PROSPECTS FOR BANKING IN ASEAN

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PROSPECTS FORBANKING IN ASEAN

• Arvind Mathur
• Head, Capital Markets
• Asian Development Bank

DBS 10am
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ENTRY/ EXIT/ GROWTH CRITERIA

• Macroeconomic Conditions(ve correlation with
  performance)
• Bank Quality Ability to exploit opportunities
• Success in high Margin Businesses to Maximise
  Economic Value Added (EVA)

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MACRO SITUATION

• Distressed ?
• GDP growth rates ?
• Export Prospects ? ?
• Sovereign Credit Quality ?
• Currency Stability ?
• Bear Push from Japanese Recession Prospects ?

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GDP GROWTH ()

• 2000 2001(f)
• SINGAPORE 9.9 5.0
• THAILAND 4.2 3.5
• PHILIPPINES 3.9 3.1
• INDONESIA 4.8 4.2
• MALAYSIA 8.5 4.9

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DISTINCTIVE FEATURESOF DBS

• Reputation
• Solidity
• Know How - Credit Analysis Skills/ Technology
• People Talent
• Good Corporate Governance
• Regional Presence

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THESIS CIRCUMSPECTION NOT ABANDONMENT

• Fundamental Strengths Remain
• Low Cost Mfg Base ?
• Infrastructure ?
• Policies ?
• Business Transplants from Japan/US/Europe ?

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IMPLICATIONS OF ADDED RISK

• Proper Pricing of Risk
• High Risk-Adjusted Return Hurdle
• Avoid Price Competition to Protect Margins

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PROSPECTSFOR BANKING PRODUCTS

• Corporate Exposures ?
• Project Finance ?
• Retail/ Consumer Banking ? ?
• Distressed Assets ?
• FX Trading/ Treasury (Controls) ?
• Capital Markets ?
• Build or Acquire ?

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DISTRESSED ASSET PRODUCTS

• Debt-Equity Swaps (Form of Private Equity)
• Purchase Sale of Retail Distressed Debt Pools
• Purchase Work-Out Maximize Recoveries
• Purchase Hold to Maturity

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ADVANTAGES OFDISTRESSED DEBT

• Bargain Price
• Benefit from Improving Credit Quality
• as Macro Conditions Improve
• Capitalize on ASEAN Presence

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SUCCESSFUL MODELS

• GE Capital Thai Distressed Debt
• Goldman Sachs
• Japan Real Estate
• Korean Distressed Debt Pool
• Lonestar
• U.S.
• Korean Distressed Debt Pool
• Citicorp
• Latin America Debt/Equity SWAP

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THAI DISTRESSED DEBTJACK WELCH GE CAPITAL QUOTE

• This guy, this nut, wants us to invest 1billion
  in autos. Im going to blow him out of the water
  tomorrow. This guys got no chance Norbom came
  in and made a convincing case. If you asked me
  five minutes before the meeting, Id say What
  are you nuts? And yet he made a great case, and
  you love him for doing it.
• Source GE Digs Info Asia, Fortune, October 2,
  2000

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GOLDMAN SACHS TERMS OF KOREAN DISTRESSED DEBT
PURCHASE

• Seller KAMCO
• Buyer Goldman Sachs
• Price 5 cents on the i.e. 5 of par value
• Contingent Profit Sharing
• Seller receives 50 - 60 of profits

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POTENTIAL APPROACH

• Develop Core Competency in Distressed Debt
• Partner with Seasoned Players
• Distressed Asset Funds
• G.E. Capital / Lonestar etc
• Specialist Teams Debt Restructuring
  Specialists/ Turnaround Artists

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POTENTIAL APPROACH

• Lending Officers can be Trained
• Focus on Thailand, Malaysia initially
• Asset Pools
• Info source www.debtmarketplace.com

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CONCLUSION

• Citibank Standard Chartered never abandoned
  countries
• Tailor strategy to exploit changing conditions
• Though macro conditions are poor, DBS could
  exploit special opportunities

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