|
|
Before the financial crisis, many banks were regarded as among the companies that others should aspire to when it came to management expertise, communication, delivering on strategy and credibility.
Now, in the developed world, you’d struggle to find an analyst or investor that would consider a bank’s management team as more convincing than counterparts in retail, technology or a myriad other sectors.
But in many developing markets, the C-suite at financial institutions remains highly regarded. This can be seen in the results of the latest Euromoney best-managed companies survey.
Analysts that cover the entire corporate spectrum in Latin America, the Middle East, emerging Europe, Africa and Asia took part in the survey. They ranked management teams based on criteria such as most convincing and coherent strategy; best corporate governance; most accessible senior management; most transparent accounts; and best for shareholder value.
Often, banks are considered to be the best managed company in a particular country or region. It is also worth noting which banks are voted as the best in banking and finance in their region.
The standout performer in the survey is the UAE’s Emirates NBD, which wins every important category available to it – not just the best-managed bank in the Middle East and the best-managed company in the UAE, but the best-managed company overall in the entire region.
The rise of Emirates NBD in the eyes of the region’s analyst community is in large part the rise of Dubai itself. When Dubai World, the troubled and debt-laden state-backed conglomerate, revived sufficiently so that its loans were no longer deemed non-performing, it almost halved Emirates NBD’s impaired loan ratio (from 13.9% to 7.8% in a year) and saw the coverage ratio top 100% for the first time in years.
Alongside this, Emirates NBD’s numbers are reflective of resumed growth in Dubai. Its full-year profit for 2014 was up 58% year on year, to Dh5.1 billion ($1.39 billion) – pre-impairment charges, its operating profit would have topped Dh10 billion for the first time for a UAE bank – and total income was up 22% with broad-based growth from trade finance to foreign exchange, asset management to Islamic finance, retail to investment banking.
|
The key highlight of 2014 was that we are through Shayne Nelson, Emirates NBD |
But it’s really the sense of emerging from darker times that makes analysts look favourably at the bank.
“The key highlight of 2014 was that we are through the legacy,” says Shayne Nelson, who became chief executive in 2013 after joining from Standard Chartered. “Getting to 100% problem-loan coverage was a major milestone for us.”
“We are a pretty good barometer for Dubai,” adds Nelson. Whether or not that’s a good thing depends on how sustainable you think Dubai’s growth is this time around. Nelson thinks it is on a steadier course, illustrating his view with the apparent sanity of the real estate market, where central bank controls have dulled speculative behaviour. “There are still cranes in the sky, but the pace of development has slowed now to match the demand,” says Nelson. “It used to be: ‘We’ll build a lot of supply and hope the market comes.’ I don’t think that’s the case anymore.”
Taiwan’s transformation from outsourcing specialist to proud promoter of its own batch of respected global corporates is well documented. HTC is now a global producer of smartphones and tablets, while Giant has become the world’s largest maker of bicycles. But until recently financial services lagged. Banking in the island nation was dominated by worthy but unambitious private lenders and their stodgy state-run peers.
CTBC Bank, voted the best-managed banking and finance company in Asia, changed all that. An ambitious and clear-minded strategy has seen it bulk up in recent years, buying Japan’s Tokyo Star Bank for $520 million and, in May 2015, snapping up China Citic Bank International, based in Hong Kong but with branches in the mainland’s biggest cities and a license to offer renminbi-denominated retail services. This dovetails with a plan to profit by banking Japanese corporates looking to make hay in China – and vice versa.
|
|
[There is] no one out there in Taiwan with the same level of ambition
Daniel Wu, |
Daniel Wu, group chief executive officer of the lender’s parent, CTBC Financial Holding, says there is “no one out there in Taiwan with the same level of ambition. Ten years from now, Asia will be one large, single market for us. Certainly I can see us covering most major Asian cities.” By then, the bank sees China as its largest and most profitable market, followed by Taiwan, Japan and the rapidly expanding Asean region, creating a genuine pan-Asian lender to rival the likes of Singapore’s DBS or ANZ of Australia. These are special times for a special company making waves far beyond its shores.
In Latin America, Credicorp is voted the best-managed company overall in Peru, as well as the best-managed bank in the region. Walter Bayly, chief executive officer of Banco de Crédito del Peru, says the bank’s popularity with investors and analysts has come from its long-term strategy of placing investor relations at the heart of the bank’s operating strategy.
“Many years ago we started with the clear view that a transparent corporate governance structure is not only the right thing to do but actually brings value,” he says.
“This year is going to the 20-year anniversary of our listing on the NYSE stock exchange, and although we have been on this path many years, we are still continuously improving. We are very happy that that is being recognized because we are truly believers that that brings value. [Good investor relations] allows the bank to make better decisions to the extent that you have within the governance a lot of checks and balances, so it’s a way of life for us.”
According to Bayly, the bank is currently assessing if this governance needs a radical overhaul to match the growth and complexity of its operations in Peru, Chile, Bolivia, Colombia and the US. “We are constantly thinking about how we organize ourselves,” says Bayly, who adds that the bank uses investors’ questions and feedback as part of its internal review process.
“Credicorp has changed, and our organization structure is similar to what we had 10 years ago – and our organization is now a lot more complex – so we are asking ourselves if we have the organizational structure that best prepares the organization for the next 10 years.”
|
|
Shayne Nelson, Group CEO at Emirates NBD |
Good management isn’t just recognised by analysts when times are good. Austria’s Erste Bank has had a bumpy ride for the past seven years but now looks to be firmly on the road to recovery, and is voted best-managed banking and finance company overall in central and eastern Europe. After a €1.4 billion loss in 2014, the group posted net profit of €487.2 million for the first half of 2015 on the back of a 2.2% increase in net lending and a 0.8 percentage point reduction in non-performing loans to 7.7%.
Romanian subsidiary BCR, a drain on group profitability since the financial crisis because of deteriorating asset quality, returned to profit in the first half of this year, following substantial increases in provisioning in 2014 and the start of NPL portfolio disposals. Erste’s other problem subsidiary, Hungary, remained loss-making but should show improvement over the coming 12 months thanks to CEO Andreas Treichl’s landmark deal with prime minister Viktor Orban in February, which will see the Hungarian government reduce its punitive bank tax and take a 15% stake in Erste’s local operation.
Meanwhile, the group’s market-leading Czech and Slovak subsidiaries remain reliable profit-generators. Erste’s lack of exposure to higher-risk markets in eastern Europe, which put the bank at a disadvantage in recent years as its regional rivals reaped handsome profits from Russia in particular, is also now paying off. Its core markets in central and southeastern Europe are all currently seeing GDP growth of up to 4%.
Treichl remains as bullish on the region as ever. “The crisis changed the fundamentals of our region but it didn’t alter our belief that it will outperform the rest of Europe for many years to come,” he says. Indeed, Erste is looking to expand its presence in the region – the group is currently bidding for Citi’s retail portfolios in the Czech Republic and Hungary.
In its home market, Erste broke new ground in January with the launch of a cutting-edge digital platform. Known as George, the platform is unique to the Austrian market and has already attracted more than 270,000 users. It offers impressive functionality and flexibility – and, says Treichl, will allow Erste to evolve new ways of serving its client base.
“If we want to still be here in 25 years’ time, we also have to be able to help young people solve their financial problems,” he says. “George creates a platform where we can build a menu for our clients for different situations in their lives rather than just sell them a product.”
The platform will be rolled out across Erste’s CEE network from later this year, starting with Czech Republic and Slovakia.
Erste has also made improvements to its capital position. Its Basel III common equity tier-1 ratio rose to 11.6% at end-June from 10.6% six months earlier and is now comfortably above the Austrian regulatory threshold of 11%. Full-year return on total equity is expected to be between 8% to 10% and Erste is mulling a return to dividend payment. Investors have recognized the group’s success. Erste is now trading at 1.3 times book value, up from 0.8 at the end of 2014.
Best of bad times
In a very tough year for Thailand’s banks, it might be a surprise that one of them has been voted as the best-managed company overall in the country. But Banthoon Lamsam’s Kasikornbank has made the best of bad times.
True, Kasikorn, the one-time Thai Farmers Bank, saw profits fall 2% in the June quarter as the trickle-over from a last year’s military coup, brutal bombings and Thailand’s now chronic political turmoil paralysed economic activity in southeast Asia’s second-biggest country.
But Banthoon could at least take heart that the going was even harsher at Kasikorn’s main rivals for Thai banking primacy: Bangkok Bank, Siam Commercial Bank and TMB, the former Thai Military Bank and business preserve of the junta now running the place. Profits in Q2 at TMB were down a wincing 15%, and 10% off at the royal-linked SCB. The Sophonpanich family’s Bangkok Bank, Thailand’s biggest, saw Q2 earnings tumble a sharp 11%.
Kasikornbank is known as a breeding ground for nurturing safe pairs of establishment hands, and then staying tight with those in charge. The current central Bank of Thailand governor, the much-respected Prasarn Trairatvorakul, ran Kasikorn through the 2000s. While Khun Prasarn was at Kasikorn, the then BoT governor was Pridiyathorn Devakula, who cut his management teeth at Thai Farmers Bank through the 1970s and 1980s, rising to the vice-presidency. Khun Pridiyathorn was Thailand’s civilian deputy prime minister until last month serving the generals in charge.
In Bangkok, Banthoon is renowned for leading industry trends. In May, after meeting his former colleague Prasarn at the BoT, Kasikorn cut its lending rate by 25 basis points, while publicly urging competitors to do the same for the sake of the nation.
The generals must have liked that. Until then, no bank apart from Kasikorn had followed the BoT lead. Customers noticed too. But after Banthoon’s canny plea, rivals quickly followed suit despite, as the struggling sector’s Q2 numbers would later reveal, having less wiggle room than Banthoon had. That’s the definition of smart management.
A takeover would normally lead to question marks about the future – and indeed past direction – of a bank’s management team. But that has not been the case at Turkey’s Garanti, voted the best-managed company overall in the country.
Spanish lender BBVA’s purchase of an additional 15% stake in Garanti from Dogus Holding, completed this summer, came as a vote of confidence in the bank at a time of growing vulnerabilities in Turkey. The announcement of the deal late last year led to an upgrade to triple-B by Fitch, which noted that BBVA’s stake – just under 40% – gives it control and that Garanti will now be fully integrated into the Spanish bank’s accounts.
|
|
Banthoon Lamsam’s |
It is plain to see what makes Garanti an attractive target for BBVA. It leads the Turkish banking sector (and puts the Spanish and European banking sector to shame) in terms of profitability, with a return on equity and return of assets at 14.85% and 1.6%, respectively, in 2014. That is helped by a healthy cost-to-income ratio of around 50%. Like BBVA, Garanti has also invested heavily in its digital distribution channels, and now has around 1.8 million mobile banking customers and 2.7 million internet banking customers. It runs Turkey’s largest financial call centre, handling around 68 million calls a year, and has the largest merchant network in the country, with some 541,000 point of sale terminals.
Despite a slowing economy, banking revenues at Garanti continue to climb, rising 12% in 2014 thanks to fees and a net interest margin helped particularly by consumer loan growth. But the non-performing loan ratio remains below average at around 3%, while Garanti’s tier-1 ratio stands at just over 13%, one of the highest in the sector, with loans-to-deposits at around 92%.
Garanti has made further strides to resolve asset-liability mismatches over the past year, with international securitization and bond issuances in euros, dollars and even yen, in addition to a rare lira funding programme with the European Investment Bank.
Close to home
Management changes can also have a dramatic effect. That appears to be the case in the vote for National Australia Bank as the best-managed company overall in Australia – an early and perhaps surprising endorsement of the work of newish CEO Andrew Thorburn, who joined from Bank of New Zealand in August 2014. NAB has, for years, been something of an underperformer in the big four. Thorburn is the third CEO to try a turnaround.
NAB’s victory in this category appears to suggest that analysts like what Thorburn has in mind. The strategy he pitched to win the job involved a focus on the home markets, an exit from the UK and a rebooted culture reminding everyone that it’s all about the customer.
He’s already making progress. In May, he announced a demerger of the UK’s Clydesdale Bank, as well as a A$5 billion ($3.66 billion) rights issue, much of it to fund claims against Clydesdale for mis-selling insurance. He’s also sold down much of the bank’s presence in the US through Great Western Bank.
|
Further reading |
|
NAB, like many of Australia’s biggest institutions, has been in hot water for the behaviour of its financial planning arm, but Thorburn has the advantage of having come in as a new broom, able to say (correctly) that he was in New Zealand when all this was happening. He knows that changing the culture of a whole bank – 45,000 people – takes years, and Thorburn himself would be very unlikely to claim he has got the job done yet. But analysts clearly like what they’ve seen so far.
Vietnam’s HDBank has been busy of late. One of the country’s leading joint-stock banks, it sold a 49% stake in its retail finance division, HDFinance, to Credit Saison, Japan’s largest credit card issuer, in April.
The deal was shrewd and far-sighted for three reasons. First, it injected impetus into the stated ambition of the division, now renamed HD Saison Finance, to become a leading domestic player in retail finance. After the tie-up was complete, HDBank hailed the collaboration between a “dynamic” Vietnamese company and one of Japan’s largest and most-innovative credit providers.
Second, product diversification. Vietnam’s thriving economy is underpinned by consumer spending. HD Saison Finance, with more than 1 million clients in 63 regions and cities, is in prime position to profit from the country’s desire to buy everything from cars to white goods to smartphones on credit. Finally, HD SF aims to expand into Myanmar and Cambodia, aided by Credit Saison’s expertise and capital.
