AfE 2016 logo-196 135 Regional awards Press release View full 2016 results
Australia Bangladesh Cambodia China Hong Kong India Indonesia Japan Korea Malaysia Mongolia Myanmar Nepal New Zealand Pakistan Philippines Singapore Sri Lanka Taiwan Thailand . Vietnam
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Australia Best bank: National Australia Bank Best investment bank: Macquarie |
These are miserable times in Australian banking, which is suffering issues ranging from banking culture to credit quality as the commodity cycle ends. Commonwealth Bank has reputational issues around its CommInsure unit, while both ANZ and Westpac are under investigation for rate manipulation.
It would be harsh to call National Australia Bank a least-worst option, though, as progress has been made. CEO Andrew Thorburn has been aggressive in shedding many poorly performing businesses, notably its portfolio of UK commercial real estate loans, most of its life insurance business, US-based Great Western Bank, its Specialised Group Assets portfolio – and Clydesdale Bank.
Clydesdale in the UK has been a drag on profits for years, and Thorburn demerged it through a float in February after a shareholder vote the previous month. With that unhitched, NAB is starting to look like what its shareholders want it to be: a largely domestic, predictable and steady earner. In May Thorburn proudly announced “our first result squarely focused on our Australian and New Zealand business.”
But Thorburn isn’t just an asset-slasher, as those half-year results demonstrated. Cash earnings were up 6.5% year on year, and shareholders were kept happy with a 9.3% jump in the dividend. Long-term investments in a new core technology platform will take time to pay off, but suggest there is more to the plan than just selling businesses.
It is tricky to compare the Macquarie business model to anything else, not only domestically but internationally. But after several years of upheaval and rebalancing through and beyond the global financial crisis, it is time to acknowledge the business that CEO Nicholas Moore has built, which in May announced its highest profits since the crisis. Profits are up 29% in a year, to A$2.06 billion ($1.53 billion): not bad in a difficult era for investment banks.
That said, calling Macquarie an investment bank is an over-simplification. Indeed, the bit that gets analysts most excited – CLSA’s Brian Johnson rates it a ‘conviction buy’ with a price target almost 50% ahead of where it is now – is the group’s infrastructure business; the bank’s capital-facing businesses accounted for only 29% of total full-year profit in the year ended March 31.
Two things can be said to counter that. Even if it’s not the whole business, the classic investment banking part still held its own against any rivals in debt or equity capital markets or M&A. The Macquarie Capital division advised on 395 transactions in its 2016 financial year, worth A$176 billion, including some of the most important deals of the year, such as NAB’s A$5.5 billion accelerated renounceable entitlement offer, and the demerger of NAB’s Clydesdale business.
The other is that maybe Macquarie has figured out a better way to be an investment bank. It is the world’s biggest infrastructure manager and runs an annuity business whose contribution to group net profit rose 10% through a year that every other asset manager found very difficult. It took a while to get Macquarie back on track but it’s clearly facing the right direction now.
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Bangladesh Best bank: EBL (Eastern Bank) Best investment bank: NDB Capital |
A new winner this year, rewarding EBL’s professionalism, prudence and growth. Despite rising bad loans in the sector, EBL’s 3.27% (at the bank level, like all numbers quoted here) is half the industry average, while it grew net profits by 5.43% in 2015 in a difficult environment. Loans, deposits and assets grew by around 10% apiece, the dividend nearly doubled and non-interest income rose even as net interest income sank.
EBL has achieved this by pushing new ideas, and claims to have introduced 12 new financial products and services to Bangladesh in the last three years, particularly around internet services and priority banking. The bank is also considered one of the best in the country for corporate governance.
One of two awards for the Sri Lanka-based group, NDB Capital wins best investment bank in Bangladesh for its contribution to developing the nascent capital markets.
Naturally, Bangladesh’s markets tend towards the vanilla, but NDB has been involved in transactions that suggest potential depth and sophistication. Examples include: advising on a $50 million cross-border loan syndication for a power project, an eight-year local currency syndication under the Green Project Financing Initiative of Bangladesh’s central bank, a seven-year redeemable cumulative preference share issue for another power company; and arranging a joint venture between Sri Lankan and Bangladeshi leasing companies. In our review period NDB also arranged commercial paper, a zero coupon bond and more project finance.
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Cambodia Best bank: ABA Bank |
While still very much a frontier market, there is a sense of rapid progress in the Cambodian banking sector. Of local houses, the most dynamic has been ABA Bank, whose net profit more than doubled to $15.98 million in 2015, while its asset base climbed by 60% to $892 million. Return on equity, at 19.2%, is among the highest in Asia.
In a vote of confidence, National Bank of Canada increased its stake in ABA from 30% to 41.93% in 2015, bringing with it a $20 million financial injection to help with branch expansion, microfinance and SME lending, which will be the engines of Cambodia’s youthful private sector. Another useful step was the implementation of an environmental and social risk management system in cooperation with Germany’s DEG.
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China Best bank: China Construction Bank Best investment bank: Goldman Sachs |
China’s domestic banks are vast and profitable, but they face a challenging environment. Shifts in the domestic economy are tricky to read; indebtedness at both a corporate and provincial level must inevitably lead to bad loan problems ahead; the global economic situation complicates things further; and the banks face domestic threats not only from shadow banking but increasingly from digital platforms such as Ant Financial.
All of the big four are battening down the hatches in preparation, but in person chairman Wang Hongzhang is convincing about China Construction Bank’s readiness for a new environment and a willingness to adapt. All the numbers look fine: first quarter 2016 profits of Rmb67.9 billion ($10.3 billion) showed the bank still improving, up 1.16% year on year, while return on average equity at 18.53% is the stuff of dreams in the west.
But in a way it’s more impressive to learn about the business CCB has been turning away. It strictly limits loans to five industries it perceives to have overcapacity, namely iron and steel, cement, electrolytic aluminium, plate glass and shipbuilding; it limits its property development loans to high-quality real estate developers, and even then only if they have a high credit rating, good business performance and proper closed management of project funds; and it limits lending to any company with leverage over 70%.
Wang is piloting the bank through a strategic transformation that takes several forms. It has spent years seeking non-banking licences to become a more comprehensive banking group and is now active in trust, leasing, fund management, pensions, investment banking and both life and property insurance. Like most banks, it is trying to cross-sell to the same clients, integrating its various banking channels to improve efficiencies and costs. It has built a new credit department to implement a stronger culture of pre-loan due diligence and post-loan management. It has launched an innovative banking group, in recognition of the fact that Chinese banking is a sector that lags rather than leads, and has been steadily upgrading its tech infrastructure for seven years to get to an enterprise-level data platform that enables smart banking.
More broadly, CCB convinces for having reoriented itself to the parts of the Chinese economy that are still primed for growth, notably infrastructure and the ‘One Belt, One Road’ initiative. Its appointment as renminbi clearing bank for Switzerland and Chile in our review period, in addition to London, suggests a bright future internationally too.
While business slumped in many Asian markets, there was plenty to keep investment banks occupied in China during our review period. On international and cross-border business, traditional rivals Goldman Sachs and Morgan Stanley excelled.
Goldman edges it for its presence on outbound M&A, one of the big themes in Asian banking all year. It was, characteristically, on the sell side on many of the landmarks: ChemChina’s $46 billion acquisition of Syngenta, the largest ever, and its earlier purchase of Pirelli; Cinda’s purchase of Nanyang Commercial Bank from Bank of China (Hong Kong); the sale of GE’s appliance business to Qingdao Haier; and, domestically, Alibaba’s $4.4 billion acquisition of Youku Tudou.
Goldman is often attacked by competitors in the region for what they term a ‘suitcase banking’ approach. Goldman would put it differently – it devotes its resources where necessary to achieve the best business return.
China is a great example of this smart approach. Goldman has been quick to pounce on the China outbound M&A trend, which over the past year has accounted for around a quarter of global M&A volumes. It has done so by focusing its coverage efforts on about 20 clients in China that were likely acquirers of cross-border assets. They are covered by both local and global teams.
Goldman is a firm traditionally noted for wanting to be on the sell side of an M&A deal, which typically gives certainty of fees. But in this new era of China M&A, it is increasing looking for roles on the buy side. That gives Goldman better access to ancillary financing and hedging business. It also puts the firm on the side of the most active buyers in global markets.
So we saw Goldman, having been on the sell side with Qingdao Haier in the GE deal, representing it on the buy side when it bought a Singapore investment business. On the other key theme – state-owned enterprise restructuring – the role on the PetroChina United Pipelines reorganization was a buy-side mandate of sorts.
Beyond M&A, Goldman was a standout for Chinese international equity issuance, handling the Hong Kong IPOs of China Huarong Asset Management, Legend Holdings, China Zheshang Bank, CICC and HTSC as well as a $3.1 billion private placement for China Galaxy Securities, the first completed H-share private placement in the securities sector. It handled accelerated bookbuilds for PICC in Hong Kong and Industrial Bank in Shanghai.
On the debt side it was on the cross-border deals that mattered, including ICBC’s $7 billion issue, the largest ever additional tier-1 offering; Sinopec’s $4.8 billion and €1.5 billion senior notes issue, the largest ever dual-currency bond from Asia; and landmarks of one form or another for CNOOC, BOC, China Life and Shanghai Electric, among others.
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Hong Kong Best bank: HSBC Best investment bank: HSBC |
Not the toughest category to award. HSBC logged HK$72.8 billion ($9.4 billion) in pre-tax profits in 2015, up 15.7% year on year, showing that no matter what challenges the bank might be facing elsewhere in the world it is still pre-eminent in its spiritual home. Not only does it have the peerless local entrenchment that comes with 151 years on the ground, it is still growing: retail banking and wealth management revenue grew 5% last year, the Hong Kong arm of the global private banking business contributed 70% of its Asia-Pacific profits, it holds a market-leading 10.5% market share in Hong Kong trade finance, is the clear leader in commercial banking, and hubs a global payments and cash management operation going from strength to strength with the internationalization of the renminbi.
In investment banking, it dominates G3, dim sum and Hong Kong dollar bonds, handled the two most important Hong Kong IPOs in our review period (China Huarong and China Reinsurance), and its local strength in M&A advisory was epitomised by its work on the Cheung Kong/Hutchison Whampoa restructuring.
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India Best bank: HDFC Best investment bank: Citi |
Always considered among the elite names in Indian banking, HDFC enjoyed a great year. Revenues, operating profits and net profits all climbed by more than 20% year on year, as did deposits and assets. Growth was broadly based, with treasury, retail, wholesale banking and other operations all achieving at least double-digit growth (and triple-digit growth in treasury).
Ask HDFC, though, and executives are more excited about progress in their digital initiatives than the numbers. The bank spent much of the previous year building digital infrastructure and much of this year using it. Its PayZapp mobile payment solution went live across several platforms, including a variant for merchants; customers can now secure loans through ATMs; and online innovations also allow non-resident Indians to get double taxation avoidance agreements through net-banking.
For truly national Indian banks, the agricultural community represents both a challenge and an opportunity, and here too innovations have made it faster and easier for farmers both to access funding and to transact with the bank itself. Its Kisan Gold Card, the flagship rural product aimed very much at agriculture, is used, the bank likes to boast, from the orchards of Kashmir to the plantations of Kerala.
Another vital role for Indian banks is to work towards financial inclusion. HDFC’s main contribution to this field is the Sustainable Livelihood Program for the unbanked and under-banked; India’s development bank Nabard recognizes the programme as a role model for the Indian banking sector. It also has a growing presence in sustainable rural entrepreneurship.
There are many strong local and international contenders for the best investment bank in India award, but Citi’s breadth of business, particularly in M&A advisory, wins the day. Pramit Jhaveri, now CEO of Citi India, spent years building this business to a position of leadership and it continues to thrive under Ravi Kapoor.
The bank advised on 13 announced M&A deals during our review period, including the merger of Cairn India and Vedanta India, the sale of Reliance’s EFS Midstream business, and ONGC Videsh’s acquisition of a stake in an oil project from Rosneft, each deal worth more than $1 billion. Other landmarks included the biggest M&A deal in India’s digital payments space though Ant Financial’s investment in Pay TM, the biggest such deal in the Indian brokerage sector in the sale of Sharekhan to BNP Paribas, and the longest-tenor foreign currency convertible in India in support of KIA’s investment in GMR infrastructure.
In ECM, it was on IndiGo, the largest IPO in India for three years, and the distinctive $1.18 billion rights offering from Tata Motors, which involved three different types of equity shares. It handled the first-ever stapled issuance of NCDs and warrants for HDFC.
And in debt, highlights were the $700 million ICICI bond issue, which logged the lowest ever 10-year coupon for an Indian bank, inaugural issues for Adani Ports and a first green bond for IDBI Bank, as well as a highly structured subordinated, unsecured, 20-year non-call 10 bond for L&T Metro.
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Indonesia Best bank: BCA Best investment bank: Credit Suisse |
Bankers who deal with Indonesia consider BCA a cut above the rest in terms of quality and management, led by long-serving CEO Jahja Setiaatmadja. On almost any metric it out-guns its peer group: net profit grew 9.3% year on year in 2015 while the other top five banks collectively went backwards. BCA’s 21.9% return on equity leads the market by a distance, and perhaps most importantly, its 0.7% non-performing loan ratio – flat year-on-year – is a quarter of that of its peer group.
This last might prove to be the most important in a slowing economic cycle hit by the end of the commodity boom. The bank is very much still lending – in fact, the loan portfolio grew 11.9% through the year – but focuses on what it calls “real loan demand from quality customers with good track records,” particularly to corporates.
BCA is not the biggest in Indonesia – Mandiri, its main competitor for this award, leads in assets and loans – but in terms of performance, it’s the best in the country.
Credit Suisse’s investment banking strength in Indonesia is well-known, and a long-standing priority of Asia Pacific CEO Helman Sitohang. The bank enjoyed a characteristically strong year, including roles on every single big internationally marketed equity deal from the country during our review period. Admittedly, there were only four – a $1.4 billion placement rights issue for Sampoerna, a rights issue for Aneka Tambang Persero, a domestic but internationally sold IPO for Kino Indonesia, and a Singapore rights issue for OUE Hospitality Trust – but nevertheless the bank was dominant.
Indonesia didn’t have quite the M&A bounty of other markets last year, but the Trans Retail strategic partnership with Singapore sovereign wealth fund GIC was important; Credit Suisse advised CT Corp, the conglomerate that owns Trans Retail. It was also on a domestic acquisition by Profesional Telekomunikasi Indonesia.
In debt, it placed a S$125 million ($92.4 million) bond for palm-oil producer Golden Agri Resources, and appeared on six sole-arranged private structured loan deals worth $730 million.
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Japan Best bank: MUFG Best investment bank: Morgan Stanley |
Japan’s big three banks have little to separate them in terms of performance and approach. MUFG is the biggest of the three, measured by loans, assets, net income and profitability, but the three occupy similar ground on NPLs, balance sheet, business mix and leverage.
In truth, Japan is a fairly uninspiring market. MUFG wins best bank for having the most coherent vision of what to do about it. Investors attending full-year briefings were treated to a detailed growth plan full of promises of evolution and reform to deal with a negative interest rate policy, market downturn, slowing Japan, increasing compliance costs and worrying jumps in credit risk.
This varies from structured product development and foreign currency deposits for yield-hungry retail, to promoting cardholder sales to corporate employees and students, to a renewed pledge to support small and medium-sized enterprises. A new business alliance with Hitachi Capital around leasing is another idea, as is a focus on social infrastructure and an acquisitive approach to fund administration. None of it may seem particularly revolutionary, but at least there’s a clearly stated plan.
The Japanese joint venture of Morgan Stanley and MUFG appeared on all the deals that mattered in our review period, making the best of the Japanese partner’s exceptional retail distribution and the US bank’s investment banking pedigree.
A standout was the concurrent IPO of Japan Post Holdings, Japan Post Bank and Japan Post Insurance, a $11.98 billion deal that marked the largest IPO in the world in 2015. Morgan Stanley was a joint global coordinator on the successful landmark, and its success no doubt played a part in the banking being mandated to the same role on the forthcoming JR Kyushu IPO.
The big deal in Japanese M&A was the $18 billion acquisition of the operating rights to Kansai and Osaka’s international airports by the Orix-Vinci Airports Consortium, with Morgan Stanley advising the buyer. The bank calls it a “franchise-defining cross-border, cross-continental transaction,” and it was important in Japan, forming part of the Japan Revitalization Strategy under the third arrow of prime minister Shinzo Abe’s efforts to reboot the national economy. It is the first large-scale concession project of state-owned public facilities in Japan.
In debt, highlights included Sony’s concurrent global follow-on and Japanese domestic convertible bond, raising $3.6 billion, and domestic hybrids for various arms of Mitsubishi.
Outsiders wonder how the JV, led by Jonathan Kindred and Takashi Nagaoka, works in practice; but work it apparently does, with investment banking head Haruo Nakamura overseeing a capable and successful team.
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Korea Best bank: Shinhan Best investment bank: Credit Suisse |
While Hana and KEB digest a complex merger – and every merger is complex in union-heavy South Korea – our best bank Shinhan enjoyed an impressive year, growing net income by 6% and maintaining the best asset quality in the industry. It was the only big Korean house to have an NPL below 1% at the end of fiscal 2015. It will be a challenge to keep it that way in a national economic downturn amplified by global and regional uncertainty, but Shinhan looks the best set for this environment.
It’s also started looking further afield in recognition of the limits to domestic growth. It doubled its number of global branches from 70 to 140 over our review period, opening in Dubai and Manila and acquiring two local banks in Indonesia. For the first time, global operations passed 10% of total net income; a name to watch among expansive Asian peers.
Also during our review period Shinhan launched its digital banking subsidiary Sunny Bank, while developing its Future’s Lab, an accelerator programme for fintech startups with a particular focus on bitcoin and blockchain technologies. Analysts like what they see: Credit Suisse, Morgan Stanley, JPMorgan and Macquarie all rate it buy or above consensus.
The best across-the-board performance in Korean investment banking came from Credit Suisse, particularly in M&A and equity capital markets.
One of the key themes in Korea today is chaebol restructuring. There is plenty to do, and it takes various forms: some chaebol voluntarily divesting non-core businesses, others not-so-voluntarily shedding assets to stay afloat. Little of it is straightforward. Examples were Doosan selling its machine tools business to MBK Partners and a defence business to Hanwha Techwin, with Credit Suisse on the sell side on both and handling a block trade; and OCI Corporation selling OCI Materials to SK Group, again with Credit Suisse on the sell side.
Others take the form of state sell-downs, notably Korea Development Bank’s divestment of its stake in KDB Daewoo Securities and KDB Asset Management to Mirae. Credit Suisse advised KDB.
Deals like this have helped the bank position itself on capital markets transactions that follow, and it handled seven block trades during our review period for some of the biggest names in Korea, among them the Samsung, Posco, SK, Hyundai and Kumho groups. There are four big IPOs expected to take place in 2016 from chaebol, and Credit Suisse is mandated on three of them, a good sign.
Credit Suisse will never top DCM tables in a commoditised market dominated by local names, but it was on four of the most important G3 deals out of Korea, for KDB and Korea Eximbank.
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Malaysia Best bank: Public Bank Best investment bank: Maybank Investment Bank/Maybank Kim Eng |
Public Bank doesn’t set the pulse racing with bold Asean strategies like Maybank and CIMB, but what it does, it does exceptionally well. Consider the grim mood around Malaysia’s economy and politics over the last 12 months, and then look at these numbers: 17.8% net return on average equity in 2015, a 30.5% cost-to-income ratio, a bad loan ratio of 0.5%, all three of them the best numbers in the whole industry.
Domestic loans grew 10.3%, deposit-taking by 7.5% and non-interest income by 22.4%. It leads the private unit trust industry and launched 16 new funds in the 15 months to March.
Founder and chairman Tan Sri Teh Hong Piow and CEO Ran Sri Tay Ah Lek are veterans – Tay is 73 at the time of writing – and are these days associated with safe stewardship rather than aggression. Is Public Bank strategically a little dull compared with some of its peers? Sure. But there are years when steady and efficient is good.
Maybank has made an almighty transition since its acquisition of Kim Eng in 2011, turning from a largely domestic investment bank to one that operates in 10 countries. CEO John Chong’s bank is a serious presence across Asean now, and it has become so thanks to the foundation of a domestic business that goes from strength to strength.
It was on all five of the largest Malaysian ECM deals in our review period, led by the Malakoff IPO – the biggest in Asean during the time period – and rights issues for Hong Leong and RHB Capital. It handled three of the five biggest placements too. CIMB still trumps it on the DCM side, but no longer by much, and Maybank was on seven of the biggest ringgit bonds and sukuks, for clients including Tenaga Nasional, Cagamas and Genting. Like CIMB Islamic, it has built particular strength in sukuk, with deals for Jimah East Power and Sime Darby standing out, alongside Indonesian deals for XL Axiata and Garuda.
Advisory roles included the privatization of IJM Land, MPHB Capital’s disposal of a stake in its insurance arm and Dayang Enterprise Holdings’ acquisition of Perdana Petroleum shares.
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Mongolia Best bank: Khan Bank |
The heady days of soaring growth, sky-high commodity prices and ample foreign investment have gone for the moment, so banks must get on with the mundane business of exercising good management and prudent lending. Khan Bank had a good year in difficult circumstances, managing an 11% year-on-year increase in net profit at the same time as the overall banking system’s deposit base dropped by 4.6% and loans by 6.6%.
Khan saw its local-currency deposits decrease too, but made up for it by increasing foreign-currency deposits, gaining yield from government securities, making headway with e-banking and card transaction promotions, and increasing FX trade and revaluation income. It upgraded its internal IT systems and held on to its sovereign-level credit rating. New senior loan agreements with IFIs helped bolster the bank’s capital adequacy.
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Myanmar Best bank: KBZ |
By some distance the biggest bank in Myanmar, KBZ also leads in terms of sophistication and governance. In a frontier market re-entering the financial mainstream, year-on-year growth can be dizzying, and so it proved: KBZ’s asset base climbed 44% to K8,628 billion ($7.23 billion) – and considering it held a 37% market share beforehand, it is clear how dominant the bank is. It grew revenue by 14%, deposits by 30% and loans by 40%.
It has achieved this through a 380-strong branch network that is growing all the time, with the broadest ATM network in the country and a new card system that will allow it to issue international credit and debit cards. In a country where it was hard to get a mobile phone signal a few years ago, it has launched e-banking and mobile banking platforms and has tied up with Microsoft to make further improvements.
KBZ more than anyone seems to have grasped the enormous possibilities facing the country and its banking system. By 2025, it says, over half of the world’s consumers will live within five hours of Myanmar; the demand for banking services as the domestic workforce grows and changes will be immense. At the same time, the bank showed awareness of the difference a good corporate social responsibility programme can bring: its Brighter Future Myanmar Foundation drilled 66 wells during the year under review, among other humanitarian initiatives.
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Nepal Best bank: Standard Chartered |
Nepal’s devastating earthquakes wrecked the economy, and all performance numbers in this overbanked but under-penetrated market reflect the fact. Standard Chartered was affected too, with a 12% drop in profits, but it still managed to grow assets by 16.15%, deliver a 22.35% return on equity and keep non-performing loans at just 0.34%.
Nepal’s central bank has a supervisory rating system that ranks StanChart at the top, and its brand name conveys safety – and not just at home: it manages the central bank reserves of Nepal, Afghanistan and Bhutan, as well as handling Nepal’s oil payments and about 70% of its correspondent banking.
Digital innovation is in its early stages here but Standard Chartered aims high, and has electronic platforms in place at the retail, institutional and SME level, as well as for cash management. It also boasts possibly the only banking lounge with its own art gallery. And back to the earthquake: as the only international bank in the country it was able to do vital work in getting international funds where they needed to be quickly.
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New Zealand Best bank: ANZ Best investment bank: UBS |
Under CEO Shayne Elliott’s more home-grown strategy, there will be less of Asia and more of New Zealand showing up in ANZ’s group results. The New Zealand summary slide in ANZ’s financial 2015 results presentation carried the underwhelming headline “well managed”, but that’s what it is: nothing space-age or daring, but a reliable business doing what it’s meant to. Impaired assets have shrunk from 1.61% to 0.35% since 2012, lending and profit have increased steadily over the same period (NZ$1.21 billion ($846 million) cash profit in FY2015, up 3.2% year on year), and market share is edging up from mortgages and household deposits to credit cards and life insurance.
No bank makes a compelling case for the best investment bank award: the Aussie big four names lead in DCM, Macquarie and Deutsche/Craigs in ECM volume, and Goldman in M&A. The only name to appear near the top in all three fields is UBS. It advised on the leveraged buyout of Manuka Health New Zealand to Pacific Equity Partners and the purchase of Yealands Wine Group by Marlborough Lines; was on the IPO of CBL Corp, as well as several small follow-ons; and was bookrunner on deals for the sovereign and Bank of New Zealand.
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Pakistan Best bank: MCB Best investment bank: Credit Suisse |
“Have you noticed MCB lately?” So began a glowing report from Credit Suisse analyst Sanjay Jain in January, calling MCB “the best bank in Pakistan and among the top three in Asia.”
We have not been used to such positive commentary around Pakistan for the last eight years or so, but just as sentiment towards the country is improving dramatically, so too it is around the banking sector and MCB in particular.
MCB CEO Imran Maqbool talks of a “fortress balance sheet” as a platform to accelerate growth of the business, and the fundamentals look very strong: 19% capital adequacy, 23.25% return on equity, 15.3% growth in pre-tax profit, 93% of deposits in current account/savings account, 13.4% growth in net interest margin.
It’s true that its NPLs – or infection ratio, as it’s known locally – are high by regional standards at 6.12%, but that’s one of the lowest numbers in Pakistan.
That Credit Suisse report went on to call the bank the best deposit franchise with the widest net interest margins in the industry. “Basically, a very high quality and conservative bank, which can be considered a bond fund,” because it raises deposits at about 3.3% and invests in government bonds that yield 8.3%.
It’s not a bond fund, of course, and the 5% risk-free return Credit Suisse refers to is not risk-free at all in a country that remains unstable, but one can see why investors like it: undervalued because of the macro situation, well placed for the country’s enormous potential rebound (already in its early stages), well run and prudent.
Credit Suisse dominated investment banking during our year in review. The most important deal all year was Habib Bank’s $1 billion secondary placement, the largest-ever equity offering in Asian frontier markets, with Credit Suisse as joint global coordinator. It was fully marketed for a frontier name in three months against a live trading price, bringing in vital FX reserves by attracting international investors who would have been within their rights to give it a wide berth. Credit Suisse suggested the placement of domestic shares instead of another illiquid GDR, and that’s the approach the government took.
The bank was also sole bookrunner or originator for three facilities for Pakistan’s ministry of finance, raising a total of almost $1 billion in syndicated term facilities.
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Philippines Best bank: Security Bank Best investment bank: Bank of America Merrill Lynch |
For years, the best bank in The Philippines award has been the preserve of BDO Unibank, which remains the biggest and in many respects the best. Security Bank, by contrast, is a mid-size bank, less than a quarter of BDO’s market cap and revenue and delivering a third of its profitability. It has just 5% of the market in terms of loans, assets and deposits.
A closer look at numbers other than scale paints a more interesting picture. Security Bank beats BDO on return on equity, return on assets, cost/income ratio, NPLs and NPL coverage. In most of those metrics, it leads the whole industry.
Is this just a case of growth off a low base? It’s true that Security Bank’s 24% loan growth in 2015, double the overall industry, and its 68% growth in consumer loans due to home and auto loans and credit card receivables, can’t be expected to be maintained as the bank gets bigger. But these are the fruits of a multi-year re-invention, now led by CEO and president Alfonso Salcedo, and epitomized by its BetterBanking rebrand in the retail business. The bank picks its spots, focuses and aims to be the best at what it does rather than the biggest. And it takes pride in not being part of a conglomerate (though it is owned by the Dy family).
One big investor that likes what it sees is Japan’s Bank of Tokyo-Mitsubishi UFJ, which struck a strategic partnership with the Philippine lender in January and put in Ps36.9 billion ($803 million) of investment on April 1. It gives Security Bank capital, long-term funding, and a considerable show of faith, as well as a way in to Japanese corporates with banking needs in the Philippines. No foreign investor has ever made such a big equity investment in a Philippine bank.
Bank of America Merrill Lynch led the investment bank field when it came to international transactions involving the Philippines. It was sole financial adviser to CRH on its acquisition of Lafarge Republic, at $1.158 billion the biggest M&A deal in the Philippines in our review period. And it was joint bookrunner on the Asian Development Bank’s largest-ever benchmark, a $3.25 billion trade, as well as on a senior unsecured RegS deal for RCBC and a subordinated issue for SMC Global Power Holdings.
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Singapore Best bank: DBS Best investment bank: Citi |
Though best bank DBS’s long-term aspirations lie in Greater China, India and Indonesia, Singapore remains the dominant part of the business today: S$6.68 billion ($145 million) of full-year income in 2015 came from the city state, up 12% year on year, and well ahead of any local or foreign competitor.
Despite its size, it continues to gain market share in its home base. It handles 25.3% of Singapore’s home loans, a five-year high, and its credit card market share is at its highest since 2010. Some 51% of retail savings accounts in Singapore are with DBS. It is now, for the first time, top in terms of new bancassurance business, with the potential for far greater growth after the launch of a 15-year regional partnership with Manulife.
Its wealth management business, now reinforced by the acquisition of Société Générale’s private banking team, delivers three times the income it did in 2009 and is growing strongly. And DBS continues to dominate both debt and equity capital markets in Singapore, leading 41% of all Singapore dollar bonds, maintaining its leadership of the real estate investment trust sector and taking issuers into dollar and renminbi bond markets. It is increasingly active in advisory, boasts one of Asia’s most sophisticated SME divisions headquartered from Singapore, and runs impressive syndicated finance and transaction services businesses too. At the time of writing, while analysts are bearish on many of the world’s banking sectors, 80% of those who cover the stock have a buy rating on DBS.
Citi’s investment banking activity in Singapore during our review period showed wide-ranging depth and ability. Citi in Singapore generally is much more than a foreign investment bank, and was a contender for the outright best bank award here, which it has won several times.
Asean investment banking head Willard McLane runs a successful team. In M&A, Citi was on three of the most significant deals involving Singapore. It advised Singapore-listed Stats ChipPac on its sale to Jiangsu Changjiang Electronics Technology for $1.7 billion, and advised Singapore’s Neptune Orient Lines twice: first on the sale of APL Logistics to Kintetsu World Express for $1.2 billion, and then on the sale of the remainder of NOL itself to French company CMA CGM for $5 billion. Both NOL and Stats ChipPac are Temasek group companies, a most useful client to have.
In a moribund year for equities, it handled a $159 million rights issue for OUE C-Reit and a $104 million placement for Frasers Commercial Trust. There were richer pickings in G3 and local currency debt: standouts included UOB’s $500 million tier-2 subordinated issue, Temasek’s €1.1 billion dual-tranche deal, a subordinated perpetual for Ascendas Reit, OCBC’s inaugural Basel III-compliant AT1 perpetual in Singapore dollars, a covered bond for DBS and a 10-year US-dollar trade for Singtel.
It also handled a $1 billion senior offering for Global Logistics Properties, marking the 11th transaction it has undertaken for the company, which tells its own story.
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Sri Lanka Best bank: Sampath Bank Best investment bank: NDB Investment Bank |
Sampath Bank trumps bigger rival and last year’s best bank winner Commercial Bank after a market-leading year of performance.
Sampath’s bottom line grew 24.8% in 2015, beating Commercial’s 6.5% and the rest of the market too. It marks a considerable turnaround from the 35% dive in profits in 2013 that followed ill-advised pawning advances that were caught out by the gold price. But this was not just a bounce back off a low base: that happened last year. This was solid and sustainable growth, in which the bank pulled off the challenging trick of market-beating credit growth (24.5%) and cutting NPLs (down to 1.64% from 2.68% two years ago) at the same time.
A relatively young bank that’s been around only 28 years – much of it through a civil war – it is only recently that Sampath’s branch network has adequately covered the island. Now that it does, the bank has devoted more attention to electronic delivery channels. Other initiatives have brought new credit cards, loan schemes for state pensioners and financial inclusion through a low-cost account that can be opened without having to visit a branch. It’s clear that risk management has improved since 2013. And the bank is active in CSR, focusing on water purification, school infrastructure and entrepreneur empowerment.
Two NDB investment banking subsidiaries win awards this year: one in Bangladesh, and this one at home in Sri Lanka. The bank raised W60 billion ($416.5 million) of debt and equity capital for its clients in 2015, its highest ever, which was an achievement in a year with volatile markets and two national elections.
Highlights included 10 debentures, including the first such listed structures for the construction and engineering sector, diversifying the market; nine securitizations in the leasing and plantations sectors; several domestic M&A mandates; and the IPO of People’s Insurance, the largest all year in Sri Lanka.
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Taiwan Best bank: Cathay United Best investment bank: Yuanta Securities |
CTBC (Chinatrust, as was) and Citi have shared this award for the last five years, but this year we reward the bold regional strategy of Cathay United, hubbed out of Taiwan.
CUB’s parent, Cathay Financial Holding Company, is now the biggest financial conglomerate in the country, with $231 billion of assets in December 2015. It brings together the largest life insurer, second biggest P&C insurer and the biggest asset management firm in Taiwan alongside the bank and securities arm. Scale like that is very powerful: one way or another, every second person in Taiwan is a customer, which clearly has enormous potential for cross-selling.
Cathay has always been big, though; what catches the eye this year is an international strategy taking shape. The bank is now active in 11 Asian markets outside Taiwan, with much of the growth taking place in our review period, such as an Indonesian rep office, Philippines branch, and either the purchase or integration of 20% of RCBC in the Philippines and 40% of Bank Mayapada in Indonesia. Anyone can buy scale, but the fact that CUB’s overseas earnings grew 77% in two years from 2012 suggests that it is working; 45% of pre-tax profit in 2014 came from overseas.
Domestically, the bank has invested in more sophisticated credit risk modelling – always a useful investment in Taiwan – and IT. More distinctively, it is considered a leader in green energy financing, has partnered with the mobile app group Link (a good partner: its 17 million active users are nearly three quarters of the national population) to launch banking apps, and halved NPLs last year to 0.14%.
In investment banking, Yuanta Securities was everywhere in 2015, handling a quarter of all equity raisings in Taiwan, a host of domestic M&A transactions and more debt capital markets transactions than anyone else in the industry.
In a weak equity capital markets year for most of the region, it was a standout performance to handle 55 separate deals, underwriting NT$12.7 billion ($395 million), representing a 21% year on year increase for the bank. In particular it handled nearly a third of new emerging stock listings.
A highlight was Global Wafers, which Yuanta had previously helped to split from its parent company and to acquire others to build its own independent identity. The parent and subsidiary launched a simultaneous IPO, complex but successful.
In M&A, Yuanta advised on Micron Technology’s acquisition of Inotera and Nanya Technology’s participation in Micron’s private placement, among many other tech and telco deals.
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Thailand Best bank: Bangkok Bank Best investment bank: Phatra Securities |
Some years you reward the banks that are shooting the lights out with growth; others, you reward the bank that is best prepared for testing times. Bangkok Bank certainly grew in our review period, but a large part of the reason for it taking this award is defensive: it has the lowest NPLs among the big four banks at a time when companies are defaulting, bad loans are rising and exposures are worrying.
Take, for example, the steel maker Sahaviriya Steel Industries, which went bankrupt in 2015. Krung Thai and Siam Commercial were both exposed. Kasikornbank has SMEs as a key part of the portfolio, and some of those loans have been starting to sour too.
Bangkok Bank, led by president Chartsiri Sophonpanich, is certainly not immune from this, but at least it is in good shape to weather a storm. Its cost-to-income ratio is very low at 43.8%, it is highly liquid, and the majority of analysts consider it a buy. Also, it’s doing well, launching new card products in consumer banking, strengthening its leading position in corporate banking, and becoming the first Thai bank to open a branch in Myanmar in June 2015, followed by one in Laos in January. During our review period its China subsidiary became a renminbi clearing bank.
The choice for best investment bank was between the international business of Morgan Stanley and the more local excellence of Phatra Securities. With Stanley’s excellence acknowledged in the regional advisory award, and with domestic liquidity very much a defining theme in Thailand, we reward Phatra’s home-grown achievements.
Phatra has served on seven of the 10 largest IPOs ever in Thailand. It is a long-standing adviser of choice to the biggest names in Thailand, from PTT to Bank of Ayudhya, both of whom were active during our review period. Phatra advised PTT on two separate divestments, including its stake in BCP, and it helped Bank of Ayudhya on its acquisition of Hattha Kaksekar. A cross-border advisory mandate took Charoen Pokphand Foods into Cambodia, and an equity highlight was the IPO of Star Petroleum Refining, which took place during a period of considerable regulatory change.
Its debt presence is newer, dating from the 2012 merger with Kiatnakin Bank, but already paying off with deals, including a subordinated tier-2 issue for KK.
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Vietnam Best bank: Vietcombank Best investment bank: Credit Suisse |
Vietcombank is the deserved winner of best bank in Vietnam for its professionalism and good management.
Vietcombank is not the biggest – in fact only fourth by loans or deposits – but it is well run and impresses international bankers who deal closely with it. It enjoyed a strong 2015, with net profits up 16.83% year on year, 12.03% return on equity, a tight cost-to-income ratio of 39.18%, and a declining NPL ratio of 1.84% amply covered by reserves. Credit risk control has been a priority and it looks the most efficient operation in the business, positioning it well for the ample opportunities and challenges that Vietnam never fails to provide.
Not much of note happened in Vietnamese investment banking in our review period. Commoditised local debt issuance continues, with Techcombank as its leader; more interesting is the structured work taking place at Credit Suisse.
The bank handled a $139 million block placement for Masan Group, the biggest-ever equity block in Vietnam. And it structured an interesting transaction for the Novaland Investment Joint Stock Company. The deal raised $80 million through a quasi-securitization by taking security over pre-sales receivables, the first deal of its type in Vietnam. Credit Suisse put in place a security and collection mechanism, and funded the first tranche of $30 million.
It also conducted the first-ever international financing for a Vietnamese consumer finance company on a non-recourse basis, a $50 million senior secured term-loan committed facility for Home Credit Vietnam Finance. This deal provides a new way for finance companies in Vietnam to raise capital.
