PROSPECTS FOR BANKING IN ASEAN Arvind Mathur Head, Capital Markets Asian Development Bank DBS 10 am
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) 1
MACRO SITUATION · Distressed · GDP growth rates · Export Prospects · Sovereign Credit Quality · Currency Stability · Bear Push from Japanese Recession Prospects 2
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 4
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 6
PROSPECTS FOR BANKING PRODUCTS · Corporate Exposures · Project Finance · Retail/ Consumer Banking · Distressed Assets · FX Trading/ Treasury (Controls) · Capital Markets · Build or Acquire ? 7
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 8
ADVANTAGES OF DISTRESSED DEBT · Bargain Price · Benefit from Improving Credit Quality as Macro Conditions Improve · Capitalize on ASEAN Presence 9
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 10
THAI DISTRESSED DEBT: JACK WELCH GE CAPITAL QUOTE · “This guy, this nut, wants us to invest $1 billion 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 11
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 12
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 13
POTENTIAL APPROACH h. Lending Officers can be Trained h. Focus on Thailand, Malaysia initially h. Asset Pools h. Info source: www. debtmarketplace. com 14
CONCLUSION · Citibank & Standard Chartered never abandoned countries · Tailor strategy to exploit changing conditions · Though macro conditions are poor, DBS could exploit special opportunities 15
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