Monday, May 30, 2011

68% of Malaysians worried about retirement- HSBC

Malaysians are the most prolific financial planners but 68 per cent of them are still worried that they would not be able to cope financially in retirement, a recent HSBC survey reveals.

"This shows that Malaysians have grasped the fact that they need to start planning early while the prospect of unforeseen events remains a prime concern," HSBC Amanah Takaful (Malaysia) Sdn Bhd Executive Director and Chief Executive Officer Zainudin Ishak told reporters after launching the survey report titled "Future of Retirement: The Power of Planning" here today.

The survey was based on interviews with more than 17,000 people in 17 countries.

He said the report also highlighted that Malaysians were among the least dependent on state solutions to fund their retirements and younger people were the most likely to be actively planning for the future.

He said ageing, which is among the biggest challenges of the 21st century, was no longer just a phenomenon facing the developed world. By 2050, those over 65 years old in Asia would be more than triple to 900 million, he added.

The survey shows that although 69 per cent of Malaysians look forward to freedom in retirement, 24 per cent are concerned about the cost of caring for their parents in their old age. -- Bernama, 30 May 2011

Top 5 City with the Most Billionaires 2011

When the U.S. economy was riding high for most of the 20th century, it would have been impossible to imagine a foreign city--especially one in a Communist country--with more of the planet's very richest than New York, home of old-money Wall Street. But that indeed is the case. Today Moscow is the city with the most billionaire residents in the world.
The Russian capital boasts 79 billionaires, a stunning increase of 21 in just one year. That more than edges out No. 2 New York, with 59 billionaires, and No. 3 London with 41. Other cities in the top 15 include such rising stars as Mumbai, Taipei, Sao Paolo and Istanbul. Los Angeles manages a tie for No. 8.
The combined fortunes of Moscow's billionaire population top $375 billion, more privately amassed wealth than in any other city in the world.
Despite New York's relegation to second place, the city remains a favored locale of billionaires, whose collective net worth is $221 billion. The Big Apple boasts some of the most expensive ZIP codes in the U.S., due in part to the real estate prices paid by billionaires in this city. Indeed, many Moscow residents own secondary homes in New York, including fertilizer and coal magnate Andrey Melnichenko, whose wife recently closed on a $12.2 million penthouse apartment. Even the world's richest man, Carlos Slim (home: Mexico City), snatched up a $44 million mansion on Central Park last year.
To compile our list, we tallied the primary residences of all 1,210 billionaires on the 2011 Forbes World's Billionaires list, our annual assessment of people sporting seven-figure or higher fortunes in U.S. dollars. We did not take secondary homes into account for this list.
In the U.S. we stuck strictly to city limits. For example, while a smattering of prominent media barons like Viacom founder Sumner Redstone and T.V. tycoon Haim Saban reside in Beverly Hills, they are not included in the pile of Los Angeles residents since Beverly Hills is its own city (although largely surrounded by Los Angeles).
Here are the the world's five top cities for billionaires:

Istanbul, Turkey scores No. 5.
Photo: Thinkstock
No. 5: Istanbul
Number of Billionaires: 36
Total combined wealth: $60.5 billion
Billionaires include: Turkey's richest person, Mehmet Emin Karamehmet, chairman of mobile phone company Turkcell; Turkey's former richest, finance and retail scion, Husnu Ozyegin; and Macedonian-born Sarik Tara, founder of construction giant, ENKA.

Hong Kong scores No. 4.
Photo: Thinkstock
No. 4: Hong Kong
Number of Billionaires: 40
Total combined wealth: $176.8 billion
Billionaires include: Greater China's richest person, Hutchison Whampoa chairman Li Ka-shing; the Kwok family, the brothers behind Hong Kong's largest real estate developer, SHKP; and Angela Leong, the controversial heiress of Stanley Ho's casino empire.

London scores No. 3.
Photo: Thinkstock
No. 3: London
Number of Billionaires: 41
Total combined wealth: $164.3 billion
Billionaires include: Indian citizen Lakshmi Mittal, the world's sixth-richest man thanks to steel-maker ArcelorMittal; daredevil Virgin founder Richard Branson; and Philip & Christina Green, the married couple behind clothing company Topshop.

New York City scores No. 2.
Photo: Thinkstock
No. 2: New York
Number of Billionaires: 59
Total combined wealth: $220.8 billion
Billionaires include: media mogul and current mayor Michael Bloomberg; fashion designer Ralph Lauren; and real estate developer-turned-reality T.V. celebrity Donald Trump.

Moscow scores No. 1.
Photo: Thinkstock
No. 1: Moscow
Number of Billionaires: 79
Total combined wealth: $375.3 billion
Billionaires include: Russia's richest man, steel magnate Vladmimir Lisin; commodities investor and Chelsea soccer team owner Roman Abramovich; and venture capitalist and Facebook investor Yuri Milner.


Electricity tariff to go up by about 7% from June 1

PUTRAJAYA: The electricity tariff will go up by about 7% from June 1, in a bid to rein in the ballooning subsidy bill.
However, the increase will not affect 75% of domestic users who mainly consume less than 300 kWh per month.
The gas tariff for electricity and industrial sectors will rise by RM3/MMBtu every six months from June 1 to Dec 2015.
After that the price will be based on market rates.
The announcement on Monday was made at a joint press conference by Minister in the Prime Minister's Department Tan Sri Nor Mohamed Yakcop and Minister of Energy, Green Technology and Water Datuk Seri Peter Chin Fah Kui.
They said the 7.12% hike was due to the increase in natural gas price to the power sector.

AirAsia VS MAS

AirAsia Bhd's market capitalisation is now almost 80 per cent bigger than the national carrier Malaysian Airline System Bhd.

It was only less than a year ago when AirAsia's market cap reached parity with that of MAS, as both had a market cap of about RM7.5 billion.

In October 2010, the younger AirAsia was trading at the RM2.50 level, while the "senior" MAS was trading at the RM2.20 level.

AirAsia has attracted more than seven times foreign institutional funds into the company. Based on the recent annual report, foreign institutional funds own more than 22 per cent of the low-cost carrier. As for MAS, foreign institutional funds hold just less than 3 per cent.

Fortunes of both companies on the stock exchange and on the business field have varied. Since its listing, the budget carrier has only suffered two quarters of net losses, partly due to fuel price volatility. In contrast, MAS, its more experienced rival, has suffered nine quarters of net losses during the same period. 

In the most recent quarterly results, AirAsia posted a net profit of RM171 million, while MAS suffered a net loss of RM242 million.

"In hindsight, this is probably the best result one could have hoped for in a volatile oil environment, without fuel surcharges (they were only implemented on May 3) and in a seasonally weak Q1," said Nomura Research, commenting on AirAsia's recent financial performance in its report recently.

As at last Friday, AirAsia's market cap exceeded RM8.4 billion and is trading at its all-time high level of RM3.11 on May 11 2011 and at a price-earnings of 8.26 times. In contrast, MAS is now trading at a decade low of RM1.45, with a total market cap of less than RM5 billion.

Analysts generally are starting to express pessimism on the airline industry due to the high fuel prices. Fuel expenses constitute 48 per cent of AirAsia's operating expenses and 38 per cent of MAS.

"Nevertheless, we still prefer AirAsia as its low-cost structure puts it in good position to weather the high oil price," said an analyst at a local research house.

Moving forward, AirAsia's outlook is expected to remain brighter than MAS.

"Assuming all other variables remain constant, a fuel cost sensitivity analysis on AirAsia and MAS revealed that AirAsia will still be profitable unless jet fuel exceed US$190 (RM574) per barrel, while MAS will sink into the red if jet fuel remains above the US$115 (RM347) per barrel," said ECM Libra Avenue in a research report in March when crude oil prices were rallying.

Year-to-date, the budget airline's shares have appreciated by 20 over per cent, while MAS shares have slumped by more than 30 per cent.

Not only that AirAsia has created value for the minority shareholders, but the company's major shareholders also had the opportunity to cash out. During the first year AirAsia was listed, Datuk Seri Tony Fernandes had an indirect stake of 44.76 per cent. Today, he has less than 27 per cent indirect stake.

It is also not the first time Malaysia has witnessed a newcomer taking on an incumbent, and emerging as the winner.

As another analyst put it: "This is not the first time we saw a 'newcomer' surpassing the initial market leader. Another good example is Proton versus Perodua. Consumers are now more conscious on price and quality".

Monday, May 23, 2011

Malaysia ranked world’s 10th largest consumer of alcohol

KUALA LUMPUR: Malaysia has been named by the World Health Organisation (WHO) as the world’s 10th largest consumer of alcohol despite its small population and size.
Statistics by the international body this year also showed that Malaysians spent over US$500mil (RM1.5bil) on alcohol with a per capita consumption of seven litres.
Beer consumption in Malaysia is 11 litres per capita.
Deputy Women, Family and Community Development Minister Heng Seai Kie said the problem of alcohol consumption in the country was getting serious.
“Alcohol is not only causing a lot of health issues but is also contributing to a significant number of accidents,” she said here yesterday.
Heng was speaking to reporters after launching booklets and seminars on “Promote Healthy lifestyle: Reduce Alcohol Harm” organised by the Kuala Lumpur and Selangor Chinese Assembly Hall (KLSCAH) and supported by IOGT International, a worldwide community of non-governmental organisations, and the National Association of the Prevention of Drug Abuse (Pemadam).
She said the ministry, through the National Population and Family Development Board, would hold a campaign to create awareness on the danger of alcohol abuse.
She said 10 seminars would be held nationwide this year.
They would be conducted in Mandarin, Malay, English and Tamil and were aimed mostly at those from the Chinese and Indian communities, which had a high alcohol abuse rate.
“The public has to understand that alcohol is not part of our culture and it will bring harm if it is abused,” she said.
Earlier, in his speech, KLSCAH secretary-general Yong Yew Wei said the Road Safety Council estimated that drinking and driving caused 30% of road accidents nationwide, with 38% of these resulting in fatalities.
“A study also shows that absenteeism from workplace among alcoholics is 16 times higher than others,” he said, adding that non-governmental bodies played a vital role in promoting a healthy lifestyle.

Malaysian's Bank margins rising?

Larger bank profits as BLR increase outpaces OPR rise
PETALING JAYA: The higher increase in the base lending rate (BLR, to which lending rates are pegged) compared with that of the benchmark overnight policy rate (OPR) has raised more than eyebrows among consumers.
“This is totally unacceptable,'' a reader wrote in an email to StarBiz. “Banks will be making higher margins at our expense.
“If you look back since Bank Negara cut the OPR to 2% and then increased it back to 3%, the BLR has increased at a faster pace. Back in 2008 when the OPR was 3.25%, the BLR was 6.5% but now the OPR is at 3% and the BLR is at 6.6%.
Anandakumar Jegarajasingam
“Bank margins have expanded by 35 basis points (one basis point is one hundredth of 1%). With RM900bil in total loans, this expands banks' profits by RM3.2bil at the expense of consumers.
“Also, when the SRR (statutory reserve requirement interest free deposits banks must keep with Bank Negara) was reduced from 4% to 1% of deposits, the savings were not passed on. But now that the SRR has been raised back to 3%, banks expanded BLR by five bps.
Effective May 11, the BLR went up 30bps (to 6.6%) which is higher than the OPR increase of 25 bps.
This speedier repricing of loans relative to fixed deposits may be mildly positive on bank margins in the near term but have already got some consumers up in arms.
“By our estimates, the additional 5bps increase in the BLR sufficiently compensates for the recent 100 bps increase in SRR to 3%,'' saidMaybank IB, adding that this was probably an ad-hoc adjustment rather than to specifically compensate for the SRR hike.
RHB Bank principal officer Renzo Viegas said each banking institution could introduce its own BLR based on its cost structure and business strategies.
Under Bank Negara's new interest rate framework issued in 2004, this was allowed to provide more efficient pricing of financial products.
But for most banks, the OPR is a key variable in deriving the BLR.
“Assuming that cost structure and business strategies remain intact, it is therefore not surprising that with every OPR hike or contraction, the BLR will adjust in tandem with the change in OPR,'' said Renzo.
There are mixed views on regulatory intervention to prevent the rise of BLR following an increase in OPR.
“It is best that market forces determine the trajectory of interest rates,'' said Malaysian Rating Corp Bhd (MARC) vice-president and head of financial institution ratings Anandakumar Jegarasasingam.
Banks are likely to experience a narrowing of net interest margins with the recent OPR hike which is concurrent with the upward movement in the SRR coupled with intense competition, said RAM Ratings head of financial institution ratings Promod Dass.
“However, banks with a large proportion of their funding base composed of low cost deposits (current and savings accounts or CASA) and a predominantly floating rate loan book will be able to better mitigate this trend,'' Promod said.
Renzo sees that for banks with a high fixed rate loan book, this may have a negative effect on margins.
For banks with high floating rate books and strong CASA to fixed deposit ratio, the OPR hike will likely improve the overall net interest margin, said Renzo.
According to Maybank IB Research, the prime beneficiaries would be Maybank and CIMB which have a lower proportion of fixed rate loans and higher CASA base.
Hwang DBS Research, in its update on Asean banks, had identified Maybank, Hong Leong and Alliance as having a higher proportion of variable rate loans and CASA.
However, higher rates may affect the repayment ability of some borrowers. “Any potential default as a result of this is likely to be manageable at this stage,'' Anandakumar said.
Analysts estimate about 55% of the total loan portfolio of banks comprises consumer loans, which include 24% to 25% in mortgages.
Besides the BLR, another indicator is the average lending rate which can vary especially in the cut-throat mortgage market.
“Five years ago, mortgage lending was BLR plus 1% or 0.6%. Since then, it is BLR minus 2.4%,'' said an analyst. “We have to look at the effective lending rate.''
“Pricing strategies deployed by banks would generally result in narrower margins,'' said Anandakumar.
However, that could result in expanded market share.
To compensate for the lower margins, banks have other strategies such as packaging lending products with lock-in periods and insurance products.
They have also made their deposit structures more attractive to ensure a supply of low-cost funding, he added.
“When all banks gravitate towards homogenous pricing across the industry to capture market share, the margins will definitely compress,'' said Renzo.
Those with strong credit risk controls and low expense base will continue to remain profitable; however, balance sheet growth does not necessarily lead to sustainable profitability growth, he cautioned.

Tuesday, May 17, 2011

Petrol RON95 price to be reviewed next month

Come next month, the government will review prices of all petroleum products, including the RON95 petrol, before deciding to retain them or otherwise, Domestic Trade, Cooperative and Consumerism Minister Datuk Seri Ismail Sabri Yaakob said today.

He said the price revision to be conducted by the ministry and other agencies such as the finance ministry and the Performance Management & Delivery Unit (Pemandu) would determine whether prices would be maintained or increased, depending on the government's subsidies.

"According to Pemandu's subsidy rationalisation plan, there will be a revision every six months for subsidies on all products.

"The last revision we had for diesel, LPG and RON95 was in December, last year.

"This means that a mid-year revision will be carried out this month or early June...I can't say what will happen but the revision will take place and the government's subsidy burden is high," he told reporters after officiating the Ipoh Umno Division Delegates Meeting today.

He said this when asked on the current price of RON95 petrol, following the increase in price of RON97 petrol to RM2.90 per litre.

On April 2, the price of RON97, which was floated according to current petrol prices, rose 20 sen to RM2.70 per litre, following the Middle East crisis, while the price of RON95 increased by five sen to RM1.90 per litre last December.

Ismail Sabri said, although he had previously stated that petrol prices would not go up at the moment, it did not guarantee petrol prices would stay the same forever, because the government was already burdened with subsidies for petroleum products.

"Last year, the government's subsidy for petroleum products was RM8 billion when world fuel prices shot up, and we don't see signs that it will drop. If this continues, the government will bear RM18 billion in subsidies this year, an increase of RM10 billion," he said.

He said, should subsidies be reduced, the RM10 billion could be used to build more schools, village roads, housing projects and educational aid.-- Bernama

Nazir voted best CEO, Public Bank best-managed company

KUALA LUMPUR: Public Bank Bhd emerged top in four out of nine categories under FinanceAsia's "Asia's best managed companies" country listings, while CIMB Group chief executive officer (CEO) Datuk Seri Nazir Razak was voted the "Best CEO".

Maxis' chief Sandip Dass was the runner-up for the "Best CEO", followed by Public Bank chief Tan Sri Tay Ah Lek in third place.

Malaysia's third largest bank in terms of asset and market capitalisation, Public Bank was polled the "Best managed company", "Best corporate governance", "Best corporate social responsibility" and "Most committed to a strong dividend policy".

The country's second largest lender CIMB Group, which topped the polls in "Best investor relations" category, came second after Public Bank in the four categories.

AirAsia Bhd was voted the "Best mid-cap", while integrated media group Media Prima Bhd came second in that category.

Gloves maker Latexx Partners Bhd was voted the "Best small-cap".

Malayan Banking Bhd chief finance officer (CFO) Khairussaleh Ramli was polled the "Best CFO".

Hong-Kong based FinanceAsia revealed the poll results for India and Malaysia on its website yesterday.

The publication has tallied votes from over 300 investors and analysts across the region for its 11th annual poll of Asia's top companies.

"The remaining results will be published during the course of this week, before finally revealing which companies are viewed as the best managed in the region in 10 key industries," FinanceAsia said on its website.

Read more: Nazir voted best CEO, Public Bank best-managed company 

Sunday, May 15, 2011

Winning Lottery can make you broke ???

People who have problems handling their finances will not benefit from receiving a cash windfall or money gifts. The assumption that winning a large amount of money prevents a person from becoming a bankrupt is false as concluded based on the research done by three US universities.
Researchers from three US universities traced the winners who took home between USD600 and USD150,000 after winning from a specific lottery game in the US from April 1993 until November 2002. Comparison was done on those who won less than USD10,000 to those who got USD50,000 to USD150,000.
The researchers discovered that 5.5 percent of 35,000 lottery winners went bust in five years time. They found that people who won USD150,000 are just as prone to become bankrupt as those who win a small amount of below USD10,000.
It turns out that for some people, receiving some cash windfall only postpones or delays the situation from happening. These people had nothing to show for when filing for bankruptcy, no paying off debts or acquiring assets. Their winnings have simple disappeared.

What happen to the money?

The researchers hypothesize that these winners did not know how to handle a big amount of money and hence mishandled it. Another possibility is that winners have an “easy come, easy go” mentality. Found money may be easier to spend compared to hard-earned money. Another explanation is the lack of patience, wanting to spend the money immediately without thought of any future financial planning. Instant gratification is hard to resist for some people. It would take a huge amount of money to keep these people from going bankrupt.
The conclusion is if you encounter a person who has money problems due to mismanagement of his finances, giving him money to help him out will most probably not do him a world of good. Instead he needs to be guided or taught on how to properly manage and plan his finances.
Receiving or winning cash money anytime is something to be grateful for. The money should be appropriately used to pay down debts, purchase assets, invest or kept for a rainy day. Each of us have our list of priorities or goals we want to achieve when it comes to money. Just because the money comes “freely” does not mean we treat it less importantly and splurge immediately.
What would you do if you are lucky enough to win some cash money?

Malaysia Banking Sector consolidation third round?

THE banking landscape, which has gone through considerable reform and consolidation, is set for exciting changes again. This time, it will be driven by bigger players that aim, through a market-driven process, to gain further strength and traction as competition intensifies.
With the process of liberalisation well under way, the competition comes from all sides as different sets of players emerge. Apart from the fight in the traditional retail market, new entrants are tapping the global, commercial, Islamic, wholesale and investment banking space.
On the corporate level, bank mergers and acquisitions are coming alive again with Hong Leong Bank leading the charge through its recent acquisition of EON Bank.
Yvonne Chia expects the fight for profitable market segments to intensify in Malaysia.
In fact, a number of bank stakes are up for sale. Dubbed banking consolidation round three, the resulting combinations will be keenly watched.
M&A scenarios
The hottest deal now is the sale of the 25% stake held by the Abu Dhabi Commercial Bank (ADCB) inRHB Capital Bhd. So far, three to four parties have submitted their bids for the stake for which the asking price is said to be around two times book value or RM10 per share.
At RHB, the talk on M&A revolves around two elements sale of the ADCB stake and even RHB itself.
Speculation on a possible RHB/CIMB merger has resurfaced. It was first mentioned as part of a game plan when CIMB took over Southern Bank Bhd, and RHB was seen as the next potential takeover target for CIMB.
The rumours on a possible RHB/CIMB merger were stoked following a recent statement by CIMB chief Datuk Seri Nazir Razak on its ambition to be among the top three in Asia in terms of market capitalisation.
No doubt there will be duplication in the investment and corporate banking business, but that is seen to be the fastest route to the top among Malaysian banks in terms of market capitalisation.
Some analysts consider CIMB to be strong enough to do another merger, following its merger with Southern Bank five to six years ago.
Datuk Seri Abdul Wahid Omar ... ‘The industry will have to go through a consolidation phase.’
The Employees Provident Fund (EPF) which holds a 45% stake in RHB Capital, will be looking at a compelling price and reason to sell, having put the bank on a firmer foothold and doubled its profits.
Another statement that had the market talking was the Prime Minister's statement that he might consider a higher stake in AMMB Holdings Bhd by the Australia New Zealand Banking Group (ANZ)which currently has a 24% stake.
“There's no smoke without a fire.'' says an analyst. Reports had speculated that AMMB chairman Tan Sri Azman Hashim, who indirectly holds a 17% stake, may be looking to sell out.
The limit on foreign shareholding in banks is 30% but applications for stakes exceeding that threshold may be considered on a case-by-case basis.
ANZ is reported to be one of the potential bidders for the ADCB block; if ANZ succeeds in buying a stake in RHB, it would need to merge AMMB with RHB, analysts noted.
Another potential M&A may be from the Alliance Financial Group (AFG), whose strategic shareholder, Langkah Bahagia, is looking to exit. Langkah Bahagia effectively owns 14.8% of AFG via Vertical Theme which is a joint venture between Langkah Bahagia (51%) and Temasek (41%) that collectively owns 29% of AFG.
Tan Sri Azlan Zainol ... ‘Eventually there will be probably four or five banking groups.’
DBS is reported to be another bidder for the stake in ADCB. If it does buy into RHB Capital, AFG could be merged with RHB or Temasek could sell off its stake in AFG.
Push factors
The relatively saturated domestic banking market is a natural push factor for larger banks to sustain and expand their dominance locally, notesMalaysian Rating Corp Bhd (MARC) vice-president and head of financial institution ratings Anandakumar Jegarasasingam.
As for smaller banks, consolidation within themselves will help to ensure such an exercise takes place on their own terms.
“The business of banking has evolved into one where economies of scale in funding and lending activities is of great importance, thus acquisitions are preferred over organic growth by those seeking to enlarge their franchise,'' he says.
“Ambitions of certain banking groups to achieve regional flagship status require the creation of a stronger domestic franchise that can, in turn, support their regional ventures,'' he explains.
Thinning margins also force banks to look for efficiencies; in Malaysia, the margin is said to be around 3% compared with Singapore (2.5%) and Indonesia (5%).
Yvonne Chia, group managing director of Hong Leong Bank, expects the fight for profitable market segments to intensify in Malaysia.
“The banks will need to address the challenging task of adopting risk-based pricing along Basle lines in a very liquid and low interest rate environment where the price war remains unabated,'' she tellsStarBizWeek.
The war for talent is unrelenting and will continue. Return on shareholders' funds of banks is increasingly under pressure with additional capital requirements under Basle 2/3.
“The need for scale efficiency, fee income, balance sheet and capital strength and deposit liquidity further powers the shift to consolidate, to capitalise on combined market coverage, talent and benefits of scale.
“Additional scale allows investment and encourage innovative business models to serve evolving market needs. In essence, it allows already successful franchises to take the business to the next level,'' says Chia.
Too big to fail?
Many who recall big banks in the West crashing during the recent financial crisis will ask: “When will they ever learn that big is not always beautiful?''
In fact, big banks may be less nimble and innovative. In extreme cases, their formation may lead to cartelisation, to the detriment of consumers.
However, that tendency could be limited as banks compete heavily against each other, an analyst points out. While in the area of mortgage loans, the rates are getting cheaper, it is noted that rates for credit cards stay consistently high among all the banks.
Analysts caution against systemic risk if the largest banks merge to form banks that can be deemed “too big to fail”.
“In the US, that threshold is 10% of loans. However, in the Malaysian context, there is already a high concentration of assets in the largest banks in Malaysia,'' says an analyst.
However, in the consolidation process, Bank Negara would be in a position to decide which mergers are in the best interest of the banking sectors and the economy in general, he adds.
Analysts view that consolidation generally results in better pricing, cheaper cost of funds as well as product reach.
As margins narrow with higher competition, banks are likely to come up with more products to earn more money, thus giving better choices to consumers.
“If the partner and chemistry are right, the M&A can work,'' says an analyst, pointing to the two major ones that have worked CIMB and Southern Bank in the retail space; the tie-up between AMMB with ANZ has resulted in profitability.
In some instances, for example, the card business, the merger between CIMB and Southern Bank has seen improved service levels, says an analyst.
“Eventually, there will be probably four or five banking groups,'' says Tan Sri Azlan Zainol, chairman of RHB Bank. “The consolidation will be driven by those with strong capital base, strong shareholders and the need to expand regionally.''
The management should not be restricted to just local talent. “We need the best,'' Azlan says. “We should not be too restrictive but look into hiring foreigners.''
According to Jegarasasingam, there is considerable fragmentation of market share among the smaller banks, with the three large local banks accounting for nearly 40%-45% of assets in the Malaysian banking sector.
The three small local banks (including EON Bank, which has since been acquired by Hong Leong Bank) account for only 7%-8% of banking sector assets.
Consolidation of Hong Leong and EON Bank will enable both groups to reach out to a larger customer base and most segments, with a broader range of products, services and solutions to reach out to over 300 branches and 1,200 self-service terminals.
“With the combined Hong Leong/EON Bank, we reassert our strong position in the retail segment. For the business segment, we have doubled up our market share, making us a more pre-eminent player. Internally, it will augment career opportunities for our employees with a larger and growing Hong Leong group riding on strong growth ambitions,'' Chia tells StarBizWeek.
The customer will also benefit as evolving market trends that include mass adoption of portable devices, mobile interaction and social networks point to the need to offer more relevant, integrated and seamless solutions and offerings.
Not a shrinking pie
Consolidation usually refers to shrinkage. And while the local pie is shrinking via this consolidation process, licences are issued to a host of global, commercial and Islamic banks from overseas.
According to Chia, these moves to consolidate and at the same time, expand certain niches, are specifically targeted.
“There are new segments that are under-served and a need to cater for the changes arising from Asean integration as well as the rise of India and China as more important trading partners.
In the investment banking space, the expansion from universal broker status has led to the creation of six non-bank backed investment banks alongside the existing nine bank-backed arms.
According to U Chen Hock, CEO of OSK Investment Bank, finding its own niche and achieving scale through regional operations is a primary way to sustain this new growth area.
The setting up of new Islamic banks also represented another dynamic growth area in the banking sector.
About 30 new banking franchises have been created and these include locally incorporated foreign banks, investment banks, Islamic banks and international Islamic banks, says Promod Das, head of financial institution ratings at RAM Ratings.
The regional theme will ensure expansion in businesses overseas. A few Malaysian banks are already making significant headways to seek growth outside Malaysia to tap the Asean growth and integration.
“Regional and cross-border investment, trade, foreign exchange and wealth flows will further accelerate the regionalisation imperative,'' says Chia.
Expansion in the banking sector is also via the e-equation' of mobile and online banking.
“The next generation of consumers expect easier and faster access to financial information with many expecting 24 /7, ubiquitous access.
“Providing digital age offerings will come under the spotlight and will redefine customer engagement and relationship management for the banking industry,'' says Chia of Hong Leong.
Datuk Seri Abdul Wahid Omar, president and CEO of Maybank, does not see these two trends consolidation and expansion as contradictory.
“The need for the banking industry to expand will be there as long as consumer and business demand grow to expand the economy and in turn it is the banking sector that also drives the economy,'' he says.
As Malaysia becomes a developed economy, it is the larger banks with their economies of scale and scope that will have the ability to provide a wider range of products and services at a lower cost.
“For this to happen, the industry will have to go through a consolidation phase where banks will grow not just organically but through acquisition of smaller banks,'' says Wahid.
The major issue is ensuring that the right banks are merged; there must be a business fit that complements each other with as little duplication as possible. Reducing this duplication will take time, given that retrenchments or relocation of employees could have regulatory restrictions as seen in the previous consolidation of 1999-2002, where banks were not allowed to retrench staff for two years following a merger.
“Experience has shown that banks can often see a decline in productivity upon a merger and in practice, mergers can take two to three years before they become value accretive, depending also on the valuation of the acquisition.
“In the interim, if investors see greater value elsewhere, the resulting depressed share price could have negative implications. for example, in raising capital,'' says an analyst.
Another issue for smaller banks in attracting foreign banks to become a strategic partner is that the limit on foreign shareholding could be a hindrance although this could be resolved on a case by case basis as indicated by Bank Negara.
Jegarasasingam of MARC cautions against small Malaysian banks from expanding into regional markets, which are generally risky and complex to manage.
In consolidation exercises, heavy competition among potential acquirers may, at times, result in a sub-standard due diligence exercise arising from the eagerness to close the deal ahead of competitors, he says.
”Any merger or acquisition should not merely be driven by attractive pricing. Such deals should also be evaluated in terms of the potential value proposition and the effort required for extracting results out of the deal.'' he adds.
Future direction
With so many measures taken to boost Islamic banking, repositioning the banking system in the competitive global arena as the international Islamic financial centre has become a priority, says Promod.
He also expects some relaxation of foreign equity ownership in domestic banks, removal of some existing restrictions on locally incorporated foreign banks and the issuances of more licences that will encourage competition.
Currently, commercial and investment banking businesses are held under different legal entities in a universal banking group, he notes.
“There may be more flexibility to remove these regulatory walls in search of administrative efficiency.
“Bank Negara's next financial sector blueprint might also create regulatory and market undercurrents to consolidate the role of financial co-operatives and development financial institutions, an area which was not prioritised in the last financial sector master plan,' he says.
Promod does not discount the possibility of a shake-out in the stand-alone investment banking space.
“There clearly has emerged a huge gap in franchise between the large investment banking powerhouses that are part of universal banking groups and their much smaller stand-alone rivals.
“This fiercely competitive space naturally does not favour smaller players,'' he says.
Datuk Charon Wardini Mokhzani, corporate and investment banking deputy CEO of the CIMB group, however, feels there is room for different types of investment banks on a growing capital market.