THE CEO PANEL
- Dato’ Sri Nazir Razak
Group chief executive, CIMB Group
- Dr Sándor Csányi
CEO, OTP Bank
- Dr Cecilia Ibru
CEO, Oceanic Bank
- Marcio Cypriano
CEO, Bradesco
- Alejandro Valenzuela
CEO, Banorte
- Adel El Labban
CEO, Ahli United Bank
- Arnold Ekpe
CEO, Ecobank Transnational Incorporated
- Zhang Jianguo
President, China Construction Bank
How has your bank’s funding been affected by the financial crisis? What strategies have you put in place to deal with future funding challenges?
Dato’ Sri Nazir Razak: Our primary funding market, the ringgit capital market, has been insulated, though not immune, from the global financial crisis. Malaysian banks and institutions have not been very active in the international markets while the domestic financial markets have been shielded by the high savings rates, large current account surplus and strong foreign reserve position of the economy.
In 2008, our challenge was to increase capital of CIMB Bank and its parent, Bumiputra-Commerce Holdings (BCHB), to finance the acquisitions of Lippo Bank in Indonesia and BankThai in Thailand. We were able to issue new BCHB shares to part-finance Lippo and undertake three tranches of ringgit Tier 1 and 2 capital issuances at the bank to enable us to complete both deals while adhering to our target ratios of 120% ‘double leverage’ at BCHB and risk-weighted capital ratio of more than 12% at the bank.
In September, we thought that there was a window of opportunity to raise Singapore dollar non-innovative Tier 1 at attractive rates – including swap cost back to ringgit – but that window closed very quickly when Lehman Brothers fell and the true magnitude of the crisis began to surface.
Our large branch network across south-east Asia enables us to secure a stable base of deposits. On a group treasury basis, we also have ample funding for our foreign currency asset base. Indeed, our consolidated treasury operations across the region give us a lot more flexibility to manage our funding and capital positions across all our entities.
Sándor Csányi: Wholesale funding – bond issues and interbank loans – is hardly available at the moment; most of the deals are sold with state guarantees. Therefore we are concentrating on boosting our deposit base. We are also targeting a lower loan-to-deposit ratio, thus improving our liquidity.
Alejandro Valenzuela: The measures imposed following the Tequila crisis prevented banks from committing the excesses that have characterised financial institutions in other regions. Unfortunately, this same framework did not fully apply to corporations, and some large treasuries took risks that surfaced with the higher volatility after Lehman Brothers’ bankruptcy.
The major losses related to foreign exchange derivatives transactions in some large Mexican corporations that quickly contaminated other parts of the domestic financial markets.
For instance, liquidity in the commercial paper market dried up, making it difficult for many companies to roll over their short-term commitments. This generated more disruptions in the financial markets, elevating Mexico’s country risk considerably and producing a sharp sell-off of Mexican assets.
Banorte’s funding was not affected. Almost half of the bank’s liabilities come from core deposits, which until the end of November were still growing at double-digit rates. The other main source of funding has been retail time deposits. As a consequence, the bank’s reliance on wholesale funding has been minimal.
We will closely monitor the bank’s liquidity ratio in order to act pre-emptively if any important variations occur, and will continue fostering banking relationships with our corporate and government clients, offering them attractive loans in exchange for managing their treasuries’ and employees’ payrolls. We will also expand the branch network in the areas where the bank is under-represented in terms of deposits’ market share, especially in Mexico City, and introduce new retail promissory notes to expand time deposits at the branch level.
Adel El Labban: After Lehman’s collapse in mid-September 2008, non-regional funding sources were dramatically reduced. Longer than one-year facilities, except for selective bilaterals from relationship banks, were effectively closed. This was partially offset by regional governments pumping liquidity through their sovereign wealth funds, pension funds and state-owned oil companies, as well as by increases in central bank funding operations.
Responses, however, varied in our seven regional markets, with Kuwait and Qatar being the most proactive and effective in their responses.
Ahli United Bank (AUB) adopted a strategy of extreme funding prudence, at the expense of short-term profitability, focusing on increasing retail and wholesale client deposits and elongating their maturities. Our strong onshore banking operations in Bahrain, Qatar, Oman, Kuwait and Egypt facilitated this process. Our position as one of the largest regional banks also enabled us to act as a ‘safe haven’ for potential depositors, and client deposits have grown by 16.4% since the start of 2008.
Cecilia Ibru: Economists say that, for the first time, isolation is paying off for Africa. But a direct effect is that the level of confirming credit lines to Nigerian banks has reduced.
But Oceanic Bank itself has not been affected by the financial crises. Our fourth-quarter profit was 52bn naira ($390.2m) – the highest in the banking industry over 12 months – and our letters of credit lines with 14 correspondent banks are still available. In fact, we have had meetings with a few of our correspondent banks, including Deutsche Bank, BNP Paribas and Standard Chartered, and they may possibly consider enhancing our lines as the global financial situation improves.
Marcio Cypriano: The restricted liquidity throughout the world has been reflected in the credit lines for foreign trade in Brazil. The central bank has provided lines and we at Bradesco have managed to renew most of our lines. We have had no problem with funding on the domestic market, whether in terms of sight deposits, savings or certificates of deposit.
Our funding has increased as we are a bank that is recognised for its solidity – and this is a competitive differential in times of turbulence. Our capital base is consistent and we have a broad client base from all income levels and business sectors, which guarantees our liquidity against any economic backdrop.
At the same time, Brazil is not highly indebted and default levels are low. Looking ahead, I think liquidity will come back gradually, although it will not be as strong as it was before the crisis.
Arnold Ekpe: Our core business has thus far not been adversely affected by the crisis. However, our share offering, which was launched before the crisis, was adversely affected.
No one, of course, can predict how the crisis will unfold. We think that the global slowdown will likely affect Africa in terms of reduced commodity prices, tourism, and development aid.
Zhang Jianguo: The impact of the financial crisis is not significant to China Construction Bank (CCB). Customer deposits are our main source of capital – about 90%; our reliance on inter-bank lending, loans and bond issuing is therefore relatively small. Customers have full confidence in China’s major banks and, throughout the financial crisis, the deposits of major commercial banks have remained comparatively stable.
Our bank will pay close attention to both international and mainland China’s economic and financial trends, and we will intensify risk control. We will strengthen our capital by stepping up deposit sales services and expanding our customer base – keeping an emphasis on effective cost control.
We will also progressively boost financing for loans and liabilities, enrich capital channels and structures, and improve the matching of assets and loans with given duration.
Our credit policy will progressively be co-ordinated with the needs of the state in expanding local demand, and should match new policies and strategies which aim to boost economic growth. We will prioritise industries and projects that are less affected by the economic downturns.
Has your bank implemented any major changes as a response to the subprime and credit crises?
Mr Razak: Since late 2007 we have significantly reduced credit counterparty and settlement limits to global banks and institutions, as we were very bearish on US dollar markets in particular. This includes significant reduction in uncollateralised deposit lines and, in particular, the imposition of the International Swaps and Derivatives Association (Isda) Credit Support Annex collateral requirements on all our derivative trades with foreign counterparty banks.
We also recently suspended access to our distribution infrastructure to third-party product manufacturers after watching the ‘mini-bonds’ debacle in Singapore and Hong Kong. I suspect that this could become permanent, as clearly the open architecture model has alignment problems in that the manufacturer does not really care about the customer and the distributor has a dependency on the manufacturer for liquidity.
Dr Csányi: We have implemented a stricter risk management framework. For example, we are applying lower maximum loan-to-value ratios and higher downpayment requirements. We have also stopped our regional expansion and put in place limits on our loan growth.
Mr Valenzuela: Banorte and its subsidiaries had no exposure to subprime lending or any financial assets related to those loans, therefore no changes were needed to our lending policies as a result of the crisis in this sector. Nonetheless, the bank is being more cautious in its lending practices to the consumer and mortgage segments in order to avoid overexposure to certain segments that could be affected by the economic downturn in both the US and Mexico.
Mr El Labban: The crisis effectively triggered a major reassessment of counterparty risks, initially focused on financial institutions and progressively extending to corporate and sovereign risks as a major global economic recession became inevitable.
The key problem was arriving at objective assessments addressing real risks and avoiding the hysteria-induced atmosphere created by the collapse of US investment banking followed by the bailout of UK clearers and other major European banks and the spreading sovereign problems in Iceland, Hungary, Ireland, Ukraine and Korea, among others.
Although the crisis has resulted in a dramatic repricing of risk, AUB has not yet exploited this shift, through relative value risk-return arbitrage, because the underlying absolute risk profiles remain cloudy. Our focus continues to be on our natural markets in the Gulf that enjoy better economic fundamentals, and on more defensive sectors, given the impending global and regional slowdown.
Dr Ibru: Oceanic Bank has tightened risk management and corporate governance, enhancing and adhering to regulatory authorities’ directives. We have further strengthened our systems in the areas of credit and sector limit management, corporate governance and enterprise risk management.
Mr Cypriano: Brazil is feeling the collateral effects of the crisis that originated in the developed countries. We will continue to grow at between 2% and 3%, which eases the outlook for 2009 compared with the situation in other countries. Once the peak of the financial crisis has passed we will enter a new phase, which will be marked by an economic downturn, unemployment and cuts in global investment.
Our priority is the domestic market and, as we have already said, Brazil will continue to grow. The rate of growth will be lower than in 2007 and 2008 but gross domestic product (GDP) will remain at a positive level. We are continuing with our expansion plans, opening branches and gaining more clients. This is consistent with the Brazilian economic situation, which is a little different from the world picture.
We will be more careful with administrative controls, give more attention to the efficiency ratios and avoid unnecessary risk in the use of our resources. However, this is fine-tuning. The main operating thrust will continue to be to increase scale and expand activities and the business lines.
Mr Ekpe: We have not made any major changes as a specific response to the subprime and credit crises. Rather, the changes we initiated prior to the crises had to do with our own growth strategy. These will, however, serve us well in the current environment. We took a deliberate decision to focus on our retail banking, technology and customer service.
With a staff of 10,000 professionals in more than 600 branches in 27 African countries today, we are now focusing on consolidating our business.
Mr Zhang: We are paying special attention to several aspects of operation, particularly risk management in areas such as our exposure to credit risk. We will continue to ensure deposits provide the core of our funding. The subprime problem and subsequent global crisis have proved that the traditional business of deposit taking is the most stable and resilient.
We will continue to improve our loan structure and risk controls. Neither giving loans too easily nor lending too frugally are in the interest of society or of the bank. We have to maintain stable development.
Customers will be further segmented so that loans policies are tailored to different regions, customers and sectors. For example, we will look more favourably on financing for infrastructure and mortgages as these form the core of CCB’s specialised loan business.
We will vigorously develop the bank’s intermediary business and increase the proportion of non-interest revenue in order to address spread compression and increase profitability. We will also develop our overseas capabilities in areas such as mergers and acquisitions (M&A) and financial derivatives, while ensuring the correct level of supervision is maintained.
Will the crisis change the geographic balance for global banking, for example, in terms of new business generation, new financial centres, and new sources of capital?
Mr Razak: I think that the crisis will see a shift in activity to domestic and regional banks. Obviously global banks will be distracted by their financial problems and their governments will want them to prioritise their domestic markets. We are already seeing some of them retreat from the region.
This is an opportunity for local players. Of course, in small markets like Malaysia, banks may need to be Asean [Association of South-east Asian Nations] in their coverage, in order to have sufficient long-term economies of scale.
I also anticipate that emerging markets will now place more attention on developing their domestic financial systems to enable businesses to fund themselves in local currencies. One of the reasons Malaysia is relatively unscathed this time is the successful development of the ringgit bond market after the Asian financial crisis. This has enabled companies to avoid currency and tenure mismatches that are now troubling many of their peers in other countries.
Governments have to do a much better job of ring-fencing domestic currency savings into mutual funds, bank deposits, pension and insurance funds to sufficiently finance the productive sectors of the economy, whether in the form of loans or bonds. Reliance on US dollar and other non-domestic currency funding sources can be toxic.
Dr Csányi: I think that low-risk countries and assets will be revaluated, average spread levels will shift higher and differentiation in risk profiles will become more straightforward. While we expect the present financial centres to remain the major hubs, some Asian centres may gain higher importance.
Mr Valenzuela: An important impact will be a stricter regulation of financial institutions that do not currently fall under the supervision of any regulating body. This will probably force them to shift some of their funds and operations to financial centres where regulation is less burdensome, resulting in a shift of geographical influence of some money centres globally.
In this respect, even though some of the established financial centres will suffer in the short and medium term from these outcomes, in the long term they will continue to exert relevant influence in global finance. Nonetheless, in these developed financial centres, there will be more regulatory oversight and market discipline over the financial vehicles used and the risks that they represent.
During this process of redefinition of regulation and supervision, new financial centres will emerge with regional, and perhaps in some cases with global, influence – especially in those nations that have the excess capital needed to reactivate financial intermediation.
Mr El Labban: Definitely, the hardest economic impact will be felt in the US and Europe. This will reduce their contribution to international trade and cross-border investment flows in the coming years and will limit their historic role as the key hubs for international banking and financial intermediation.
China, in my opinion, now enjoys a historic opportunity to develop its financial centres in Shanghai and Hong Kong as equivalent hubs to London in terms of crossborder investment, financing and insurance flows. It enjoys massive surpluses, better growth rates, rising domestic demand and, significantly, the opportunity to tap into a wealth of very qualified bankers caught out by the troubles in London and other western financial centres. The key challenge lies in China’s willingness and determination to change its regulations, to acquire the necessary human capital and to redefine its banking strategy from a China development perspective to a broader international outlook and reach.
Dr Ibru: Yes, it will. For example, global GDP based on purchasing power parity will be led by the emerging markets, particularly the BRIC (Brazil, Russia, India, China) economies. GDP growth and banking market growth are closely related. As people get richer, their demand for banking services grows faster. As economies grow faster, the need for corporate finance grows faster. As countries enjoy wealth, so their governments will leverage capital and capital markets to sustain growth, and the wealth such growth creates.
Therefore, the economies enjoying above-average growth will correct the credit crisis, as it is these economies that will boost global investment banking revenue. If this is true, then the geographical balance for global banking is set for a change. This is not just because the IMF claims that banks will have to rely on more sovereign wealth funds from the BRIC economies to prop them up, but also because the BRIC economies’ strength of growth means that the shape of global banking will change.
But the African economy is also revving up, with Nigeria at the forefront. The Nigerian capital market has seen a post-consolidation bullish run. It has only recently been jolted by market corrections. However, the fundamentals of most of the companies on the Nigerian Stock Exchange (NSE) remain strong. After optimal correction, the market swing is expected on the upside. Global investors who have watched the emerging NSE with keen interest are expected to begin to take strategic positions in key sectors of the economy.
Mr Cypriano: It is too early to reach any conclusion. What is certain is that the US investment banks have been integrated into commercial banking activity. Some large brands have disappeared and others sold, while other groups have been rescued and had their capital strengthened by their governments.
There have been big changes in attitude. For every period of exaggerated leverage, there is another period of tightening and cleaning-up of portfolios. This comes at a cost, including economic activity in general. This means that everybody is hit. It is a process that creates much greater caution and a more conservative approach. We will have a phase of intense self-regulation and also more supervision and regulation by the authorities. It will take time for things to go back to normal.
I do not foresee any changes in terms of the large financial centres or sources of capital. The wealth will remain where it has always been, but generally in lower volumes, and the stock markets will face more volatility.
Mr Ekpe: Yes, I think the crisis is quite likely to alter the balance. The Middle East and Asia are likely to become more prominent now as centres for global banking, primarily because they sit on very large pools of capital.
Mr Zhang: Because of their leading-edge infrastructure and technologies, and the dominance of the dollar, the US and Europe will remain at the heart of the global financial system. However, the global crisis originated in America and the financial systems of the developed markets have been dealt a severe blow. Against this background, the geographic balance of the global banking system will inevitably be impacted. It will increasingly tilt toward countries in the emerging markets.
The emerging markets, especially China, have shown great resilience to the crisis and they offer stronger prospects for economic growth. Many hopes for the world’s economic revival are pinned on them. In this respect, Asia – and China in particular – will inevitably strengthen its role in the global financial system.
For example, as China becomes an increasingly important economic power and its financial market becomes stronger and more open, it continues to attract more and more foreign financial institutions. As part of this trend, countries from emerging markets, especially the BRICs – including China – will attract an ever-larger proportion of foreign investment. China commanded 20% of the aggregate global net capital export in 2007, overtaking both Japan and Germany.
There has been much talk about the right pay and incentive structures to encourage staff and management to think about a bank’s long-term performance. What is your view on the right approach to take?
Mr Razak: I agree that the long-term performance of the bank should be part of executive pay but for some parts of the business, such as equities broking or trading, you would want to have long-term elements for managerial staff only. The key then is to make sure you understand the primary motivation of your frontliners and make sure that they are properly governed in terms of limits, products, etc.
Dr Csányi: It is the right way to incentivise management based on a long-term performance. This will not be applicable to the whole staff, however.
Mr Valenzuela: Management and staff compensation must be aligned with the long-term performance of an institution; this will ensure the adequate management of risks that are being undertaken. A balance must be reached between fixed and variable compensation, making the former the most important part of short-term compensation and spacing out the benefits of the latter according to the medium and long-term value added to the organisation from the decisions taken and current correct execution. Also, specific caps must be applied to variable compensation in order to avoid building up perverse incentives that favour undue risk taking.
Mr El Labban: Proper incentivisation is the only way to attract, motivate and retain the human elements needed for any company’s success. Pay has to be tied to performance and should not be unreasonably capped by artifically set limits. This current reaction is a backlash to the excessive compensation received by failed US investment banks, but it is not necessarily the right way forward. The correct approach is to redefine performance strategy in terms of the range and quantum of allowed types of businesses. Financial institutions’ objectives have to be more in line with the actual needs of the real economy.
Over the past years, Organisation for Economic Co-operation and Development (OECD) banks, affected by slow-growing mature home economies, sought to enhance their profits by engaging in highly leveraged activities through complex derivative trades and structures sold to many but whose underlying risks were fully understood by few. This resulted in an exponential divergence between the operations of the financial world and the actual needs of the real economy, triggering the current credit crisis and its related traumatic deleveraging phase.
Governments have to play a role in this process by insisting on the correct balance between eligible businesses and economic needs through intelligent regulations. This is not a call to stifle innovation or to curb free market operations, simply to restore a more rational equilibrium.
Dr Ibru: Oceanic Bank will continue to focus on its core strategies and values, which are the bedrock of its very strong performance over the years, and its performance-based reward system will strongly align with the bank’s strategy. This implies that the bank will continue to intricately tie its reward/incentive programme to the maintenance of high standards in regulatory compliance, risk assessment and corporate governance.
Mr Cypriano: We do not have this policy at Bradesco and I do not know the methodology [that would allow] you to check who deserves or does not deserve bonuses. If it was a good model, it would be more sustainable. Like everything in life, I think you need common sense. Immediate, short-term results do not always bring sustainability.
Mr Ekpe: I do not think there is a single right approach. It would make sense for shareholder and management interest to be aligned through a combination of salary and incentive schemes. Each institution would need to find the right balance, though.
Mr Zhang: Appropriate pay and incentive structures are invaluable in promoting management efficiency in a bank, but it is imperative that all banks establish reasonable and effective pay and incentive structures that encourage a focus on the long-term sustainability of a business.
The current financial crisis has revealed that, in some cases, the pay and incentive structures for senior management in US banks have been deeply flawed. Prior to the subprime mortgage crisis, total bonus payments often exceeded dividend payments to shareholders. The existing system has encouraged senior management to take on short-term risks and make overstretched bets with little regard of the risks to which their banks are exposed or to their long-term sustainability.
While pay and incentive structures should be effective in encouraging proactiveness in management, they must not encourage a focus on short-term performance and the associated bonus. There is no free lunch in a capital market, and pay and incentive structures are no exception.
Motivational structures should be balanced by a corresponding ‘restraining’ mechanism. It is this that will rein in the behaviour of those in charge of running a business and ensure that their management is both sensible and sustainable. The operating results of a bank should be linked directly to the interests of its management, and that linkage should be carried over for a certain number of years. If the performance of a bank deteriorates sharply after an executive has left, for example, and such deterioration stems from decisions the executive made when they were in charge, then the bonus and share options given should be recovered.
Has the financial turmoil undermined the free market deregulated orthodoxy? What are the alternatives?
Mr Razak: For us in emerging markets, the financial turmoil in the developed markets has caused us to ask: what do the pupils do when the teacher’s in trouble? And the answer seems to be that we should go back to the textbooks and delete some of the lessons. But as pupils, we are fortunate that we are behind the learning curve, as it were.
It seems quite obvious that this crisis is “free market fundamentalism being marked to market”, as Andrew Sheng [former Hong Kong Securities and Futures Commission chairman] described it recently. It is about purging the excesses, identifying the flaws in the system and then evolving a new, more regulated financial market system that goes back to its fundamental role of serving the real economy. In the process, we must not throw the baby out with the bath water.
Dr Csányi: The free market has not been undermined, but clearly regulation and supervision have to be made stronger; and market participants have to take a closer look at the macro imbalances of the different markets.
Mr Valenzuela: The free market deregulated orthodoxy has been undermined by the excesses that were built up as a result of loose credit and insufficient supervision. Because of the strategic importance of the banking system for the payments system and the correct functioning of the economy, the State has been obliged to intervene in order to correct many of the imbalances and disruptions to the financial and real sectors of the economy. Nonetheless, in the long run, only functioning markets will ensure the right allocation of capital and resources, and any measures taken today must focus on making market forces function correctly once more. Authorities must improve regulation and supervision in order to avoid undue risk taking.
The role of the International Monetary Fund and the World Bank must also be redefined so that they can pre-emptively avoid global financial imbalances, particularly in developed countries, by ensuring that markets and financial institutions function correctly and have the capacity and enforcement to induce corrective measures with the right policy tools, in case these imbalances put economies at risk.
Mr El Labban: The past phase has seen an unregulated expansion of overly speculative capitalism. The pendulum has simply swung too far. It is not an indictment of the system but a very serious warning bell that a pure ‘laissez faire, laissez passer’ approach is only a theoretical postulation, not a sustainable economic policy.
The state must proactively issue regulations and intervene to limit and control activities unhealthy to the interests of its real economy or posing any current or potential systemic risk if left unchecked.
It is inconceivable that the pursuit of unrestricted profitability through the derivatives space has allowed systemically dangerous if not fatal – as in Iceland – leveraged asset build-ups without any serious attempt by regulators to interfere, moderate or check these processes, which evolved over many years.
The future should not involve unchecked capitalism; neither should it include heavy-handed state ownership of banks and potentially of companies. A middle-of-the-road balance in the form of a more socially responsible and regulated capitalism is needed. Greed and myopia do not work.
Dr Ibru: The free market and de-regulation orthodoxy are pivots of capitalism where there is free allocation of resources and prices are determined mainly by the interplay of forces of demand and supply. The global meltdown and the seeming failure of the extreme liberal market system are the result of a combination of a housing bubble, subprime loans, massive increases in personal and corporate debt, and the proliferation of derivatives, based on the packaging and recirculation of debts.
This has again reinforced the arguments in favour of government ‘invisibly’ guiding the market system. As much as market forces would retain the freedom to interplay, interventionist policy initiatives that will prevent a repeat of the global recession would increasingly be a welcome option in global economic management. This is what the government of Nigeria has described as ‘guided deregulation’, and it seems the best option for global economic recovery given current developments.
Mr Cypriano: The free market will continue to be the main driver of human development and economic prosperity of countries. Prices and business will operate freely but there will always be regulation and supervision to a greater or lesser extent.
People sometimes confuse these concepts. Capitalism and the free market do not assume that they will exist within an unregulated system. Governments exist and act based on the situation at the time to a greater or lesser extent. During periods with serious problems and risks, such as we are currently experiencing, the government has to act and show society the way forward. That is its role. I do not see anything wrong with that. It is also obvious that the periods in which the government intervenes will be temporary only to correct things and minimise the effects of the crisis for the whole population.
Mr Ekpe: The financial turmoil has not undermined the free market system but rather redefined it and basically confirmed that the right approach is usually a combination of the right level of regulation and the right level of market freedom. The financial turmoil we are going through now is a result of moving too far towards one extreme.
Mr Zhang: The financial turmoil has done a great deal of damage to the free market system. To bring their financial markets back from the brink and to bail out financial and non-financial institutions, US and European governments have adopted extraordinary interventionist measures, including nationalisation, capital injections and the banning of short selling.
As a result, the public will conclude that a free market economy needs society to act as a check and balance, and that a financial framework that relies purely on the self-discipline of the market offers far too little protection. This is a clear demonstration of the shaky ground on which the free market stands.
Advocates of the free market often argue that government regulation inevitably reduces the efficiency of the market and that a market with little regulation is best. It is true that excessive regulation can inflate regulatory cost, reduce market efficiency and hamper development of the financial sector, but it must also be recognised that reasonable and appropriate regulation can help to promote market efficiency. The key is to set the right level – and the right kind – of regulation.
All governments will be able to draw valuable lessons from the current crisis. Subsequent financial sector reforms and rationalisation will reflect what has been learned.
Despite the turmoil and the slowdown, do you see opportunities for growth in 2009? Where are the opportunities for your bank?
Mr Razak: This year will be a good time for us to consolidate and strengthen our regional universal banking platform. The slower business environment will allow us valuable time to focus on building a truly Asean banking platform that will give us a strong and sustainable competitive edge. We believe that within the next 18 months we will be able to integrate our various banks and then deliver a differentiated value proposition across all our markets. We already have the largest branch network across Asean, and want to prove that this distribution platform can be the foundation of an integrated consumer product and services offering across the region.
Dr Csányi: We expect much slower volume growth in 2009, and it will be a balanced growth both on the deposit and loan sides.
Mr Valenzuela: Clearly, there are segments where growth opportunities are evident, especially since the Mexican government is planning an important expansion in infrastructure and housing investment in order to reactivate the economy. The leverage of Mexican companies and individuals is still low compared with other countries with a similar level of development, and this creates an opportunity for banks to become an engine of growth for the economy. Mexican financial institutions must show the flexibility to deploy capital, with proper risk management policies, in order to channel credit to segments that can pull the economy out of its current slowdown.
As a result, the main drivers of asset growth next year will be loans to small and medium-sized companies and governments. There will also be some interesting opportunities to grow our market share in corporate loans by establishing long-term relationships with some clients that will be left unattended by large global players as they retrench from the Mexican market.
Mr El Labban: Yes, for stronger institutions, such as AUB in its regional context, the tougher economic conditions in 2009 will enable us to reprice and increase our asset exposures regionally and internationally in a conservative and diversified manner and to benefit from targeted reductions in our operating expenses.
As the region’s only pure growth-by-acquisition bank, the coming years will see a continuation of the drop in share valuation of potential targets to more realistic deal levels. This is an important development which we hope to benefit from in terms of expanding our franchise in the Gulf.
Dr Ibru: Despite the global economic meltdown, the Nigerian economy is forecast to post strong growth in 2009. The 2009 Federal budget includes 60bn naira for the country’s power sector, as well as plans to revive the transport system, including roads and rails. These provide opportunities for Oceanic Bank to partner with government within a public-private partnership arrangement. There are also opportunities in housing, clean energy, water resources and waste management.
A relatively strong naira is good for an import-dependent economy such as Nigeria, which has a dire need to revive its ailing industrial sector. The relative strength of the currency opens opportunities for the bank to partner with leading industrial manufacturers to finance imports of equipment and raw materials. The level of the currency also makes project finance a viable option, at least in the medium term. [Figures suggest] there may continue to be strong retail consumption throughout 2009. Our strategy is to capture a significant share of the Nigerian retail market, so we are well positioned to generate strong earnings and profit from this sector.
Mr Cypriano: It is always possible to grow and expand. Bradesco was founded in 1943 in the middle of the Second World War from six small branches in upstate São Paulo. We now have a network of more than 10,000 attendance points and more than 37 million clients.
Next year, we will open more than 200 branches and aim to win 1.5 million current accounts. There is plenty of room to achieve this as Brazil is continuing to grow and is undergoing an extraordinary phase of income distribution, which is creating many opportunities for banking inclusion and boosting the purchasing power of the C, D and E classes. Brazil has low leverage in terms of credit, the volume of private pensions and insurance is very low, home loans are just beginning and there are still millions of Brazilians who do not have any relationship with the banking system. That is where we will operate, as our branch and attendance network covers the whole of Brazilian territory.
Mr Ekpe: There are significant opportunities for growth in Africa, especially in the areas of transaction, consumer and retail banking.
Mr Zhang: China and other Asian emerging market countries are less affected by the financial crisis, which could be an opportunity for China. It is a chance to resolve long-existing conflicts in its economic system and to quicken the pace of structural economic reforms. At the same time, China will actively participate in the formulation of new rules in international finance and take a greater role in the international arena.
CCB has not been badly affected by the financial crisis. Because we have implemented a modern governance structure and have driven up competitiveness and service levels, CCB is well placed to capitalise on the opportunities for overseas development represented by the weakening of American and European financial institutions.
It is also well positioned to capitalise on the investment projects presented by the Chinese government’s fiscal stimulus package to support the Chinese economy. In 2009, we will continue to build in traditional areas such as infrastructure loan and residential mortgages. Our credit business will prioritise support for the construction of major infrastructure facilities such as railways, motorways and airports, support sensible development of the real estate sector, and provide greater credit support to small and medium-sized enterprises.
To increase our domestic penetration, we will establish village banks and take equity shares in rural commercial banks. All these measures should facilitate the healthy and steady development of our business in 2009.
