Business

Tuesday October 20, 2009

Buying Indon bank a new challenge for RHB

Comment by Jagdev Singh Sidhu


SETTING targets is a cornerstone of business.

It gives employees and employers a sense of direction and investors an idea of how the business will grow.

And that is often followed up by a plan on just how those targets, if they are not numbers plucked out of thin air, can be attained.

RHB Capital Bhd boldly declared two years ago it aims to be one of the three largest banks in South-East Asia by 2020.

Along the way, the banking group intends to double its profit and market capitalisation by 2010.

RHB Capital kicked off its regional growth strategy when it announced the purchase of a small, unlisted bank in Indonesia that has 50 branches mainly in the city of Medan.

Bank Mestika president commissioner Witarsa Oemar (left) and Tan Sri Azlan Zainol speaking to the media on Monday.

With its new capture, RHB Capital would add Indonesia to its stable of foreign commercial banking operations in Singapore, Thailand and Brunei that currently contribute 3.9% of its revenue.

The acquisition of a bank with RM1.9bil in assets pales against the size of RHB Capital, which in its latest published set of accounts has assets of RM104.6bil, and would do little in propelling the group ahead of its rivals.

RHB Capital is buying a bank in a growth market that while has grown its loan book substantially over the past 3 years, has not really registered any meaningful profit growth over the same period.

And for RHB Capital to fulfil its regional growth plan, more needs to be done.

That could mean that the bank plans to commit much more money than the RM1.16bil it will splash out for Bank Mestika or continue with its acquisition trail throughout the region with a lot more vigour and get its overseas operations to contribute more.

Making Indonesia the first stop in its regional expansion plan is a no brainer.

Ever since CIMB Group Holdings Bhd bought Bank Niaga, which was once 20% owned by RHB, attention has focused on Indonesia’s lucrative banking market.

Malayan Banking Bhd (Maybank) paid a king’s ransom of RM7.9bil for PT Bank Internasional Indonesia (BII) to get a foot into the high growth banking market, and although the results have yet to flatter, the bank expects BII to contribute greatly in the future.

The challenge ahead for RHB Capital in meeting its lofty target is immense.

Overtaking Maybank or CIMB Group would be next to impossible, given what RHB has on its plate, let alone coming close to regional giants such as DBS Group Holdings, which, with assets of S$262bil, is the largest banking group in South-East Asia.

It has to grow faster than its rivals which not only have a headstart but will be enjoying better returns in the fastest growing markets in this region.

The hope is that with its sights now set on growth – RHB Capital has indicated a wish to enter another growth market in Vietnam – it does not take its eyes off the risks involved.Proper due diligence should be conducted.

After all, there should be an added layer of scrutiny here, given that the largest shareholder of RHB Capital is the people of Malaysia, through their life savings with the Employees Provident Fund.

 
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