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Prospects for Banking in ASEAN

This article discusses the prospects for banking in ASEAN countries, focusing on macroeconomic conditions, bank quality, and high-margin businesses. It also explores the potential of distressed asset products and successful models in the region.

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Prospects for Banking in ASEAN

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  1. PROSPECTS FORBANKING IN ASEAN Arvind Mathur Head, Capital Markets Asian Development Bank DBS 10am

  2. 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

  3. MACRO SITUATION • Distressed  • GDP growth rates  • Export Prospects  • Sovereign Credit Quality  • Currency Stability  • Bear Push from Japanese Recession Prospects  2

  4. GDP GROWTH (%) 2000 2001(f) SINGAPORE 9.9 5.0 THAILAND 4.2 3.5 PHILIPPINES 3.9 3.1 INDONESIA 4.8 4.2 MALAYSIA 8.5 4.9 3

  5. DISTINCTIVE FEATURESOF DBS • Reputation • Solidity • Know How - Credit Analysis Skills/ Technology • People & Talent • Good Corporate Governance • Regional Presence 4

  6. THESIS: CIRCUMSPECTION NOT ABANDONMENT • Fundamental Strengths Remain • Low Cost Mfg Base  • Infrastructure  • Policies  • Business Transplants from Japan/US/Europe  5

  7. IMPLICATIONS OF ADDED RISK • Proper Pricing of Risk • High Risk-Adjusted Return Hurdle • Avoid Price Competition to Protect Margins 6

  8. PROSPECTSFOR BANKING PRODUCTS • Corporate Exposures  • Project Finance  • Retail/ Consumer Banking  • Distressed Assets  • FX Trading/ Treasury (Controls)  • Capital Markets  • Build or Acquire ? 7

  9. 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

  10. ADVANTAGES OFDISTRESSED DEBT • Bargain Price • Benefit from Improving Credit Quality as Macro Conditions Improve • Capitalize on ASEAN Presence 9

  11. 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

  12. 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 11

  13. 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

  14. 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

  15. POTENTIAL APPROACH Lending Officers can be Trained Focus on Thailand, Malaysia initially Asset Pools Info source: www.debtmarketplace.com 14

  16. 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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