What are your international growth and development plans?
KAM: RHB today is 95% Malaysian, 95% of our revenue is based in Malaysia. We have 3 other locations outside of Malaysia but the overall plan is for us to have 40% of our revenues coming from outside of Malaysia by 2020. To that end, we have taken part in a couple of acquisitions to improve our presence outside of Malaysia. We are Also increasingly growing organically in areas that we are already in. In Singapore for instance, we have increased our level of capitalization by SGD 350m ($285m). Through the acquisition of OSK Investment Bank, as well as our proposed acquisition of a bank in Indonesia, we hope to be in 7 out of 10 of the ASEAN countries by year end.
What is the status of the RHB OSK merger? To what extent will this change the group’s overall business mix?
KAM: We have signed a conditional share purchase agreement, as we announced a couple of months ago, to acquire 100% of OSK investment Bank. The whole logic for doing this is that it provides us access to 7 of the 10 ASEAN countries, and more importantly, it provides us access to Hong Kong, which is a key execution center for us. We have made very good progress and we have obtained all of the necessary shareholder approvals and are just waiting on a couple more offshore regulatory approvals. We should be done by the 4th quarter of this year. Teams are already working hard to make sure the integration can be achieved very quickly so that when we complete the transaction, we hit the ground running from day one. The acquisition changes our mix from two perspectives. Today, 5% of our group revenues come from offshore, post transaction this will take us up to about 9%. From an investment banking standpoint, it takes us from 0% offshore today, to 20% of our investment banking revenues from offshore. From a business mix standpoint, it takes our investment banking, brokering, and asset management revenues up to about 20% from about 7% today.
To what extent has M&A changed the competitive landscape of the banking sector regionally?
KAM: M&A has been done in the context of being able to build institutions that are able to deliver better value to customers. We have seen progress in increasing scale, which from a customer standpoint provides better opportunities for enjoying more innovative products, lower cost products, and also connectivity across the region. We have seen M&A used to extend geographic reach for many of our competitors and in fact for ourselves as well. M&A has been a very important tool for banks, not just in Malaysia, but also across the region, to extend their reach and to provide better value for customers. As we start to see financial institutions in this region building more connected platforms, there will be pressure for some of the other ASEAN based institutions to do so similarly. I actually believe that a confluence of many factors, increasing competition, more connected financial platforms, and a greater demand for financial institutions that can connect their customers across the region, will lead to more M&A taking place this year.
How will the European debt crisis impact banking and capital markets in the region?
KAM: It is a very cliché saying that in every crisis there are opportunities and this is very much the case. Direct impact on ASEAN based banks, in Malaysia, Singapore, and Thailand, will be minimal simply because the holdings of foreign denominated debt or direct exposure into the Euro zone tends to be very minimal. Due to the pressures in the Euro zone, we have seen a lot of our European competitors start to scale down in exposure to the region, which provides opportunities for ASEAN based banks to fill in the gaps left by some of our natural competitors. So from that standpoint, we have seen many opportunities, and for ourselves, we have been able to expand a little bit more quickly in Singapore and in Thailand. The downside of that is the underlying broader based capital markets have been impacted negatively from the headwinds coming out of a reduced trade flow from the crisis as well as fluctuations in currencies and the financial markets because of what is happening in the Euro zone. We hope that the crisis in the Euro zone gets resolved and we are all in a better place.
What is the state of project finance in Malaysia today? What new and innovative way are companies raising funds for projects and developments?
KAM: We are fortunate to have a very strong domestic economy and with the government's Economic Transformation Programme (ETP) and the announced entry-point projects totaling more than RM200bn ($65.5bn), we believe the pipeline for project finance activities to be pretty healthy. Because of the tenures of these projects and the nature of these projects, going to the capital markets is very natural. In fact, just over the last 12 months, we have seen some of the largest sukuks being issued to finance projects of this nature. This includes the highway project with Plus and the MRT project. So with a pipeline that healthy, we believe that we will continue to see strong growth in the sukuk side of the capital markets.
RHB today is 95% Malaysian, 95% of our revenue is based in Malaysia. We have 3 other locations outside of Malaysia but the overall plan is for us to have 40% of our revenues coming from outside of Malaysia by 2020.
What is your outlook for Malaysia’s banking sector? Which indicators are showing the most positive trends and which remain challenges?
KAM: From what we have seen this year, and we are very fortunate to have a strong domestic economy led by the Economic Transformation Programme (ETP), there is a strong domestic demand and a high saving rate. That has allowed the local economy to continue to grow really positively. This year, we do expect GDP growth to hit 4.5% to 5% and next year we expect to keep GDP growth to at least 5%, driven by similar factors, a high savings rate, low inflation, and accommodating interest rates. We believe the banking sector itself will continue to show good growth. This year, we ourselves are growing at a rate of about 15% in loans growth for the first half of this year and we do expect that to carry through the full year. In terms of challenges for the year, we do see increasing competition driving asset yields down, so margins are coming under pressure. With new regulatory order coming in through Basel III, we do expect more pressure on efficiency of capital. With all of the expansion plans we spoke about earlier, ensuring our cost base stays efficient will be something that we will be keeping a pretty close eye on.