MaybankÆs growth gathers momentum

MalaysiaÆs premier bank extends its regional presence and leads the countryÆs drive for Islamic finance dominance.
Malayan BankingÆs (Maybank) recent buying spree suggests it is in a hurry. But, says Surachet Chaipatamanont, CEO of the groupÆs investment banking arm Aseambankers, ôMaybankÆs recent acquisitions come after a long process of analysis and planning around the target markets. They are the result of the groupÆs deliberate strategy to enter markets with high populations and low penetration of banking services.ö

Critics argue that government-owned Maybank may have succumbed to peer pressure to expand abroad so urgently, as close rivals such as Bumiputra-Commerce and Public Bank had already made overseas acquisitions. As a result, perhaps it has paid too much when it went shopping abroad.

In March, Maybank spent $133 million for a 15% stake in An Binh Bank in Vietnam. More significantly, later the same month it fought off HSBC, Bank of China and Kookmin Bank to buy TemasekÆs 56% holding in Bank Internasional Indonesia (BII), the countryÆs sixth largest bank. It paid $1.1 billion, at a rich 4.6 times 2007 price-to-book after the Singapore investment company was forced to sell to comply with IndonesiaÆs ôsingle-presenceö rule. It was one of the last opportunities for a foreign bank to gain a bridgehead into the Indonesian banking market, and Maybank was especially attracted by the countryÆs under-developed Islamic banking sector. The purchase also made up for MaybankÆs failure to capture the Indonesian Bank Permata in 2004.

Although Temasek had set two criteria û price and execution risk û it was clear that price was the more important since none of the rival bidders could be rejected for fear that they would not be able to stump up the cash or gain domestic regulatory approval. Maybank simply offered the most cash.

Then in early May, it paid $687 million for a 15% stake in PakistanÆs MCB Bank (formerly known as Muslim Commercial Bank) with an option to buy a further 5%. The deal was struck at a generous 11% premium to MCBÆs stock market price and at 5.1 times book value, which was in line with the prices paid for Pakistani banks by ABN AMRO and Standard Chartered in the past two years. But unlike the two European banks, Maybank only acquired a minority stake and not control.

Nevertheless, MCB is regularly rated one of the country's top banks and is often viewed as a proxy for PakistanÆs growth û which fits neatly into MaybankÆs strategy. MCBÆs net profits have grown almost eight-fold in the past four years, and it ranks as the Islamic countryÆs fourth largest bank by asset size. Sources close to the deal also pointed to a cultural fit between the banks and a shared ambition to develop Islamic finance.

As confirmation of its global plan, Maybank stated in a stock exchange filing on May 5 that ôthe proposed acquisition will enable Maybank to further expand its regional presence in key growth markets and to continue with its efforts to establish itself as a financial services leader in the regional marketö.

Maybank is the largest bank in Malaysia with assets of more than $66 billion, spread across 361 domestic branches and 88 international outlets. It has significant personal banking operations in Brunei, the Philippines and Singapore, a presence in other Southeast Asian markets and in Hong Kong, London and New York, and it was the first Malaysian bank granted the right to establish a branch office in China. Through its subsidiary, Etiqa, Maybank has a substantial insurance business û both conventional and, since 2002, takaful (shariÆah-compliant) û while its other Islamic finance operations are on an expansionary path. Its Aseam group of companies engages in a wide range of corporate and investment banking activities. It is also the second-largest listed company on Bursa Malaysia (the nationÆs stock exchange) with a market capitalisation of about M$46 billion ($14 billion).

Although Maybank has been aggressively pursuing acquisitions to participate in high-growth overseas markets, there is clearly some scepticism about whether it is doing it the best way. The groupÆs share price has been falling since it announced the BII deal, and ratings agencies have put it on credit watch.

ôMaybank seems to be moving too quickly and paying too much, as if itÆs frightened that itÆs been left behind. It doesnÆt exactly give a sense of prudent planning,ö says a banking analyst at the Kuala Lumpur branch of an international bank.

Islamic finance innovator
But one area where MaybankÆs strategy attracts little criticism is Islamic finance. It is now one of the largest Islamic banks in Asia Pacific. According to the Islamic Financial Services Board, Islamic finance is worth about $700 billion globally, having grown at around 15% in each of the past three years. MoodyÆs Investors Services attributes this rise partly to increased wealth in Islamic countries driven by higher oil prices, and where the compliance of financial products and services with shariÆah rules and principles is a big concern for many consumers.

Malaysia is by some margin the largest sukuk (Islamic bonds) market in the world, and the authorities want Islamic finance to make up 20% of its banking assets by 2010, which can be helped by Islamic banks using sukuks for long-term funding and asset-liability management. Maybank used sukuks to help develop its Islamic banking operations last year; subordinated sukuks are more favourable for capital requirements, while they also offer higher yields for investors.

In April, Maybank, through MNN Sukuk Inc, issued the first ever Regulation-S lower tier-2 10-year (non-call-five) sukuk. At 33bp over six-month Libor, it was also the tightest deal for a Malaysian subordinated borrower, and the second-tightest subordinated debt deal from Asia ex-Japan. Maybank executives took its roadshow to Hong Kong, Singapore, Abu Dhabi, Bahrain and London, and sources said that the bank successfully established relationships with several new accounts, especially in the Middle East.

In the domestic market, ôIslamic banking and finance in Malaysia have progressed in tandem with the efforts by the authorities [through the Malaysia International Islamic Financial Centre] to promote Islamic financial services and make Malaysia the regional hub,ö says Ibrahim Hassan, acting CEO of Maybank Islamic. But ôit is not primarily to meet a religious need; instead it is being driven by a desire to offer distinctive products and services that customers want, be it in the form of pricing or product features. In the final analysis, Islamic bankers cannot take demand for granted, but must treat it as commercially-driven in order to be successfulö.

Maybank has 400 branches offering both conventional riba-based products and shariÆah-compliant products, and has 12 branches dedicated to Islamic banking and finance.

Maybank took its present domestic form after the Asian financial crisis, when the government forced it to merge with Pacific Bank and PhileoAllied Bank in 2000, as part of a strategy to clean up the banking sector through consolidation.

Not everything has gone smoothly for the bank. A year ago, an embarrassing memo confirmed what everybody knew anyway û that the affirmative action policy towards promoting bumiputra participation had not expired with the end of the so-called New Economic Policy. It said that law firms that wanted to deal with the bank had to have at least three partners, and one of them had to be ethnic-Malay. Following the uproar among the countryÆs minorities, the Malaysian Cabinet of Ministers told Maybank to stop such practices û at least officially. Few are under any illusion that most banks continue the policy unofficially and with the governmentÆs tacit approval.

For the past two decades, Maybank has been led by Amirsham Abdul Aziz, but in May, Abdul Wahid Omar was officially appointed as his successor, although it is still unclear if any change in overall strategy is on the cards. Meanwhile Amirsham will be working in the prime ministerÆs office, in charge of the economic planning unit.

This story was initially published in the June issue of FinanceAsia magazine.
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