What new initiatives is RBS involved in here in Malaysia?
SILL: RBS has been in Malaysia for over 120 years, and we will continue to put our market leading products and services to use with our clients here, which are primarily local corporates, multinationals, financial institutions and government relationships. We have had a good start to 2012. We led Hong Leong Bankâ€™s $300m 3.125% five year bond issuance in April this year. We were also the Principal Advisor and Joint Lead Arranger for Hong Leong Bank's newly established $1.5bn EMTN programme. We have been significant contributors to the local debt capital markets for a number of years now. Last year, we led the first global sukuk CNH500m issue for Khazanah, and we have been actively looking at bringing in other potential issuers from outside of the traditional markets, such as the Middle East looking towards Europe and other markets. At RBS, we are market leaders in providing FX (foreign exchange) currency and hedging solutions to our financial institution and corporate client base here in Malaysia. We will continue to pursue that market, and have focused on delivering innovative products for our clients to meet their business requirements. An example is our FXMicropay product, which Air Asia has used for its Internet booking system. I think the bankâ€™s global network is incredibly important. We remain fully committed to Malaysia going forward and are represented in eleven countries in Asia Pacific. The Asia Pacific market continues to be very important to RBS and will be for a long time going forward.
With the sale of RBSâ€™ investment banking assets to CIMB, what space will RBS focus on here in Malaysia?
SILL: We have undertaken a change in our structure, and our current product focus reflects the significant developments in the global economic and regulatory environments. The bank has taken a global decision to exit our cash equities, equity capital markets, corporate finance, and M&A advisory businesses. In Asia Pacific, CIMB bought a significant part of those. These are not businesses that we are exiting because they are not good businesses. The important thing to emphasize is that these businesses required considerable additional investment and time going forward, and, in the current environment, were not the areas RBS wanted to focus on. Our decision is to focus on our core product strengths, and these are the debt capital markets, our markets business, FX currency and interest rate hedging, as well as our more traditional businesses such as cash and trade finance.
What were the main regulatory changes that spurred this decision?
SILL: We are very focused on return on capital and return on equity. We need to be very careful with how we allocate our capital. We felt the most pragmatic thing to do was focus on the businesses and products where we feel we have core strengths. We want to be, and we are in the top five, in the product areas in which we have chosen to continue.
How is the European debt crisis going to impact banking operations in the region?
SILL: I think people will be less inclined to invest in Europe while there are concerns about the market and the economic environment there. That is the first issue. Local and foreign banks may have less to do with their clients because there may be some anxiety about investing in Europe. But this could be a short term effect as people will get comfortable with what is happening in Europe and build up their investment confidence again. In the Malaysian banking environment, RBS is a locally incorporated bank, so we are subject to local deposit regulations, as are most of the foreign banks. The actual exposure to Europe is relatively limited among the foreign banks operating here in Malaysia. If you look at the foreign banks that are operating in Malaysia, their exposure to Europe is around $15bn. Whereas total asset reserves in Malaysia are over $135bn, so the absolute exposure is actually quite small. Should Greece leave the Eurozone, there will be an immediate effect on the financial markets in terms of access to credit and on the equity markets, as well as currency exposure and how to manage that.
Do you think that European institutions are going to start seeing the Asian markets as a flight to safety at the moment?
SILL: Asia has always been a strong alternative market for investors, and I think the fundamentals in Asia still remain very strong. I think we will see an increase in investment into the region, and Malaysia will feature very heavily in that.
What are your projections for sukuk issuance in 2012?
SILL: Through our network in the UK and Europe, we at RBS are very keen to work with the Central Bank to continue to develop Malaysiaâ€™s sukuk market, especially as traditional funding sources in Europe begin to dry up. Through our significant global network, we have been engaging with a number of European clients that are potentially looking at issuing ringgit sukuks in Malaysia, which has done some tremendous work in the last few years to promote the sukuk market. RBS has done the same and the result is we now have a reasonably healthy pipeline and expect to see several issuers come into the market over the next twelve months.
Through our significant global network, we have been engaging with a number of European clients that are potentially looking at issuing ringgit sukuks in Malaysia, which has done some tremendous work in the last few years to promote the sukuk market. RBS has done the same and the result is we now have a reasonably healthy pipeline and expect to see several issuers come into the market over the next twelve months.
What is Malaysiaâ€™s competitive advantage when it comes to Islamic financial instruments?
SILL: The Central Bank has gone out of its way to develop the markets. There is a lot of expertise in the country. At RBS, we see great opportunities in Malaysia. Traditional issuers in Malaysia have been Middle Eastern issuers, but now that we see a slight tightening in Europe, we believe there will be more opportunities for European issuers to come to the market here. With the EPF (Employee Provident Fund) and other funds based here, there is a ready base of investors in Malaysia.
In what ways do you see regional financial instruments becoming more sophisticated?
SILL: It is not so much the products that are becoming more sophisticated. I think what we are seeing is that investors are becoming more sophisticated. Events in other markets, for example the collapse of Lehman in the US, previously may not have had a major impact outside of the US. However, as investors become more involved, there is more connection between markets. I think knowledge and understanding have increased. In fact, if anything is to come out of all of this, it is that there is a higher degree of risk aversion. It ties in very neatly with RBSâ€™s focus of going back to basics. The more complex and perhaps, higher risk products are no longer necessarily the flavor of the day. It is back to basics and really understanding the underlying risk. My view is that we are seeing the emergence of the sophisticated market practitioner more than just sophisticated products in Malaysia.
What is your macroeconomic outlook for Malaysia? What indicators are showing the most positive trends and which are presenting a challenge?
SILL: At RBS we are quite comfortable with the 4-5% GDP growth that the government is sticking to. We believe that the economic fundamentals in Malaysia remain strong. Certainly, what I am seeing through our client base, and through my role with the British Malaysian Chamber of Commerce, is a healthy pipeline of multinational companies that are looking to continue to invest in Malaysia. The Malaysian market is driven by a lot of domestic consumption. In the current economic environment, that is a positive as there is likely to be more pressure on Europe and North America vis-a-vis trade with Malaysia. Multinationals and clients that we deal with look at Malaysia because it has a stable economic environment. The country has a competent work force, good labour supply, and strong growth prospects. It is a central market. It sits very neatly between India and China, which are huge markets in the Asian context. The final point is that, previously, when North America catches a cold, the saying has always been that Asia Pacific would sneeze. However, now that intraregional trade within Asia Pacific has increased to a significant volume, Malaysia and Asia Pacific as a whole, probably has an ability to withstand an economic downturn in the traditional trading markets outside of Asia.