Business unusual

Published: 9 March 2009

Prudence underpins stability in Malaysia's banking sector

Last year was a shock to the world economy. With toxic financial bubbles broken, the impact spread to every region, causing the global slowdown, and the deeper crisis that is the loss of investor confidence.

Emerging markets were not left unscathed by the global volatility. Falling exports and high commodity prices pushed many of the most robust economies to the brink of crises.

With limited exposure to the credit crunch and a strong banking system, Malaysia joined most Asian economies in announcing swift and bold measures to alleviate liquidity.

Source: Where Asia Stands Now, an HSBC Global Research report (Flashnote, an HSBC Global Research report, 11 Dec 2008)

The silver lining

Behind every crisis is an opportunity, and there will be those who emerge from the crisis in a stronger position. Malachy McAllister, HSBC Malaysia's Managing Director of Global Banking, said that although origination volumes were reduced, "2008 was a good year for Global Banking and Markets in HSBC Malaysia."

Piyush Kaul, Treasurer for Global Markets Malaysia, agreed. "True, the investment climate was weak due to the credit crisis. However, there were some good opportunities as well, provided there was discipline in pricing and we were selective about deals pursued."

"It distinguished us from the pack. At the height of the crisis, we were able to execute landmark transactions such as the State Bank of India deal (see sidebar)." This bond was the first cross-border issuance for India, from a country whose sovereign rating was lower than Malaysia's. More importantly, it was an example of how Malaysia's bond market has developed to maturity.

Source: HSBC

Potential opportunities

The launch of the Malaysia International Islamic Financial Centre (MIFC) in 2006 was a strategic initiative to encourage the growth and development of Islamic finance. "Islamic finance is a niche that Malaysia can genuinely claim. It strengthens Malaysia's position as a regional centre of excellence in financing, said Mr Kaul.

"The good performance of HSBC Malaysia is also due to the key capabilities of our Islamic subsidiary in Shariah-compliant products, domestically and cross-border. The MRCB and Cagamas deals are good examples of Islamic financing."

Outside that growth area, Mr Kaul acknowledged that "while most markets shut down for business, in Malaysia there was always reasonable interest for good quality names. We see volume returning to more normal levels but conditions are fluid and investors are cautious."

Mr McAllister added that "there will be subdued origination and reduced amounts because companies are positioning for a downturn. Exports, mostly electronics, will be severely affected. With the second stimulus package, we expect that this will benefit infrastructure clients. The best Malaysian corporates have managed their balanced sheets in a good position to take advantageous prices in assets, and are looking overseas and seeing attractive opportunities in real estate."

Embracing openness

The depth and breadth by which the crisis has affected the global economy has prompted increased international cooperation, with the aim to limit damage and encourage trade, said Mr Kaul. "Central banks in Asia have been getting more coordinated. The close cooperation between Malaysia and China, as exemplified by the bilateral currency swap arrangement, is a sign that regional cooperation is increasing."

Mr McAllister noted that "Bank Negara Malaysia had made a commitment to liberalisation, leading to enhanced foreign participation. This sends a positive, courageous message. And with Malaysia's strengths in infrastructure, positioning and location, it is well-placed to be a hub for MNCs in this region."

BNM plans to relax ownership rules and allow more foreign ownership of banks, following its move last year that permitted 100 per cent foreign equity ownership in Islamic financial institutions. Added Mr Kaul: "The liberalisation of inward investment opportunities makes it easier to invest in the banking sector. And in this, Malaysia is attractive because it is also one of the better-regulated banking markets."

Said Mr McAllister: "In the current environment, we will finish 2009 with a more focused business. However, we live in an uncertain world and we need to be realistic. There is a real possibility of a sustained downturn. The economic recession may still be here for two to three more years. But even in these times, we already have strengthened our position, and the level of confidence of our clients.

"In this market, we need to be very careful of how we position ourselves and add value. HSBC has always taken pride in its virtues in traditional and conservative banking, and by playing to our traditional strengths in cross-border financing. If a Malaysian investor is going overseas or someone comes to Malaysia, then HSBC is the bank. We want to be a global bank for Malaysian clients and a Malaysian bank for global clients."