwide. BCEL has established business relationship with many high-profile banks “BCEL One”, which is a Banking Software worldwide, making it the largest provider of cross-border money transfer services and Application and compatible with Smart settlement network for business sector in Phones, IPAD and computers. BCEL One allows the customers to transfer between Laos. Its primary services include: BCEL accounts, monitor transactions Deposits, Loans, Bank guarantees and on their accounts, pay Precious metal trading, utility bills and manage Internal and international “BCEL is always transactions of their cards settlements, Credit cards, VISA Card, E-Banking and determined to improve including ATM cards, its services to satisfy VISA cards or other cards others. demands of services issued by BCEL. BCEL BCEL is always from the customers.” is a full member of VISA determined to improve its International, and BCEL services to satisfy demands also diversifies its card of services from the customers. In 2013, BCEL has replaced business by being the first bank in Laos to upgrade its ATM cards with co-brand its core banking system with Flexcube, an internationally recognized core banking cards-BCEL UnionPay in cooperation with system. This upgrade was made go-live China UnionPay International, making its ATM cards can be accepted across the started from 04 January 2013. This new globe through China UnionPay network.

Core Banking has effectively facilitated and BCEL, by itself and in partnership expedited the flow of services. In additional, BCEL has developed a new product called with foreign banks, has also established a 56 ASIAN BANKING AND FINANCE | DECEMBER 2013

number of firms including: 1. Lao-Viet Bank, in 1999.

2. Lao-Viet Insurance Company, in 2008.

3. BCEL Leasing Company, in 2009.

4. Franco-Lao Bank, in 2010.

5. BCEL-KT Securities Company, in 2010.

BCEL‘s Market share 2012 Credit 24.65% Deposit 38.37% Asset 29.65 %

CONTACT BANQUE POUR LE COMMERCE EXTERIEUR LAO Public No 01, Pangkham Street, Ban Xiengnheun, Chanthabouly District, Vientiane Lao PDR Tel: (856-21)213200, (856-21) 213202, 223012 E-Mail:bcelhqv@bcel.comla

ASIAN BANKING AND FINANCE | DECEMBER 2013

57

Vietnam Domestic Cash Management Bank of the Year

BIDV is proud to be the “Domestic Cash management Bank of the Year”

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e, Bank for Investment and main accounts.

Development of Vietnam In order to achieve the best financial Jsc., (BIDV), celebrated our solutions for customers, BIDV has 55th anniversary in the year 2012. As successfully implemented the Cash-flow the longest-established and one of the management program via the Internet, most prestigious banks in Vietnam, we which allows the online customer are always a pioneer in developing new management of the cashflow system, banking services and products oriented including deposits, loan, automatic fund to customers with the slogan “Share transfer, internal capital trading, etc. opportunities, share successes”. To support Simultaneously, the program also offer customers in managing their receivable and support in drafting the monthly/quarterly payable account, optimizing their ability financial reports for entrepreneurs to use fund and maximizing profitability upon request, to ensure the demand for by making and managing financial plans the comprehensive systematic capital and cash-flow based on centralized capital management. management, BIDV has begun to offer cash Being the market leader in product management products to customers since innovation, BIDV does not stop providing 2010 and continuously improved and added the full solution package, but recently values for customers through products has succeeded in applying technology such as automatic collection/payment, into the currency management with the fund transfer, cash-flow management, state electronic collection/ payment programs. budget collection, and bill payment.

With the electronic collection program, Alongside with the traditional collection entrepreneurs can quickly retrieve channels at local branches or other information regarding results of collection requested locations by customers, BIDV via electronic devices. The electronic has expanded into various multi-channel payment allows entrepreneurs to make collection methods, such as Electronic payment transactions to the beneficiaries’ Banking i.e. Internet banking, Mobile accounts at BIDV or any other banks. The banking; ATM, automatic collection from electronic collection/payment solutions existing lists; inter-banking collection. have been successfully implemented and BIDV is aiming towards the on-site used by Securities companies, Lottery collection from customers’ companies, and many own websites (this method universities in Vietnam.

“These programs has been on pilot in various represent the absolute Thanks to the above state schools throughout customer-oriented product advantage of BIDV Vietnam).

The multidevelopment as well as over other banks in channel collection method sale boosting measure electronic payment yields the maximum through bonus policy to solutions.” ultilities for payers, provides businesss staffs, in 2012, flexible money transfer with the chosen BIDV’s cash management has obtained collection options at BIDV, as well as the remarkable results. Sweep account service corporate support with customer coded users increased by 31% with transaction collection and product coded collection, volume surged by 81% compared to 2011. depending on customers’ requests.

27 Corporations and Groups have used On the demand for capital centralisation, BIDV’s Cash flow management, more the mainstream banking support for than double in previous year. Collections entrepreneurs focuses on the systematic and payments have been using by 118 big deficit/surplus management via the method enterprises and 06 reputed foreign banks of reallocation when the sub-accounts (BTMU, Calyon, Citibank, Deutsche Bank, exceed the maximum surplus or go below HSBC and Standard Chartered Bank) with the minimum required. However, with transaction volume increased by 26%.

BIDV, entrepreneurs can now choose more As a result, the ratio of profit come from flexible methods, such as the automatic cash management has been tripled than fund transfer service at minimum limit or previous year. Being the market leader the percentage ratio transfer to multiple with strong nationwide network, BIDV 58 ASIAN BANKING AND FINANCE | DECEMBER 2013

Phan Duc Tu CEO, BIDV

has constantly evolved with the provision of ultimate financial solutions to customers, as well as the strong support and development in technology. BIDV’s electronic collection and payment product was awarded Top ten Vietnam Gold Star Awards 2012 by Vietnam Intellectual Property Association (Ministry of Science and Technology), Vietnam Intellectual Property Institution and Consumer Protection Association.

Besides, in two consecutive year 2012 and 2013, BIDV was presented the awards of Best Local Cash management Bank by Asiamoney.

This year, with the top-credited recognition for Domestic Cash management Bank of the Year from Asian Banking and Finance, once again, BIDV emphasizes the market leader position as one of the most reputable commercial banks in Vietnam.

We understand that, this honor is also the mission to keep providing the best banking products to our customers, with the innovative technology, quality control and modern services.

CONTACT Bank for Investment and Development of Vietnam JSC (BIDV) BIDV Tower, 35 Hang Voi St., Hoan Kiem Dist., Hanoi, Vietnam Tel: 84.4.22200441 Fax: 84.4.22200399 Email: info@bidv.com.vn Website: www.bidv.com.vn

Cash management services include automatic collection/payment, fund transfer, cash--ow management, state budget collection, and bill payment www.bidv.com.vn

Domestic Retail Bank of the Year - Hong Kong Online Banking Initiative of the Year - Hong Kong SME Bank of the Year - Hong Kong

DBS: Becoming a leading Asian wealth manager and SME Bank

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orn and bred in Asia, DBS aims to be a leading bank in Asia. We offer a unique brand of banking, Banking the Asian Way, to both individuals and corporates. We nurture Asian-style relationships with customers, provide unique Asian insights in creating solutions for customers, and deliver Asian-style service with the “humility to serve and the confidence to lead”. We offer customers seamless connectivity across our network of key Asian markets and combine innovation with an understanding of fast-evolving customer trends and behaviours to reach out to customers.

the renovation and opening of five DBS Treasures Centres and a Treasures Private Client Centre in Hong Kong. Designed to offer our customers the best of Asian hospitality, these new banking centres give our customers a conducive environment to meet and consult with our team of experts.

Our premises also offer our customers a seamless experience through new facilities, such as Teller Assist Units, which meet their diverse banking needs with increased efficiency.

To strengthen our role as a leading Asian wealth manager, we have also enhanced our suite of equity-linked and currency-linked investment products to meet our customers’ ever-growing and ever-changing needs. New RQFII funds were launched for customers interested in investing in the China onshore bond market using RMB. We have also strengthened our suite of insurance products to address our customers’ increasing demands for retirement planning and RMB appreciation opportunities.

Building a holistic Wealth Continuum In the wealth space, DBS leverages our deeply-rooted Asian heritage as well as regional expertise and insights to solidify our proposition as Asia’s leading wealth manager.

In 2011, DBS announced a five-year plan to take wealth management to a new level.

DBS Treasures Private Client - a designated platform tailored to High Net Worth Individuals (HNWI) - was launched, Growing our SME franchise forming a holistic continuum whereby the Another of DBS’ strategic priorities is to needs of the bank’s full spectrum of wealth be a leading regional SME bank. In 2012, customers, ranging from the affluent to we rolled out a regional SME framework in ultra-HNWIs, can be met. key markets to standardise DBS Treasures Private Client and streamline processes, “We nurture Asianoffers clients a unique value thereby shortening the style relationships proposition that marries the response time to customers. with customers, convenience of personalised The launch in 2012 of provide unique banking with the wealth DBS IDEAL™ 3.0, our Asian insights in management expertise of creating solutions for award-winning corporate private banking. It also internet banking platform, customers.” allows customers to view has made it easier for our their investment holdings and transactional SME customers to manage their accounts, banking details easily on a single platform. payments and collections. In a recent With the launch of DBS Treasures Private Asiamoney cash management poll, small Client, the bank offers wealth solutions corporates across Asia voted DBS the best that can be customised as our customers global cash management bank in Asiaaccumulate wealth and their needs evolve Pacific. accordingly. In particular, DBS Treasures In addition to online channels, we caters to the affluent; DBS Treasures Private continuously seek to better understand our Client caters to HNWIs and DBS Private customers’ needs and deliver innovative Bank serves ultra-HNWIs. and value-added financial solutions Over the past 18 months, we have through our experienced and highly-skilled realigned our DBS Hong Kong branch relationship managers. In Singapore, DBS is footprint in the affluent catchment areas, a leading SME player. In Hong Kong, DBS so as to better serve wealth customers.

SME Banking has grown from strength to Investment in our branch footprint includes strength. In 2012, DBS Hong Kong achieved 60 ASIAN BANKING AND FINANCE | DECEMBER 2013

Sebastian Paredes CEO, DBS Bank (Hong Kong) Limited

a 12% increase in total income to SGD510 million. Total deposits increased 16% year on year to SGD9.7 billion, reflecting our expanding deposit franchise in the SME space.

Across the region, we added 12,000 new SME customers in 2012, bringing our client coverage to more than 40% of the local SME market. A new social enterprise programme was launched to provide such SMEs with marketing support and management advice in addition to traditional banking products.

At DBS, we place our customers at the heart of the banking experience.

Our unique relationship-focused business model enables us to provide our customers with a holistic and seamless banking experience, as well as long-term partnerships as they grow their businesses.

We focus on nurturing lasting relationships with our customers and stand by them in both good times and bad.

CONTACT DBS Bank (Hong Kong) Limited 11/F, The Center, 99 Queen’s Road Central, Central, Hong Kong Tel: +852 3668 0808 Fax:+852 2167 8222 Website: www.dbs.com

Domestic Retail Bank of the Year - Kazakhstan

Eurasian Bank – one of Kazakhstan’s best

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urasian Bank, which has a than in the previous 15 years combined. In longstanding reputation as one of fact, profit since 2009 has been quadruple Kazakhstan’s strongest financial what it was in the first 15 years. institutions, has become even stronger in Such growth would have been impossible recent years with acquisitions, expansions without a new development strategy and other customer-serving initiatives. that included acquisitions and facility Those initiatives under four-year Chief expansions.

Executive Officer Michael Eggleton have In 2009 Eurasian Bank gained access to included making a third of a million loans the big Russian market by acquiring the in the first seven months of 2013 at a time Russian bank Troika Dialog. “It was an when many banks remain reluctant to important deal for Eurasian Bank,” Eggleton extend credit. noted. “The acquisition led to a surge in our Eurasian Bank is confident about issuing trading operations and investment flows loans, which serve all Kazakhstanis by between Russia and Kazakhstan.” sparking the economy, because its prudent Until 2011, Eurasian Bank extended lending policies during the global economic credit mostly to businesses but also to downturn of 2008-2009 prevented it from individuals with substantial means. In 2011 suffering the financial setbacks many it entered the consumer-credit – or retail Kazakhstan banks experienced.

-- market by acquiring Societe Generale’s The profit picture at Eurasian Bank ProstoCredit operation in Kazakhstan.

-- one of Kazakhstan’s 10 largest – is one The next step was developing a network of the best measures of its success. Profit of Retail Service Centers that would provide reached a record-high 6.3 billion tenge, or customers with convenient banking $41.3 million, in the first half of 2013, an 81 locations. percent jump over the same period in 2012.

The centers, which Eurasian Bank has Founded in 1994, Eurasian Bank dubbed Branches of the Future, offer a serves all regions of Kazakhstan and has a full range of banking services. And their subsidiary in Russia. terminals and ATMs are available 24/7.

A period that set Eurasian Bank apart Customers can use them to put money on from other banks, in the eyes of customers a card account, to repay a loan, to make and regulators, was the various kinds of payments global financial downturn of and to conduct other “Eurasian Bank 2008-2009. banking business at any survived those hard The combined debt of time. times without losses Kazakhstan’s banking sector or government support Since the beginning of surged to $40 billion in 2008.

2012, Eurasian Bank has because of its careful Standard & Poor’s lowered borrowing, lending and averaged opening one outlet the credit ratings of eight per week. It now has 3,100 other policies.” banks to “negative outlook,” locations, helping increase and some banks were near default. In fact, its client base to 773,000 customers. the government propped up some with Eurasian Bank’s far-flung business cash infusions and took over others. locations led to 79 percent of the 317,000 Eurasian Bank survived those hard loans the bank extended during the first times without losses or government seven months of 2013 being made outside support because of its careful borrowing, Kazakhstan’s two largest cities of Almaty lending and other policies. The year 2009 and Astana. was a turning point for Eurasian Bank.

Another indication of the bank’s strength That’s when veteran banker Michael this year besides a record profit was its Eggleton, who had a wealth of experience $3.12 billion in net assets at the beginning in the former Soviet Union, became chief of 2013. The RIA rating agency said that executive officer and assembled a new figure made it one of the asset leaders management team. Eurasian Bank’s assets among banks in the Commonwealth of have doubled in the four years that Eggleton Independent States. has been at the helm. More important, the Still another salute to Eurasian Bank’s bank has made more profit in those years performance was Standard & Poor’s

62 ASIAN BANKING AND FINANCE | DECEMBER 2013

Michael Eggleton Chief Executive Officer, Eurasian Bank August 2013

upgrading the bank’s outlook from “stable” to “positive” the past two years. The agency continues to give the bank both short-term and long-term credit ratings of B+/B. And the bank’s national rankings increased from kzBBB to kzBBB+.

A high-profile tribute to Eurasian Bank’s excellence was the fact that Asian Banking & Finance named its Kazakhstan’s Domestic Retail Bank of the Year for the second time in a row.

Eggleton noted that the award reflected the fact that in these days of global financialsystem volatility, bank clients and investors look for “reliability and financial stability.”

“We are proud to receive this prestigious award, and we will continue working to retain our clients’ trust with ongoing improvement of products and customerservice quality,” he said, adding: “This award highlights the efficiency of the bank’s strategy.”

CONTACT Eurasian Bank JSC 56 Kunayev str., 050002, Almaty, Kazakhstan Tel: +7 727 244 53 79 E-mail: investors@eubank.kz Website: www.eubank.kz

ASIAN BANKING AND FINANCE | DECEMBER 2013

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Pakistan Domestic Technology and Operations Bank of the year Retail Bank of the Year - Pakistan

National Bank of Pakistan

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ational Bank of Pakistan, the largest be established in rural areas. Commenting banking institution of the country on the bank’s foreign operations, NBP has completed sixty three years of currently has 29 overseas branches, which service to the nation. It was established are gradually expanding. NBP is planning through an ordinance on November 09, to set up a branch in Sri Lanka to facilitate 1949. NBP started its operation with an trade and industry. NBP would soon set issued capital of Rs.15 Million and 100 up a branch in Russia, “The bank is also employees. NBP is the first ever bank successfully operating as many as four of the country to cross the ‘One Trillion branches in Afghanistan and six in Central Rupee’ balance sheet footing bench mark. Asian Republics, NBP is also revitalising After launching core banking application, its Islamic banking operations. With the National Bank of Pakistan (NBP) now opening up of 15 new designated Islamic intends to prioritise financing energy banking branches this year, the total and agricultural sectors over the coming number of such branches would rise to 23, years. National Bank had successfully Islamic Banking was likely to provide new implemented core banking application to impetus to NBP’s Islamic banking services. provide ‘superb’ customer services, besides Bank’s home remittances services, NBP ensuring efficiency across the banking had aggressively extended its remittance functions. “The NBP has launched core correspondence base across the globe with banking application to strengthen its the aim of facilitating overseas Pakistanis. internal banking system, facilitating its Cumulatively, the NBP had signed customers. NBP has already completed a agreements with 30 leading overseas pilot project of online system and at present, remitting partners. Citing a major strategic with more than 1300 online branches, move, NBP had created a separate the bank has become the largest bank independent group named Global Home with 100 percent online branch network. Remittances Management Group in 2009 A significant growth has been witnessed to focus on inward home remittances in agriculture and consumer loans over the business. NBP was conferred the “Max past few years and at present, NBP had the Factor of the Year 2011-12, NBP has been largest market share in terms of agriculture awarded for maximum distribution growth and consumer loans among domestic in home remittances in the receiving commercial banks.” markets, in the year Consumer loans, especially 2011/12. This award proves “NBP had the largest against gold, have grown market share in terms NBP’s commitment to the by 51 percent whereas the home remittances business, of agriculture and growth in agricultural loans consumer loans among in pursuit of the national was 30 percent during cause. Home remittances domestic commercial 2012. Total agriculture and play a key role in building banks.” consumer loans stood at Pakistan’s foreign exchange Rs.131 billion at the end of December reserves, improving quality of life through last year. Many local banks preferred poverty alleviation which ultimately to invest in government securities, the strengthens the economy of the country.

NBP witnessed a significant growth in JCR VIS credit rating agency maintained advances locally as well as internationally. banks AAA/A1+ standalone rating In June The bank is planning to set up 55 new 2013. This rating draws strength from the branches across the country, including 40 standalone financial profile of the bank, conventional and 15 of Islamic banking, leading market share in deposits, adequate especially focusing on rural areas, liquidity and capitalization levels. During rebranding of NBP’s Islamic Banking the year the bank received accolades from setup and gradual expansion of its branch “The Banker” magazine terming NBP network is also in progress. NBP decided as the top bank of Pakistan in its `Top to open more branches in less developed 1000 World Banks’ ranking for 2013. areas, instead of urban areas, Out of 40 The bank also received “Retail Banking branches, as many as 30-32 branches would Awards 2013” and “Domestic Retail

64 ASIAN BANKING AND FINANCE | DECEMBER 2013

Dr. Asif A Brohi President, NBP

Bank of the Year – Pakistan” from “Asia Banking & Finance” magazine during the year. NBP is an internationally acclaimed and awarded institution, apart from the domestic awards; the Bank has earned number of international awards. The Bank outperformed all the banks in Pakistan by winning Best Emerging Markets Bank 2011 instituted by Global Finance Magazine which is considered as one of the most prestigious awards in banking industry.

The Global Finance awarded NBP as “The Best Emerging Markets Bank” in 2003, 2005 and 2006 and NBP was awarded “Best Foreign Exchange Bank in Pakistan” in 2004, 2005, 2006 and 2008 years.

National Bank of Pakistan desires to offer branchless banking to its accountholders as presently, the country is witnessing the beginning of new retail banking revolution whereby a large segment of the population, previously unbanked, has started entering into a new realm of financial services, named ‘branchless banking’.

CONTACT National Bank of Pakistan Address: NBP Head Office, I.I. Chundrigar Road, Karachi, Pakistan Website: www.nbp.com.pk

Online Securities Platform of the Year - Singapore

Smarter Trading on-the-go with OCBC Securities’ award-winning platform, iOCBC TradeMobile

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inning three years in a row OCBC Securities has won Singapore’s Online Securities Platform of the year award in the Asian Banking & Finance Retail Banking Awards for three years in a row. This remarkable achievement is contributed by its continuous efforts in improving iOCBC TradeMobile to be the best online platform for securities trading.

various vulnerability assessments.

In the ever changing world of Information Technology, OCBC Securities pre-empts functional demands of the market by consistently performing application upgrades based on new Operating Systems (OS). Mobile OS upgrades usually result in new versions of Software Development Kits which plays a crucial role, since depreciated software methods pose a risk of flawed applications. This is anticipated by constantly keeping abreast with the most up-to-date developments in various OS and conducting rigorous tests to ensure that its products stay functionally compatible.

In September 2012, OCBC Securities rolled out its added security measure with an additional One-Time Password (“OTP”) via Hardware token and SMS. OCBC Securities is one of the pioneers in the industry for implementing OTP.

Breaking away from traditional online trading With the rise in usage of smart phones, OCBC Securities envisaged the market shifting towards trade mobility. OCBC Securities recognised the need for multichannel trading access to meet the varied needs of investors, in addition to the traditional browser-based online trading that confines investors to their workstations. OCBC Securities became the pioneer broking house to provide investors Leveraging on Direct Market Access with more options to capture market (DMA) capabilities opportunities with speed, convenience and As global markets continue to evolve, accessibility. investors are presented with different The iOCBC TradeMobile application on investment opportunities across countries Apple’s iPhone and iPad, BlackBerry and and markets. iOCBC TradeMobile Android devices enables mobility and ease gives investors the capability to capture of access to the trading facility that boasts opportunities and execute online 14 markets. The application allows investors transactions across 14 global securities to keep abreast of market exchanges in an instant. situations, monitor and Most of these global manage their investments markets are connected to “OCBC Securities gives on the go. Investors can also iOCBC via DMA. principal priority to be assured that their trades DMA is the ability product security and are executed in a timely and to trade directly into a stability.” secured manner. market. The majority of Said Mr Raymond financial exchanges are now Chee, Managing Director electronic and some may of OCBC Securities, “Mobility, security mistake DMA as simply the ability to trade and ease of access to global markets are on foreign exchanges online. In fact, DMA important considerations in online trading goes one step further by allowing investors today. We are encouraged by winning to trade as equal market participants the Online Securities Platform of the Year without the need for manual intervention.

Award for the third time. We will continue A broker is still required, but by providing to deliver these values to our customers DMA, the broker makes a professional who have supported us over the years.” electronic network available to the retail investor to execute trades personally. In Enhanced Security short, DMA to financial markets allows Besides being the forerunner of mobile Retail and Private Investors the level of products, OCBC Securities gives principal efficiency and control enjoyed mostly by priority to product security and stability. It financial institutions. conducts stringent security checks on all products prior to official launch, including Positive response to iOCBC TradeMobile engaging third party vendors to perform Within the first month of iOCBC 66 ASIAN BANKING AND FINANCE | DECEMBER 2013

Mr Raymond Chee Managing Director, OCBC Securities

TradeMobile’s debut on the iPhone, OCBC Securities garnered over 7000 downloads and generated more than S$36 million in turnover. Riding on the wellreceived responses from the public, OCBC Securities continues to bridge the gaps between traditional and online trading by venturing, expanding and developing its iOCBC TradeMobile suite to cater to different investors’ needs.

Important Notes Trading in securities is very risky, and you may lose all or more than the amount invested or deposited. Where necessary, please seek advice from an independent financial adviser regarding the suitability of any trade or investment product taking into account your investment objectives, financial situation or particular needs before making a commitment to trade or purchase the investment product. You should consider carefully and exercise caution in making any trading decision whether or not you have received advice from any financial adviser.

CONTACT OCBC Securities Private Limited 18 Church Street #01-00, OCBC Centre South Tel: 65 6338 8688 Email: cs@ocbcsec.com Website: www.iocbc.com

Our innovative platform makes online trading simple.

No wonder it has won 3 times.

utstanding Find out more about our acclaimed trading platform (65) 6338 8688

www.iocbc.com

Trading in securities, futures or leveraged foreign exchange can be very risky, and you may lose all or more than the amount invested or deposited. Where necessary, please seek advice from an independent financial adviser regarding the suitability of any trade or investment product taking into account your investment objectives, financial situation or particular needs before making a commitment to trade or purchase the investment product.

You should consider carefully and exercise caution in making any trading decision whether or not you have received advice from any financial adviser.

Co.Reg.No: 196600262R

Malaysia Domestic Foreign Exchange Bank of the Year

RHB Bank -The Sky’s The Limit With Our Innovation

Kellee Kam Managing Director, RHB Banking Group

I

n December 1996, RHB BANK account. However, RHBMCA did not became the pioneer in introducing stop at just offering 16 types of currencies or allowing multiple pairs in foreign the RHB Multi Currency Account, exchange structured investments. In 2012, in short RHBMCA, as a short and longwe incorporated a feature which NO other term interest-bearing account that offers customers the opportunity to hold more banks in Malaysia has offered, and this was to include precious than one foreign currency in a single account. Available at “RHBMCA has evolved metal investment i.e. Paper Gold into RHBMCA. In from a basic to a any RHB branch throughout addition, Paper Silver will versatile account; so Malaysia, this account was specifically designed for versatile that its covers be part of this account by the end of 2013 as well as 5 out of 7 continents’ personal and/or company with foreign exchange currencies or 16 foreign Gold DCI in 2013/14. We also have in the pipeline to currencies.” requirements.

Features include FX Margin Trading of the said account were basic in nature in the 90’s, such as to make features into RHBMCA. RHBMCA can also be further segregated short and long-term deposits in foreign into different types of usage and recurrencies, conversion into Ringgit, and/or categorised into various accounts for remittances in foreign currencies. companies to segregate their receivables Since then, RHBMCA has evolved from into export and non-export purposes, for a basic to a versatile account; so versatile better management of company foreign that its covers 5 out of 7 continents’ exchange proceeds. As a personal account, currencies or 16 foreign currencies to be exact. In 2006, RHBMCA introduced it can be segregated into investment and/or educational purposes. another breakthrough feature in allowing RHBMCA is a perfect hedging account customers to invest in Dual Currencies Investment (“DCI”) in RHBMCA, a for overseas payments or receivables and/ structured investment with multi currency or investment in foreign currencies. This account provides customers with the pairs for higher return in a hassle-free 68 ASIAN BANKING AND FINANCE | DECEMBER 2013

option of buying low and selling high, or to hold any positions to minimise any foreign exchange losses and at the same time maximize gains for the same reason. Imagine without this account, any incoming funds need to be converted immediately whether the exchange rate is in or against your favor.

RHB BANK is continuously striving to improve this account’s versatility by offering new currencies. Additionally, the Bank is constantly developing new features to include into this account, such as MCA Silver Investment, FX Margin Trading and Gold DCI, which are currently in the pipeline. RHBMCA is truly a versatile multi currency account designed to ease our customers through this current structure and demanding investment environment.

Hence, all the above, can be easily handled under one account and one consolidated statement with online function enabled.

CONTACT RHB Bank Berhad RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Tel : RHB Customer Call Center 24/7 at 1 300 888 742 Website : www.rhbgroup.com

ASIAN BANKING AND FINANCE | DECEMBER 2013

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Online Banking Initiative of the Year - Singapore

Setting the gold standard online

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old is arguably one of the staple and risk appetites. Customers also do not investment items for investors in need to go down to a physical branch if they times of uncertainty. UOB has want to place investments in structured matched retail customers’ interest in gold deposits. Of course, customers are still able with their penchant to conduct financial to speak to their relationship manager for transactions online to become the first advice and to put through transactions. bank in Singapore to offer online gold and “The industry has seen customer habits silver savings accounts. changing over the years, and the key to a UOB’s Gold or Silver Savings Account successful channels strategy is to be able allows customers to transact in gold and to provide our customers with the ability silver without physical delivery and at a to perform their financial transactions at time convenient to them through UOB’s a channel that is most relevant to them. It Personal Internet Banking service. made sense for us to ensure that the UOB Mr Gilbert Chuah, Head of Internet PIB and UOB Mobile remains relevant to Channels, UOB, said, “Our customers are our customers by providing access to UOB’s telling us that they enjoy the flexibility of financial products and services beyond just being able to manage their finances and account information,” Mr Chuah added. gold and silver transactions online and The availability of these services online at a time convenient to them. Since we will potentially allow customers to stay introduced this new service, more than half on top of market movements and seize of all online gold and silver transactions investment opportunities conveniently. have been made after banking hours.”

This will allow UOB customers to Customers can perform transactions consolidate and monitor their investments online from 8am to 11pm on Mondays to from a single place, while diversifying their Fridays, excluding public holidays. Prior to portfolio wisely to weather the economic the launch of the online service, customers changes. would have to visit a UOB branch during Mr Chuah said, “We have seen banking hours to carry out transactions on an increasing number of customers their Gold or Silver Savings Accounts. performing transactions on these two With the strong customer interest and products online, and after office hours. usage of the service, UOB plans to offer We know our customers see the value of access to Gold and Silver having an overview of their “We know that our Savings Accounts to its financial portfolio at their customers have customers through the convenience.” a strong interest multi award-winning UOB Alongside investment in saving gold and Mobile application in the options, UOB customers silver, so that our fourth quarter of 2013. can also use Personal customers can perform Internet Banking to request “We know that our transactions on the customers have a strong for an increase in their go and better manage interest in saving in gold credit card limits, as well their portfolios.” and silver, and it made sense as pay other banks’ credit for us to extend this service so that our cards. customers can perform transactions on the go and better manage their portfolios,” Mr Chuah said.

How to start saving in gold and silver online Managing your financial portfolio on UOB has made transacting in gold and UOB Personal Internet Banking silver online a simple process.

Beyond saving in precious metals, UOB Customers just need to open a Gold or customers can also use their Personal Silver Savings Account at any UOB Branch Internet Banking to purchase financial during banking hours, and ensure that vehicles such as unit trusts and placing they have access to UOB Personal Internet structured deposits. Just by logging on, Banking. customers can pick from a wide selection Once the account has been opened, of funds by a range of fund managers, each customers can log onto UOB Personal designed to meet specific investment needs Internet Banking, select ‘Investments’ 70 ASIAN BANKING AND FINANCE | DECEMBER 2013

Mr Gilbert Chuah Head of Internet Channels, UOB

from the left navigation menu, and click ‘Precious Metals - Buy Gold /Silver Savings’.

Customers can start by purchasing as little as 5 grammes of gold or 10 ounces of silver.

They can also view their account balance at any time by logging into UOB Personal Internet Banking.

UOB revamped the Personal Internet Banking service in January 2010. In December 2011, the Bank launched the UOB Mobile app, which offers customers a convenient and easy-to-use channel for their personal banking needs. The app, which is available for both Android and Apple smartphones, has been downloaded by almost all of the Bank’s active internet banking users, with customers making close to an average of 1.2 million transactions per month. For more details and updated gold and silver rates, please visit www.uob.com. sg.

CONTACT United Overseas Bank Limited 80 Raffles Place UOB Plaza Singapore 048624 Tel: 6222 2121 www.uob.com.sg

OPINION

MOORAD CHOUDHRY

An over-engineered finance industry has gone too far

It’s all about the art of banking

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he other day I conducted a simple statistical experiment. I calculated the “value-at-risk” exposure for an hypothetical investment portfolio consisting of just one bond holding.

The bond I selected for the exercise was a vanilla fixed-coupon, fixed-term security issued by Aston Martin (no doubts where my aspirations on car ownership lie!).

My fictitious sample portfolio held £1million notional of this bond, a market value of £1.003 million at the time.

Depending on which calculation methodology I selected, the VaR for this portfolio ranged from around £1,000 to just over £11,000, an order of magnitude over 10 times. This variation is so wide as to render the result almost unusable.

And that’s for a portfolio we would be hardpressed to surpass in terms of simplicity – just think what variation of result must exist for complex portfolios of the kind held by the larger

72 ASIAN BANKING AND FINANCE | DECEMBER 2013

BY MOORAD CHOUDHRY

financial institutions.

And yet VaR results are an input to the level of regulatory capital a bank is required to hold.

What a scary thought! If bank capital amount is based on VaR model output, what result do you think a bank would use when calculating its capital base requirement, £1,000 or £11,000?

The original regulatory capital accord, Basel I, attracted heavy criticism partly because of its “scattergun” approach, with too broad categories.

Basel II was an attempt to address this, but because internal models are so varied in scope and output, one can’t really make comparisons of results across banks. We see the same everywhere in finance.

Complex mathematical models, using assumptions based on assumptions to come up with valuations or risk exposures or “loss given defaults” that could be out by 50% or more.

We’ve seen these cross over to the funding and liquidity space as well, traditionally the preserve of the more non-Physics-educated types in a bank, where some banks are calculating “liquidity-at-risk”. You’re kidding me?!

When the method becomes more important than the result, it’s time to roll back the clock.

The only people that benefit from overengineering finance are software vendors and the consultants who advise banks on implementing this software.

Betraying a somewhat Paulian-conversion in this regard, I see in hindsight how the valuation approach for certain structured finance securities – relying on a metric known as default correlation, which can’t actually be observed in the market – was not really tenable.

Yet it became accepted practice, adopted by ratings agencies and approved by regulators.

This column always looks to extract some silver linings from the cloud of the crash. Here could be one of them: roll back the influence of the “quants” and re-adopt more simple approaches.

The search for precision in risk estimation is chimerical, we should accept that banking is as much art as science, and roll back the overengineered approach that has governed so much in finance over the last 20 years.

It hasn’t made the art of banking easier or clearer, it’s just made the mistakes, when they do occur, that much larger every time we’ve discovered them.

OPINION

SANDEEP AGGARWAL

How banks will benefit from infrastructure services in India

by SANDEEP AGGARwal

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ndian banks are staring at the prospect of an increase in non-performing assets, mainly due to their large exposure to infrastructure sector. Infra sector has been affected by govt. policies (effects most visible in power sector) and the general economic slowdown, which has resulted in lower demand acrossthe-board.

The projects have also suffered owing to delays due to issues in land acquisition, environmental approvals, inadequate feedstock supply, lack of sufficient offtake mechanisms, etc.

The banks would need to manage their existing exposures, and have understandably become far more conservative in taking fresh exposures in new infrastructure projects. In this scenario, going forward, it would be advisable for banks to increase their focus on infra-services businesses.

There are a large number of such companies already in existence - essentially these firms are the ‘support’ for infrastructure projects.

Examples include: Electronic tolling services, Management of highways, Port handling & loading / unloading, Logistics solution providers, Transporters, Warehouses, Cold chains, Aviation ground handling, Coal washery, Smart grid, Metering, Operations and maintenance, Remote IT infrastructure management, Management of passive telecom infrastructure, etc.

There can be many more examples of such businesses, which are ‘enablers’ for core infrastructure projects. Infra Services companies have been seeing a fair amount of Private Equity interest as well, which also validates the argument of higher ‘bankability’ of these businesses.

From the lenders’ perspective, higher focus on these sectors offers significant advantages (over large infra projects): ·More stable, and less volatility in demand – generally not dependent on a single buyer and hence offtake risk is reduced ·Less vulnerable to regulatory risk ·Smaller in size – need less capital ·Lesser issues like environmental approvals, which are critical for large infra projects ·The businesses have been started by a multitude of promoters all over the country – hence, from banks’ perspective, there is less issue of over-concentration of risk in certain large promoter groups.

As Indian economy grows, these sub-sectors would become more important, and large businesses in their own right. Some of these sectors get a lot of importance in developed economies, e.g. highway tolling is a big business in Europe, and countries like Malaysia; independent telecom tower companies are large businesses in US. From the macro perspective, having an efficient infra-services sector is critical to maintain the efficiency of infra projects and prevent wastage. This is especially true in a capital-scarce economy like India.

For instance, efficient repair and refurbishment can significantly enhance the life of old thermal power plants, at a fraction of the cost (and efforts) of setting up a new power plant.

74 ASIAN BANKING AND FINANCE | DECEMBER 2013

Photo by Savio Sebastian There are significant externalities in some cases – e.g. considering the high ash and stone content in Indian coal, setting up a coal washery near the coal mine reduces the requirement of rail wagons for transport of coal to end-users. Govt. needs to give (some kind of) infra status to these sectors, to enable easier funding.

Issues that the banks need to be careful of: -Govt. has mandated Infrastructure Development Funds and IIFCL to reduce the banks’ exposures in infra sectors. These schemes will not apply to infra services companies. Since the credit offtake has slowed down of late, this is not an important factor in the short term, but could become important as the economy picks up. ·Tendency of Indian promoters to over-stretch themselves – it has been seen in some areas, for instance telecom towers, that certain companies took on commitments based on highly optimistic projections – and when the actual performance was not as rosy, they had problems servicing their debt. ·Since the macro indicators of India in infra are so poor, it is easy to get carried away by the aggressive top-down, per capita-based projections, without taking ground realities into account. Lenders need to be careful of business plans based on such assumptions ·Importance of local conditions – some concepts which have worked in developed markets and appear nice on paper, may flounder in Indian conditions. For example, transportation of fresh produce is a challenge due to unreliable cold chains – time taken on the road can vary a lot due to road diversions, delays at checkpoints, etc.

Shielding themselves from risks

t h e Ye a r f o r facilitating a safer and more convenient mode of banking for its retail clients.

RCBC bags awards for excellent retail banking services For successfully developing smarter technologies to enhance its retail banking services, Rizal Commercial Banking Corporation (RCBC), one of the country’s most progressive private universal banks, received three major awards from the Asian Banking and Finance during this year’s Retail Banking Awards held recently in Singapore.

contributions to the region’s banking and finance industry.

Asian Banking and Finance, one of the most respected award-giving bodies in Asia, annually recognizes banking and financial products, services, technologies and strategies that have made significant

This includes developing the first business loan

RCBC, for the second year running, was named as the Philippines’ SME Bank of the Year for effectively implementing loan programs and services to meet the needs of the country’s small and medium enterprise (SME) market.

program in the country for Filipina e nt re p re n e u r s, t h e Women’s Enterprise Loan,

as well as m a i nt a i n i n g a strong partnership with the International Finance Corporation (IFC) in creating products and services for its clientele.

The bank’s newest core banking system was also cited

by Asian Banking and Finance as the country’s Core Banking Initiative of the Year. Since its implementation, RCBC has experienced a 33 percent increase in transactions completed per person per day, allowed customers to transact at their preferred time without any disruption and launched five additional products.

Meanwhile, RCBC’s 24/7 internet banking facility, the AccessOne, was hailed as the Philippines’ “Since we started this journey Online Banking Initiative of towards a new and more

advanced era in 2007, we have kept true to our promise in improving our services to facilitate a more secure and more efficient means of banking for our clients,” said RCBC President and CEO Lorenzo V. Tan. “We are now experiencing the rewards of our success with these awards for retail banking excellence.”

He added that with the intention of acquiring more customers in the years to come, the bank will continue to enhance its banking facilities, create new products a n d de ve lop i nnovat i ve solutions to leverage new growth opportunities given the industry’s highly competitive consumer market.

The Growth Story Continues.

Net Income Stockholder’s Equity Branches ATMs Assets Ranking

(private domestic universal banks)

Dec. 31, 2006 P2.053B P23.39B 294 257 P223.71B 5th

Dec. 31, 2012 P6.22B P42.97B 420 1,010 P364.10B 4th

Asian Banking & Finance

Asian Banking & Finance

Asian Banking & Finance

SME Bank of the Year

Online Banking Initiative of the Year

Core Banking Initiative of the Year

2013

2013

2013

Cultivate the passion to excel and growth comes naturally.

Once again, we’ve grown by leaps and bounds. Bigger assets, higher equity, more ATMs and branches, and a slew of local and international awards. Thanks to RCBC’s great men and women whose commitment to excellence never ceases to inspire everyone. As we continue to grow, trust that we will also continue to give exceptional service, now and in the years to come.

Call 877-7222.

Domestic Toll Free: 1-800-10000-7222 International Toll Free: (IAC) +800-8888-7222

www.rcbc.com

OPINION

BETTY WILKINSON

Why we should rethink the ethics of finance

byBETTY WILKINSON Director for Public Management Asian Development Bank

T

he changing landscape of finance is a huge subject so let’s start with a short history of banking (thanks here to Wikipedia). The word actually comes from banca or bench where the moneylenders sat. From day one, business owners wanted to make money. In the 1900s, Bretton Woods stabilized international finance and encouraged bank lending to sovereign states. From the 1980s we have had deregulation, globalization and consolidation with 55% of financial resources held by the top 5 banks in the world, and 80% of the financial traders working in the top 10 banks by 2010. By some estimates, there may have been one million banks worldwide before the latest global financial crisis hit.

And what of the social role of banks? While they have been keen on talking about client services and how financial services help real sectors grow, the focus is clearly on profit for owners. Deposit insurance and central bank regulation have been brought in to provide government oversight to ensure that bank savings customers have some protection from losses due to bank decisions about lending and other related services.

Owners rarely lose, and that was shown dramatically in the bailouts of larger banks during the crisis Now, let’s talk about microfinance. Just like banking, microfinance started with money lenders and with self-help informal arrangements all over the world.

The forms included revolving savings groups, savings pools plus lending, lending among family groups, funeral societies, and mutual insurance arrangements.

Microfinance institutions (or MFIs) have a wide range of forms, from full service banks to informal groups, and the range of regulation is equally broad.

What happened in Andhra Pradesh is a big flurry of drama about microfinance failing in a spectacular way. Let’s talk a little bit about that. My comments are my own and if you want to know more from those who were directly engaged in it, or have done research, read the articles by Vijay Mahajan, Sanjay Sinha, and Philip Mader. Essentially one MFI in particular (but a few others in more minor ways) over-lent and used questionable growth and collection practices.

The result was multiple defaults and some client suicides due to an inability to make payments, and then politicians became involved, with widespread debt forgiveness by the state. The MFIs were badly damaged.

As a result of this incident and other meltdowns, global MFIs realized how politically vulnerable they were as financial organizations working with poorer households. Commercialization had also changed the sector, as some investors saw the opportunity for fast money from high interest rates and high repayment rate.

The challenges such as client financial literacy, lack of transparency, and client needs for other kinds of financial services are all critical. And now Moody’s, Planet Rating, M-CRIL, and other rating companies are providing social as well as financial performance ratings for MFIs. MFI transparency and the Smart Campaign, with thousands of organizational and individual members,

76 ASIAN BANKING AND FINANCE | DECEMBER 2013

are committing to significant levels of responsibility for client welfare and more readily understandable, open information on products and services. The pressure is on to get the right kinds of services to clients, in ways they understand and can afford, as well as giving them the right to complain about things when they go wrong and to get help.

This, of course, is the right way for anyone to be able to get financial services, not just the poor. So how ethical are banks and how have they responded to the public outcry of the global financial crisis? While the banking industry has not been nearly as active as the microfinance industry, one can’t say they’ve done nothing. The application of certain ethical investment principles has begun and there are a very small group of largely European financial institutions which have picked up multiple bottom line standards.

The Equator Principles begun in June 2003 were linked to the World Bank and IFC system of review of environment and social policies for project finance.

And the multilateral banks, such as ADB, hold their borrowers to social and environmental safeguards.

But in the end, neither rating companies nor national regulators require banks and non-MFIs to meet standards of social and environmental responsibility.

The bottom line is we hold financial institutions that explicitly work with low income households to much higher and more responsible standards for relations with their clients than we do banks. We rate MFIs on their ethical treatment, fair information sharing, and consideration of clients’ financial and social welfare. But banks have low-income households and over-indebted credit card holders and grandmothers and other vulnerable clients too. What would happen if we held banks and other financial institutions to the same types of standards? How might the real and financial sectors work better under these conditions? An issue to ponder.

How ethical are Asian banks?

OPINION

SIMON TONG

Unlocking the synergies between the affluent and SME banking units

BY SIMON TONG Senior Manager Deloitte

and personal wealth.

Banks can start by formally recognising this segment of customers and differentiating the value proposition and services offered.

Addressing the needs of this unique segment of customers also requires effective collaboration between the Affluent/HNW and SME banking divisions. Banks that can realise the potential of this segment will be able to strengthen their positioning across the SME and Affluent/HNW banking businesses whilst improving customer stickiness and increasing overall customer profitability.

SME owners are getting wealthier

A

sian-based banks are aggressively expanding their Affluent/High Net Worth (HNW) banking value propositions in light of growing economic prosperity and affluence within the region. In Asia, SME (Small and Medium Enterprise) business owners are increasingly becoming an important source of business for Affluent/HNW banking business units.

Over the years, Asian banks have grown their SME lending portfolios and developed relationships with business owners and entrepreneurs. The SME segment thus represents an attractive base of customers for Affluent/ HNW banking divisions to target and grow their future business.

Experience has shown that clients with both SME banking and Affluent/HNW banking relationships are likely to be 40-60% more profitable compared with standalone business banking customers and are less likely to attrite.

Hence, there is a need for Affluent/HNW Banking and SME business units to collaborate and work as “one” in order to source new business from each other’s customer base and proactively manage and nurture customers holding both relationships within the bank.

After the economic crisis in 2008, banks have acknowledged the need to closely observe customers with both a commercial and an Affluent/HNW banking relationship and monitor the interdependencies between their business

78 ASIAN BANKING AND FINANCE | DECEMBER 2013

Recognising the Customer Formally acknowledging the existence of customers that have both business and Affluent/ HNW banking needs and monitoring them on a continual basis is critical. Relationship managers need to have visibility of their client’s other relationships within the bank for two reasons.

On one hand it helps to identify potential for cross-selling whilst on the other hand it provides visibility and understanding of how other relationships within the bank can potentially impact other portfolios. During the economic crisis, liquidity was tightened and as a result, SME owners drew from their personal wealth to support their business working capital requirements.

It would have helped if the Affluent/HNW banking relationship manager had visibility over the SME banking division’s intention of limiting the customer’s business line of credit such that the Affluent/HNW relationship manager could have taken proactive measures to reduce the outflow of assets from the bank and perhaps convince the customer to withdraw funds from other sources.

Working as One Business units need to proactively work together to identify and provide opportunities to cross-sell. This however assumes that relationship managers are competent to identify opportunities for cross-sell and are well versed in the other segment’s product and service offerings.

Typically there are clearly defined rules of engagement in terms of how each relationship manager should approach and execute a crosssell referral and how they should collaborate with one another.

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OPINION

JAMES HATCHER

Reforming business compliance for the APAC banking industry

It’s high-time to intensify banks’ security measures

C

yber security continues to be one of the fastest-growing threats to banking institutions. In the wake of a financial crisis and recent Consumer Data Protection Act implementations, most banking institutions are looking to evaluate their governance, compliance and control systems for increased regulation, scrutiny, and oversight.

According to a recent survey by KPMG, majority of Asia Pacific-based executives (73% respondents) confirmed that Governance, Risk and Compliance (GRC) are of the highest priority on their agenda. Effective information security practices are becoming more important than ever now, taking into consideration breaches of data confidentiality and security threats posed on to the banking sector.

As a result, banks are looking to transform their business compliance model to achieve better security measures and subsequently increasing the technology adoption rate across the banking industry, especially in the file exchange and communication aspects which have been under invested in until recently.

The majority of banks today have over complicated systems to monitor and secure the data traffic that moves within the bank amongst its own internal divisions, applications and to their external counterparts.

Moreover, the complexity has increased due to internet usage. Banks are facing the challenge of collecting data transactions across a number

80 ASIAN BANKING AND FINANCE | DECEMBER 2013

BY JAMES HATCHER Managing Director SEEBURGER Asia Pacific

of processes and complying in accordance with multi-jurisdictional requirements.

Currently, banks tend to miss more than 80% of data that is in the form of files of various sizes and types that need to be transferred across secured data transmissions systems. As part of any regulatory compliance and engagability, data needs to be tracked, traced and have the compliance department alerted. Now banks have the opportunity to reduce these complexities, decommission old legacy systems and migrate it all onto a single platform. To do so, leading banking organizations are embracing technology that can help them to manage their day-to-day compliance requirements.

The comprehensive communication platform must be able to manage and track all transactions that move through the bank’s systems and algorithm databases, with business rules that are embraced inside the data transmissions. These actions provide an audit trail for compliance purposes and tighten security measurements. In addition, in the event of a fraudulent transaction taking place, banks can use these trails to evaluate the patterns that cause such cases to happen.

Managed file transfer solution The modern managed file transfer solution enables banks to meet compliance expectations to ensure greater security yet with a lower cost of deployment.

‘Human-to-human’ integration is a core trait of managed file transfer solutions. ‘Systemto-system’ integration is crucial and mostly automated, but the human-to-human integration focuses on the way people within the bank communicate with others.

It senses when the outgoing data should not be sent, for example data such as account number and social security numbers. Employees can also attach spreadsheets and documents to be sent out. With this feature, the banks are able to look for specific items, identify it, and quarantine it if it is deemed inappropriate Also, the managed file transfer solution can automate attachments that need to be secured and send an email message to the recipients that informing them that there is a document waiting for them which requires them to log on to the system to retrieve it. This will secure the item and prevent employees from stealing essential data from the organization.

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OPINION

NATHAN CHOW

CNH’s onshore deregulation and offshore expansion

RMB convertibility is one of the priorities

A

ccording to the blueprint of The Shanghai Free Trade Zone, financial innovations including RMB convertibility and interest rate liberalization are the priorities on the reform agenda.These reforms will make the RMB an increasingly important currency in the global FX market.

However, some worry that the establishment of SFTZ will undermine the development of offshore RMB markets. Such fear is unwarranted.

Looking at the Eurodollar market could help shed light on how offshore market grows in spite of onshore deregulation.

Experience from the Eurodollar market During the 1960s, changes in US regulations such as reserve requirements, interest rate restrictions, and borrowing limits made offshore banking more attractive to local banks. Consequently, USD liquidity migrated to London, where nonUS banks were not subject to regulation by the Federal Reserve. The Eurodollar market grew rapidly as a result.

In the late-1980s and early-90s, most of the aforementioned regulations were eliminated. For instance, the Federal Reserve lowered reserve requirements on large-denomination domestic deposits to zero; in effect removing that ‘tax’ on local intermediation. But the Eurodollar share of global dollar banking had grown from 10% in 70s to 20% in 90s and over 30% in mid-2000s.

Non-US residents continued to hold the

82 ASIAN BANKING AND FINANCE | DECEMBER 2013

BY NATHAN CHOW HUNG LAI Vice President Economist Group Research DBS Bank

majority of their dollar offshore, and so did the official holders of dollar reserve (mostly overseas central banks). During the 2000s, more than 70% of official dollar reserves was placed outside the US. And interestingly, LIBOR is the benchmark for today’s US corporate borrowing.

The sustainable growth of the Eurodollar market can be attributed to a number of factors.

Most characteristically, it has served as an efficient intermediary between non-US lenders and non-US borrowers of dollars. For example, the central bank of UAE deposits USD10 mn in a London bank, which then lends the funds to a Mexican oil importer.

In this case, the dollars might go through one or more offshore interbank transactions that could take place in London or other banking centres. But it does not require either sourcing funds or deploying funds in the US. Indeed, a significant portion of offshore dollar banking corresponded to such third-party intermediation.

As of Jun10, of the USD4.9 trn total claims booked offshore, USD2.7 trn (or 55%) were claims on non-US resident. Convenience factors such as regulatory environment, accounting standards, and time zone difference might explain the market participants’ preferences for offshore transactions.

Another motive is to separate currency risk from country risk. In September 2001, for instance, the trading of US Treasury securities was interrupted due to terrorist attacks.

But overseas central banks with dollar securities held in European depositories were still able to carry out normal operations. That reminds official reserve managers the potential benefits of having diverse trading and custodial locations.

Other factors contributed, too. Volumes of literature have pointed to the Soviet Union’s placement of dollar deposits in London as one of the origins of the Eurodollar market. Middle East oil exporters also preferred to keep their oil revenues outside the US for various reasons.

Implications for offshore RMB markets Judging from the dollar experience, global investors prefer to transact in a particular currency through the offshore markets. With respect to the RMB, the offshore market in Hong Kong (and in other financial centers) can be expected to evolve along the paths of the Eurodollar counterpart.

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