Monday July 30, 2012
Expect surprises when expanding, banks told
KUALA LUMPUR: Banks and financial institutions have to tread carefully when expanding their turf in Malaysia or elsewhere as deficiencies in the regulatory environment can throw up surprises, according to experts at a recent local banking summit.
“When it comes to mergers and acquisitions (M&As), a lot of things look good on paper,” RAM Ratings deputy CEO Promod Dass told participants at the recent Malaysian Banking Summit, adding that curveballs were to be expected.
“In terms of capital commitment, even in the best of times, regulators may shift the goalposts. A crucial aspect is to have firm knowledge of the regulatory differences and what you can expect to see over the next few years.”
Citing his own experience when he was sent to Sri Lanka to open up a subsidiary of the credit ratings agency there in 2005, he said: “A lot of things I thought could be achieved by a certain time did not materialise because when you deal with people, timelines move, and you only figure this out when you are on the ground.”
Hong Leong Bank Bhd group chief risk officer Justin Soong acknowledged that regulatory loopholes existed when it came to M&As for Islamic banks.
“When Hong Leong Islamic acquired EON Islamic last year, it turned out to be the first merger of Islamic banks in the world.
“Unfortunately, we had to find out along the way that many things were not in place. We actually had to invite all depositors to come to a meeting to agree to the merger,” he explained.
“There was no provision for it (merger) in the Islamic Banking Act, only in Bafia but that’s for conventional banking. So there’s a lot more work to be done in this area.”
On Hong Leong Bank’s investment in China’s Bank of Chengdu, of which it has a 20% stake, Soong said there was a need to be skeptical where risk was concerned.
“We keep a close eye on what’s going on there. The discussion has been that the downturn is concentrated more on the coastal areas whereas there is still much inherent capacity inland (Bank of Chengdu is based inland).
“Even then, we want to be skeptical. Things can change in six months. Maintaining a healthy dose of skepticism is important for anyone involved in financial services.”