Business

Tuesday December 16, 2008

CIMB banks on asset base management


Economic problems, emanating from the US, have become globalised, affecting all countries. Chief executives in Malaysia will share their thoughts and outline their broad strategies in a daily series starting today in StarBiz. In the first of this series, CIMB Group CEO Datuk Seri Nazir Razak says the group will manage its asset base and contain operating costs at a time when economic growth will moderate sharply next year.

WHAT is your view on the industry next year?

Malaysian banks will be confronted by the “second order” effects of the global financial crisis, namely the impact on revenues and asset quality as economic growth moderates sharply due to a slowdown in the external sector and foreign and private investments.

I think the global slowdown will be quite severe and that Malaysia’s gross domestic product growth will be somewhat slower than the current 3.5% official forecast, which was based on assumptions that have been overtaken by subsequent events. In particular the outlook for global banks’ credit losses and deleveraging is now much worse. But I do not think we will go into recession.

»What was considered ‘bad’ in good times can be ‘good’ in bad times« DATUK SERI NAZIR RAZAK

Malaysian banks are fortunate that their exposure to “toxic” assets and dependence on international financing is quite limited. Furthermore, Malaysian corporates are not highly leveraged and we have not had asset price bubbles in the real, especially the property sector.

What was considered “bad” in good times can be “good” in bad times. Therefore, while we can expect higher non-performing loans, I do not think that they will be so severe.

In terms of revenue, banks will have to map their strategies very carefully as on the one hand, there will be lower demand for banking products but on the other hand, the scarcity of capital gives rise to opportunities to earn higher margins, especially in non-ringgit assets.

What is your strategy to ride out the economic slowdown?

We will proactively manage our asset base, contain operating costs and keep our people motivated despite low levels of activity. Liability management will be of increasing importance as declining interest rates will pressure margins.

What are the aspects of the business you will be seeking to improve next year?

Our primary focus next year will be foundation building. We have a lot of integration work to do, having significantly expanded our businesses in Indonesia and Thailand.

We want to build a cohesive regional banking platform as we firmly believe this model will give us the requisite scale economies and a more effective customer value proposition in the medium term.

Indeed, one outcome of the global financial crisis will be the ascension of regional banks relative to global banks, which will have to retreat as their priority will always be their home and surrounding markets.

The consumer banking business has grown impressively. What are the group’s aspirations for this segment next year?

I am pleased with the turnaround of our consumer bank. And with the sharp decline in capital market activity this year, we were lucky that this turnaround came through quite quickly. But if one looks closer at our market shares, they still do not commensurate with our large platform and potential reach. We are still way behind two others by some distance.

Bank Bumiputra, the single largest legacy bank in our stable, had many lost years and it will take us some time to make up ground. So for 2009, we will continue with our successful strategies of product leadership and stronger distribution.

I am still not satisfied with the level of service at our various customer touch points and I am determined to continue to invest in people and systems to get this right next year.

When do you see an improvement in investment banking and how do you see that side of your business in 2009?

I suspect that in the early months of the year, the debt and equities capital markets will remain quite weak and investment banking will have to rely on traditional bank lending and transactional activities like foreign exchange as well as mergers and acquisitions.

What we need to see is a “bottoming out” of markets and more confidence about the timing of economic recovery in Malaysia and globally. So fingers crossed, in the later part of next year, we will see more opportunities for new issues for bonds and equities as well as more decent trading volumes.


CIMB : [Stock Watch] [News]


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