Transcript prospects for banking in asean

PROSPECTS FOR
BANKING IN ASEAN
Arvind Mathur
Head, Capital Markets
Asian Development Bank
DBS 10am
ENTRY/ EXIT/ GROWTH CRITERIA
 Macroeconomic Conditions
(+ve correlation with performance)
 Bank Quality – Ability to exploit
opportunities
 Success in high Margin Businesses to
Maximise Economic Value Added (EVA)
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MACRO SITUATION
 Distressed

 GDP growth rates

 Export Prospects
 
 Sovereign Credit Quality 
 Currency Stability

 Bear Push from Japanese Recession
Prospects

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GDP GROWTH (%)
2000
9.9
4.2
3.9
4.8
8.5
SINGAPORE
THAILAND
PHILIPPINES
INDONESIA
MALAYSIA
3
2001(f)
5.0
3.5
3.1
4.2
4.9
DISTINCTIVE FEATURES
OF DBS
 Reputation
 Solidity
 Know How - Credit Analysis Skills/
Technology
 People & Talent
 Good Corporate Governance
 Regional Presence
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THESIS: CIRCUMSPECTION NOT
ABANDONMENT
 Fundamental Strengths Remain
 Low Cost Mfg Base

 Infrastructure

 Policies

 Business Transplants from
Japan/US/Europe

5
IMPLICATIONS OF ADDED RISK
Proper Pricing of Risk
High Risk-Adjusted Return Hurdle
Avoid Price Competition to Protect
Margins
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PROSPECTS
FOR BANKING PRODUCTS
 Corporate Exposures

 Project Finance

 Retail/ Consumer Banking

 Distressed Assets

 FX Trading/ Treasury (Controls)

 Capital Markets

 Build or Acquire
?
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DISTRESSED ASSET PRODUCTS
 Debt-Equity Swaps (Form of Private Equity)
 Purchase & Sale of Retail Distressed Debt
Pools
 Purchase & Work-Out: Maximize Recoveries
 Purchase & Hold to Maturity
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ADVANTAGES OF
DISTRESSED DEBT
 Bargain Price
 Benefit from Improving Credit Quality
as Macro Conditions Improve
 Capitalize on ASEAN Presence
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SUCCESSFUL MODELS
 GE Capital – Thai Distressed Debt
 Goldman Sachs
 Japan Real Estate
 Korean Distressed Debt Pool
 Lonestar
 U.S.
 Korean Distressed Debt Pool
 Citicorp
 Latin America Debt/Equity SWAP
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THAI DISTRESSED DEBT:
JACK WELCH GE CAPITAL QUOTE
 “This guy, this nut, wants us to invest $1billion
in autos. I’m going to blow him out of the
water tomorrow. This guy’s got no chance
Norbom came in and made a convincing
case. If you asked me five minutes before
the meeting, I’d say “What are you nuts? And
yet he made a great case, and you love him
for doing it.”
 Source: GE Digs Info Asia, Fortune, October 2, 2000
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GOLDMAN SACHS: TERMS OF KOREAN
DISTRESSED DEBT PURCHASE
Seller:
KAMCO
Buyer:
Goldman Sachs
Price:
5 cents on the $ i.e. 5% of par value
Contingent Profit Sharing:
Seller receives 50% - 60% of profits
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POTENTIAL APPROACH
 Develop Core Competency in
Distressed Debt
 Partner with Seasoned Players
 Distressed Asset Funds
 G.E. Capital / Lonestar etc
 Specialist Teams – Debt Restructuring
Specialists/ Turnaround Artists
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POTENTIAL APPROACH
Lending Officers can be Trained
Focus on Thailand, Malaysia initially
Asset Pools
Info source: www.debtmarketplace.com
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CONCLUSION
 Citibank & Standard Chartered never
abandoned countries
 Tailor strategy to exploit changing
conditions
 Though macro conditions are poor, DBS
could exploit special opportunities
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