Asian Banking & Finance

Japan looks to foreign private equity experts to pump-prime profitability

ASIAN

BANKING FINANCE

Will Stanchart FLy with AMEX?

APRIL/MAY 2008

Stanchart Amex Bank purchase: goldmine or Kryptonite?

PLUS Can Flowers make Shinsei bloom?

China’s rural banks: brokeback mountain or just broke?

While the rest of the Philippines’ banks smugly claim immunity from subprime fallout why is Metrobank reeling from the aftershock?

Are banks down under getting ‘beary’ of the credit crunch?

Chairman, Stanchart Evan Mervyn Davies

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Bargains galore

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PRESIDENT & EDITOR-IN-CHIEF

Tim Charlton EDITOR

Rowena Everson rowena@charltonmedia.com Production Editor

Vilasini Krishnan editorial3@charltonmedia.com DESIGNER

Niyasuthin design@charltonmedia.com JOURNALIST

Empty the piggy bank, turn out your pockets and call in those debts – it’s time to go shopping. The latest round of casualties from the US subprime crisis, and continued slow down in consumer spending in the world’s biggest economy, have already been snapped up but there could be more on the way.

Bear Stearns spectacular tumble in March, when panicked investors withdrew US$17bn, forcing intervention by the Federal Reserve and JP Morgan, may just have been the most recent big name fall but it also signalled what could be the beginning of a new round of consolidation. The price may not have been settled, Bear Stearns shareholders baulked at JP Morgan’s initial offer of $230m, but at some time, some price the eighty-five year old Bear will have to learn to dance for a new master and another name will fall from the list.

Amex bank, the brand, is another name not long for this world. Stanchart, who bought the bank from Amex for $823m cash, said they are not planning to keep the brand name. American Express sold the bank at the end of a bad quarter for the corporation, which saw profit fall more than 98 per cent in its core US card services business from $US473m to $US7m. And continued bad news sent bank stocks tumbling in mid March, with some surprise falls in Australia’s big names. The moral of the story: if you’ve got the cash there are bargains to be had, and there will probably be more on the way. We analyse these stories and more in our current section, and later delve deeper into what’s going to be driving profitability in Japan’s banks now that de-regulation has finally cleared its last hurdle, cross selling of insurance and the ‘one-stopshop’ is so passé. China’s rural banking sector finally looks like it’s underway once more, although with a certain foreign slant as HSBC consolidate their interests in the area. And in Singapore, the foreigners are also making a play, as Maybank takes on the local trio in slashing mortgage rates. Whether the strategies will succeed or not, we’ve got plenty more questions (and answers) in our interviews and features section. In the meantime, I’m going to start saving my pennies.

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CONTENTS

9

10

FEATURES

16

22

Teng Soon Long, Chairman BCSIS, on

a landmark deal with CBA

23

Lee Beasley of Standard Chartered

on financing the film business

26

Hong Leong Finance President Ian

Macdonald on the future of ATMs

ANALYSIS

8

25

26

30

After the ‘one-stop-shop’ what next

for Japanese banks?

EVENTS 38

How to turn customer relationship

management data into dollars

40

Payments hubs and credit exposure

in the age of open account financing

SPECIAL FEATURES 20

Wincor Nixdorf’s CEO,

Eckard Heidloff on innovations in Asia

REGULARS

33 25

38

6

ASIAN BANKING & FINANCE

42

8

Current account

16

City confidential

18

Bankwatch

24

Online

25

Briefs

34

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Bloomberg

CURRENT ACCOUNT

Will merger opportunities continue to walk on by Indonesia’s Bank Danamon?

Indonesian Banking M&A

Bank Danamon and BII potential partnership gone awry?

BY ROWENA EVERSON When Indonesia accepted US$43 billion dollars from the IMF after the Asian financial crisis in 1997, President Suharto’s government made many promises: financial reform to prevent private banks from speculative investing that put depositor’s money at risk; a more robust regulatory environment to counter financial cronyism; and, above all, consolidation in the banking industry. Only through consolidation could Indonesia hope to create the sort of banking power houses that had sufficient capital to invest in growth without fearing the leaner periods. Since then the country has seen many changes: four presidents; two civil wars (Aceh and Eastern Timor); and a rise in prosperity of roughly 33%.

Banking consolidation, however, has been consigned to the back of the closet with only ten significant mergers between 1997 and 2003. So when the Danamon/BII merger proposal was first announced last December, opinions were mixed. There were those who heralded the arrival of the first of the great mergers. This journal supported the prospect of mergers finally taking place but questioned both the benefits and the motivation for this particular deal, believing that BII would eventually

8

ASIAN BANKING & FINANCE

be jilted at the aisle by a less than keen Danamon. That rebuttal occurred, but did Danamon get cold feet or was the failed merger down to other causes? And, what implications does the deal have for the other mergers that have been waiting in the wings?

The proposal Nobody said it was a match made in heaven when Indonesia’s PT Bank Danamon proposed a merger with PT Bank Internasional Indonesia. BII CEO, Henry Ho Hon Cheong, gave a luke-warm response to the announcement last December, saying, ‘Prima facie, it does seem to make sense but it needs to be validated.’

Analysts were also divided: UOB Kay Hian Securities’ Yap Swie Cu said, ‘Both companies have the same business type, which may not bring synergy if a merger happens.’ Joshua Tanja at UBS reckoned that, ‘given the wide valuation discrepancy between the two banks, a merger will likely be benefiting more BII than Danamon.’

Indonesia’s fifth largest lender emerged from a post-1997 restructuring to refocus its business on lending to the mass market, in areas such as motorcycle financing and SME loans. The strategy proved to be successful: Danamon booked 75% year on

year net profit growth in the third quarter 2007, driven by 22% loan growth, more than 60% of which were in its high-yield mass market segments. BII, by comparison, booked profit declines of 15% in the first three quarters of 2007 and raised bad loan provisions by 17%.

Talks proceeded nonetheless and so it was a surprise when in early March 2008 the deal was formally abandoned. Negotiators hinted that there was a concern over support from Danamon’s minority voters, but an equally plausible reason is that the merger no longer had the support of majority stakeholders Asia Finance Consortium (AFC) A question of heritage Bank Danamon Indonesia was established in 1956 and listed in 1989. In 1997, the bank was placed under the supervision of the Indonesian Bank Restructuring Agency, which recapitalised it with Rp32trn of government bonds and merged it with nine other banks. In 2003, the AFC took a 68.4% stake in Bank Danamon. The AFC’s lead investor is Singapore state-owned investment firm Temasek Holdings.

Temasek also have a majority stake in another group that owns 56.2% of BII – not a problem until June 2006 when the Bank of Indonesia introduced its Single >>

>> Presence Policy, preventing a single owner from becoming a controlling shareholder of more than one bank in Indonesia. Suddenly the holding group found itself in contravention of Indonesian banking laws and faced with the option of selling or merging its investments. Wisely or unwisely they chose the latter, ignoring claims that the two banks’ businesses overlapped so significantly that there were few strategic gains to be created by merging the entities.

Now, that plan has been ditched and analysts are scrabbling around for answers.

One contributing factor could have been the punitive merger taxes payable if the deal went ahead; another is the relatively higher revenue to be generated by merely selling BII; and, yes, there is the possibility that minority stakeholders might not have been keen on the merger.

Danamon, which had been underperforming the market since the BII deal was announced, may now have a chance to recover its previous star form, but will it seek other merger opportunities? Possibly, but AFC members Temasek are having a tempestuous time lately on the international front – despite an original complaint being withdrawn, they still face an investigation on monopolistic behaviour in the Indonesian telecommunications market, and in the US they have been answering questions (along with Norway’s Sovereign Wealth Fund) over non-commerciality and transparency. Nobody said success in the financial markets was easy and Temasek will likely rebound. Whether Indonesia’s consolidation plans recover so swiftly is another matter entirely.

With over 130 banks still in its banking machine, Indonesia falls behind neighbours like Malaysia and Thailand, which have fewer entities and are further progressed along the consolidation path. Since 1997 it has been promising to achieve more, but the recently announced PT Bank Niaga and Bank Lippo merger may also now fall by the wayside. The deal bears similarities to the Danamon/BII merger since the original proposal was prompted by Malaysian state investment arm, Khazanah Nasional Bhd, controlling interest in both banks, which left it foul of the ‘Single Presence Policy’ – just like Temasek. And, just like the Danamon/BII deal, the markets have not reacted favourably to the news – shares of Niaga and Lippo both fell after the merger was announced. Many analysts believed better value would be achieved by merely selling Khazanah’s stake in Lippo.

Is there no solution in sight?

So what’s the answer to Indonesia’s consolidation crisis? Well, firstly to achieve

Mortgages

Mortgage price wars

Bloomberg

CURRENT ACCOUNT

BY ROWENA EVERSON Singapore banks must be hoping to spank their Malaysian adversaries just like their footballing counterparts did the last time the two teams met in the Asean Cup. Then, the Malaysians strived to reach the semi-finals only to be ground down in a lack lustre penalty shoot out.

Now the neighbours from across the causeway are back again, only this time it’s not sporting honours they’re hoping to steal from the Singaporeans, it’s that most hallowed source of national pride and interest – property.

Well, property mortgages, to be specific.

Credit crunch be damned, Malaysia’s largest banking and financial group, Maybank, have launched an all out price war on their Singaporean counterparts.

In March, Maybank announced its new fixed three year mortgage package, claiming (and rightly so) that this was vastly more competitive than any of its rivals.

The three local champions were swift to respond with their own new three year packages, and rumours of a price war began to circulate in the bars of Boat Quay.

A return to the trenches Amid the tightest global credit market the modern financial world has ever seen, with casualties like Northern Rock and Bear Stearns falling prey to cash droughts, are we about to see an all-out mortgage battle?

Will the retail banks (foreign and local) return to the trench warfare of 2002/2003, when at the peak first-year rates were being offered at 50bp below the interbank rate with the second year at the interbank rate?

Possibly, but analysts believe any battle that is fought will likely be short lived and

Getting a mortgage has never been simpler

the playing field will be far smaller than in 2002.

Paltry profit In 2002, banks offered subsidised rates in the hope of recuperating lost profits in later years, but those waging the price war were to learn a painful lesson in consumer loyalty when they raised rates and their clients departed. Profit hits were widespread and significant.

Also whereas foreign banks were keen to take a piece of the local mortgage market in 2002, due to lacklustre credit demand in other sectors, 2008 paints a different picture. Credit issues in Europe and the US are forcing foreign banks to guard their overseas exposures. And, finally, there is evidence of widening spreads on other loans which could make the foreign banks even less willing to compromise too much in the way of spreads on housing loans.

Whether or not the analysts have identified the right symptoms this journal agrees with the diagnosis. Maybank’s move doesn’t feel like an all out mortgage war where customers are poached from the local banks.

Overall, the property market in Singapore has slowed, although prices remain high, and many potential investors are choosing to bide their time. Possibly Maybank saw an opportunity to grab some of those undecided buyers and snuck in an early half time goal.

Sample of mortgage packages New property Refinancing Fixed rate OCBC Variable rate UOB FirstZero Maybank 3 year fixed DBS

YR 1

SIBOR+0.5% SIBOR+0.75% 3.75 3.25 0 1.68

YR 2

SIBOR+0.5% SIBOR+0.75% 4 3.5 3.6 2.68

YR 3

SIBOR+0.5% SIBOR+0.75% 3.75 3.75 4.5 3.38

AVG 2 2.85 3.83 3.5 4.05 2.58

Source: Company data The Straits Times, UBS

>> ASIAN BANKING & FINANCE

9

>> one would be a good start to the second quarter of 2008. But the question has to be raised of whether trying to force consolidation by making foreign investors merge holdings under the single presence policy is the right way to achieve a more efficient banking market. Surely commercially prompted deals whereby banks that have natural synergies and create better, not worse, shareholder value post merger would be a start.

After all, Indonesia actively courted international investors to its financial system post 1997 in the hopes that these would bring about better corporate governance.

Danamon is a good test case.

Perhaps the State Enterprises Ministry might wish to begin with the five separate banks it holds on its own register rather than haranguing the overseas investors.

But then, putting one’s own house in order is never easy.

Bloomberg

CURRENT ACCOUNT

XXXXXXXXXXXX Sri Mulyani Indrawati, Indonesia’s Minister of Finance Bloomberg

Cash Crunch

Beary outlook for banks down under

BY ROWENA EVERSON “That old butterfly must be flapping its wings non-stop at the moment if the latest hurricane of Asian banking woes is anything to go by. Bear Stearns may have been a global name – the eighty-five year old Wall Street heavy is one of the largest global investment banks, securities trading and brokerage firms in the world - but its presence in Asia has always been limited.

Why then did the news that JP Morgan had dipped into its biscuit jar and offered to buy the old bear for a measly $240million dollars (a figure still in debate) send ripples of bad stock news across the banking markets almost immediately? Will Bear Stearns and Northern Rock be the last star casualties of the ongoing credit crunch or should we expect to see similar disasters in Asia? And if so where?

Some market watchers believe that the Asian fallout from the Bear Stearns debacle was a more emotional than logical response. The panic that prompted customers and creditors to withdraw $17 billion of assets from Bear Stearns was resonant of last August’s Northern Rock situation where lack of short term funding resulted in the first run on a UK bank in over a hundred years.

Tom Murphy, manager of more than $1 billion in Asian assets at Deutsche Bank AG in Sydney said of the recent disaster, “Bear Stearns has minimal direct expo-

10

ASIAN BANKING & FINANCE

Will the losses posted by the major Australian banks be the start of a crashing cascade?

sure to Asia, but investors are concerned about what it means for the wider credit crisis and whether more will follow.”

That investor concern saw the beleaguered Japanese banks take even more of a hammering, but in the immediate wake of the news some of the biggest losers were in Australia at Babcock & Brown and Macquarie, Australia’s two largest investment banks. So could Australia be next to host a banking spectacle?

Multiple hits Shane Oliver, Sydney-based head of investment strategy and chief economist at AMP Capital Investors, which manages about $108 billion, said, “Australia has been hit on multiple fronts, not only by the global turmoil, but also by higher in-

terest rates.’’ he continued, “Australia has a higher-than-average weighting of financials, which have been at the heart of the crisis.’’

The heart is where the banks have been hit, with Australian stocks falling the most in 20 years during the first quarter of 2008 and banks providing a hefty chunk of that fall.

Mike Smith, CEO of ANZ Bank, said, “What bankers see...is that wholesale funding costs are continuing well above official increases. ANZ for example, is now paying more than 50 basis points extra for wholesale funding compared to a year ago.

That kind of pressure on funding in tight cash markets is just the kind of bad news Australia’s banks would rather not hear.

Bloomberg

CURRENT ACCOUNT

Mervyn Davies, Chairman of Stanchart is now the man of steel to the floundering AMEX Banking Acquisitions

Stanchart’s man of steel flies to the rescue

BY ISAAC STEWART After a disastrous 2007, when share prices fell by 14% and profits in its core US card services fell by more than 98 per cent, American Express has been holding out for a hero. But amidst some of the tightest credit markets in modern history, who would come to the rescue? Look to the sky: it’s a bird, it’s a plane, its Mervyn Davies, Chairman of Standard Chartered.

Stanchart sealed the American Express Bank deal with American Express for US$823million on the 29th February, 2008. “The acquisition significantly enhances our wholesale bank and turbocharges the growth of our newly launched private bank,” said CEO Peter Sands.

Turbo-charged is the watchword for Stanchart’s recent success, a testament to its solid track record of organic growth coupled with a small number of handpicked acquisitions. “80 percent of our operating income growth comes from organic businesses; we are very focused on organic growth,” said Arijit De, Head of Stanchart’s Media Relations.

So how does a high profile acquisition like AMEX Bank fit with Stanchart’s corporate growth strategy? And is the spinoff from an ailing corporation the sort of ‘hand-picked’ acquisition that Stanchart wants?

Asia all the way Mervyn Davies strategy for the acquisition of AMEX Bank seems to have been directed towards strengthening Stanchart’s focus on Asia, increasing the bank’s scale in the region, and profiting from AMEX Bank’s

private and correspondent banking business in Singapore, Hong Kong and India.

The company expects growth in the Asian economies, where it focuses its business, to be higher this year than in the US and EU. “Although growth rates in Asia will slow, the region now enjoys a degree of insulation and resilience,” said Davies.

Recent acquisitions (see table) have helped the bank grow in key markets such as India, South Korea, Taiwan and Pakistan. “The thrust of our strategy is organic growth, but we are constantly on the lookout for acquisitions that complement organic growth,” said Sands.

Patrick Winsbury an analyst from Moody’s said that Stanchart’s current ratings indicate “the potential for future acquisitions by the bank to compliment its strong organic growth.”

Despite AMEX Corporation’s troublesome 2007, Stanchart saw the potential of acquiring AMEX Bank’s exposure to 19 separate global markets, which would boost Stanchart’s branch network in Asia.

How have they fared?

It’s early day still to make conclusions on the success of the acquisition, but there are a few positive signs that the deal could work well for all parties. AMEX Bank has stabilised, with the same Moody’s credit rating of A2 pre and post acquisition, and it should benefit more in the future as part of a bigger organisation, where it will gain more support from Stanchart to grow its private and correspondent banking businesses. For the vendor, AMEX can now

Key Facts • 2005 - Completes Korea First Bank acquistion for U.S$3.3 billion • 2005 - Announces partnership with Travelex • 2005 - Signs agreement on the formation of Bohai Bank, China • 2006 - Opening of Bohai Bank, China • 2006 - Stanchart and PT Astra International aquire an additional 25.90% of PT Bank Permata, Indonesia • 2006 - Achieves over 51 percent acceptance from Hsinchu International Bank shareholders, Taiwan • 2006 - Aquired 80% of Union Bank, for US$413 million, Pakistan • 2007 - Launches Private Banking operations in India • 2007 - Completes acuisition of Harrison Lovegrove & Co Ltd, United Kingdom • 2008 - Completes American Express Bank acquisition for US$823 million, United Kingdom concentrate on its policy of growing core payment processing, charge and credit card businesses. “The sale of American Express Bank to Standard Chartered reflects our continued focus on high-growth, high-return payments businesses” said Joanna Lambert, Vice-President, Corporate and Financial Corporations, AMEX. And for Stanchart, the purchase grows its private banking business in Asia by up to 50 percent, adds capability to its trust and fiduciary services, doubles its U.S dollar clearing business and provides direct Euro and Yen clearing capabilities.

It has increased its growth momentum, its product quality; it’s potential and has deepened its presence in key markets such as India. The deal also supports Stanchart’s financial institutions business and increases its global spread.

And Stanchart will benefit from AMEX Bank’s strong brand recognition and its experienced management team, although it has already announced that the bank will not retain the ‘AMEX’ name. “The acquisition makes strategic sense for Stanchart, due to Stanchart’s solid integration track record,” said Winsbury, echoing other positive sentiment on the takeover.

But the last word should really go to the hero himself, the inimitable Mr Davies, who has grown the bank to its present size.

“We are extraordinarily well positioned to seize these new realities thanks to our growing geographic reach and scale.” and the breadth of our products and capabilities,” said Davies, shortly before taking to the skies once more.

ASIAN BANKING & FINANCE

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Bloomberg

CAPITAL ACCOUNT

After equities, will equity linked structured deposits be enough to lure the man on the street back into the markets?

Mass Market Products

Structured deposits: golden goose or poisoned apple?

BY ROWENA EVERSON While equity markets continue to suffer prolonged volatility and a gradual waning of interest from retail investors, the consumer sector has been turning its attention to a new breed of product aimed at luring back the low value, high volume investors – equity linked structured deposits. Since late 2007 a rash of these types of products, have hit the high street and, judging by the ever increasing variety of offerings, the latest retail investment fad is gathering pace.

In investment banking, of course, equity derivatives are nothing new, but the roll-out of structured products to the retail market in a mass targeted way is an innovation.

But will these often complex investments succeed in luring back the hordes of consumers who gave up their addiction to equity trading when volatility rose? And ultimately will they fill consumers needs?

Diversification or just diverse Many of the current equity linked structured deposits are virtually identical, offering capital protection on the initial investment and an attractively high coupon, which retail investors can equate to an interest rate. Certain banks have branched out. Last year CIMB launched

what it claimed to be the first Islamic equity-linked structured product in Malaysia – the catchily titled ‘Islamic All-Stars Global Restricted Mudharabah Structured Investment-i’ or ‘Islamic AllStars Global’ for short. But scratch beneath the name and you find broadly the same speaking structure; a capital protected product linked to the performance of 20 global blue-chip multinationals. It’s hard to see how such an un-differentiated pool of offerings can be such a draw, particularly now that investment banks like Merrill

Lynch are looking for a slice of the retail structured pie.

Chu Kok Wei, Executive Vice President, Structured Products and Derivatives, CIMB Investment Bank, said, “The recent market volatility has impacted equity linked structured deposits (SD) in many ways.

The declining market has understandably reduced the fair value of SD, but to a lesser extent than the outright long equity position. The market volatility has reminded customers on the benefit of

Table: XXXXXXXXXXXXXXXXXXXXXXXXXXXXX DetAilS Of StrUCtUreD DepOSitS Of BANKS BANKS

Bank of China

Shinsei Bank

UOB

Deposit period Currency Min.Investment Principal Protection Gross return Withdrawals Offshore option Outperformer Maturity period

1 HK,USD HK $50 K Yes Deposit+Interest Flexible deposit NA NA 1 Year No

1/3/6/12 ¥,USD ¥ 1 million Yes Deposit+ Interest NA NA NA 3 or 5 Year No

24/96 SGD/USD SGD 5K No Deposit+ Interest Yes No NA 1 Year No

Management fee

Source: Asian Banking and Finance Magazine

>> ASIAN BANKING & FINANCE

13

CAPITAL ACCOUNT

Asking for more than security If these optimistic predictions are correct then perhaps SDs will prove attractive enough to lure the retail investors back into equities. With a limited downside, whereby if all stocks close below a base minimum in a given period then the structure is cancelled, and principal protection, investors are assured of at least receiving their primary investment.

But security may not turn out to be investors’ only demands. The attentiongrabbing coupon rates are only payable under very specific criteria are met commonly requiring all stocks to close above 90% of initial - failing which the coupon rate falls dramatically.

With so much volatility in the equity market, the risk of at least one stock closing below the minimum is greatly increased, as is the risk that investors see a juicy interest rate turn into something far less satisfactory but with a fixed term and no means of exiting. nd if that happens those eager investors may turn cranky.

14

ASIAN BANKING & FINANCE

Bloomberg

China Banking

High noon for China’s rural banks

BY ISAAC STEWART

China’s rural banks have saddled-up their mounts and strapped on their six-shooters as they take on the big boys to prove that they are not yet out of the game. Rural banking has been seen as one of the highest risk segments of China’s banking market due to high historic defaults and poor credit evaluation.

New regulations by the central bank over capital requirements, designed to cool an overheating economy, looked like the beginning of the end for China’s rural banks, many of which are tiny compared to big name rivals. But now foreigners may be helping to revitalise the rural sector.

In the face of mounting global criticism stemming from China’s poor loans climate, banks such as HSBC have demanded better market access and decreased provincial barriers for a much under-serviced sector.

Zheng Hui, President of the Agricultural Development Bank of China said that despite rural China’s excess liquidity, there is a burning demand for loans.

“There is a capital shortage in rural areas and it’s still difficult for farmers to get loans,” he said.

HSBC started its first rural bank in the Hubei province, pioneering China’s foreign-invested rural banking sector.

It has since been in discussion with the New Hope Group (a private agricultural investment conglomerate) which plans to spend up to 100 million yuan on new rural deposit facilities. Despite concerns over continued risk in the rural bank-

HSBC and Minsheng wooing China’s farmers

China’s loan growth Balance Credit Long Term -150500 Loans

0

Debt 150500

Short Term -1148813 83356 1232169 Loans Source: China Statistical Year Book

ing sector, HSBC remains positive in its outlook, and they’re not alone. Minsheng Bank is planning to spend close to 20 million yuan on the development of a village bank in the Sichuan province.

HSBC and Minsheng Bank stand to profit from the sector’s growth and potential, provided they can implement strong controls over credit control and bureacracy. Possibly others may follow.

In 2007 no fewer than 19 township banks were opened in China - a clear indication that Premier Wen Jiabao’s policy to develop China’s rural financial system is garnering speed.

As China’s growth continues to polarise the urban rich and the rural poor could this new banking move be the long awaited turnaround?

Chart: Growth of China’s rural banking sector Urban Population % of total

>> having capital protection features. Some of the equity linked SD have declined by approximately 5% YTD, as compared to more than double digit decline in equity market, and still with principal protection assurance at maturity.”

He added, “In fact, the market volatility has increased the attractiveness of SDs, which serve as a balance between upside market participation, and the safety of principal protection.”

Janice Poon, General Manager, Wealth Management, Standard Chartered Bank, said, “Given the broad market declines, the payoffs of structured deposits that are linked to bullish performances in equities or equity indices have invariably been similarly affected.

As a result, investors could be foregoing the potential coupons that could be earned during this period. However, as these are all 100% principal protected, investors of structured deposits would have outperformed investors who have longed equities and subsequently suffered draw downs.

In the worst case, investors regain 100% of their invested principal. We have seen an increase in the volume of structured products. This is expected as during times of uncertainty and market volatility, 100% principal protected structured products provide investors with a peace of mind.

However, we have also witnessed a gradual shift towards rate-linked, fundlinked or commodities-linked structures.

This is part of our effort to encourage investor to diversity into other asset classes as a hedge against falling equity markets.”

70 60 50 40 30 20 10 0

Source: UN

1985

1995

2005

2007

CITY CONFIDENTIAL

Banking on urbanisation amidst turmoil in Asia

BY ROMESH NAVARATNARAJAH

Targeting the affluent market In Malaysia and Indonesia, Bumiputra-Commerce is targeting the affluent and mass affluent segments that are investing their growing incomes in residential properties and building a portfolio of financial assets. Its treasury division is also rolling out a series of structured deposit products and the asset management subsidiary has aggressively launched new funds as part of Bumiputra-Commerce’s strategy to build up its retail customer base and grow non-interest income.

With all the ‘buzz’ surrounding BumiputraCommerce, Dato’ Razak might want to throw a big party and invite Prasarn Trairatvorakul, President of Kasikorn bank, who should be enjoying new found popularity, despite social and political upheavals Prasarn can afford to loosen his tie and party! in Thailand, as the bank swells its coffers. KBANK, which will boast 662 branches and 5074 ATMs by year end, is in a strong position to generate above-average returns and rates of growth.

Its asset management arm, K-Asset, ranks second in terms of AUM. As loans are concentrated in the SME and retail segments of the market, and as urbanisation in Thailand continues, customers’ needs will become more sophisticated, and that spells good news for KBANK, which in time will be in a strong position to meet those needs.

Speaking about time, how fast can fortunes change in the bank-

16

ASIAN BANKING & FINANCE

Bloomberg

ing industry? Pretty quick would be the response from Djohan Emir Setijoso, CEO of Bank Central Asia (BCA).

Just ten years ago, the Asian financial crisis threatened to shut the bank’s doors, but it has now risen to become the second largest bank in Indonesia in terms of assets, as a result of Head of BCA, Djohan Emir Setijoso its strong growth in deposits and earnings. UBS has forecast a sustainable growth rate of 12 percent for BCA. Latest figures have also put the number of bank branches at 796, with 173 priority banking branches and more than 5332 ATMs throughout Indonesia.

100 percent exposure to financial services BCA is considered the leading retail bank and best payment settlement bank in Indonesia. Key products offered include mortgages, car loans and corporate banking services. The company has a history of being conservative in its approach to lending and only last year began a more aggressive push. The fact that rural immigrants need to open bank accounts and given BCA is the de-facto payment settlement bank for small businesses and consumers, makes it a key beneficiary of urbanisation.

Urbanisation How can we talk about happy heads of banks and leave out K.V. Kamath, the CEO of ICICI Bank who is known for his enigmatic smile (as regular readers will know from the cover of our last issue). India’s largest bank is also a market leader among life and general insurance private companies, ICICI Bank CEO, K.V. Kamath and ranks second among asset management firms.

If this wasn’t enough good news, ICICI has recently been singled out by analysts as the bank most likely to benefit from increasing urbanisation in India. Coming from a low base (banking-wise), India’s rapidly urbanising population still suffer from low penetration in many consumer segments and limited financial services. Added to which India’s credit to GDP ratio is still only 50 percent. UBS predicts ICICI could post an earnings growth of 23 percent over the next two years and record medium-term growth of 10 percent while it does so. Keep smiling KV.

Bloomberg

This past month, many Malaysians have been glued to their gogglebox, wondering whether Prime Minister Abdullah Ahmad Badawi would lose his job (he didn’t).

But Dato’ Nazir Razak, CEO of Bumiputra-Commerce, was far too busy adding to his already impressive name in Malaysia’s BCHB’s Dato’ Nazir Razak - too busy for TV finance fraternity to bother with TV. Bumiputra-Commerce was recently mentioned in a UBS report as offering one of the best exposures to urbanisation in Asia. The bank, Malaysia’s second largest by asset size has been building and expanding its domestic retail banking franchise via acquisitions and it provides exposure to the Indonesian consumer banking sector via its 64 percent interest in Bank Niaga.

Presented by

"

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Exclusive Banking Seminar not to be missed!

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Banking executive half day forum series

The battle for banking security

Defend against malicious strikes; Attack internal risks Kuala Lumpur: 2nd April, 2008

Singapore: 8th April, 2008

Jakarta: 10th April, 2008

Banks spend over $80 billion on Information Technology in Asia with 8 percent of that being spent on IT Security.

Defence against external assailants such as hackers is only half the story, effective risk and process analyses are crucial if banks are out to win the war on security. The recent $7.14 billion fraud at Societe Generale caused by hacked bank internal systems proves that the biggest threat is not a robbery at a branch but an attack on its system. This exclusive briefing will look at today’s threats, tomorrow’s weaknesses and what you can do to safeguard your bank’s critical IT infrastructure and its ongoing future.

Key Topics How to protect your IT infrastructure from intrusion New trends in IT security & prevention of internal abuse GAP analysis in the front to back processes and how silo driven checks and balances can lead to $8billion frauds How to safeguard company’s assets without losing your mind! Balance between complexity and security Hear case studies and swap stories with your peers at this intimate briefing

Speakers:

Tim Charlton Editor-in-chief Asian Banking and Finance Magazine

Andrew Namboka Chief Technologist, Asia Pacific Nokia Enterprise Solutions

And 2 seniors executive from top banking institution (To be Announced).

In association with:

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19

BANK WATCH

Baby Arcega

Sub-prime hits Metrobank harder than other banks BRYAN CAMOENS Head honchos at Metropolitan Bank & Trust Company (Metrobank) in the Philippines out to be sighing with relief right now. At the end of 2007 they took a sizeable chunk out of their non performing loan portfolio to come in 4.6% lower than analyst NPL predictions for the year. 8.8 billion Pesos of non-performing assets, including almost a quarter of the entire NPL portfolio, were sold in 2007, boosting profit and improving the bottom line risk.

Pity then that Metrobank still underachieved the Philippine Stock Exchange (PHISIX) with a 14% three month underperformance. It’s not alone in underperforming the market - all of the major domestic players have been suffering an increased global risk aversion due to fallout from the US subprime crisis, but Metrobank has been hit harder than most. Its performance was more than one percent lower the average performance for other major Philippines banks in the same period of time.

Dwindling loan growth and trading income prospects amidst the current sluggish global market conditions, have forced analysts to cut the earning per share estimates.

Metrobank is currently trading in the same range it was during the Asian Financial Crisis, below the price to book value ratio for banks in the region.

Despite the cuts, analysts still forecast a 22% earnings from the compound annual growth rate (CAGR) for the next year or so, driven mainly by declining provisions and a higher earnings asset base raising the tangible ROE from 11.8% to 15.75% by next year.

Also, by disposing of almost Peso (P)4.69 billion in NPLs in 2007, and assuming almost no new NPLs arising from the fourth quarter of last year, NPLs have now been reduced to around P14.86bn. Based on these facts, and a 6% growth in loans and receivables in 2008, Metrobank appears well on its way to reaching the 4.1% NPL ratio in 1997 before the impact of the Asian financial crisis took full effect.

What must be asked though is if the gains made by Metrobank from the NPL fire-sale are a much overdue housekeeping exercise in an otherwise orderly establishment or whether the market underperformance is really a symptom of other factors. Can Metro emerge from a difficult 2008 to recover lost ground against its peers?

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ASIAN BANKING & FINANCE

Metrobank, the Philippines largest bank has been hit harder than others by the sub-prime crisis.

Asset Quality Trend 2007E (Pm) Gross NPLs Total non-performing assets NPLs Total interest income Total income Total operating expenses PRE-TAX PROFIT REPORTED NET PROFIT

14,858 64,075 9,527 38,015 36,690 (22,617) 9,573 6,898

2008E (Pm)

12,224 59,184 9,656 36,402 39,935 (24,341) 11,094 7,927

Source: Bloomberg

The analyst’s call Richard Lung, VP, Senior Analyst Moody’s Investor’s Service Metrobank’s (MBT) sale last year of nonperforming assets represented another tangible step towards restructuring its balance sheet. The timing of the sale allowed it to benefit from certain tax advantages under the SPV Act, which will expire in mid-2008. From a credit stand point, a number of the bank’s key credit strengths should see it through the current conditions impacting financial companies globally.

It maintains a strong market position within the Philippines and has demonstrated a commitment to defending and growing its franchise, most re-

cently through its participation in the capital increase of its growing majority-owned thrift bank subsidiary, Philippine Savings Bank. While MBT did have the largest concentration in collateralized debt obligations among the Philippine banks, its exposure was relatively minimal and the risks of it being forced to crystalise markto-market losses on these assets are neglible given its strong liquidity position. On January 25, Moody’s raised the outlook on MBT’s long-term foreign currency deposit rating and hybrid tier 1 rating to positive from stable. This action followed a revision in the outlook on the Philippines’ foreign currency deposit and debt ceilings.

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SPECIAL FEATURE

Wincor Nixdorf’s brings new innovations to Asia’s banks Isaac Stewart spoke to Eckard Heidloff, CEO of Wincor Nixdorf at Wincor World 2008 about Wincor Nixdorf’s new direction in Asia Q. How do you see Wincor Nixdorf penetrating the Asia-Pacific market?

Step-by-step we have grown in our market positions in Asia. In the past five years we have grown in Asia by an average of 20%, and by 30% last year.

We did not have a strong market position before, but this has changed over the last years, plus we now have a country-bycountry strategy to become even stronger in the markets, which we named our ‘road to the top’ strategy.

In all countries we work with our legal entities in order to penetrate the local market with Wincor Nixdorf ’s world class, high quality products and solutions.

Q. How much of a presence does Wincor Nixdorf have in China?

In China, we started late in the market, but our position has grown stronger, so Eckard Heidloff, Chief Executive Officer, Wincor Nixdorf that we currently hold the number three Q. In the realms of the ATM industry, markets. We see a strong demand for such position in terms of ATM installations. how is Wincor Nixdorf leading the way solution in China, where there is lots of In the past two years, we focused on the in product innovation? cash handling processes to be improved as second and third tier banks which worked In order to penetrate markets in new the quantity of the cash people bringing to very successfully for us, translating in countries, we have to be better than our the counters is immense. high deliveries to China. We have now di- competition. Our goal is feeling what is With our solution, cash handling proverted our focus towards the top five tier needed by the markets and the customers cesses can be done much simpler for one banks. and being flexible to react to not just the end customer, but also for Wincor Nixdorf is now in what they need. the bank. It makes for more streamlined the position of potentially transactions, and can save up to 50% of getting the number one or Q. How has Wincor Nix- the total costs, by doing this intelligently We are happy to number two market posidorf ’s technology been re- automated. say Asia is on the tion. At the same time, Winceived in the Asian market?

This has proven in the market and the tip of success and cor Nixdorf is diversifying The Asia market is very sen- customer accepts this very well, because greatness its portfolio to also serve the sitive when it comes to qual- they can operate the machine 24 hours a market with specific soluity, so Wincor Nixdorf has day, seven days a week, with instant credit tions in terms of its software been perceived very well. of the account. and services business.

To name an example, we have had big success with the intelligent Q. What is Wincor Nixdorf ’s motivation Q. What kinds of challenges and percep- cash deposit system, which can process for implementing biometric technology tions does Wincor Nixdorf face in Asia? cash-in and cash-out functions while im- in Asia?

One is to get the right kind of people in- proving the bank processes. We see this as In general for the company, security is volved. We believe in local management, a unique application for the markets. key, and we have learnt we have to invest world class practices and infrastructure.

Due to the highly sophisticated technol- in this business field.

That is why we have our own entrepre- ogy of cash verification and authenticaOne way in doing so is using biometric neurship in the major markets in Asia tion technology, we differentiate ourselves technology to enable illiterate people to Pacific which take full responsibility of in this from our competition. In general, use the ATMs without remembering their strategies and customers, aligned with the we are perceived as the technology and pin codes, thus preventing them from quality leader in a lot of areas, and we are sharing their pin with others. corporate strategies.

This solution has proven very successSecondly, Wincor Nixdorf must con- working hard to keep this perception up. ful in India and will be spread across Asia vince banks to take part in long term partQ. What kind of potential do you see for Pacific. All together, we are investing in nerships.

We are not a company based solely on Wincor Nixdorf ’s cash recycling system the biometrics and also other functionalities on the hardware and software side selling hardware, but we want to be seen in Asia? as the end-to-end solution provider for We see cash deposit and cash recycling as to enhance the security of local banks and one of the killer applications for the Asian customers. retail banks in the market.

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ASIAN BANKING & FINANCE

SPECIAL FEATURE Q. Security seems to be a big topic at Wincor World 2008, what is Wincor Nixdorf doing on a global basis to prevent vandalism, card tampering and skimming?

We are doing a lot of things to be ahead of all these high-tech thieves. For example, anti-skimming devices are an important part of our integrated security offering needed in the markets, but we experience different requirements in all the countries.

Wincor Nixdorf is trying hard to both deliver preventive solutions as well as to react accordingly and timely to solve the problems caused.

Sometimes you can protect the machine by 98%, but if that 2% is used by criminals to breach the system and manipulate the machines you are forced to put another layer of security on top of the system.

At the same time, the security focus is not only related to self-service devices, but also branch security solutions or software solutions like anti-virus campaigns, where Wincor Nixdorf is able to provide comprehensive solutions.

Q. What lies ahead for the future of Wincor Nixdorf in Asia?

Wincor Nixdorf sees Asia Pacific as a very important part of its global strategy, and we expect to continue our path of double digit growth in the future. Our capability and aim is to tackle more customer service, to continue the process that cash will be automated, and in terms of the channel mix there will be more focus placed on internet and mobile banking.

We need to convince banks to build their software based on Wincor Nixdorf ’s model and introduce better security and services solutions. There is massive potential available to us in Asia Pacific, coming along with exciting opportunities, including the key markets such as China, India and Vietnam.

Significant progression, stages of technology and increased affluence presents additional chances for us. We are happy to say Asia is on the tip of success and greatness for Wincor Nixdorf .

Q. How can Wincor Nixdorf improve on the success of Wincor World 2008 for next year’s Wincor World 2009?

We want to breathe life into customer excellence and to keep past promises. We have made a commitment and we want customers to depend on us.

Therefore the expectations of our customers need to be exceeded. Wincor Nixdorf knows what we have to change, that we need to continue to re-invent processess for our customers, and go down new paths.

Wincor World blows winds of change Located in Paderborn, Germany, Wincor Nixdorf is one of the world’s leading IT solutions and services provider. to banking and retail. Wincor Nixdorf ranks third in the world for programmable electronic POS systems and ATMs in terms of installed basis, and it has a global presence in more than 90 countries, supported by its production facilities and software centres in Germany, Shanghai and Singapore.

The company’s extensive portfolio is centered on optimising business processes at banks to enable them to cut costs and complexity while improving sales and services for customers.

Leading the technology revolution Wincor Nixdorf provides the knowhow to ensure that its customers can run world-class operations and focus on stronger sales to their end customers.

Nowadays the company is transforming into a solution provider for retail banks.

Historically, Wincor Nixdorf is the market leader of Multi-Vendor solutions for ATMs which is a solution that can be implemented on all varieties of selfservice devices, meaning that banks are not longer limited to just one hardware vendor with own proprietary software, but forces the industry into open architectures and open standards.

One step further, ProClassic/Enterprise supports multiple sales channels such as the internet, telephone, self-service and the traditional branch banking.

This Retail Banking Solution suite is a network-centric, modular software portfolio that comprehensively brings together a bank’s customer, business and transaction handling processes as well as incorporating IT aspects.

A promising new direction The entire suite of the Wincor Nixdorf products and solutions was shown at the in-house fair Wincor World during end of January 2008 which showcased more than 600 exhibits both of the Retail and the Banking area for 7,000 plus customers spanning the globe.

Wincor World 2008 offered customers a unique look inside the operations of one of the world’s leading banking technology companies.

Wincor Nixdorf ’s focus and growth in Asia was highlighted by its strong Asian delegation this year with roughly 200 participants and customers ranging from 15 different countries in the region,

marking a positive milestone for the company.

Examples of the solutions that were shown during Wincor World include the companies’ state-of-the-art cash recycling system, coin solutions, and automated teller safes for the branch teller positions as well as the new launch of its Retail Banking Solution suite.

Wincor’s software suite maps a bank’s customer, business and transaction handling processes as well as incorporating IT aspects such as the infrastructure, security, optimisation and management.

“The suite’s individual modules allow us to implement branch and self-service processes reliably and efficiently, increase revenue, sales and service for customers, and control systems and workflows with the best TCO,” said Stefan Auerbach, the Wincor Nixdorf AG board member responsible for global banking business.

Branch design looks set for a boost in 2008, with the inclusion of innovative décor, open design concepts and improved access points together with the provision of private consulting rooms, cafes, seating areas, self-service and state-of-the-art consulting facilities.

The purpose of such new design will not only reflect on the look and feel of the branch, but also will significantly speed up processes and reduce queuing times in the branches.

Securing the future of Asia’s banks In terms of Wincor Nixdorf ’s direction towards security this year, skimming and branch intrusion was at the top of the list of security challenges for 2008.

ATMs, cash transports, night safes and vaults all face the scourge of vandalism, but some recent developments including time-delays, paint spoiling and advanced alarm systems seem to be stemming the flow of crime.

Continuing the growth path Taking a look into the crystal ball for 2009, Wincor Nixdorf looks set to continue its successful growth path in Asia Pacific by further diversifying in terms of cash management, intelligent deposit and software solutions spanning across the self-service and branch delivery channels in the key markets of the region.

At the same time, it is continuing to build up its infrastructures and operations, also in terms of its servicing capabilities to ensure customer satisfaction in the long run.

ASIAN BANKING & FINANCE

21

INTERVIEW

BCSIS & CBA bring world class banking solutions to Asia Tim Charlton sat down with Teng Soon Lang, Chairman, BCSIS to discuss the partnership and their foray into commercial banks Singapore based payments systems provider BCSIS (BCS Information Systems) has signed a landmark deal with CBA (Commercial Banking Applications) of Norway. This strategic partnership gives BCSIS exclusive distribution rights in Asia and the Pacific.

Synergy between BCSIS and CBA BCSIS, owned by Singapore’s OCBC Bank is renowned for its solutions in central bank payment systems. BCSIS Chairman Mrs Teng Soon Lang told Asian Banking & Finance: “CBA’s IBAS Global Banking Factory has a comprehensive repertoire of product offerings that were built by ex-bankers who understand the needs and dynamics of banks. This partnership presents tremendous synergistic opportunities for BCSIS as we can leverage on our payment and clearing expertise built over the last 20 years.”

Mrs Teng highlighted that the timing was excellent for BCSIS and CBA to expand their footprints throughout Asia and the Pacific. She shared that over the last two decades, Asian countries have put in a lot of focus on setting up their domestic infrastructures for clearing and payment.

Thus, banks have been investing in capability building to support these initiatives.

In addition, many banks in Asia and the Pacific have consolidated and grown in size. Those with visionary aspirations have started to leverage on these internal and external capabilities to enhance their enterprise payment systems for higher straight through processing. OCBC Bank is one of their first clients of IBAS Global Banking Factory in Asia and the Pacific.

Mrs Teng said: “OCBC is excited that IBAS Global Banking Factory would enable the bank to create new product offerings and deliver better customer service.”

Comprehensive product offerings CBA Chairman Mr Oivind Gunnerud said “We have been investing over 50 million Euros in the development of this new platform for over ten years. IBAS Global Banking Factory is a complete banking solution package, offering most of the products and solutions for international banks, such as Clean Payments, Trade Finance, Foreign Exchange, and Money Markets, Loans, and Credit System, Account Management and Factoring.” The

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ASIAN BANKING & FINANCE

The driving forces behind CBA and BCSIS at the collaboration agreement signing ceremony

Mrs. Teng sharing her insight during the interview while her CBA counterpart looks on

collaboration between CBA and BCSIS is a potent and winning combination. CBA’s versatility as a company is always open to new ideas, directions and standards and this complements BCSIS’s highly professional work ethics and sensitivity to the constant changes in the dynamic banking industry in Asia.

Mr Gunnerud reiterated this by saying, “We strongly believe that BCSIS is the right

partner for us in the Asia and the Pacific market,” to which Mrs Teng added, “The new collaboration with CBA has marked a significant milestone in BCSIS’s efforts to extend their value offerings to commercial banks clients.” With this formidable partnership, Asian Banking & Finance eagerly anticipates new innovations and horizons to be explored by the professional members of the newly forged alliance.

INTERVIEW

Stanchart gets loony over first serve toonz cartoons Lee Beasley, Head of Media and Entertainment, Standard Chartered talks about First Serve Toonz deal with Isaac Stewart Q. What is the Standard Chartered and First Serve Toonz deal?

SCB is providing a senior debt loan facility to assist with the production of the animated television series, Wolverine.

We are providing a loan of US$4m to assist with the production funding of Wolverine which will be offered to the various broadcasters in Asia and around the world once completed.

Q. Why has Standard Chartered moved into animation financing?

SCB focuses on adding value to our customers. We have a culture of ‘out serving our customers’ which goes beyond first class service to how we can make a real difference for our customers and their business.

SCB saw the needs of customers in the media and entertainment industry and established a dedicated team for this sector in 2004. Animation financing is one of the financing solutions we provide to the media and entertainment industry.

Q.How will this move increase Standard Chartered’s influence in the media and entertainment industry?

This is a strategic move to grow our business in markets not previously served by banks but more importantly to assist with the growth of our clients in these markets.

We see significant growth in the media, entertainment and advertising industries over the coming years and our team has been established to help our clients benefit from this growth.

Q. What will the benefits be for Standard Charted from the First Serve Toonz deal?

It has increased SCB’s exposure in the market as well as educated the industry about SCB’s offerings and to emphasise SCB as the financier of choice for these productions. We have helped to finance a project for one of our clients who would previously gone to Europe or the USA for this type of funding.

Q. How has the animation industry grown in Hong Kong?

As the production houses have started to outsource the growing talent pools in Asia in animation, more and more business are flowing through, leading to a huge growth

Lee Beasley, Head of Media and Entertainment, Standard Chartered

in this sector.

Also with the quickly growing Chinese economy, businesses are recognising the growing demands of the Chinese population and are starting to gear their services and productions to meet these needs.

This combination leads to a growing dependence on the Asian animation industry for more and more productions.

advantage and more importantly the local knowledge.

We essentially are the “next door” bank to our customers (no time difference, no long haul flights, etc). We know Asia. This deal strengthens our footing as a bank that tailors their services to the media and entertainment industry.

Q. What are some of the media and entertainment “We are providing Q. In what way will this deal projects that Standard a loan of US$4m improve Asia’s animation Chartered has worked on to assist with the industry? in the past?

Deals of this type will further SCB has supported a number production funddemonstrate the quality of of Asian productions, such as ing” work and talent that Asia can Curse of Golden Flower (dibring to the industry and elrected by Zhang Yimou) and evate the status of the Asian Battle of Red Cliff (directed animation industry within the global by John Woo). context. It will also grow the expertise of We have also financed “Ashes of Time Asian animators through collaboration.

Redux” for our client, Fortissimo Films based in Hong Kong together with being a Q. Standard Chartered has claimed to co-arranger for the Weinstein Film Fund. be the ‘banker of choice’ for Asia’s media and entertainment industry, how close Q. How is this deal unique to Asia’s meto the mark is this statement? dia and entertainment industry?

I can only tell you what our customers tell It is one of the first major collaboration us, which is that Standard Chartered is deals that are cementing Asia’s place withthe first bank, and has a pioneering role in in the global animation industry. This is Asia that has invested the time and effort the first time a bank has lent finance to an to understand the industry and to genu- Asian produced animation. inely help address customers’ needs.

It also demonstrates how Standard As for banks in the U.S. or the UK that Chartered can help animation companies are offering film/TV financing, SCB be- finance their productions and grow as a ing based in HK, has a key geographical partner to the Asian animation industry.

ASIAN BANKING & FINANCE

23

ONLINE

BY TEO JING YI Société Générale SA is pressing ahead with business expansion plans in emerging markets, including China and Russia, even as it grapples with a massive trading scandal.

The French bank’s deputy chief executive for its Corporate and Investment-Banking division said he hopes to complete the local incorporation of the bank’s China operations by the start of May and will be on the lookout for further acquisition opportunities in the region.

“We are drawing the lessons from this incident and getting back to business,” said Patrick Soulard during a trip to Asia to brief clients, staff and regulators here on the bank’s efforts to improve its operational risk controls in the wake of the scandal. “We are moving forward, and are very focused on Asia’s emerging markets and China in particular.”

Société Générale blames a trader, Jerome Kerviel, for making risky and unauthorized trades that cost the bank €4.91 billion ($7.19 billion). The bank said the total value of its asset write-downs, mainly related to U.S. subprime mortgages, reached €2.6 billion in Societe Generale aims to move on 2007, including €230 million booked against third-quarter earnings.

“This doesn’t change our strategy [in emerging markets], but we will continue to strengthen our operational risk control to avoid accidents like this in the future,” Mr Soulard said.

Chinese regulators have already completed inspections of the French bank’s operations in Beijing and Shanghai. The progress on local incorporation plans for China comes after the bank completed the acquisition of a majority stake in Rosbank, one of Russia’s largest retail banks. That deal was originally announced in December, before the trading scandal broke. The French bank is in the process of raising €5.5 billion from shareholders to boost its capital in the wake of the debacle and write-downs related to holdings of subprime mortgage-backed securities.

Readers Comments: While Societe Generale’s fortunes remain unclear, the company seems determined to keep business going as usual, this despite EU laws that prevent the French government from protecting it against a takeover.

Bloomberg

ICICI enters German market ready to compete

BY TEO JING YI ICICI Bank, India’s biggest bank by market value, will begin operations in Germany and use the country as a starting point to look for partnerships across Europe. The bank intends to capture a share in the German market for online and telephone banking through its newly set up branch, its Managing Director and CEO K V Kamath has said.

The Mumbai-based bank will offer German savers and small investors interest rates above the national level. ICICI also wants to profit from increasing trade between Germany and India by picking up corporate clients, Frankfurter Allgemeine said without being more specific.

Kamath said that the bank is coming to Germany fully prepared to take on much bigger German banks and other financial institutions with attractive packages and rely on its strength and capabilities in banking and financial services sectors.

Kamath hoped the bank’s model of online and telephone banking services, which K V Kamath, ICICI Managing Director proved to be successful in Britain, becomes a success in Germany too.

The bank began its operations in Britain by serving the non-resident Indian community, 60 per cent of its customers for ‘HighSave’ online and telephone banking service are non-NRIs. The bank also launched a call money account HIZins, a no frills savings account with withdrawals available on a daily basis, at an interest rate of 4.75 per cent.

Sonjoy Chatterjee, Executive Director responsible for corporate and institutional banking, said “after the success of our consumer business in the UK, we are entering the German market with what we believe is a compelling customer savings product”.

Readers comments: ICICI has expanded rapidly overseas and has the largest international balance sheet among Indian banks.

In time, we will see whether ICICI manages to retain a focused strategy for the overseas market even as it expands further.

TO READ MORE BLOG STORIES AND TO HAVE YOUR SAY LOG ONTO WWW.ASIANBANKINGANDFINANCE.BLOGSPOT.COM

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ASIAN BANKING & FINANCE

Bloomberg

Société Générale eyes emerging markets

BRIEFS

Takeovers, expansion and more moolah

Kookmin bank raises the stakes

Indonesia’s sixth-biggest bank may get a full takeover Bank of China and Malayan Banking are among companies selected by Temasek Holdings to bid for its controlling stake in PT Bank Internasional Indonesia, two people familiar with the matter said.

The successful bidder may make a full takeover offer for Indonesia’s sixth-biggest bank, the people said, declining to be identified because talks are confidential. The Jakarta-based company has a market value of $2 billion. The Wall Street Journal earlier reported that Bank of China is a bidder.

Industrial & Commercial Bank of China and State Bank of India have made acquisitions in Indonesia in the past two years, gaining a foothold in an economy that grew 6.3 percent in 2007. Bank lending surged 26 percent in January from a year earlier as the central bank reduced borrowing costs and incomes rose.

Maybank’s one of the big bidders “The momentum is great in terms of the economy, which filters into the banking sector as well,’’ said Lawrence Chen, an analyst with Fox-Pitt Kelton in Hong Kong. Buying Bank Internasional “can really give the international guys a quick increment to their footprint in Indonesia.’’

Philippine banks to raise new capital Philippine National Bank and Allied Banking plan to raise about 15 billion pesos in capital after the two Philippine lenders complete a merger, expected in the third quarter. “Within a year from the merger, we will have to go to the market to strengthen our capital to grow further, faster,’’ Philippine National President Omar Mier said in an interview. The new bank may sell shares or bonds or tap shareholders for new funds, he said. The funds will boost capital more than 50 percent, enabling the merged bank to expand lending and offer more products and services at its 602 branches in the Southeast Asian country, Mier said. Combining Philippine National and Allied will create the country’s fourth-biggest lender by assets, capital and branch network. The bank may start paying dividends two years after the merger as it boosts profit, Mier said.

Philippine National, profitable in the past five years, may increase net income 25 percent this year, Allied was also profitalbe last year, Mier said. Philippine National aims to regain its ranking as the Will merger boost profit? top handler of overseas workers’ remittances, a spot it lost to Bank of the Philippine Islands in 2005.

Remittances are fueling spending on homes, cars and mobile phones, supporting the Philippines’ fastest economic expansion in 31 years, and should also spur the lender’s earnings from loans and fees, Mier said. “Mr. Tan doesn’t mind not being the largest bank, but he wants to be among the three most profitable,’’ Mier said. Tan, 73, ended a two-decade ownership dispute over Allied and other assets in December, paving the way for the merger.

ASIAN BANKING & FINANCE

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Bloomberg

Bloomberg

Kookmin Bank May Raise Stake in Bank Internasional to Expand Kookmin Bank may raise its stake in PT Bank Internasional Indonesia as one of its options to expand in the Southeast Asian nation, spokesman Choi In Seok said.

Kookmin owns a stake in the Indonesian bank with Singapore’s Temasek Holdings, which said it’s planning to sell its shares in the company. Kookmin and Temasek jointly own about 56 percent of Bank Internasional, with the Singapore sovereign wealth fund holding a majority share of the partnership. Choi, who spoke in a phone interview, was responding to queries following a report in Korea Economic Daily on Kookmin’s plans for the Indonesian bank. The report, citing Kookmin Chief Executive Officer Kang Chung Won, said the company may buy the stake from Temasek to become Bank Internasional’s biggest shareholder.

Temasek said it’s selling the stake to meet an ownership rule imposed by the Indonesian central bank. The Singapore fund, which also owns a stake in PT Bank Danamon Indonesia, has to divest its shares in either bank or merge them by 2010.

Bloomberg

Bloomberg

Standard Chartered might add branches to target Japanese assets Standard Chartered, the London- based bank that generates most of its profit in Asia, may open additional branches in and around Tokyo to attract more individuals to its wealth-management services.

Standard Chartered doubled staff at its two Tokyo branches to about 270 in the past four years and started selling financial products to affluent Japan customers in July 2005.

“We are looking at expanding,’’ said Patrick Gillot, who replaced Mark Devadason as the bank’s head in Japan this year.

The mass of wealth already built up in Japan insures that the world’s second-biggest economy will remain Asia’s largest market for wealth management even 20 years from now, Gillot said.

Global banks, including larger Citigroup and HSBC Holdings, are targeting bigger shares of Japan’s in for more of Stan Chart the $14 trillion of financial assets held by Japanese households. Standard Chartered will compete with larger overseas rivals that have already announced plans to increase hiring and open more branches in the nation.

INTERVIEW

Will HLF be able to replicate its success in 2008?

Ian Macdonald, President of Hong Leong Finance explains to to Romesh Navaratnarajah why 2007 was an exceptional year.

Q. HLF had an ‘exceptional’ 2007, especially when it came to its wealth management portfolio, unit trusts and insurance products. Can it replicate such successes in 2008?

Let me first recap on 2007. Our loans increased by about $2 billion, deposits went up by $2.8 billion and profits rose by almost 39 percent. Those numbers take our company to another level.

However, in view of the negative external factors such as the US sub-prime crisis and rising oil prices, we will be relatively cautious in our lending business. Nonetheless, we will continue to concentrate on providing products and services to our SME and heartland customers in Singapore.

Q. In Singapore, both financial analysts and the media focus their attention heav- Ian Macdonald is all smiles after last year’s performance ily on the three largest banking players, Q. Is HLF planning to increase its pen- got, but are also looking to have the propDBS, UOB and OCBC. Are you sick of etration in the savings market through er setup to be successful in the Catalist this, and what is being done to compete the implementation of ATM services? bourse. with the ‘local big boys’?

Certainly. We actually have had approval I actually think we get fair representation from the regulators to have ATMs in our Q. HSBC has recently stopped offering from both analysts and the media. Last branches for a number of years now. How- car loans while OCBC Bank and Ciyear, we launched our business cheque ever, what we have been waiting for is the tibank are said to be less aggressive in account and got widespread right opportunity, and obvi- pursuing car loans. So why are you trymedia coverage on that. We ously the right technology to ing to get a bigger share of this market? also have six analysts coveroffer something compelling. Over the last 30 years, HLF has been “Our success ing us, three of which have a Most people in Singapore consistently supporting the car financing wouldn’t have positive rating for HLF. have access to a savings ac- market. We are happy with the level of Of course we are not as count. As such, we are look- credit standing of the customers that we been possible large as the big banks, but we ing at our representation and bring in through our dealer relationships. without investprovide an alternative for into have a significant presence Our car loan portfolio now makes up 25 ments in IT” vestors who are looking at a in the savings market, you percent of HLF’s total loans and we would local financial institution that really need to have ATM ca- like to see this grow. does not have any other acpability.

Last year, we acquired ABN Amro’s tivity outside the country. car loan portfolio for $405 million which Q. The company is gearing up to be brought in a lot of new customers, so we’re Q. Since taking up your appointment, a sponsor in Singapore’s new junior happy about that. you’ve invested heavily in IT in the bourse Catalist. Why the move? hopes of growing the company. Has it We are very excited about Catalist and are Q. Strategically, what can we expect paid off? keen to pursue an application in that new from HLF over the coming years?

Our end of year financial results would market. We are pretty busy at the moment As HLF only operates in Singapore, we not have been possible without invest- as we have eight transactions lined up for will continue to focus on our two customments made in technology over the last listing on the bourse and have two IPOs er bases, the SMEs and heartlanders to see currently coming into the market. One how we can provide the best products and six years.

In 2002, the company’s board made a of them is the hotel and property devel- services to them in the continually changbrave decision to replace the teller system opment group Roxy, and the other IPO ing market.

There was also the recent announceand the overall IT platform to provide will be coming into the market in the next ment that Singapore will hold the inaubetter and more consistent service to our couple of weeks.

However, just like anything we do, we gural Youth Olympics which HLF supcustomer base and improve our asset size.

At that time, our asset size was around $5 want to make sure that we have the right ported. The games will provide a platform billion. Right now its $10 billion, which is infrastructure in place. We are working for us to promote the Olympic values of hard with the sizeable pipeline that we’ve excellence, friendship and respect. an achievement.

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ASIAN BANKING & FINANCE

ACTION THROUGH INSIGHT!

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COWRITTEN FEATURE

FINTECH ASIA 2008 awards financial institutions Financial Insights recently awarded banks and insurers in the Asia/Pacific region for the most innovative use of technology in business and operations at FINTECH ASIA 2008, the region’s only research-driven financial technology conference and exhibition. Held at the Raffles City Convention Center, Singapore from 28 to 29 February, FINTECH ASIA 2008 saw more than 500 senior professionals from across the Asia/ Pacific region come together to address the challenges and issues in the financial services industry. The Financial Insights Innovation Awards (FIIA) 2008 was presented to fifteen winners and this year, the program saw more than 150 submissions from Asia/Pacific banks and insurers; providing a good indication of how the region’s financial services industry as a whole is leveraging technology as a driver of innovation and competitive differentiation.

The submissions were evaluated based on their responsiveness to market need, effectiveness of the implementations, market take-up and sustainability. The organizations who can distinguish themselves amongst competitors have been able to clearly define their overall strategic intent, rally support and commitment from senior executives through to project management and business users, articulate the role of technology in these initiatives, as well as generate significant business benefits from the initiatives.

The winners show that IT projects can drive technology-related benefits such as operational efficiency and infrastructure optimization, which in turn can help the organizations to accomplish business objectives including increased market share, higher product cross-sell and improved customer satisfaction. Financial Insights would like to congratulate the winners of FIIA 2008.

FIIA 2008 for e-Payments Project: YES Bank Limited (India) FIIA 2008 for Business Process Reengineering: Tokio Marine & Nichido Fire Insurance Co., Ltd. (Japan) FIIA 2008 for Biometrics and Smartcards in Microfinance: Bank Danamon Indonesia (Indonesia)

The award winners at FINTECH ASIA 2008 awards ceremony

The prestigious award recognizes outstandind research-driven financial technology

mation - Account Opening: CIMB Bank Berhad (Malaysia) FIIA 2008 for Web-based Receivables Solution: Westpac Banking Corporation (Australia) FIIA 2008 for Project Management Excellence: ING Asia/Pacific Ltd. FIIA 2008 for Credit Risk Management: OCBC Bank (Singapore)

FIIA 2008 Special Citation for E-Tax Project (India): HSBC

FIIA 2008 for Trade Services: Kasikornbank PCL. (Thailand)

FIIA 2008 for Business-to-Government (B2G) Payments: UnionBank of the Philippines (Philippines)

FIIA 2008 Special Citation for Islamic Payment Switch: Al Rajhi Bank (Malaysia)

FIIA 2008 for Business Process Auto-

FIIA 2008 Special Citation for Transac-

ASIAN BANKING & FINANCE

FIIA 2008 Special Citation for Mobile Payments: Baiduri Bank Berhad (Brunei) FIIA 2008 Special Citation for Payments Transformation: PT Bank Mandiri (Persero) Tbk. (Indonesia)

FIIA 2008 for Sales Force Automation: Taishin International Bank (Taiwan)

28

tion Banking: Standard Chartered Bank

CONTACTS For more information, please contact: Shawn Yip Tel: (65) 6829 7796 Email: syip@financial-insights.com Website: www.financial-insights.com

Japanese consumers accepted the ‘one-stop-shop’ but can banks use the plan to turn profits into losses

Bloomberg

ANALYSIS

The country’s financial institutions now offer customers one stop shopping, low fees and lattes. US private equity investors Christopher Flowers is back to show Shinsei, the bank that started the revolution, how to make more money. Mariko Yasu and Gareth Nicholson report.

Christopher Flowers is back in Tokyo, eyeing a second opportunity to make money from Shinsei Bank. The founder of New York – based private equity firm J.C. Flowers teamed up with Ripplewood Holdings LLC founder Timothy Collinds to start Shinsei back in 2000 and, with it, an era of customer-friendly banking in Japan.

The Shinsei model of comprehensive, hassle-free service and low fees, standard in Europe and North America, has been copied widely in Japan. Shinsei’s individual customer base has grown to 2 million today from 400, 000 seven years ago. “The ability to offer a customer a deposit account, unsecured personal loan, brokerage account and credit card as a single ser-

government declared insolvent in 1998 and nationalized. The government then sold it to Flowers & Co and Ripplewood.

In November, Flowers reappeared, leading a group that includes Santander, Spain-based Banco Santander SA; Zurich-based Swiss Reinsurance Co; and Shinsei’s senior management, including Porte, to offer $1.8 billion for a 32.6 percent stake in the bank. The group’s tender offer closed on Jan 17, making the group the largest single Shinsei shareholder.

The group also bought ¥50 billion of new shares in March.

“We are putting our money where our mouth is,” says Flowers, 50, a former Goldman, Sachs & Co partner. “We think this transaction is a great opportunity for us as investors, but we also think this will benefit Shinsei, its employees and its customers.”

Edwin Merner, who oversees $1 billion as president of Atlantis Investment Research Corp in Tokyo, says Shinsei’s profits are under pressure from new competition, with many bigger banks having copied its offerings. “Customers are not particularly loyal, and Shinsei doesn’t offer services that are unique anymore,” he says. “They are floundering. “ As of mid-January, Atlantis didn’t own Shinsei shares.

Even as Shinsei struggles, life for Japanese bank customers gets better. Since the upstart came on the scene, financial institutions across the country have shortened waiting times, lengthened their hours of operation to as late as 9 pm, cut or abolished fees on money transfers and ATM transactions and expanded services.

One-stop banking only became possible with Japan’s Big Bang financial deregulation, which began in 1996 and has gradually loosened the rules on how and where banks can operate and what services they can provide. The last piece fell into place in December, when banks were permitted to sell a full range of insurance.

Japanese banks’ Big Bang aided one-stop banking vice under a banking brand is not new in the UK, but it is new in Japan,” says Shinsei Chief Executive Officer Thierry Porte, an American who has run the bank since 2005. “We see this as a game changer, and we’re very focused on it.”

What’s new isn’t necessarily profitable.

Shinsei racked up a loss of 61 billion yen ($570 million) in the year ended on March 31, 2007, its first loss since going public in 2004. It reported a 40 percent decline in net income to ¥23.1 billion in the six months ended on Sept. 30—including a ¥2.2 billion loss in its retail banking operation.

Root of Shinsei’s financial woes One locus of the pain: the purchase of US mortgage-backed securities. Shinsei shares fell 42 percent in 2007, making them the third-worst performer among bank stocks in Japan. The stock was down 2.2 percent this year as of January. Shinsei has had financial woes before. Until the American investors took over, it was Long-Term Credit Bank of Japan, or LTCB, which the

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ASIAN BANKING & FINANCE

Shinsei maybe struggling but Japanese bank

One dramatic change unfolded on Oct 29 when Aeon Co, Japan’s largest supermarket chain, opened new bank branches at stores in Tokyo and Chiba, east of the capital. Aeon, whose 8,000 retail outlets all over Japan attract 10 million customers every weekend, plans to open 130 bank branches by 2012 and expects to attract 4.3 million accounts. Branches will be open from 9 am to 9 pm seven days a week. “There isn’t a rival for us in the banking industry,” Aeon Bank President Shoji Kataoka says. The new bank offers online banking, annuities, unsecured loans and investment trusts, or mutual funds.

Foreign funds also want a piece of the action. Citigroup, the biggest overseas bank with a retail presence in Japan, listed its shares on the Tokyo Stock Exchange on Nov 5. It plans to double retail outlets to 50 from 25. New York-based Citigroup also paid $7.7 billion in April 2007 to acquire Nikko Cordial, Japan’s third-largest brokerage firm, with 110 offices across the country.

London-based HSBC Holdings, Europe’s biggest lender, plans to open seven branches in Japan this year aimed specifically at managing the wealth of customers with more than ¥10 million in assets.

Shinsei, like others, was wounded by its investments in consumer finance companies. In an effort to increase margins, it bought Aplus, a company that makes credit card loans, in 2004. in the same year, it acquired a minority stake in Shinki, which makes high-interest, short-term loans to customers to carry them over to the next paycheck. It now owns 68 per-

Bloomberg

ANALYSIS

customers’ life just got better

Christopher Flowers knows how to show Shinsei good profits

cent of the lender.

Shinsei and other banks that control consumer finance companies suffered a double blow in 2006. First, Japan’s Supreme Court invalidated contracts allowing the companies to charge as much as 29 percent interest. The court ruling triggered a flood of customer claims for refunds of excess interest charges. Then, in December, the legislature passed new rules that will cap rates at 20 percent within three years. The demands for refunds hit the companies especially hard. Japan’s four largest nonblank lenders by assets lost a combined ¥1.5 trillion in the fiscal year ended March 31, 2007.

In the fiscal year, Aplus lost ¥29 billion and Shinki ¥39 billion. “The main issue for Shinsei is sorting through the grey zone of consumer finance issues,” Flowers says in a telephone interview. “We will have a profitable consumer finance business

in the future, although smaller.” Shinsei needs to boost efficiency to turn around the money-losing business, he says. Shinsei CEO Porte says he has no intention of selling either Aplus or Shinki.

The bank profit squeeze isn’t limited to Shinsei, which is still considered a niche player in Japan, with 43 branches, compared with 871 outlets for Mitsubishi UFJ Financial Group, Japan’s biggest bank by market value. Net income at Japan’s six largest banks fell 45 percent to ¥948 billion in the six months ended on September 30, as lending declined in the face of the Japanese economy’s continuing struggle against slow growth, according to data compiled by Bloomberg. Lending by Japan’s 10 national or “city”, banks, contracted 0.8 percent in November from a year earlier, the eight straight month of declines. “Deflation remains the core problem, and that has held back growth,”

says Yoshinobu Yamada, senior banking analyst at Merrill Lynch in Tokyo.

“Why should people borrow money to buy goods today, which may be cheaper in six months time?” Core consumer prices, excluding fresh food, climbed 0.4 percent in November from a year earlier after a 0.1 percent rise in October. Economic and Fiscal Policy Minister Hiroko Ota told reporters in Tokyo in November that Japan had not defeated deflation and that recent consumer price rises reflected higher oil and food costs. The government has kept the benchmark interest rate near zero to try stimulate corporate and individual spending. Japanese banks invested in consumer finance companies in search of higher yie ds on their loans.

The great Japanese write-down In the fiscal year ended on March 31, Japan’s top three banks by market value

today ct us Contad receiveorder. an ur first 8 ff yo FFM0 10% o code AB Use

ASIAN BANKING & FINANCE

31

Mitsubishi UFJ, Sumitomo Mitsui Financial Group, and Mizuho Financial Group—wrote down hundreds of billions of yen in losses from the investments.

Mitsubishi UFJ’s bottom line took a ¥130 billion hit, CEO Nobuo Kuroyanagi told reporters in May. Sumitomo Mitsui’s net income fell by ¥110 billion.

The five biggest Japanese banks also wrote down $1 billion they invested in securities backed by subprime US housing loans—a small amount compared with the $120 billion written off by other big global banks. Shinsei wrote down ¥19.8 billion in such losses for the six months ended on Sept 30.

Flowers says his new investment in Shinsei is a vote of confidence. “There is an exciting opportunity in Japan, because of the recent changes, to get the retail and consumer banking strategy right,” he says.

“It is no small task. Shinsei is never going to have the size of Japan’s megabanks, so we need to be more focused and more nimble.”

For Porte, 50, the critical change has been deregulation, allowing banks like his to offer a variety of financial services. His strategy is to continue to do what banks elsewhere have done for years: turn their banks into supermarkets of financial services. He says the challenges would be fewer if Japan could move beyond its low

with ¥4.62 trillion in bad debt in September ’98. The next month, it was declared insolvent and nationalized. That’s when an investor group led by Ripplewood Holdings, and including Chris Flowers, came on the scene.

The very idea of selling LTCB to foreigners was controversial. Founded in 1952, it was considered a national institution because it was one of the three banks that financed Japan’s rapid recovery from the devastation of World War II. The terms under which the investors bought the bank were equally contentious. Collins, Flowers and their partners, including Deutsche Bank AG, GE Capital Commercial Finance and Citigroup, LTCB by paying $1.1 billion for LTCB shares.

The government, however, agreed to buy back from the bank any loans that cost more than 20 percent of their value in the three years after the sale was completed.

“The government basically gave this bankrupt bank to investors and guaranteed a lot of the bad loans,” Atlantis’s Merner says. “That makes it risk free, right?”

Collins and Flowers appointed Masamoto Yashiro, former president of Citigroup’s Japanese unit, as president and chairman.

They renamed the bank Shinsei, after the Japanese word for new life, in June 2000. under Yashiro, the bank shifted its focus to retail and investment banking from its traditional business of selling bank debentures—bonds to fund the bank’s operations—and making long-term corporate customers. Its 24 branches treated customers to short lines, 24 hour online services and the abolition of charges for transactions such as money transfers and ATM usage.

The redesigned branches attracted extensive media coverage with their large plasma TVs displaying financial news, neon signs, modern art and comfortable sales rooms where advisers sat down with clients. The main Tokyo branch featured a Starbucks coffee shop and Internet access, so customers could enjoy a latte as they checked their finances online.

Shinsei was relisted on the Tokyo Stock Exchange in 2004; it still holds LTCH’s 8303 stock ticker. In ’04 and ’05, the investors sold two-third of their equity to the public, reaping $5 billion for their investments. David Rubenstein, co-founder of the private equity firm Carlyle Group, said the share sales made LTCB/Shinsei “the most successful private equity deal in history.”

“Shinsei was successful in changing the perception of banks by introducing new concepts such as the linkup with

Redesigned branches boast of a myriad of posh facilities interest rates; the bench mark government rate stood at 0.5 percent in mid-January.

“We will be in a rather different world if interest rates are 50 to 150 basis points higher,” Porte says. “Then it becomes a much more exciting and interesting market, where a lot of different outcomes become possible.”

The birth of Shinsei Shinsei Bank was born in the wake of Japan’s asset bubble crash, which saw the Nikkei 225 Stock Average fall to 8,000 in March 2003 from a high of 39,000 in December 1989. In the 1980s, LTCB and other big Japanese banks loaned tens of billions of dollars to high flying real estate and construction companies, which borrowed heavily to buy and build rapidly appreciating properties in Japan and abroad.

The real estate bubble burst in 1989 when the value of land fell a massive 62 percent in a single year alone. Despite a March 1998 infusion of cash from the government, LTCB remained loaded with

32

ASIAN BANKING & FINANCE

Bloomberg

ANALYSIS

S

M I C PE

Recent fluctuating Yen and US Dollar exchange

Starbucks,” Merrill Lynch’s Yamada says.

“Their new approach won consumer support, and many other banks have tried to follow.”

Examples abound. Bank branches featuring comfortable meeting spaces, wireless access and monitors with mortgage and currency exchange rates are common.

In 2001, Shinsei was frist to break Japan’s standard 3 pm bank closing time—keeping all of its branches open until 7 pm.

In response, Sumitomo Mitsui expanded the hours of seven of its branches to 9 pm.

Thirty-two Mitsubishi UFJ branches are now open Saturdays until 5 pm.

“The idea was to look at the banking business from the customer’s point of view,” Porte says. “In the previous highly regulated, non-competitive world, there wasn’t much incentive to focus on innovation.”

Leading the way for Japanese banks Following Shinsei’s lead, other banks have jumped into new online banking services.

Sumitomo Mitsui has 8 million online accounts compared with 1 million six years ago. Online transfers of money among Sumitomo Mitsui accounts—something Japanese banks once routinely charged a fee for—are now free, as they have always been at Shinsei. “It was an important turning point in our retail strategy when we built our online banking platform,” says Osamu Endo, deputy president of the banking unit at Sumitomo Mitsui. “We began to focus more on accessibility and convenience.”

Kaoru Kahn, a 36-year-old marketing

Bloomberg

ANALYSIS

N E M

rates aren’t easing bankers’ minds

Shinsei CEO, Thierry Porte beckons creative profit generating methods

director for a British jeweller in Tokyo, has been a loyal Shinsei customer since 2002.

She has her paycheck direct deposited into her Shinsei Bank account. She makes free money transfers among various bank accounts and free ATM withdrawals at machines conveniently located inside Tokyo Metro stations. The services are available to her 365 days a year.

“I used to think banks were all the same,” Kahn says. “I opened a Shinsei account because I was glad to see more services convenient for an individual like myself.”

Even as Porte and Flowers work to repair the damage done by the consumer finance debacle, no one doubts that the bank has made a permanent mark on the Japanese retail banking landscape.

In November, Yasue Hashimoto, a 62 year old housewife, and her husband were walking through the new $3.1 billion Tokyo Midtown office and retail develop-

ment in the Roppongi entertainment district when they asked for a table in what appeared to be a high-end restaurant.

They were politely informed that they were in a new branch of Resona Bank.

The bank’s parents, Resona Holdings, is Japan’s fourth biggest banking company by market value. Customers at the newest branch chat with financial advisers in leather upholstered booths. One meeting room has a handmade chandelier and a champagne cooler, so that a successful transaction can be celebrated with a glass of bubbly.

“You can’t treat your best customer, who may close a large transaction, with seaweed tea,” says Yasumichi Morita, who designed the new Resona branch. His other work includes the Megu restaurant in New York’s Trump World Tower, and the Louis Vuitton outlet in Tokyo’s Omotesando district.

“The main thing I wanted to achieve with the Resona project was to create the first elegant bank in Japan,” says Morita, 40, whose design firm is called Glamorous Co. “There are a lot of fashionable stores in this area and I wanted to create a bank where a customer wouldn’t feel put off even after shopping at a prestigious jeweller.”

Shinsei doesn’t aspire to such elegance: The Resona branch’s average asset balance is around ¥2.24 million for the average Shinsei account.

Yet if some Japanese bank customers are being treated like royalty, Shinsei, the former industrial lender, can claim credit for the change. Now the challenge for Flowers and Shinsei’s management is to increase the bank’s profitability and find new ways to compete with the growing band of imitators.

Shinsei’s decline in income (Bn)

Citi’s no. of bank branches

HSBC’s no. of bank branches

50 ¥7.6

35

31 25

¥5.9

7 0 -¥1.5

‘04-’05

‘05-’06

Source: Shinsei Bank

‘06-’07

JUNE ‘07

JAN ‘08

Source: Citigroup

FUTURE*

DEC ‘07

DEC ‘08

FUTURE*

Source: HSBC ASIAN BANKING & FINANCE

33

BANKING TECHNOLOGY

Cooperation key to vendors’ long term success

BY SUNIL MUNDHRA, 3i INFOTECH ASIA PACIFIC Like most industries in today’s dynamic and competitive business environment, banks are under pressure to raise profits and lower costs, while investing in information technology solutions that enhance customer satisfaction.

Banks are always in need of a one stop solution to serve their complete IT needs.

Need for specialized products However, today’s competitive market exposes banks to a range of specialized products offered by a hoard of vendors across the globe. Whether mainstream or niche solutions, what banks require are these products that can be implemented as a comprehensive solution. These solutions often involve complex enterprise technology so that when problems arise, they can be addressed by numerous people with different specialties. In order to derive maximum benefits from a system and minimize the impact on business in the event of a problem, it’s imperative for vendors to cooperate within themselves to resolve issues efficiently and quickly. Hence fostering cooperation among vendors is becoming a prime objective for banks.

Moreover, even when a bank procures a software solution, it usually requires supplementary hardware and infrastructure to work, necessitating a bank to engage not only software, but hardware and infrastructure vendors as well. The growing abundance of heterogeneous systems in the market, comprising hardware and software components from various vendors that inter-operate and can’t run independently and the plethora of niche software products from a slew of vendors that has arisen due to diversity in the banking business all underscore the importance of vendor cooperation.

Working with a single vendor is impossible and large pools of vendors pose have their own challenges. The bank has to deal with each vendor on every single issue that requires their involvement, resulting in high costs and a great deal of time spent on communication.

As banks seek to drive down costs and seek out vendors with the best long-term prospects, the trend of rationalization of vendors is growing in the banking industry. This trend sits well with the concept of vendor cooperation, where a select group of trusted vendors work together to deliver excellent service. Cooperation yields customer satisfaction and customer loyalty is likely to follow in the long term. While the partnering vendors may

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ASIAN BANKING & FINANCE

Sunil Mundhra, 3i Infotech Asia Pacific

be competitors in some areas outside the partnership, a strong working relationship can offer the client a valuable combined product. Vendor cooperation allows each partner to complement the other’s weakness ensuring consistent project execution and the delivery of an excellent product.

Cooperation, is the name of the game In this context, cooperation among vendors is about focusing on the customer and it allows the improvement of product and service quality and offer the best solutions. Extensive vendor cooperation also drives greater widespread productivity.

High customer satisfaction levels are the desired result for vendors, for whom successful cooperation might open doors to repeat business. The aim of cooperation for vendor partners, therefore, is to create a business model that can be replicated for other clients minus the need to reinvent. Successful vendors collaborating together also allow clients to leverage their investment in research and development into product innovation and enhancements in order to assist in developing clients’ internal projects.

They, particularly software vendors, tend to have large resources and funds derived from maintenance projects. In such situations, the client can direct the product’s development to its ultimate advantage.

With increased levels of productivity owing to a consistent level of execution, time saved can be spent on product innovation, for which demand is constant. While ven-

dor partners may not always work together on projects, jointly winning projects is worthwhile as they can capitalize on their previous shared experience and investment. Vendors in a winning partnership realize that all partners play an important part in the success of the alliance and they each have different experiences they can to bear on a project. Learning from and sharing past experiences from any one partner helps to troubleshoot and avoid problems encountered in the past from recurring.

Cooperation is highly beneficial particularly if one vendor partner wins a project to carry out work which includes an area where it has little expertise. With a cooperative relationship in place, there are opportunities for information-sharing and leveraging on the experience of others. Benefits of cooperation can be further leveraged when vendors with different international experience collaborate as each partner is able to add its unique marketplace expertise to the group.

Benefits matter Vendor partnerships can also be highly successful especially when a vendor with a global presence joins forces with a local vendor, which has a deep understanding of the local market. Such a relationship can provide the banking client with a global IT solution which can be tailored to the requirements of the local market.

A global-local vendor alliance not only brings benefits for the bank, but the partners in the alliance as well.

BANKING TECHNOLOGY

Chloride Group powers its Singapore market come back Vilasini Krishnan spoke to Chloride Group’s Keith Hodgkinson, CEO, Tim Cobbold, COO, Lamberto Tassara, President and Etienne Guerou, SEA Vice President on their foray into Asia Q. Why did you choose Singapore as the regional headquarters after a hiatus of ten years and how do you think your presence will affect the Singapore industries?

Singapore, being the powerhouse of South East has an excellent reputation for high quality human resources, technical training facilities and methodologies. It is also the centre of our customers in the region, where decisions are made, both for Singapore and the region.

Hence, naturally we chose Singapore. We believe our presence here will have a positive impact. We’re recognized in the industry, as one of the foremost companies in the world. We’re well known for our capability, for our reliability and our quality. By investing here we are providing job opportunities and probably the industry’s best training centre. Hence, it will be symbiotic relationship between us, Singapore and its economy.

Q. What is the relevance of your business to telecommunications, banking & finance and insurance industries and ecommerce?

Chloride fundamentally provides secure power to its clients. We protect mission critical systems which are usually but not exclusively very large computer systems or networks. Chloride ensures that these systems are problem free be it in terms of quality or interrupted power Hodgkinson.

Hence, secure power is simply made up of systems or computers that can operate 24 hours 7 days a week and yet maintain reliable, high quality applications.

This is vital to businesses such as banking & finance, telecommunications and e-commerce. Our major clients include Credit Suisse, Barclays Bank, Merrill Lynch, Singapore Integrated Resort(s), Singapore Tunnel, SMRT and Bangkok Mass Transit. Any surge in power or cut in supply will prove detrimental to the company as customers will not be able to access the system and may results in loss of millions of dollars. Chloride’s provides protection against this. hese are actually vital components in all systems in those sectors. But we’re also involved in other sectors as well, transportations, airports, traffic controls. We have our systems in

Lamberto Tassara, Tim Cobbold, Keith Hodgkinson and Etienne Guerou at the opening ceremony

major airports around the world. Hospitals, you’ve got operating theatres, imagine if power fails during an operation.

Secure communications. We cover many many applications, so when we talk about those sectors which are very important to us, we also have very important customers in other industries.

and also to our master station. There are a number of reasons for this. Firstly, any technical problems on the customer’s side which cannot be solved locally can be immediately brought to our experts’ attention. Secondly, the regular collation of equipment functionality report from around the world keeps us abreast with any requirements of the system. This is Q. What drove your recent a boon especially for R&D collaboration with IdatechReliable high purposes. So, as Mr Tessara fuel cell energy? quality applicasaid, it’s a very specialist inBeing a foresighted company, tions are vital to dustry we’re in, where skills we are always on the lookbanking & finance are short and that’s why we out for possible changes to industry invest heavily in training be made in our technology. as the profession requires Since batteries and standby a great deal of emphasis on generators are big compocapability. nents in our industry, we are in the pro- the technical cess of identifying alternative sources of that standby power and one of them is fuel Q. So what lies ahead for Chloride? cell. The key to staying ahead is of course Great success. The 117 year old business is one of the oldest companies on the stock by staying well informed. exchange. Our sales are forecasted to grow Q. Rapid evolution is the boon and bane to about 28%.We’re targeting markets like of technology. What is Chloride doing in Singapore to accelerate our growth. We’re order to stay relevant in terms of prod- very strong in Europe and very large in Asia Pacific. I’m confident Chloride will ucts and industrial practices?

Key factor to staying relevant is efficiency. continue to be a successful business and Our speciality lies in creating compo- that it will expand its global footprint fastnents that are not only cutting-edge but er than it’s done in the past.CEO Hodgsafe. We are very sensitive to supply and kinson opines that Chloride is only part of demand in the market place. Our remote the way in its journey to success. The mark diagnostic system is an industry leading it made in the industry will remain indelsystem. Information flow from a unit goes ible. His expected successor, Tim Cobbold to the local territory monitoring station, will have “big shoes” to fill indeed.

ASIAN BANKING & FINANCE

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BANKING FINANCE

ASIAN

BANKING TECHNOLOGY

Fair Isaac & IBM add wake-up call to banks

BY ROMESH NAVARATNARAJAH

Fair Isaac, the maker of software that creates credit scores used by 90 percent of US banks, is partnering with IBM to help open doors to new ways for institutions to conduct business.

J Y Pook, head of Fair Isaac’s operations in the Asia Pacific region is ‘ecstatic’ about the deal and believes it represents a significant commitment to providing clients with open standards-based solutions that will allow them to improve operational efficiencies, business resiliency and deep cross-enterprise information integration for improved decision support and analytics.

The Minneapolis-based company plans to use IBM’s technology to enable financial institutions to share data across multiple applications including account opening, customer and account management, fraud collections and recovery.

other hand, expect banks to address issues surrounding security by controlling risks and preventing losses. Both Fair Isaac and IBM provide that kind of mission critical infrastructure,” he said.

EVENTS COVER-

It’s rough out there Mr Pook believes banks are under pressure to deal with the expectations of modern consumers. “People today want real-time communication and treatment, but on the

Improved software matters Fair Isaac’s next generation decision management software will be optimized for use with IBM DB2, WebSphere, Rational tools, Lotus and Portal, and the IBM System z and System p platforms. The agreement will also allow Fair Isaac to embed IBM’s Websphere, Lotus, DB2 and Rational tools middleware into its own software.

As a result, financial services clients using Fair Isaac’s new EDM suite, which contains the industry leading Blade Advisor business rules management system and predictive modeling tool Model Builder, will be able to take advantage of service oriented architecture (SOA) and Information on demand (IOD) software.

Innovation, is the name of the game According to Mr Pook, the financial services market is worth approximately $170

J Y Pook, IBM’s new best friend

billion and is one of the biggest sectors for IBM, which counts a number of large financial institutions as its clients. Together with Fair Isaac’s expertise and reach in the banking sector, both companies are excited about the potential of this partnership.

Looking ahead, Fair Isaac intends to stick to what it does best. “The company is always innovating and will continue to invest money into making sure our solutions stay ahead of the competition,” said Mr Pook.

Ariba offers solutions to Asian companies

BY ROMESH NAVARATNARAJAH

MD of Ariba APAC, Ravi Kumaraswami

Q. What drives Ariba’s client solutions?

Ariba clearly realized the needs of the market whereby companies were facing increased pressure to remain competitive and be more profitable. The focus on short time to benefit and long term value, cost savings and business process innovation have become the top priorities for organisations today and spend management solutions provide a way to realize tangible savings to the bottom-line of companies.

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Q. How does Ariba differentiate itself from other providers of spend management solutions?

The three key tenets of effective spend management are strategic consulting, supplier base knowledge and software solutions. Most players in this space only provide one aspect of spend management.

For example, ERP’s have some software functionality mirroring spend management. Some large consulting companies provide strategic consulting and a number of information/database companies have supplier lists and supplier base knowledge.

Ariba is the only end-to-end spend management services and solutions provider that amalgamates all the three companies required for effective spend management.

Q. Why did Ariba choose to expand its business in Asia and how long has your involvement in the region been a key part of your success?

Ariba has been in the region for the last six to eight years and sees Asia as a region with huge potential and growth. The key trends leading to an increased demand for spend management in this region are the dramatic growth of Asian businesses,

which has spurred the need for our solutions to effectively manage spends during this high growth phase.

The entry of global companies in the region is also increasing competition and therefore increasing focus on ways to enhance profitability and add value.

A number of Asian corporations are also launching innovative “low cost” products with price as a key differentiator, and the key to low cost offerings lies in effective spend management. An example is Tata Motors, one of our long term clients in India which recently launched the low cost car “Nano”.

Q. What are the global issues and trends surrounding spend management and supplier relationships?

The trend is towards collaborative commerce through networks and communities, like Ariba’s Supplier Network, which provides a single platform through which buyers and suppliers can manage all aspects of their end-to-end spend management business processes. Imagine a network open to all businesses where buyers and suppliers can truly collaborate to improve their businesses. This is our vision.

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BANKING FINANCE EVENTS COVERAGE

Page 38

Accelerate Growth and Profitability through Business Intelligence and Enterprise Data Warehouse Seminar

How to turn customer relationship management data into dollars

Page 40

Annual Asian Banking & Finance and Trade Finance Roundtable

Payment hubs and credit exposure in the age of open account financing

EVENT Top bankers, Telco company personnel and financial advisory industry high-fliers from Malaysia gather for an insight into the future of customer relationship management – the business intelligence and enterprise data warehouse. Vilasini Krishnan reports.

How to turn customer relationship management data into dollars in association with

W

ith the year-end bonuses weighing down their bank accounts and the New Year festivities just around the corner, a chipper delegation of bankers, mobile phone and financial advisory company managers convened at the JW Marriott, Kuala Lumpur on a sunny Monday morning. They gathered to discover the winning strategies to “Accelerate Growth and Profitability through Business Intelligence and Enterprise Data Warehouse,” at an interactive breakfast seminar organised by Asian Banking & Finance and Asian Mobile News magazines in association with Teradata. Tim Charlton, Editor-in-Chief of Asian Banking & Finance and Asian Mobile News magazines set the tone of the seminar with a witty presentation on current complications arising in financial and telecommunications industries due to burgeoning data.

Peter England, CIMB

Ron Swift, Vice-President, Teradata

Gazing into the crystal ball Ron Swift, Vice President, Cross Industry Solutions, Teradata preceded his presentation with a snazzy video on the power of information in the 21st century. Mr. Swift, who is the author of the book “Accelerating Customer Relationships” has a vast experience in the communications field. He believes optimization of well-managed information will augment company profits. “Data sharing is important for efficiency enhancement. Customer Relationship Management – CRM isn’t a software to solve management problems. Despite widespread usage of softwares, poor decisions are still rampant” said Mr. Swift. “Business intelligence should be used to drive the business. Actionable or operational business intelligence (BI) are the future.”

According to Mr. Swift majority of decisions that truly affect profitability and sales are made by the non-executives. These affect the customer satisfaction and the continuity of the business with the company. In the past, technology was used to create an effectual business. However, the future Poor decision of technology lies in inmaking is still novation. Enterprise Data Warehousing (EDW) has rampant despite the automated majority of widespread software processes. Hence, deciusage sion makers can manage by exception rather than making basic decisions.

- Ron Swift, Vice President, Swift opines learning Cross Industry Solutions, from other industries are Teradata imperative for success.

“

”

The interactive breakfast seminar

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Anil Sharma, Hong Leong Finance

EVENT

Insightful information enraptured the audience

Participants jotting down note-worthy messages

The best is yet to come In order to remain relevant, EDW has to be strategic, innovative and pervasive. This concept has transcended from different industries to business intelligence and management actions. “Fortunes were spent on trying to change yesterday. The bad news is you can’t change yesterday,” said Swift to a laughing audience. “However past actions were not useless as they mark the evolution of data usage.” he added. Lack of integration and continual add ons have always been a major headache to companies. The strategy for integration should focus on “store once, use often by many”, through integration of data into a single version of truth. The cost efficient new system generates a lot of new businesses, multiplying the profit. The beauty of the analyses is that they are customer-behaviour based rather than revenue based.

Companies should automate “sense and respond” decisions through the active Data Warehousing (DW) or EDW. Segmentation

will not only drive sales, marketing, manage inventory but also proliferate profit.

“

Actions triggered by events are more effective.

”

- Anil Sharma, General Manager, Business

Applications, Hong Leong Bank of customers’ life facilitates decision making based on individualistic life-stages. Swift concluded that integration of data, which is the key to Teradata EDW, is the future for DW. It

Brain-storming panel Ron Swift opened the next session as he said, “For banks, since customer activities are no longer confined to bank premises (internet, ATM) it is hard to monitor their activities.

The new system notes changes and provides correct response action to prevent any loss of customers”. Peter England, Head of Retail Banking, CIMB, said “Despite the pervasive usage of warehouse data in the Malaysian banking industry, not many banks are using it for branch transactions. The challenge is whether the data obtained from the analysis is used for constructive purposes.” Anil Sharma, General Manager, Business Applications, Hong Leong Bank said, “Even though target marketing is critical, it is not fully utilised in branch mapping. Data analysis is like peeling the layers of the onion, i.e. by delving deeper into problems in order to solve them”.

On direct approach he said, “Most emails become junk. Marketing campaigns haven’t been converted to direct mailing as it effectiveness is low”. Mr.England on the other hand felt that the most effective approaches were old fashioned thinking and well-timed follow ups with target specific offers.” said Mr.England. Jae-Park from Teradata questioned Mr. Swift on the best practices for the Malaysian business industries. To this Mr.Swift responded “Creative bankers and telcos are using the direct mails to trigger the interest amongst the customers. Actions trig-

Delegates at the forum looking picture perfect

“

Despite the pervasive usage of warehouse data by Malaysian banks, branch transactions are still old-fashioned

”

-Peter England, Head of Retail Banking, CIMB gered by events are more effective than those triggered by products.” Tim then urged the panel to share the interesting events-based triggers that have been useful to their organisations. Mr. Sharma felt that age groups, occupational type segmentation are the basic triggers. The panel shared their successful campaign experience based on integration.

Sharma said, “There has been a huge increase in our card base. We saw the highest growth rate in the credit card industry due to segmented management.” Mr. England responded, “CIMB had the greatest success in the area of insurance sales to existing clients base through basic profiling.” Mr. Swift summed up the seminar “Evolution of information usage is a million dollar trick. Study your customer, identify their preferred product and styles of buying and provide this to them. This is a preordained success.” At the end, Mohana Mohariff, General Manager, Multinational Sales, Telekom commented “It was interesting to see what the other industrial players were utilising in order to gauge Telekom’s position in the global arena. I believe this will help in progress and development of the company.”

Delegate Companies

Public Bank

DIGI Communications

AmBank (M) Berhad

Hong Leong Bank

AIA

UOB Malaysia

Telekom Malaysia

Kurnia Insurance

Citibank Berhad

Maxis Mobile & Communications

ACE Synergy Insurance Berhad

Standard Chartered Bank

Celcom ASIAN BANKING & FINANCE

39

EVENT As the credit crunch continues, a roundtable of senior Trade Finance executives gathered in Hong Kong’s Foreign Correspondents Club to discuss how client service was being managed with difficult global markets.

Tim Charlton reports.

Payment hubs and credit exposure in the age of open account financing in association with

T

rade finance has not remained immune to the most recent round of credit crunches. And so it was at the ACI sponsored Trade Finance roundtable, the Heads of Trade Finance from Standard Chartered, Hang Seng Bank, ABN AMRO and ACI gathered togather in the Foreign Correspondent’s Club, Hong Kong to discuss topics that ranged from the future of Letters of Credit, to growth in the Open Account financing world to how a slowdown in the US economy will affect demand from Asian exporters. On the panel were Jenny Yuen and Donald Lum of Hang Seng Bank, Jon Richman, Standard Chartered Bank, Pravin Advani, ABN AMRO, Mark Evans, HSBC, Rosina Leung, Citi Group, Lum Yin Fung, DBS, brought together to offer opinions on Trade Finance.

During the afternoon many questions were raised such as as, will big name companies like Walmart start to reduce their supply requirements from markets in Asia, which markets will be affected most badly, and how can banks respond to the needs of their customers to provide financing in troubled times?

Pravin Advani, ABN AMRO

Mark Evans, HSBC

Credit and Trade Chairperson Tim Charlton said, “I believe Asia will work through the latest round of economic turmoil.” He went on to say the trade finance has weathered difficult storms before.

“Trade is the second oldest industry in the world and it will still be here when the money starts flowing again. But how has the recent credit crunch affected trade financing?”

Pravin Advani said, “Events in the credit markets are driving a lot of clients to re-evaluate their financial supply chains. If you look at events in the commercial paper market, in default swaps and in spreads, markets which at one point were very reliable, aren’t so much so now. Corporates are looking for ways to do more self-financing: they are looking at ways to release capital tied up in their supply chains, so as to reClients are duce the need to borrow re-evaluating from the bank or commercial paper markets. financial supply The other driver is that chains in the current markets are moving away credit market from traditional letters of credit into more open situations. account transactions. As - Pravin Advani, Executive they move into that space Director, Regional Head, Trade it allows them more areas & Supply Chain , ABN AMRO so they can start leverag-

“

”

Guests networking and exchanging insights during registration

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ASIAN BANKING & FINANCE

EVENT

Jenny Yuen, Hang Seng Bank

Jon Richman, Standard Chartered Bank

Rosina Leung, Citi Group

ing their financial supply chains.”

Kanv Pandit said, “In terms of access to finance, while corporates in the top tier may not be impacted a lot, smaller and medium sized businesses will find it both tougher and more expensive to access lines of credit. Global trade still revolves massively on the OECD countries as the consumption engines, and most of these low growth economies will find growth rates slowing.”

For example in the US, there is a huge danger of the sub-prime losses triggering losses in other categories. Corporate profitability will fall, which leads to pressures on costs and with the dollar at record lows, it means an incentive to source from within the US and avoid imports.

This obviously impacts Asian economies, with China already crying foul. Secondly, interest rates are going up in China and India as these countries look to control inflationary pressures. This has created a double whammy at least for producers, exporters and importers in these giant Asian economies. Japanese

inventory levels have begun to rise and that implies export demand has slowed. So all in all, there’s not a lot of good news as far as exporters, banks who finance global trade and importers, are concerned as they find borrowing costs increasing. When the business cycles head towards tougher times, pressures surface in the financial supply chains and someone has to pay for those.

“

“

Asia will ride out the storm of latest economic turmoil just as it had in the past.

”

-Tim Charlton, Publisher and Editorin-Chief, Asian Banking & Finance Magazine

Open account trading Moving onto the subject of how the transition to open account trading had affected credit exposure, Tim Charlton said, “Does open account trading leave banks with more credit exposure and what is being done to mitigate this?”

Kelvin Lee said, “Open account trading is meant to allow banks the ability to mitigate risk and credit exposure. The major risk hindering the ability to mitigate credit exposure to these banks is primarily their IT system.”

Pravin Advani said, “Investors are gradually discovering the benefits of investing in trade receivables. As an investment class, they have some admirable qualities, which have been highlighted by the recent credit crunch.”

“They are typically very short term loans, maybe upto 120 days only, and have proved to be remarkably stable, despite the intense volatility across most financial markets. The risk of default is minimal in the short-term.

You are also talking about exposures to big household names in retailing and manufacturing, its an ideal risk profile,” added Pravin.

The major risk hindering the ability of banks to mitigate credit exposure is primarily their IT system.

”

-Kelvin Lee, Sales Director, Asia Pacific, Wholesale Banking Group, ACI Payment hubs and integration Payments convergence is driven by an appreciation that all payments share a common set of data and supporting functions. This appreciation is leading the industry - banks, processors, vendors - to focus on providing and using common rather than duplicated, sets of infrastructure to process end to end payments regardless of the source, destination or amount of the payment.

Pravin Advani said, “Pre-shipment finance is another innovative area of growth. To be able to provide such a facility, banks need to overcome two inter-linked hurdles: getting comfortable with the risk issues that are specific to this early stage of the purchase-to-pay cycle; and achieving the scale needed to make such financing viable and worthwhile.”

At the close of the roundtable, Tim Charlton wrapped the event by saying, “Once again the subject of trade finance has provided a lively and innovative forum. We have much to look forward to next year.”

KEY SPEAKERS Pravin Advani, Executive Director, Regional Head, Trade & Supply Chain, Asia Pacific Transaction Banking, ABN AMRO

Jon Richman, Managing Director, Transaction Banking, Hong Kong Wholesale Banking, Standard Chartered Bank

Jenny Yuen, Executive Vice President, Head of Trade Services, Hang Seng Bank

Lum Yin Fong, Managing Director, GTS, DBS

Mark Evans, Head Trade Finance & Supply Chain, HSBC Bank

Rosina Leung, Director & Head for Trade Hong Kong, Citi Group ASIAN BANKING & FINANCE

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LAST WORD

Bloomberg

Will the US Fed’s inflation amnesia be contagious to Asia?

ANDY MUKHERJEE The much-anticipated US recession, if and when it does arrive, will undoubtedly extract a price from Asia Pacific economies.

That doesn’t mean the US Federal Reserve’s efforts at mitigating the slowdown are going to be any less expensive for the region. The source of that economic cost is inflation, both the part that’s already realized because of sky-high commodity prices and the part that’s expected from the current round of US monetary expansion. Even the elevated prices of minerals, metals and food may be less a result of explosive world demand and have more to do with cheap money, as Harvard University Professor Jeffrey Frankel has recently argued. If Frankel’s hypothesis is correct, monetary-policy options for the Asia-Pacific region are very limited. No matter Pain of credit market disruption extends beyond the financial industry what they do, the inflation genie won’t go rate. “With higher inflation and with our Inflation Amnesia back into the bottle without a huge global economy continuing to perform strongly, But why are commodity prices rallying deflationary shock, precisely the kind of we would have liked to see positive rather even with all the concerns about the U.S. US recession that the Fed is so intent on than negative real interest rates,’’ Joseph slipping into recession? Harvard’s Franpreventing. With crude oil at about $106 a Yam, the Hong Kong Monetary Authority kel says the culprit is the low real cost of barrel, and wheat futures almost 2.5 times chief, said. Inflation in the Chinese terri- borrowing. That makes it cheaper to carry as expensive as at the same time in 2007, tory is at a nine-year high. inventories. The Fed may have developed fuel and food prices are a big worry for inflation amnesia; the bond market has policy makers. Declining US interest rates Terms-of-Trade Shocks not. The yield on five-year Treasury Inand a weakening dollar are compounding Countries that have more flexible ex- flation-Protected Securities is signaling a the challenge. The situation is change rates and therefore, steady rise in expectations of quicker lonpeculiarly tricky for central greater freedom in setting the ger-term price gains. Then there’s China, banks that don’t set interest price of local money, are not where the current annual inflation rate of rates independently, opting Commodity prices exactly on top of inflation ei- 8.7 percent is double the one-year yuan instead to import monetary are rallying ther. The Reserve Bank of In- deposit rate. conditions prevalent in the despite US reces- dia is under pressure to cut inNone of this gives any comfort to Asian US. terest rates. But with inflation central banks. With the US “at risk of a sion concerns having accelerated to a nine- recession, Hong Kong will be affected Negative Real Rates month high, and the fiscal taps sooner or later,’’ Yam wrote. “Hopefully, All of these monetary authoriwide open, the elbow room for the prospect of some slowing in our ecoties are now being forced to live with real, monetary easing is simply not there. nomic growth rate will have a damping efor inflation-adjusted, interest rates that Or, take Australia, the world’s biggest fect on domestic inflation,’’ The operative are already negative and continuing to fall, exporter of coal, iron ore and wool. Even word here is, “hopefully.’’ Policy makers stoking potentially dangerous speculative with interest rates that are at their highest in the Asia-Pacific do want to see the US fervor in property markets and feeding in 12 years, Australian inflation is still the financial system quickly restored to norinto expectations of higher wages. fastest in 16 years. Buoyed by commodi- malcy because the pain of credit-market Saudi Arabia, the United Arab Emir- ties, Australia’s terms of trade, the average disruption is spreading to their own bankates and Bahrain, which peg their curren- price of its exports divided by the cost of ing industries. cies to the US dollar, were forced to cut its imports, have surged 41 percent in the But if that’s to be achieved with nominal their benchmark rates by 0.75 percent- past five years. Such good fortune, not US interest rates at, say, 1 percent, then age point, following the reduction by the seen since the Korean War “boom’’ of the they would rather suffer the consequences same amount in the Fed’s target for in- 1950s, shows “a very large change in rela- of a US recession that also slows down the terbank rates. The Hong Kong Monetary tive prices in the world economy,’’ Gov- economy of China, causing commodity Authority, which also maintains the value ernor of the Reserve Bank of Australia prices to moderate. What, after all, is the of the local currency against the US dollar, Glenn Stevens said. This change is “very use of a cure that turns out to be worse had to make a similar change to its base expansionary’’ for Australia, he said. than the disease? - Bloomberg

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