Showing posts with label Bank. Show all posts
Showing posts with label Bank. Show all posts

Saturday 18 March 2023

Malaysian banks rating intact despite US bank failures - RAM Ratings

 

Malaysian banks rating intact despite US bank failures - RAM Ratings


Publish date: Sat, 18 Mar 2023, 08:06 AM

KUALA LUMPUR - RAM Rating Services Bhd (RAM Ratings) sees no rating impact on Malaysian banks from the failure of the United States Silicon Valley Bank (SVB) and two other smaller banks last week.

The rating agency said that in Malaysia, banks' credit fundamentals remained robust and resilient supported by strong regulatory supervision to weather heightened volatility in global financial markets.

"Compared to SVB, we see fundamental differences in the business and balance sheet profiles of commercial banks in Malaysia.

"Domestic commercial banks typically engage in more lending activities as opposed to relying on bond investments which are exposed to market volatility. The proportion of domestic banking system assets invested in bond securities is less than 25 per cent," it said in a statement today.

SVB, on the other hand, had more than 50 per cent of its asset base in such securities, which led to huge unrealised losses amid rapid and steep interest rate hikes in the US.

Moreover, less than 40 per cent (on average) of bond holdings in Malaysia's eight major banks are classified as held to maturity (HTM), while the rest are marked to market.

"This means that fair value losses on bond securities are already largely reflected in the banks' capital position. In contrast, SVB classified almost 80 per cent of bond securities as HTM (only a little over 20 per cent were marked to market), indicating that unrealised losses had not yet been reflected in its equity.

"HTM bonds are carried at amortised cost in the balance sheet given the intention to hold these securities to maturity, so fair valuation losses are not captured in the capital," it said.

RAM Ratings said fair value losses in Malaysian banks were also significantly smaller, thanks to Bank Negara Malaysia's (BNM) milder pace of rate hikes and banks' prudent strategy of holding shorter-tenure bonds in recent times.

The domestic banking industry's common equity tier-1 capital ratio stayed at a robust 14.9 per cent at end-2022 from 2021's 15.5 per cent.

"Further valuation losses, if any, should be less severe given the central bank's cautious stance on further rate hikes," said the rating agency, adding that banks in Malaysia are predominantly funded by customer deposits, with high granularity.

Their liquidity profiles are also sound with liquid assets to deposits ratio of around 20 per cent and a net loans to deposits ratio of 88 per cent, it added.

According to BNM, domestic banks have no direct exposure to the three failed US banks.

"The central bank's robust prudential oversight and good track record - which have been evident in previous financial crises - should ensure the continued financial stability of the Malaysian banking system," it noted.

- BERNAMA

 

https://www.nst.com.my/business/2023/03/890196/malaysian-banks-rating-intact-despite-us-bank-failures-ram-ratings

Tuesday 22 December 2020

The Multiplier Effecct

The reason central bank monetary policy works so well is because of the multiplier effect.

Basically, money we deposit in our banks doesn't just sit there collecting dust.  

The bank can and does lend that money to someone else.  

A hundred dollars deposited in a bank in in A, for example, may end up being loaned to an individual or a business in B.

After setting aside a small portion of each deposit as a reserve, banks are free to lend out the remainder.

The effect is to increase the money supply without any extra currency being printed.

What gets loaned out ends up in another bank to be subsequently loaned again.

Sunday 4 September 2016

How I Analyze a Bank Stock

How I Analyze a Bank Stock
A four-part framework to clarify banking.

Anand Chokkavelu (TMFBomb) Apr 29, 2014

Here's the beauty of the banking industry: Banks are similar enough that once you learn how to analyze one, you're pretty much set to analyze 500 of them.

That's about how many banks trade on major U.S. exchanges.

Now, the details get messy when you factor in complicated financial instruments, heavy regulations, byzantine operating structures, arcane accounting rules, the macro factors driving the local economies these banks operate in, and intentionally vague jargon.

But at their core, each bank borrows money at one interest rate and then lends it out at a higher interest rate, pocketing the spread between the two.

And as investors we can get far by focusing on four things:


  1. What the bank actually does
  2. Its price
  3. Its earnings power
  4. The amount of risk it's taking to achieve that earnings power


To give a concrete example, let's walk through one of the banks I've bought in the banking-centric real-money portfolio I manage for the Motley Fool: Fifth Third Bancorp (NASDAQ:FITB).

As quick background, Fifth Third is a regional bank based out of Cincinnati whose 1,300+ branches fan out across 12 states. It's large enough to be in the "too big to fail" group that gets stress tested by the Fed each year but still less than a tenth the size of a Bank of America or a Citigroup -- and much simpler.

Alright, let's start with...


1.  What the bank actually does

When you read through a bank's earnings releases, it's easy to get sidetracked by management's platitudes and high-minded promises -- guess what, EVERY bank says it's customer-focused and a conservative lender!

Words are nice, but in banking, you are your assets -- the loans you make, the securities you hold, etc. They're the things that will drive future profitability when they're chosen carefully, and they're the things that will force you to fail (or get bailed out) when you get in trouble.

Here's the asset portion of Fifth Third's balance sheet. Take a look, let your eyes glaze over, and then I'll let you know the numbers I focus on (until we get to the "Its price" section, I'm using the financials from Fifth Third's last 10-K because they're more detailed for illustrative purposes).
































Loans are the heart of a traditional bank.

In my mind, the greater a bank's loans as a percentage of assets, the closer it is to a prototypical bank.

In this case, two-thirds of Fifth Third's assets are loans (87,032/130,443). This number can range far and wide, but Fifth Third's ratio is pretty typical. For context, note that Fifth Third's loan percentage is double the much more complex balance sheet of JPMorgan Chase.

If a bank isn't holding loans, it's most likely holding securities. You'll notice Fifth Third's various buckets of securities in the balance sheet lines between its cash and its loans. There are many reasons a bank could hold a high percentage of securities.

  • For example, its business model may not be loan-driven
  • it may be losing loan business to other banks, or 
  • it may just be being conservative when it can't find favorable loan terms. 
In any case, looking at loans as a percentage of assets gives you questions to explore deeper.

The next step of digging into the loans is looking at what types of loans a bank makes. You can see in the balance sheet that Fifth Third neatly categorizes its $88.6 billion in loans. Clearly, Fifth Third is a business lender first and foremost: When you add up "Commercial and industrial loans," "Commercial mortgage loans," "Commercial construction loans," and "Commercial leases," almost 60% of Fifth Third's loans are business-related. Also, given the almost $40 billion in "Commercial and industrial loans" (as opposed to mortgage loans), a lot of Fifth Third's loans aren't backed up by real estate (though other forms of collateral may be in play).

For simplicity, I'll stop here. The one-line summary: On the assets side, look at the loans.

Let's move on to the rest of the balance sheet:
































Just as the loans tell the story on the assets side, the deposits tell the story on the liabilities side. The prototypical bank takes in deposits and makes loans, so two ratios help get a feel for how prototypical your bank is:

  • 1) Deposits/Liabilities 
  • 2) Loans/Deposits.


Deposits are great for banks for the same reason you complain about getting low interest rates on your checking and savings accounts. Via these deposit accounts, you're essentially lending the bank money cheaply. If a bank can't attract a lot of deposits, it has to take on debt (or issue stock on the equity side), which is generally much more expensive. That can lead to risky lending behavior -- i.e. chasing yields to justify the costs.

Fifth Third's deposit/liabilities ratio is 86%, which is quite reasonable and leads to an equally reasonable 89% loan/deposit ratio. All of this confirms what we suspected after looking at the loans on the asset side. Fifth Third is a bank that, at its core, takes in deposits and gives out loans with those deposits. If that wasn't the case, we'd want to get comfortable with exactly what it's doing instead.

We're now ready to take a quick peek at the income statement:



The big thing to focus on here is the two different types of bank income: 

  1. net interest income and 
  2. (you guessed it) noninterest income.


Still lost in that mess above? See the lines

  1. "Net Interest Income After Provision for Loan and Lease Losses" (3,332, or $3.332 billion) and 
  2. "Total noninterest income" (3,227, or $3.227 billion).


I told you earlier that at its core, a bank makes money by borrowing at one rate (via deposits and debt) and lending at another higher rate (via loans and securities). Well, net interest income measures that profit.

Meanwhile, noninterest income is the money the bank makes from everything else, such as

  • fees on mortgages, 
  • fees and penalties on credit cards, 
  • charges on checking and savings accounts, and 
  • fees on services like investment advice for individuals and corporate banking for businesses.


For Fifth Third, it gets almost as much income via noninterest means ($3.2 billion) as it does from interest ($3.3 billion).

Like most of what we've covered so far, that's not necessarily good or bad. It furthers our understanding of Fifth Third's business model. For instance, the noninterest income can smooth interest rate volatility but it can also be a risk if regulators change the rules (e.g. banks can no longer automatically opt you in to overdraft protection...meaning they get less of those annoying but lucrative overdraft fees).

There are many, many line items I'm glossing over on both the balance sheet and the income statement, but these are the main things I focus on when I'm looking over the financial statements. As you'll see, many of the things I've ignored are covered a bit by the ratios we'll look at in the other sections.

Next up is...



2.  Its price

The oversimplified saying in banking is "buy at half of book value, sell at two times book value."

Just as if I told you to "buy a stock if its P/E ratio is below 10, sell if it's over 25" there are many nuanced pitfalls here, but it at least points you in the right direction.

If you're unfamiliar with book value, it's just another way of saying equity. If a bank is selling at book value, that means you're buying it at a price equal to its equity (i.e. its assets minus its liabilities).

To get a little more conservative and advanced than price/book ratio, we can look at the price/tangible book ratio. As its name implies, this ratio goes a step further and strips out a bank's intangible assets, such as goodwill. Think about it. A bank that wildly overpays to buy another bank would add a bunch of goodwill to its assets -- and boost its equity. By refusing to give credit to that goodwill, we're being more conservative in what we consider a real asset (you can't sell goodwill in a fire sale). Hence, the price-to-tangible book value will always be at least as high as the price-to-book ratio.

In Fifth Third's case, it currently has a price-to-book value of 1.3 and a price-to-tangible book value of 1.5. In today's market that's a slight premium to the median bank.

Like any company, the reason you'd be willing to pay more for one bank than another is if you think its earning power is greater, more growth-y, and less risky.

Our first clue on Fifth Third's earnings power is also our last valuation metric: P/E ratio. Fifth Third's clocks in at just 10.7 times earnings. That's lower than its peers. In other words, although we're paying an above average amount for its book value, we're seeing that it's able to turn its equity into quite a bit of earnings.

Let's look further into that...


3.  Its earnings power

I talked a bit about how Fifth Third has a lower than average P/E ratio (high Earnings Yield) despite having a higher-than-average P/B ratio. The metric that bridges that gap is called return on equity (ROE). Put another way, return on equity shows you how well a bank turns its equity into earnings. Equity's ultimately not very useful if it can't be used to make earnings.

Over the long term, an ROE of 10% is solid. Currently, Fifth Third is at 12.3%, which is quite good on both a relative and absolute basis.

Breaking earnings power down further, you can look at

  1. net interest margin and 
  2. efficiency.


Net interest margin measures how profitably a bank is making investments. It takes the interest a bank makes on its loans and securities, subtracts out the interest it pays on deposits and debt, and divides it all over the value of those loans and securities. In general, it's notable if a bank's net interest margin is

  • below 3% (not good) or 
  • above 4% (quite good). 
Fifth Third is at 3.3%, which is currently higher than some good banks, lower than others.

While net interest margin gives you a feel for how well a bank is doing on the interest-generating side, a bank's efficiency ratio, as its name suggests, gives you a feel for how efficiently it's running its operations.

The efficiency ratio takes the non-interest expenses (salaries, building costs, technology, etc.) and divides them into revenue. So, the lower the better.

  • A reading below 50% is the gold standard. 
  • A reading above 70% could be cause for concern. 

Fifth Third is at a good 58%.

There are nuances in all this, of course. For instance, a bank may have an unfavorable efficiency ratio because it is investing to create a better customer service atmosphere as part of its strategy to boost revenues and expand net interest margins over the long term.

Meanwhile, ROE and net interest margins can be juiced by taking more risk.

So that brings us to...


4.  The amount of risk it's taking to achieve that earnings power

There are a lot (and I mean a LOT) of ratios that try to measure how risky a bank's balance sheet is. For example, when the Fed does its annual stress test of the largest banks, it looks at these five:


  1. Tier 1 common ratio
  2. Common equity tier 1 ratio
  3. Tier 1 risk-based capital ratio
  4. Total risk-based capital ratio
  5. Tier 1 leverage ratio.


If you think that's confusing, you should see their definitions -- they're chockfull of terms like "qualifying non-cumulative perpetual preferred stock instruments."

Personally, I rely on a much simpler ratio: assets/equity.

When you buy a house using a 20% down payment (that's your equity), your assets/equity ratio is at five (your house's value divided by your down payment).

For a bank, I get comfort from a ratio that's at 10 or lower. My worry increases the farther above 10 we go. Fifth Third's is at a reasonable 8.7 after its most recent quarter (8.9 if you're doing the math on the year-end balance sheet above).

We can get more complicated by using tangible equity, but this is a good basic leverage ratio to check out. If you're looking at a bigger bank like Fifth Third, it's also a good idea to check out the results of those Fed stress tests I talked about.

That leverage ratio gives us a good high-level footing. Getting deeper into assessing assets, we need to look at the strength of the loans. Let's focus on two metrics for this:


  1. Bad loan percentage (Non-performing Loans/Total Loans)
  2. Coverage of bad loans (Allowance for non-performing loans/Non-performing loans)


Non-performing loans are loans that are behind on payment for a certain period of time (90 days is usually the threshold). That's a bad thing for obvious reasons.

Like most of these metrics, it really depends on the economic environment for what a reasonable bad loan percentage is. 

  • During the housing crash, bad loan percentages above five percent weren't uncommon. 
  • In general, though, I take notice when a bank's bad loans exceed two percent of loans. 
  • I get excited when the bad loan percentage gets below one percent (so Fifth Third's 0.8% is looking good).


Banks know that not every loan will get paid back, so they take an earnings hit early and establish an allowance for bad loans. As you've probably guessed, banks can play a lot of games with this allowance.

  • Specifically, they can boost their current earnings by not provisioning enough for loans that will eventually default. 
  • That's why I like to see the coverage of bad loans to be at least 100%. Fifth Third's is at a conservative-looking 202%.


Finally, I use dividends as an additional comfort point. In an industry that has periods that incent loose lending, I like management consistently taking some capital out of its own hands. I like to see banks paying at least a two percent dividend. A bigger dividend isn't a foolproof way to gauge riskiness, but I get warm fuzzies from a bank that can commit to a decent-sized dividend. As for Fifth Third, it pays out about a quarter of its earnings for a dividend yield of 2.3%.


Putting it all together

I've tried to simplify analyzing a bank as much as I can. I've left out many metrics and concepts, but you've still been bombarded with a lot of potentially boring information.

What's important to remember is that a bank (through its management) is telling you a story about itself. It's our job to figure out whether we believe the tale enough to buy it at current prices.

Because most banks share similar business models, the numbers will go a long way to help you determine if those stories hold water.

If a bank says it's a conservative lender, but half of its loans are construction loans, it has a 10% bad debt ratio, and it's leveraged 20:1, I'm trusting the numbers not the words.

Look at the numbers over the last decade or two and you'll see many clues. When a bank has been able to deliver large returns across a few economic cycles while keeping the same general business model, that's a very good thing. Even better if the same management team has been there the whole time or if the bank clearly has a conservative culture in place that stays in place between management teams.

It's easy to get lost in the minutiae of analyzing a bank, but going in with a framework helps you keep your eyes on the big picture. What I've shared today are the four tenets of my basic framework...I hope it helps clarify yours.




Anand Chokkavelu, CFA owns shares of Bank of America, Citigroup, and Fifth Third Bancorp as well as warrants in Citigroup. He swears his other articles are more interesting. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, Citigroup, and Fifth Third Bancorp. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

http://www.fool.com/investing/general/2014/04/29/how-i-analyze-a-bank-stock.aspx

Thursday 1 November 2012

Asian banks scramble for dollar bonds

Asian banks scramble for dollar bonds
(The Philippine Star) Updated October 02, 2012


MANILA, Philippines -  Asian banks are in a mad scramble to raise US dollars to meet the stiff capital requirements under the Basel III framework.

Banks are sweeping as much dollars as can be found in the global market as European borrowers are holding on to their dollars “during these hard times.”

According to FinanceAsia, Asian borrowers want a steady and reliable source of dollars for their funding needs as well as capital needs for protection.

“Indeed, bank borrowers in China, India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand have all tapped dollar markets during the past few weeks and there could be more to come as banks strive to avoid a repeat of the dollar funding crunch they experienced during the crisis,” the prestigious regional publication said.

In the recent weeks, Bangkok Bank raised $1.2 billion, Citic Bank $300 million, and RHB Bank $200 million.

The bonds offer a coupon of 3.875 percent and were priced at 99.824 to yield 3.9 percent, or 325 basis points over US Treasuries, after tightening guidance down from 350 bp during the course of the day. Citic is rated Baa2 by Moody’s and BBB by Fitch. HSBC and Royal Bank of Scotland were joint global coordinators and joint bookrunners alongside BBVA and Nomura.

“Asian investors bought 80 percent of the deal while the rest went to Europe. Fund managers took 63 percent, banks 18 percent, private banks 14 percent, insurers and others five percent. There was a $0.20 discount for private bank buyers,” FinanceAsia noted.

It added that Bangkok Bank became the fourth Thai borrower to tap the market in little more than a week, despite having been the first to launch a roadshow. Kasikornbank, PTT Global Chemical and Siam Commercial Bank (SCB) all beat it to market.

On the upside, Bangkok Bank was the only one of the banks raising 10-year money in the US, under Rule 144a, which meant that it enjoyed decent support and managed to perform better than its Thai peers – the $400 million five-and-a-half-year tranche came at 212.5bp over Treasuries, while the $800 million 10-year tranche came at 215bp.

FinanciaAsia further noted that demand of around $7 billion was skewed toward the 10-year tranche, which attracted $4.6 billion of orders from 250 accounts, with 49 percent placed with investors in Asia, 16 percent went to Europe and the remaining 35 percent to the US. By account type, 60 percent went to fund managers, 20 percent to insurers, 12 percent to banks, seven percent to private banks and one percent to others.

The five-and-a-half-year tranche attracted $2.8 billion of orders from 200 accounts and was distributed in a similar way to the 10-year, with the bulk of the deal going to fund managers in Asia and the US.


http://www.philstar.com/Article.aspx?articleId=854857&publicationSubCategoryId=74

Wednesday 31 October 2012

Public Bank - Malaysia's strongest bank in 2012


Public Bank has leapfrogged both CIMB Group Holdings Bhd and Malayan Banking Bhd to the top spot in 2012 as Malaysia’s strongest bank, according to the Asian Banker 500 2012 (AB500) report.

“This was largely due to the cost and risk management as a result of the conservative approach of the bank,” the report said.

Further, the report also said that the Asia Pacific banking sector is expected to remain resilient as economies in the region continue to expand in 2011 albeit at a slower pace than last year.

Singapore-based financial services community strategic business intelligence provider Asian Banker said the Asia-Pacific regional banks saw a significant acceleration in asset growth in 2011 while the largest 500 banks from the US and the European Union did not grow as fast.

“If the momentum holds, Asia-Pacific regional banks are likely to overtake their Western peers by 2014.

“This is primarily due to a combination of resilient economic performance of the region’s economies, increasing private wealth and growth in the number of Asian highnet- worth individuals and continual retrenchment of some Western banks from Asia and growing regional expansion by Asia-based banks,” it said in a statement.

Asian Banker said key performance indicators of the banking sector in the Asia-Pacific region such as assets, loans, deposits and net profit grew over 15% last year.

“In particular, net profit growth remains staggering at 43% to US$315.9 billion (RM958.3 billion) albeit slower than 2010’s growth rate of 53%,” it said.

Asian Banker said 2011 has been a good year for banks in Malaysia, achieving weighted average asset growth of 21.7% year-on-year (YoY) which was among the top in the Asia-Pacific region.

“The growth was mainly fostered by the strong and resilient gross domestic product growth of the Malaysian economy and Islamic banking growth of 5.1% YoY and 33% YoY in 2011 respectively as Malaysian banks embark on a regional expansion strategy in an attempt to increase their regional presence and to diversify their geographical revenue sources,” it said.

Asia-Pacific regional banks have been shoring up their capital positions as implementation of the new Basel III requirements draws near, it said. “Asset-weighted average Tier 1 and total capital adequacy ratio (CAR) grew much stronger to 14% and 16.5% in 2011 from 9.1% and 12.3% in 2010 respectively.

“For this iteration, Singapore and Philippine banks rank among the highest for Tier 1 and total CAR respectively,” it said. Asian Banker said lack of sovereign debts deter Asia-Pacific regional banks’ compliance to Basel III liquidity requirements.

“Although banks are able to withstand long-term stress to their operations as reflected in their strong capital positions, short-term risks such as liquidity continue to be one of the top issues for Asia-Pacific regional banks,” it said.

AB500 research manager Doron Foo said some regional banks in countries such as Australia, Singapore and Hong Kong are still unable to satisfy Basel III liquidity requirements due to the lack of sovereign debt in their domestic countries.

http://themalaysianreserve.com/main/index.php?option=com_content&view=article&id=2338:public-bank-ranked-as-strongest-bank-in-msia&catid=36:corporate-malaysia&Itemid=120

Sunday 21 October 2012

Public Bank ranked as strongest bank in M’sia



Print
Public Bank has leapfrogged both CIMB Group Holdings Bhd and Malayan Banking Bhd to the top spot in 2012 as Malaysia’s strongest bank, according to the Asian Banker 500 2012 (AB500) report.

“This was largely due to the cost and risk management as a result of the conservative approach of the bank,” the report said.

Further, the report also said that the Asia Pacific banking sector is expected to remain resilient as economies in the region continue to expand in 2011 albeit at a slower pace than last year.

Singapore-based financial services community strategic business intelligence provider Asian Banker said the Asia-Pacific regional banks saw a significant acceleration in asset growth in 2011 while the largest 500 banks from the US and the European Union did not grow as fast.

“If the momentum holds, Asia-Pacific regional banks are likely to overtake their Western peers by 2014.

“This is primarily due to a combination of resilient economic performance of the region’s economies, increasing private wealth and growth in the number of Asian high net- worth individuals and continual retrenchment of some Western banks from Asia and growing regional expansion by Asia-based banks,” it said in a statement.

Asian Banker said key performance indicators of the banking sector in the Asia-Pacific region such as assets, loans, deposits and net profit grew over 15% last year.

“In particular, net profit growth remains staggering at 43% to US$315.9 billion (RM958.3 billion) albeit slower than 2010’s growth rate of 53%,” it said.

Asian Banker said 2011 has been a good year for banks in Malaysia, achieving weighted average asset growth of 21.7% year-on-year (YoY) which was among the top in the Asia-Pacific region.

“The growth was mainly fostered by the strong and resilient gross domestic product growth of the Malaysian economy and Islamic banking growth of 5.1% YoY and 33% YoY in 2011 respectively as Malaysian banks embark on a regional expansion strategy in an attempt to increase their regional presence and to diversify their geographical revenue sources,” it said.

Asia-Pacific regional banks have been shoring up their capital positions as implementation of the new Basel III requirements draws near, it said. “Asset-weighted average Tier 1 and total capital adequacy ratio (CAR) grew much stronger to 14% and 16.5% in 2011 from 9.1% and 12.3% in 2010 respectively.

“For this iteration, Singapore and Philippine banks rank among the highest for Tier 1 and total CAR respectively,” it said. Asian Banker said lack of sovereign debts deter Asia-Pacific regional banks’ compliance to Basel III liquidity requirements.

“Although banks are able to withstand long-term stress to their operations as reflected in their strong capital positions, short-term risks such as liquidity continue to be one of the top issues for Asia-Pacific regional banks,” it said.

AB500 research manager Doron Foo said some regional banks in countries such as Australia, Singapore and Hong Kong are still unable to satisfy Basel III liquidity requirements due to the lack of sovereign debt in their domestic countries.

http://themalaysianreserve.com/main/index.php?option=com_content&view=article&id=2338:public-bank-ranked-as-strongest-bank-in-msia&catid=36:corporate-malaysia&Itemid=120

Shopping spree sends Bursa to all-time high

Saturday October 20, 2012

Shopping spree sends Bursa to all-time high

The FBM KLCI closed at a record 1,666.35. However, the broader market was weaker in line with Asian bourses, with declining stocks on Bursa Malaysia beating advancers 409 to 294 and 338 counters unchanged.
“I think the positive run had been anticipated, backed by the fundamentals. It is still on an evolving rotation with the telecommunication, banking and consumer stocks getting a fair bit of interest,” said Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew.
He said banking stocks were relatively attractive right now as it had rather been muted recently due to the upcoming Basel III framework that would see banks needing higher capital requirement, driving up the cost of lending.
“With the overall price to earnings ratio at about 11.5 times, it (banking stocks) is attractive when compared with the telco industry which some stocks are trading at about 30 times, except for Axiata, which is still the cheapest among the telco stocks. Funds might be positioning themselves now ahead of the upcoming results season, and shifting their funds to more attractive sectors of the market,” he said.


Asian bank threat to Basel III



11/10/2012 | Elliot Wilson
Asian banks are meeting informally, seeking to decide whether to adjust the Basel III rules
Many of Asia’s leading banks are expected to meet today in Tokyo behind closed doors to decide whether to accept – or potentially reject – controversial financial regulations set to come into effect on the first day of 2013.
The heads of several leading Asian lenders, including Nazir Razak, group chief executive at Kuala Lumpur-based CIMB Group, are set to convene today in an informal closed-door session to discuss the Basel III rules, chaired by Andrew Sheng, president of Hong Kong-based, Asia-focused consultancy, the Fung Global Institute.
Although it is an informal meeting designed to gauge opinion among Asian leaders and regional financial regulators about the new rules, all the major Asian banks will be there, Razak said. “The subject is whether to agree to form a consensus view on Basel III, and whether to draw up recommendations to present to our regulators back home. We have to decide whether to adjust Basel III rules, or just tweak them.”
Razak’s comments mark the first time a senior financial figure has expressed public disquiet over the incoming regulations, drawn up in the wake of the 2008-2009 financial crisis in an effort to create minimum standards of bank liquidity and place a cap on liquidity levels.
He said it was too early to describe the meeting as concrete evidence of a rift between emerging and developed markets, but said all of the lenders meeting today in Tokyo were “growing increasingly and collectively concerned” over the rules, adding: “It makes sense to act collectively rather than individually over this matter.”
Among the banks meeting in Tokyo on Friday are believed to be Sumitomo Mitsui and Mizuho Bank of Japan, CIMB’s Malaysia peer Maybank, KB Kookmin Bank of Korea, and Singapore-based DBS.
Today’s meeting had its roots in an informal chat that took place in Singapore on 23 September during the Formula One motor race. “Lots of bankers got together then and there and decided to do something,” Razak says. “We all agreed to take the matter further in Tokyo this week.”
News of the meeting quietly spread throughout southeast and northeast Asia. Iwan Azis, head of the Office of Regional Economic Integration at the Asian Development Bank, heard about the gossip in Jakarta, where the news gained quiet but firm approval, he says, among smaller Indonesian lenders, along with the country’s financial regulators.
“The smaller Indonesian banks for instance are not happy about [Basel III] at all,” Azis said. “You didn’t hear them complain before, but the time is fast approaching where they have to impose these rules, and they are worried. If you are a bank with a lower rating, somewhere in the ‘Bs’, you are going to have to raise your capital adequacy levels considerably.”
Even the International Monetary Fund in September warned that new regulations were skewed toward the interests of developed-world lenders. The fund noted that big banking groups would be “better able” than smaller banks to absorb the cost of regulations, driving more business in direction of market leaders.

Banks unlikely to raise capital

Wednesday October 10, 2012


By YVONNE TAN

PETALING JAYA: Banks in Malaysia are already well-capitalised and are unlikely to engage in capital raising activities in the near term unless they are looking at significant outlay in that time frame, said banking analysts.
In the case of Malayan Banking Bhd (Maybank) which recently raised a record RM3.66bil via a private placement exercise, the bank was priming itself to expand its current business in the region, a banking analyst said.
It is understood that via a conference call with analysts yesterday, Maybank said that it was looking to strengthen its current businesses in the region, including those in Singapore and Indonesia and that it was not looking at any merger and acquisition (M&A) activity for now as previously speculated.
“We believe that most banks in Malaysia are unlikely to engage in capital raising activities in the near term given that they are well capitalised to meet the Basel III requirement, unless they foresee that they may need capital for something else.
“We do anticipate that most banks will be in capital conservation mode to preserve their capital in order to meet the capital requirement under Basel III which will kick off next year,” Alliance Research banking analyst Cheah King Yoong said.
The core equity capital ratio, which measures the amount of capital a bank has, is generally above 7% for all banks in Malaysia and this is healthy enough to meet Basel 111 requirements, according to Cheah (see table).
The new Basel III rules require banks to hold top quality capital totalling 7% of their risk-bearing assets, from the current 2%.
Of the 7%, 4.5% comprises core tier-1 capital, which is made of shares and retained earnings, and an additional 2.5% of capital conservation buffer.
In a press release on Monday, Maybank said its private placement exercise was a move to boost its equity capital ahead of the implementation of the Basel III capital framework.
The funds raised would also support its growth objectives, particularly, in relation to the rapid expansion of its business in Indonesia, Philippines and other regional markets, it said.
Apart from the continued strength of the Malaysian domestic economy, Maybank was seeing tremendous opportunities in the economic growth across the Asean region, it added.

Maybank may be able to raise RM2.64bil via shares placement

Saturday October 6, 2012

Maybank may be able to raise RM2.64bil via shares placement


PETALING JAYA: Malayan Banking Bhd (Maybank) could potentially raise about RM2.64bil in a bid to further strengthen the bank's capital base and facilitate to meet more stringent capital requirement under the Basel III framework.
It intends to place out 300 million shares or 3.68% of its capital base at an indicative placement price of RM8.80 per share.
In filings with Bursa Malaysia, the country's largest bank said the assumption of the issue price was based on a 3% discount to the weighted average market price of Maybank shares for the five market days up to Oct 4 of RM9.0757.
Maybank says a possible upsize of the placement will depend on investors’ demand.Maybank says a possible upsize of the placement will depend on investors’ demand.
“The final number of new Maybank shares to be issued and the issue price of the shares will only be determined and announced after the completion of the book-building process, which will commence on Friday,” it said.
It said there is also possible upsize of the placement depending on investors' demand.
“The board is of the view that the proposed private placement is the most expeditious means of strengthening the company's capital base,” it said.
Maybank said the proceeds from the share sale, net of expenses relating to the exercise, would be utilised for working capital and general banking purpose.
The bank ended the day nine sen, or 1%, lower at RM8.99 yesterday.
In line with the world's adoption to Basel III, banks across the world would have to have a common format for disclosing the size and quality of their capital safety buffers from 2013 to help reassure investors they are stable.
It would also force banks to hold more capital and liquidity from 2013 onwards and will require banks to hold at least 7% of core Tier 1 capital in the form of retained earnings or pure equity.
Recently, Maybank had also succeeded in pricing its US$800mil (RM2.4bil) Regulation S Tier 2 Capital Subordinated Notes under its US$5bil multicurrency medium term note programme. The proceeds from the notes were also used for working capital, general banking and other corporate purposes, the bank had said earlier.
The subordinated notes wereexpected to qualify as Lower Tier 2 capital as per the Bank Negara's guidelines and be eligible for Basel III transitional treatment.
It is the largest regulation US dollar lower tier 2 capital issuance by anAsian Bank outside Japan and also marked the largest ever US dollar bond issuance by a Malaysian financial institution.
The said transaction was priced at 5-year US Treasury + 260 bps or a yield of 3.254% and will pay a coupon of 3.25% per annum, to be paid semi-annually in arrears.
The subordinated notes had a tenure of 10 years from the issue date on a 10 non-callable 5 basis, maturing on Sept 20, 2022.

Maybank falls on US$1.2b share offer

Monday, 08 October 2012 16:16

Maybank falls on US$1.2b share offer





Maybank falls on US$1.2b share offer
Shares of Malayan Banking Bhd (Maybank) dropped as much as 0.67 percent after the largest bank by assets in Malaysia said it would raise US$1.2 billion with a new share offer to fund growth in the country and its regional subsidiaries.
“This sounds logical to us as Maybank may be required to bring in capital if it is required to locally incorporate its Singapore subsidiary, which currently holds a qualified full banking licence,” HwangDBS Vickers Research said in a note on Monday.
Maybank said on Monday it completed the bookbuilding exercise for the private placement, the largest so far in Malaysia’s corporate history.
The placement is a proactive move to boost Maybank’s equity capital ahead of the implementation of the stringent new solvency requirements of the Basel III global banking regulations, Maybank said in a statement.
The issue price was fixed at RM8.88 a share, Maybank said, while the total number of shares to be issued represents 4.98 percent of the enlarged issued and paid-up share capital of Maybank as at Sept. 30.
The private placement exercise is expected to be completed no later than the middle of October, added Maybank.
HwangDBS maintained its "buy" rating on Maybank stock with a target price of RM11.10.
“Maybank remains our top pick and we believe our investment thesis of high dividends and strong earnings momentum remains intact despite these developments,” said HwangDBS.
The stock was down 0.56 percent at RM8.94, underperforming the broader index’s 0.15 percent drop.
-- REUTERS





Maybank plans US$1.2b share offer, says IFR

October 05, 2012
HONG KONG, Oct 5 — Malayan Banking Bhd (Maybank), the country’s largest lender, is seeking to raise up to US$1.2 billion (RM3.7 billion) with a new share offer, capital markets news service IFR said today.
Banks in Southeast Asia are beefing up core capital to accommodate the rapid growth in lending in the region and to meet the stringent new solvency requirements of the Basel III global banking regulations.
The fund raising comes just a week after sources told Reuters that Maybank was among the potential bidders approached by US conglomerate General Electric Co to sell its US$1.6 billion stake in Thailand’s Bank of Ayudhya. .
Maybank is offering 300 million new shares, in a range of 8.8-8.9 ringgit each, a discount of up to 3 per cent to the average trading price over the previous five days, said IFR, a Thomson Reuters publication, citing a term sheet for the sale.
Maybank’s shares closed today at 8.99 ringgit, trading on a price-to-earnings ratio of around 12.56, which compares with a median of 12.32 for all Malaysian banks.
The new funds will be used to strengthen the company’s capital base, support its “growth objectives” and meet the Basel III capital requirements, IFR said.
The offer can be expanded by an additional 112 million shares depending on the strength of demand, it added.
Maybank’s offering adds to Malaysia’s flourishing capital market deals this year with the tally for share offers at US$7.3 billion, accounting for nearly one-quarter of all new listings in Asia-Pacific and well up from about US$1.8 billion in Malaysia in the same period last year.
Maybank and UBS are managing the share offer, IFR added. — Reuters

Call for more time to 'tweak' Basel III


By Rupa Damodaran
Published: 2012/10/15


Malaysia's top two banks, Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd, say the Basel III package of measures to strengthen the global financial system needs more scrutiny and are calling for more time to "tweak" the new regulations.




One of the deepest concerns is that the banking sector could lose investor appeal, Maybank said at the Institute of International Finance annual meeting here.

The Basel III package of measures will see a gradual phase-in of the standards from next year until 2019.

"The consultative papers have been placed with the central banks," said Maybank president and chief executive officer Datuk Seri Abdul Wahid Omar.

Overall, while there are some elements like trade finance and small and medium enterprises (SMEs) that can be tweaked, the banking sector must be prepared for Basel III.

"We saw it as an eventuality and that was why we raised US$1.2 billion (RM3.66 billion) blanket capital to make sure we are prepared," he said in reference to last week's successful completion of a bookbuilding exercise in relation to its private placement.

He called for a level playing field, arguing that the risk weighted assets of European banks are between 20 per cent and 30 per cent, one third that of Asian banks, which measure at between 50 per cent and 60 per cent.

CIMB Group chief executive Datuk Seri Nazir Razak said there are details that need to be looked into as well as Basel III's implications on the banking landscape.

Basel III, he said, is crafted in the context of problems in the West, which is heavily reliant on a global ratings framework that is biased against developing countries.

Nazir said further scrutiny shows that the new regulations will be disadvantageous to Asian banks.

"It places excessive liquidity requirements on Asian banks when there is so much of liquidity in the region and likewise, there is too much emphasis on government bonds when there is enough in Asia."

Smaller banks also stand to suffer as Basel III means heavy compliance costs.

"The West wants to deleverage but Asia has a huge appetite for funds and we need to intermediate that or, otherwise, it will be counter-productive," said Nazir.

Asian banks will need to boost their cooperation and make sure Basel III does not impact their capacity to give out funds.

Australia and New Zealand Banking Group Ltd CEO Michael Smith suggested providing degrees of flexibility (to adopt Basel III), according to the various nations.

Most Asian banks can meet all the targets under Basel III, unlike their European counterparts, some of which will find it difficult to impose the capital requirement.

A more pragmatic approach is needed, he said, adding that the economic structure of Asia is different.

"The sheer amount of liquidity moving around the world due to the monetary easing of central banks in Europe or the United States creates an issue in Asia as investors chase the yields," said Smith.

The shift from Basel 1 to Basel II took 20 years while the shift from Basel II to Basel III took 18 months.

Wahid said Asean, which has set a target to become the Asean Economic Community by 2015, needs to be served by well-capitalised and well-distributed regional banks.

Apart from Maybank, CIMB and Public Bank of Malaysia, there are the DBS Bank, OCBC Bank and UOB Bank from Singapore and the Bangkok Bank of Thailand.

He is looking to Indonesian banks next to expand their reach to other Asean countries.

Read more: Call for more time to 'tweak' Basel III http://www.btimes.com.my/Current_News/BTIMES/articles/20121014225945/Article/index_html#ixzz29sjy9r6D

Basel III to spur secondary loan activity


Thursday October 18, 2012


KUALA LUMPUR: The implementation of Basel III next year will encourage secondary loan market activity, said CIMB Group deputy executive officer of corporate banking Datuk Lee Kok Kwan at the Asia Pacific Loan Market Association’s Malaysia conference.

Basel III, a global regulatory standard imposed by the Basel Committee on Banking Supervision, which includes representatives from 20 major world economies, requires banks to hold an increased 4.5% of common equity and 6% of Tier-1 capital of risk-weighted assets, according to the Bank for International Settlements.

Lee explained that under the proposed guidelines on Single Counterparty Exposure Limit in the region, banks will be required to observe prudential limits including a maximum 25% exposure to a single counterpart from a bank’s capital base, and a total exposure (set at 10% of a bank’s capital base) not exceeding six times the capital base.

Also, credit concentration risk will be re-examined by national regulators.

Basel III would result in higher capital requirements for longer tenor loan and bonds, in addition to more punitive liquidity requirements, he said.

“Under Basel III, banks will need to distribute and sell down loans in order to free up capital and liquidity to pursue new lending opportunities, thus leading to increased secondary loan market activity,” Lee said. — Reuters