Commercial Banking

Q2 2013
www.businessmonitor.com
MALAYSIA
COMMERCIAL BANKING REPORT
INCLUDES 5-YEAR FORECASTS TO 2017
ISSN 1747-8642
Published by:Business Monitor International
Malaysia Commercial Banking Report Q2 2013

INCLUDES 5-YEAR FORECASTS TO 2017
Part of BMIs Industry Report & Forecasts Series

Published by: Business Monitor International Copy deadline: February 2013
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CONTENTS
BMI Industry View ............................................................................................................... 7
Table: Levels (MYRbn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Table: Levels (US$bn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Table: Levels At August 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Table: Annual Growth Rate Projections 2012-2017 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Table: Ranking Out Of 62 Countries Reviewed In 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Table: Projected Levels (MYRbn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Table: Projected Levels (US$bn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SWOT .................................................................................................................................... 9
Commercial Banking .................................................................................................................................. 9 Business Environment .............................................................................................................................. 10 Economic ............................................................................................................................................... 12 Political ................................................................................................................................................. 14
Industry Forecast .............................................................................................................. 16

Investment Banking Revenues Surge .......................................................................................................... 17 Malaysia Takes The Lead ........................................................................................................................ 17 Thai Commercial Banks Targeting High-Growth Economies .......................................................................... 18
Industry Risk Reward Ratings .......................................................................................... 19

Malaysia Risk/Reward Ratings ................................................................................................................... 19
Table: Asia Commercial Banking Business Environment Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Market Overview ............................................................................................................... 21

Asia Commercial Banking Overview ........................................................................................................... 21
Table: Banks' Bond Portfolios 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Table: Asia Commercial Banking Business Environment Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP ratios, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table: Anticipated Developments in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Table: Comparison of Total Assets & Client Loans & Client Deposits (US$bn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Table: Comparison of US$ Per Capita Deposits (2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Table: Interbank Rates and Bond Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Economic Outlook ................................................................................................................................... 28 No Signs Of A Recovery In External Demand .............................................................................................. 28 Uptick In Inventories Unlikely To Be Sustained ............................................................................................ 30
Table: Malaysia - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Competitive Landscape .................................................................................................... 32

Market Structure ..................................................................................................................................... 32 Protagonists .......................................................................................................................................... 32
Table: Protagonists In Malaysia's Commercial Banking Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Definition Of The Commercial Banking Universe ......................................................................................... 32
Business Monitor International
Page 4
Malaysia Commercial Banking Report Q2 2013 List Of Banks ......................................................................................................................................... 33

Table: Licensed Commercial Banks In Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Company Profile ................................................................................................................ 34

AmBank Group ....................................................................................................................................... 34
Table: Balance Sheet (MYRmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Table: Balance Sheet (US$mn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Malayan Banking .................................................................................................................................... 38

Table: Stock Market Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Table: Balance Sheet (MYRmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Table: Balance Sheet (US$mn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Citibank ................................................................................................................................................. 42 HSBC Bank Malaysia ............................................................................................................................... 44 OCBC Bank ............................................................................................................................................ 46

Table: Stock Market Indicator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Table: Balance Sheet (MYRmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Table: Balance Sheet (US$mn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
United Overseas Bank .............................................................................................................................. 49 RHB Bank .............................................................................................................................................. 51

Table: Stock Market Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Table: Balance Sheet (MYRmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Table: Balance Sheet (US$mn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Regional Overview ............................................................................................................ 54

Asia Overview ......................................................................................................................................... Investment Banking Revenues Surge .......................................................................................................... Malaysia Takes The Lead ........................................................................................................................ Thai Commercial Banks Targeting High-Growth Economies .......................................................................... Islamic Finance ....................................................................................................................................... Outlook For 2013 ................................................................................................................................... 'Organic Growth' Will Eventually Slow ...................................................................................................... 'National Champions' Required ................................................................................................................ 54 55 56 57 58 60 62 65
Global Industry Overview .................................................................................................. 68

Global Commercial Banking Outlook .......................................................................................................... 68
Table: Selected Highlights Of Changes To The Formulation of the Basel III Liquid Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Demographic Forecast ..................................................................................................... 72

Table: Malaysia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Table: Malaysia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Table: Malaysia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Table: Malaysia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Methodology ...................................................................................................................... 76
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Malaysia Commercial Banking Report Q2 2013 Commercial Bank Business Environment Rating ......................................................................................... 77
Table: Commercial Banking Business Environment Indicators And Rationale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Weighting ............................................................................................................................................. 79
Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
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BMI Industry View

Table: Levels (MYRbn)
Date August 2011 August 2012 Change, %
Total assets 1,624.63 1,817.16 11.9%
Client loans 952.21 1,070.10 12.4%
Bond portfolio 199.06 247.10 24.1%
Other 473.36 499.96 5.6%
Liabilities and capital 1,624.63 1,817.16 11.9%
Capital 142.31 161.45 13.4%
Client deposits 1,175.92 1,341.24 14.1%
Other 306.40 314.48 2.6%
Source: BMI; Central banks; Regulators
Table: Levels (US$bn)
Date August 2011 August 2012 Change, %
Total assets 546.74 581.56 6.4%
Client loans 320.45 342.47 6.9%
Bond portfolio 66.99 79.08 18.1%
Other 159.30 160.01 0.4%
Liabilities and capital 546.74 581.56 6.4%
Client Capital deposits 47.89 51.67 7.9% 395.73 429.25 8.5%
Other 103.11 100.64 -2.4%
Table: Levels At August 2012
Loan/deposit ratio 79.78% Falling
Loan/asset ratio 58.89% Rising
Loan/GDP ratio n.a. Rising
GDP Per Capita, US$ 6,902.38 n.a.
Deposits per capita, US$ 14,716.69 n.a.
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Table: Annual Growth Rate Projections 2012-2017 (%)
Assets Annual Growth Rate CAGR Ranking 12 11 20
Loans 11 11 24
Deposits 12 11 18
Table: Ranking Out Of 62 Countries Reviewed In 2013
Loan/deposit ratio 46 Local currency asset growth 22
Loan/asset ratio 36 Local currency loan growth 24
Loan/GDP ratio 11 Local currency deposit growth 17
Table: Projected Levels (MYRbn)
2009 Total assets Client loans Client deposits 1,364.66 777.79 1,028.35
2010 1,486.33 875.57 1,104.79
2011 1,713.82 994.89 1,263.23
2012e 1,868.07 1,094.38 1,395.87
2013f 2,054.87 1,203.82 1,549.42
2014f 2,280.91 1,330.22 1,719.85
2015f 2,543.21 1,469.89 1,917.63
2016f 2,848.40 1,631.58 2,138.16
2017f 3,190.21 1,811.05 2,394.74
e/f = estimate/forecast. Source: BMI; Central banks; Regulators
Table: Projected Levels (US$bn)
2009 Total assets Client loans Client deposits 398.27 226.99 300.12
2010 485.17 285.81 360.63
2011 540.98 314.04 398.75
2012e 610.88 357.87 456.47
2013f 747.23 437.75 563.42
2014f 844.78 492.67 636.98
2015f 959.70 554.68 723.64
2016f 1,095.54 627.53 822.37
2017f 1,251.06 710.22 939.11
e/f = estimate/forecast. Source: BMI; Central banks; Regulators
Page 8
SWOT
Commercial Banking
Malaysia Commercial Banking SWOT
Strengths
Government reforms are strengthening the banking sector, giving it enhanced international status.
The government and the central bank are committed to making banks more internationally competitive.
The combination of a sophisticated banking sector with a large Muslim population puts the country in pole position to become a centre for Islamic banking. The future looks promising in terms of growth in total assets.
Solid financial infrastructure makes Malaysia appealing to the banking business. The country's complex bureaucracy adversely affects the banking sector's efficiency. Malaysian banks have little regional footprint, despite attempts to enter Indonesia's banking system. There is plenty of room to grow externally as the global economy improves.
Weaknesses Opportunities
The banks have substantial room to increase non-interest revenue along the lines of Singapore's and Hong Kong's lenders.
Threats
The economy as a whole is vulnerable to external shocks, both regionally and further afield. Growth looks threatened by global economic instability and a fall-off in global demand.
Singapore has an eye on one of Malaysia's most promising niches, Islamic banking, and remains a major competitor in this area.
Foreign companies will provide increasingly competitive challenges both at home and in the banks' attempts to spread their regional wings.
Page 9
Business Environment
SWOT Analysis
Strengths
Standards of corporate governance in Malaysia have greatly improved since the Asian financial crisis at the end of the 1990s - more so, in fact, than in many neighbouring countries.
Foreign companies, or at least foreign manufacturing companies, looking to do business in Malaysia will continue to be welcomed with open arms - with the government offering lavish tax breaks and concessions.
Weaknesses
State subsidisation of prices will remain a peripheral but persistent part of daily economic life in Malaysia.
Doing business in Malaysia will always, to some extent, mean dealing with the politically well connected.
Big construction projects - and big contracts for foreign construction firms - are unlikely to be as much of a priority for Malaysia's government as they were under the administration of former Prime Minister Mahathir Mohamad.
Opportunities
The opportunity to invest in Malaysian state assets could improve. The government, if it sticks to its word, will conduct its biggest ever divestment of state shareholdings.
Malaysia is eager to compete globally in banking. It currently lacks a domestic champion; however, with 10 main institutions in the market, bank consolidation is a strong possibility.
The opening of free-trade agreement negotiations with the EU as well as the TransPacific Partnership may lead to an improvement to the country's business environment owing to freer markets, if talks succeed.
Threats
The waterways and shipping lanes that surround Malaysia will continue to experience the threat of piracy and terrorism.
Page 10
SWOT Analysis - Continued
Malaysia is at risk of losing out to China in the race for foreign investment. As Malaysian income level rises, it will need to seek investment opportunities in higher value-added industries.
Page 11
Economic
SWOT Analysis
Strengths
In the past four decades, Malaysia has transformed itself from a commoditydependent economy into a major world source for electronics and computer parts.
Malaysia is one of the world's largest producers of rubber, palm oil, pepper and tropical hardwoods, and is still a net exporter of crude oil. All this provides a solid platform for economic growth.
Weaknesses
Malaysia's relative insulation from global energy price shocks is being eroded. It is now likely that within the next few years Malaysia will become a net importer of oil.
Malaysia's economic openness can be as much of a burden as a benefit, since it confers a high degree of vulnerability to global growth and capital flows.
Oil-related taxes contribute more than 40% of the state's revenues. The lack of alternative income poses a threat to the government's ability to function and sustain economic development, potentially leading to economic stagnancy.
Opportunities
The opportunity for private sector-led growth will improve as the government continues divestment of state shareholdings in order to raise funds to narrow the budget deficit.
Rising consumption levels over the coming years will provide new growth avenues in industries such as retail.
Malaysia's majority Muslim population and the government's ongoing efforts to boost Islamic finance could see Malaysia become a major financial hub over the medium term.
Threats
Wages are higher in Malaysia than in a number of its competitors, such as China and Vietnam, which could be a long-term hindrance to economic expansion. To maintain its competitive edge, Malaysia needs a steady stream of inward investment.
Malaysia's dependence on migrant labour, particularly for low-skilled jobs, poses a threat to long-term economic stability.
Page 12
Oil-related taxes make up around 36.1% of the state's revenues at a time when Malaysia is expected to become a net petroleum importer by as early as 2013. The over-reliance on oil poses a threat to the government's ability to fund and sustain economic development over the long term.
The government's already poor fiscal position is threatened by increasingly unsustainable subsidies on essential consumer goods (especially petrol), which could further strain its finances.
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Political
SWOT Analysis
Strengths
Malaysia is an example of a successful democratic Islamic state. Despite murmurs of discontent among hardline Muslims in some states, Malaysia is unlikely to abandon moderate Islam.
Despite having two significant minority ethnicities, Chinese and Indians, Malaysia has not been rocked by any major racial unrest since 1969. This lends credence to the argument that its multiracial society is sustainable.
Weaknesses
The Malay half of the population holds a constitutionally enshrined special position in society, amounting to positive discrimination in jobs and wealth. Resentment is an obvious by-product, and the challenge is to produce enough prosperity to reduce tension.
The controversial Internal Security Act, which allows for detention without trial, has been wielded by the government on several occasions with the avowed intention of quelling unrest. However, some detentions have been viewed as an attempt by the government to suppress the opposition.
Opportunities
The relatively weak performance by the ruling Barisan Nasional coalition in the 2008 general elections has paved the way for the stalled reformist agenda - promised by former Prime Minister Abdullah Ahmad Badawi back in 2004 - to gather pace. This would help open up the country's closed political system and improve transparency and accountability within key institutions.
Prime Minister Najib Razak came to power in 2009 promising reforms and changes. His actions have thus far been deemed progressive, potentially paving the way for a significant overhaul of Malaysia's political and economic system.
Threats
Although it is likely to remain non-violent, ethnic tension will continue to simmer as long as the threat of a hardline Islam revival remains. For now, however, the hardliners have lost much of their political clout.
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Despite a change of premier in April 2009, the ruling Barisan Nasional will remain under pressure from a stronger opposition. Failure to deal adequately with issues such as corruption, a slowing economy and the divisive affirmative action policy could see Anwar Ibrahim's opposition coalition force the Barisan Nasional from power.
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Industry Forecast
BMI View: We expect South East Asian banks to continue expanding aggressively into the region, on the back of a surge in mergers and acquisitions (M&A) activity in 2013. Malaysian banks have taken the lead in terms of leveraging on the investment banking boom, partly driven by the country's status as the largest issuer of Islamic banking assets in the region. Meanwhile, we expect Thai commercial banks to ramp up efforts to expand into countries such as Cambodia and Myanmar, driven by government efforts to promote cross-border investment and trade between Thailand and these countries.
In recent years, South East Asian banks have become increasingly aggressive in expanding their operations in the region, and we expect this phenomenon to continue in 2013. Member countries of the Association of Southeast Asian Nations (ASEAN) have pledged to gradually open up their banking sectors to allow for increased foreign competition, as part of a broader agreement towards establishing the ASEAN Economic Community (AEC) in 2015. Proponents of the AEC claim that by deepening economic links through financial integration, cross-border investments, and promoting free trade in the region, member countries will gain access to a wider market for their exports. Crucially, we expect increased economic integration to also boost demand for more sophisticated and innovative financial products and services going forward.
Investment Banks See Boom In Underwriting Business

Malaysia - Composition Of Loan Portfolio By Purpose Of Loans, %
Source: BMI, Bank Negara Malaysia
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Investment Banking Revenues Surge

We have already witnessed a significant increase in cross-border investment and intra-regional mergers and acquisitions (M&A) in 2012. According to figures published by data provider Dealogic, investment banking fees in South East Asia have soared to the highest level on record for the first nine months of 2012. Looking ahead, we expect plans to further promote financial integration to open up more opportunities for the banking industry. For example, ASEAN countries have agreed to further integrate their capital markets by linking their stock exchanges to establish a common trading network for investors. The move is widely expected to boost liquidity and attract more foreign capital inflows into the region, rivaling fast-growing capital markets such as Hong Kong and China. We expect banks that have already established a strong investment banking presence in the region to benefit from the expected increase in M&A activity over the coming years.
Malaysia Takes The Lead

Malaysian banks have taken the lead in terms of leveraging on the investment banking boom, partly driven by the country's status as the largest issuer of Islamic banking assets in the region. Malaysia is reportedly one of the key drivers responsible for the recent increase in investment banking fees, according to a report published by Dealogic. Investment banking revenue in the country reached US$416mn between January and October in 2012, a year-to-date record and a 46% increase y-o-y. Malaysia also commands a strong 36.7% share of total investment banking fees generated in South East Asia. We expect Malaysian banks including Maybank Group and CIMB Group to continue to leverage on their strengths as the region's leading issuers of Islamic banking products and solutions. Maybank Islamic, the Islamic banking arm of Maybank Group, is the largest Islamic bank in Asia having already established a strong presence in Singapore, Indonesia, Hong Kong and the Philippines. Meanwhile, CIMB has been playing catch-up aggressively and is currently deriving around 10% of its earnings from its Islamic banking operations in Indonesia, Singapore and Brunei. Given the competitive advantages that Malaysian banks hold in terms of technological capabilities, financial strength, risk management, and the country's deep economic links relative to the region, we expect Malaysian banks to maintain their lead over their regional counterparts at least over the medium term.
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Foreign Loans Set To Pick Up In 2013

Thailand - Loans To Foreign Entities, % chg y-o-y
Source: BMI, Bank of Thailand
Thai Commercial Banks Targeting High-Growth Economies

Banks in Thailand are adopting a slightly different strategy by expanding their networks in lower-income, high-growth, and largely untapped countries in the region (such as Cambodia and Myanmar). Krungthai Bank and Siam Commercial Bank recently opened their first representative offices in Myanmar in 2012 and Kasikornbank has announced plans to open its first branch by February 2013. As the accompanying chart shows, loans issued by Thai commercial banks to foreign entities have enjoyed a spectacular boom in recent years, averaging expansion of 75.0% and 128.3% in 2011 and 2012, respectively.
Although we caution that aggressive expansion into countries such as Cambodia and Myanmar reflects a high-risk strategy for local banks, we believe that the potential for growth is much greater. Furthermore, given that the Thai government has been actively promoting cross-border investment and trade between Thailand and these countries, we believe that demand for trade financing and investment banking services will pick up significantly over the coming years. On the whole, we expect Thai banks to further accelerate efforts to expand their operations into the region, and this should contribute significantly to banking sector revenues in 2013.
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Industry Risk Reward Ratings

Malaysia Risk/Reward Ratings
Commercial Banking Business Environment Rating Methodology
Since Q108, we have described numerically the banking business environment for each of the countries surveyed by BMI. We do this through our Commercial Banking Business Environment Rating (CBBER), a measure that ensures we capture the latest quantitative information available. It also ensures consistency across all countries and between the inputs to the CBBER and the Insurance Business Environment Rating, which is likewise now a feature of our insurance reports. Like the Business Environment Ratings calculated by BMI for all the other industries on which it reports, the CBBER takes into account the limits of potential returns and the risks to the realisation of those returns. It is weighted 70% to the former and 30% to the latter.
The evaluation of the 'Limits of potential returns' includes market elements that are specific to the banking industry of the country in question and elements that relate to that country in general. Within the 70% of the CBBER that takes into account the 'Limits of potential returns', the market elements have a 60% weighting and the country elements have a 40% weighting. The evaluation of the 'Risks to realisation of returns' also includes banking elements and country elements (specifically, BMI's assessment of long-term country risk). However, within the 30% of the CBBER that take into account the risks, these elements are weighted 40% and 60%, respectively.
Further details on how we calculate the CBBER are provided at the end of this report. In general, though, three aspects need to be borne in mind in interpreting the CBBERs. The first is that the market elements of the 'Limits of potential returns' are by far the most heavily weighted of the four elements. They account for 60% of 70% (or 42%) of the overall CBBER. Second, if the market elements are significantly higher than the country elements of the 'Limits of potential returns', it usually implies that the banking sector is (very) large and/or developed relative to the general wealth, stability and financial infrastructure in the country. Conversely, if the market elements are significantly lower than the country elements, it usually means that the banking sector is small and/or underdeveloped relative to the general wealth, stability and financial infrastructure in the country. Third, within the 'Risks to the realisation of returns' category, the market elements (ie, how regulations affect the development of the sector, how regulations affect competition within it, and Moody's Investor Services' ratings for local currency deposits) can be markedly different from BMI's long-term risk rating.
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Table: Asia Commercial Banking Business Environment Ratings
Limits of Potential Returns Market Structure Bangladesh China Hong Kong India Indonesia Japan Malaysia Pakistan Philippines Singapore Sri Lanka South Korea Taiwan Thailand Vietnam United States 50.0 93.3 80.0 83.3 76.7 33.3 73.3 43.3 50.0 66.7 23.3 80.0 76.7 66.7 60.0 90.0 Country Structure 45.0 57.5 92.5 57.5 65.0 77.5 80.0 50.0 62.5 95.0 55.0 85.0 72.5 65.0 55.0 85.0
Risks to Potential Returns Market Risks 43.3 63.3 73.3 60.0 80.0 66.7 83.3 53.3 60.0 96.7 33.3 83.3 86.7 86.7 36.7 100.0 Country Risks 44.0 74.0 78.0 54.0 52.0 80.0 80.0 42.0 58.0 90.0 46.0 76.0 76.0 74.0 48.0 80.0 Rating 46.7 76.2 82.3 68.0 69.4 58.1 77.6 46.2 56.1 82.4 37.5 81.1 76.6 69.9 53.6 88.0
Overall Ranking 55 14 7 30 27 36 10 57 41 6 59 8 13 22 47 2
Scores out of 100, with 100 the highest. Source: BMI
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Market Overview
Asia Commercial Banking Overview
Table: Banks' Bond Portfolios 2011
Bond Portfolio, US$bn Bangladesh China Hong Kong India Indonesia Japan Malaysia Pakistan Philippines Singapore Sri Lanka South Korea Taiwan Thailand Vietnam United States 17.1 1,577.7 350.0 292.3 17.3 3,407.8 67.9 33.5 35.4 76.5 2.2 271.5 98.0 65.5 12.3 447.1
Bond as % total assets 23.0 8.7 19.8 25.2 4.3 30.8 12.5 38.5 23.7 11.6 12.8 17.0 8.4 15.9 7.5 3.6
Year-on-year growth % 19.3 -4.2 3.4 7.9 17.7 7.5 3.1 56.1 -4.3 5.5 22.2 4.6 -47.2 13.7 27.0 -15.1
Source: Central banks, regulators, BMI
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Table: Asia Commercial Banking Business Environment Ratings
Limits of Potential Returns Market Structure Country Structure Bangladesh China Hong Kong India Indonesia Japan Malaysia Pakistan Philippines Singapore Sri Lanka South Korea Taiwan Thailand Vietnam United States 50 93.3 80 83.3 76.7 33.3 73.3 43.3 50 66.7 23.3 80 76.7 66.7 60 90 45 57.5 92.5 57.5 65 77.5 80 50 62.5 95 55 85 72.5 65 55 85
Risks to Potential Returns Market Risks 43.3 63.3 73.3 60 80 66.7 83.3 53.3 60 96.7 33.3 83.3 86.7 86.7 36.7 100 Country Risks 44 74 78 54 52 80 80 42 58 90 46 76 76 74 48 80
Overall Rating 46.7 76.2 82.3 68 69.4 58.1 77.6 46.2 56.1 82.4 37.5 81.1 76.6 69.9 53.6 88 Ranking 55 14 7 30 27 36 10 57 41 6 59 8 13 22 47 2
Scores out of 100, with 100 the highest. Source: BMI
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Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP ratios, 2013
Loan deposit ratio % Bangladesh China Hong Kong India Indonesia Japan Malaysia Pakistan Philippines Singapore Sri Lanka South Korea Taiwan Thailand Vietnam United States 92.6 74.9 67.5 77.1 83.0 69.3 77.7 59.8 72.5 92.0 79.7 114.4 80.7 106.9 116.0 108.7
Rank 36 49 56 48 42 53 46 59 51 30 43 13 45 22 14 18
Trend Falling Rising Rising Rising Rising Falling Falling Falling Rising Rising Falling Falling Rising Falling Rising Falling
Loan/Asset ratio % 67.1 50.8 37.3 66.1 61.7 49.6 58.6 41.3 53.6 52.3 60.4 72.0 63.8 64.8 79.4 76.3
Rank 14 43 57 15 23 44 36 48 41 42 32 9 25 19 2 5
Trend Falling Falling Rising Falling Rising Falling Rising Falling Rising Rising Falling Rising Rising Falling Falling Rising
Loan/GDP ratio % 54.6 124.6 260.5 52.5 35.2 90.3 124.9 20.5 34.8 135.0 30.1 103.7 163.9 81.9 102.8 63.0
Rank 39 10 2 44 54 20 11 58 52 8 55 14 5 23 13 34
Trend Rising Falling Falling Rising Rising Falling Rising Falling Rising Rising Rising Falling Rising Rising Falling Rising
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Table: Anticipated Developments in 2014
Loan/Deposit Ratio, % Bangladesh China Hong Kong India Indonesia Japan Malaysia Pakistan Philippines Singapore Sri Lanka South Korea Taiwan Thailand Vietnam United States 91.4 74.2 68.2 75.8 84.4 68.5 77.3 59.3 73.2 95.8 79.2 112.5 82.8 106.9 119.2 109.7
Trend Falling Rising Rising Falling Rising Falling Falling Falling Rising Rising Falling Falling Rising Falling Rising Falling
Loan Growth, US$bn 32.2 2,148.5 131.4 545.8 167.4 126.6 178.6 5.7 30.2 132.8 6.5 224.0 212.3 68.4 53.6 1,543.1
Deposit Growth, US$bn 37.0 2,212.0 174.7 719.7 178.6 427.2 238.2 20.9 34.1 122.3 8.6 252.7 199.4 68.5 39.8 1,526.5
Residual, US$bn -4.8 -63.5 -43.3 -174.0 -11.2 -300.6 -59.6 -15.3 -3.9 10.5 -2.1 -28.8 12.9 -0.1 13.9 16.6
NB Incorporates estimated economic data and projected banking data. Source: Central banks, regulators, BMI
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Table: Comparison of Total Assets & Client Loans & Client Deposits (US$bn)
2013 Total Assets Bangladesh China Hong Kong India Indonesia Japan Malaysia Pakistan Philippines Singapore Sri Lanka South Korea Taiwan Thailand Vietnam United States 104.6 21,482.9 1,949.0 1,617.1 532.3 11,575.9 747.2 107.8 181.0 766.0 33.3 1,710.1 1,316.4 493.2 209.1 13,727.4 Client Loans 70.2 10,912.7 727.3 1,068.3 328.5 5,736.4 437.8 44.6 97.0 401.0 20.1 1,231.7 840.1 319.5 166.1 10,478.1 Client Deposits 75.8 14,561.4 1,076.7 1,385.3 395.7 8,280.0 563.4 73.0 133.7 436.0 25.2 1,076.7 1,040.5 298.8 143.2 9,641.9 Total Assets 89.1 21,312.4 1,821.2 1,274.1 452.8 11,113.5 610.9 95.3 170.5 748.7 29.1 1,772.9 1,265.8 461.6 181.4 13,073.7
2012 Client Loans 59.8 10,621.8 673.3 841.7 284.2 5,518.2 357.9 42.8 91.2 399.6 17.6 1,276.9 788.8 297.6 146.6 9,931.9 Client Deposits 63.7 14,040.8 1,006.1 1,110.0 339.4 7,855.8 456.5 65.4 125.3 408.5 21.9 1,096.2 1,000.4 279.6 128.7 9,096.1
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Table: Comparison of US$ Per Capita Deposits (2013)
GDP Per Capita Bangladesh China Hong Kong India Indonesia Japan Malaysia Pakistan Philippines Singapore Sri Lanka South Korea Taiwan Thailand Vietnam United States 823 6,544 38,384 1,596 3,817 50,260 10,966 1,222 2,860 56,049 3,129 24,358 21,773 5,613 1,782 52,233
Client Deposits, per capita 455 8,028 99,984 838 1,329 45,402 14,696 243 988 75,638 940 25,253 36,059 4,616 1,832 32,899
Rich 20% Client Deposits, per capita 1,965 42,848 592,065 4,346 6,403 262,139 75,660 1,594 5,450 329,000 4,721 88,296 178,643 17,266 6,316 121,092
Poor 80% Client Deposits, per capita 123 2,678 37,004 272 400 16,384 4,729 100 341 20,562 295 5,518 11,165 1,079 395 7,568
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Table: Interbank Rates and Bond Yields
3 Month Interbank Rate % Current Account % of GDP, 2013f Bangladesh China Hong Kong India Indonesia Japan Malaysia Pakistan Philippines Singapore Sri Lanka South Korea Taiwan Thailand Vietnam United States 1.5 2.4 2.4 -4.2 -2.0 1.4 7.7 -2.0 3.2 14.2 -4.8 2.2 7.0 2.3 0.0 -3.0 Budget balance % of GDP, 2013f -4.6 -1.7 4.9 -9.8 -2.5 -9.8 -5.4 -6.6 -2.1 1.4 -6.3 1.1 -2.7 -3.0 -5.0 -6.8 End Q3 2012 n/a 3.67 0.40 8.72 4.91 0.19 3.20 9.53 1.00 0.33 12.65 2.84 0.87 3.13 8.35 0.32
NB Incorporates actual financial markets data; estimated economic data and projected banking data. na=not available. Source: Central banks; regulators; BMI
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Economic Outlook
Malaysia's real GDP growth slowed from an upwardly revised 5.6% year-on-year (y-o-y) in Q212 to 5.2% in Q312, in line with our core view that cooling external demand will continue to weigh on headline growth. Although the latest print was much better compared to Bloomberg consensus of 4.4%, we point out that the fundamentals driving the economy remain largely unchanged. Not only do we see increasing risks of a further decline in exports, which could become a greater drag on growth, there is also evidence that the rebound in household consumption and private sector investment may be too weak to pick up the slack in the economy in 2013. Nonetheless, to reflect the better-than-expected print in Q312, we have revised up our 2012 real GDP growth forecast slightly from 3.8% to 4.2%.
Uptick In Inventories A Temporary Boost To Growth

Malaysia - Contribution to Real GDP Growth by Expenditure (pp)
No Signs Of A Recovery In External Demand

Recent economic data continue to indicate a slowdown in demand for Malaysia's exports, which accurately reflects a relatively weak economic recovery across the developed world and China. As the accompanying chart shows, net exports recorded a negative 6.8 percentage point (pp) contribution to Malaysia's real GDP
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growth of 4.2% in Q312, a significant deterioration from a negative 4.9pp contribution in the previous quarter.
Steep Decline In Trade

Malaysia - Trade Exports & Imports, US$mn (LHS) & Trade Balance, US$mn (RHS)
We expect Malaysian exporters to continue to face a challenging economic environment in 2013 and this is mainly due to the country's close trading ties with China - Malaysia's trade exports to China as a share of GDP has surged from 14.4% in 2008 to 23.1% in 2011, the highest among our group of ASEAN countries. This is in line with our view that the recent uptick in economic data from China is unlikely to last beyond early 2013 and that we continue to see a structural slowdown in economic activity going forward (see 'China - Growth: Upside Risks Amid Structural Downturn', November 12 2012).
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Rebound In Private Consumption Remains Fragile

Malaysia - Private Consumption Indicators, % chg y-o-y
Uptick In Inventories Unlikely To Be Sustained

Furthermore, we note that the better-than-expected GDP print in Q312 was due to a large increase in inventories, which contributed 2.2pps to headline growth in Malaysia. We believe that this is unlikely to be sustained over the coming quarters given that global economic headwinds continue to cloud the outlook for exports in 2013. We also point out that indicators for private consumption have yet to show evidence of a rebound that will be able to help cushion the economy from a further decline in exports. Accordingly, we continue to expect real GDP growth to come in at a relatively subdued 4.5% in 2013, compared to consensus of 4.9%.
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Table: Malaysia - Economic Activity
2009 Nominal GDP, MYRbn 2 Nominal GDP, US$bn 2 Real GDP growth, % change y-o-y 1,2 GDP per capita, US$ 2 Population, mn 3 Industrial production index, % y-o-y, ave 2 Unemployment, % of labour force, eop 4 679.9 193 -1.5 6,906 27.9 -7.6 3.4
2010 766 237.8 7.2 8,374 28.4 7.4 3.2
2011 852.7 278.7 5.1 9,659 28.9 1.4 3.1
2012e 903.6 291.1 4.2 9,929 29.3 2.9 3
2013f
2014f
2015f
2016f
2017f
963.6 1,029.60 1,097.80 1,168.10 1,240.50 326.7 4.5 10,966 29.8 3.8 3 377.85 4.3 12,490 30.3 4.7 3 410.41 4.2 13,362 30.7 4.6 3 444.98 4.1 14,275 31.2 4.5 3 481.75 4 15,231 31.6 4.4 3
Notes: e BMI estimates. f BMI forecasts. 1 Base Year = 2000. Sources: 2 Bank Negara Malaysia, BMI; 3 World Bank/UN/ BMI; 4 Department of Statistics, IMF/IFS BMI.
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Competitive Landscape
Market Structure
Protagonists
Table: Protagonists In Malaysia's Commercial Banking Sector
Central bank: Bank Negara Malaysia (BNM) www.bnm.gov.my Bank Negara Malaysia (BNM) began operations in 1959. The bank has five main objectives: to issue currency; to keep reserves; to act as the government banker; to promote the efficient operation of the payment and settlement systems; and 'to influence the credit situation to the advantage of the country'. These functions are carried out within the context of the broader goals of: 'promoting economic growth, a high level of employment, maintaining price stability and a reasonable balance in the country's international payments position, eradicating poverty and restructuring society'. BNM ensures that the availability and cost of money and credit in the economy are consonant with national macroeconomic objectives. In this respect, it acts as: the banker for currency issue; keeper of international reserves and safeguards the value of the ringgit; banker and financial advisor to the government; the agency responsible for monetary policy and management of the financial system; and banker to the banks. Principal banking regulator: Bank Negara Malaysia (BNM) www.bnm.gov.my Among its other functions, BNM regulates the banking system and insurance companies. It also regulates Islamic financial institutions and is an advocate for the development of Malaysia as one of the world's major Islamic finance centres. Banking trade association: Association of Banks in Malaysia (ABM) www.abm.org.my The ABM aims to facilitate a banking environment that lends itself to promoting orderliness and ethical banking practices. Banking trade association: Association of Islamic Banking Institutions Malaysia (AIBIM) www.aibim.com The association says its main objective is to promote the establishment of sound Islamic banking systems and practices in Malaysia, in cooperation with the central bank and other regulatory bodies. AIBIM also aims to promote and represent the interests of its members and to assist them where necessary. AIBIM promotes education and training in Islamic banking.
Definition Of The Commercial Banking Universe

Bank Negara Malaysia identifies 23 commercial banks and 15 investment banks operating in the country. Bank Islam Malaysia and Bank Muamalat are the country's only 100% Islamic banks but there are also Islamic financing subsidiaries of commercial banking groups.
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List Of Banks
Table: Licensed Commercial Banks In Malaysia
Affin Bank Alliance Bank Malaysia AmBank Malaysia Bangkok Bank Bank of America Malaysia Bank of China (Malaysia) Bank of Tokyo-Mitsubishi UFJ (Malaysia) CIMB Bank Citibank Deutsche Bank (Malaysia) EON Bank Hong Leong Bank HSBC Bank Malaysia Industrial and Commercial Bank of China (Malaysia) JPMorgan Chase Bank Malayan Banking OCBC Bank (Malaysia) Public Bank RHB Bank Standard Chartered Bank Malaysia Bank of Nova Scotia Royal Bank of Scotland United Overseas Bank (Malaysia)
Source: BNM
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Company Profile
AmBank Group
SWOT Analysis
Strengths
Strong balance sheet. Improving loan asset quality. AmBank has a relatively strong Islamic banking division. ANZ's stake in the bank has strengthened its profile and has increased its ratings.
Tier-1 capital adequacy and RWCAR increased during FY12. Weaknesses
Loan asset quality still below the industry average. Risk management systems need an overhaul, although the bank has said it is a priority.
Opportunities
Growth in the Islamic banking sector. Improved risk management systems and loan quality. Additional expertise provided by ANZ management. Premium banking service for wealthier customers. Overseas expansion in Islamic banking. Total income increased in FY12. Increased competition in the housing and Islamic banking sectors.
Threats
Company Overview
AMMB Holdings, which trades as AmBank Group, is one of Malaysia's leading financial services groups, with a leading position in the commercial banking, investment banking and insurance sectors. AmBank Group was founded in 1975 as Arab-Malaysian Development Bank. It had 849 ATMs and 190 branches offices nationwide as of July 2012. Staff strength at this time totalled around 10,000. In 2006, chair Azman Hashim controlled around a third of AMMB Holdings. Investment holding company Amcorp's interest in AMMB was reduced from 32.9% to 18.8% after
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Azman sold 300mn shares to Australia's ANZ Banking Group. As of July 2012, AmBank is the fifth largest banking group in Malaysia. AmBank's outlook was graded as stable by Standard & Poor's in December 2010. AmBank's outlook is supported by its strong retail business, particularly in autos lending, as well as its enhanced position as a result of ANZ Group's financial and managerial involvement in the group. Major stakeholder ANZ signed a memorandum of understanding with AmBank Group in 2011 to introduce its premium banking services to the Malaysian lender's wealthier customers. The agreement will give AmBank's domestic customers access to ANZ's Signature Priority Banking service, which includes exclusive bank cashiers, banking lounges and a 24-hour customer service telephone line. This could be a useful business-line for AmBank as Malaysia's middle-class grows. Meanwhile, AmBank has agreed to a US$210mn loan, brokered by five different banks, which will be invested in expansion. The deal was an increase of US$120mn on the original asking price and has been provided by a consortium agreement between ANZ, Wells Fargo, Bank of Tokyo-Mitsubishi, United Overseas Bank and Bank of America. The loan will be used for capitalisation in AmBank's financial projects in the Labuan region. AmBank is also looking to expand internationally, especially through its Islamic banking division. Bernama reports that Malaysia's AmIslamic Bank plans to expand to two Asian countries. The bank's expansion to new markets is part of its overall plan to increase its customer base by 200,000. AmIslamic Bank, part of the AmBank group, already has over 1mn customers. The bank has not said which countries are being targeted as part of the corporate expansion programme.
Corporate Highlights
Total income grew 7.8% y-o-y to MYR4,217.5mn in the 2012 financial year spurred by higher non-interest income. Non-interest income grew 26.3% y-o-y to MYR1,477.8mn to now constitute 35% of total income in FY12, up from a share of 30% in 2011. Significant gains came from trading and investment (up 85.7% y-o-y), partly riding on favourable market conditions. Net interest income was MYR2,739.7mn while net interest margin was 2.73%. Gross loans, including Islamic financing sold to Cagamas, rose 5.7% to MYR77.7bn supported by business andcorporate loans growth. Business loans grew 14.9% to MYR15.8bn from a diversified asset base, while corporate and institutional loans expanded 13.5% to MYR14.6bn in line with growing share-of-wallet in key segments. As of the end of FY12, risk weighted capital adequacy ratio (RWCAR) was 15.7% (up 1.3% y-o-y) and tier-1 capital adequacy was at 11.3% (up 1.1% y-o-y), both above the minimum regulatory requirements.
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Company Data
Website:
www.ambg.com.my
Status:
Commercial Bank
Media Contact:

Ganesh Kumar Nadarajah Tel: 60 3 2036 1435
Table: Balance Sheet (MYRmn)
2006 Total Assets Loans & Mortgages Total Deposits Total Shareholders' Equity 72,379 44,860 38,918 6,256
2007 78,983 47,611 42,382 5,989
2008 83,192 52,574 55,769 7,254
2009 89,893 56,948 64,132 7,912
2010 96,480 64,426 68,874 9,844
2011 108,236 69,379 74,567 10,567
2012 111,855 73,958 77,142 11,515
Source: AmBank, Bloomberg
Table: Balance Sheet (US$mn)
2007 22,844 13,770 12,258 1,732
2008 26,042 16,458 17,458 2,271
2009 24,659 15,621 17,592 2,170
2010 29,577 19,750 21,114 3,018
2011 35,775 22,931 24,646 3,493
2012 36,546 24,164 25,204 3,762
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Table: Key Ratios (%)
2006 Return on Assets Return on Equities Loan Deposit Ratio Loan Asset Ratio Equity Asset Ratio Total Risk Based Capital Ratio Tier 1 Capital Ratio 0.6 8.0 121.1 65.1 7.1 13.9 10.0
2007 -0.4 -5.7 119.7 64.2 6.1 12.5 8.6
2008 0.8 11.2 98.6 66.1 8.6 14.0 8.4
2009 1.0 11.6 91.6 65.4 8.6 15.2 9.7
2010 1.1 11.6 96.2 68.7 10.0 15.3 9.8
2011 1.3 13.5 96.4 66.4 9.5 14.0 9.8
2012 1.4 14.1 98.7 68.0 10.0 15.0 10.5
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Malayan Banking
SWOT Analysis
Strengths
Largest commercial bank in Malaysia. Extensive branch network. Geographically diversified. One of the most capitalised banks in Asia. One of the largest players in the Islamic Banking industry. Maybank failed to acquire rival RHB, leaving the door open for major competitor CIMB group to become the largest lender through acquisition.
Weaknesses
Opportunities
Growth in online trading is a priority for the bank. The bank is eager to pursue a strategic acquisition that will maintain its leadership domestically and cement its global status in the region.
The banking group enjoyed strong loan growth in FY11. Slowdown of the global economy, driven by crises in the US and Europe. Employee disaffection appears to be extremely high in some quarters, with strikes lasting some months by late 2011.
Threats
Increased impairment of international assets. Further pressure on margins. The bank is vulnerable to declines in the financial performance of overseas banks in which it owns stakes.
Company Overview
State-controlled Maybank (the trading name of Malayan Banking Bhd) started operations in 1960. In February 1962, the bank was listed on the Kuala Lumpur Stock Exchange (now called Bursa Malaysia). It is the largest financial services group in Malaysia. Its extensive products and services range includes commercial banking, investment banking, Islamic banking, offshore banking, leasing and hire purchase,
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insurance, factoring, trustee services, asset management, stockbroking, nominee services, venture capital and internet banking. Maybank has more than 450 offices in 14 countries and territories: Malaysia, Singapore, the Philippines, Brunei, Indonesia, Vietnam, Cambodia, Papua New Guinea, Hong Kong, China, Bahrain, Uzbekistan, Pakistan, the UK and the US. The Group, which has expanded internationally, has the largest network among Malaysian banks of over 2,100 branches and offices in 17 countries, employing 42,000 Maybankers and serving over 21 million customers. Malaysia's largest players in the Islamic banking industry including Maybank and CIMB Group, have implemented aggressive plans in recent years to expand their Islamic banking operations overseas in a bid to secure a strong foothold in the region. Indeed, these banks' ability to successfully secure highly profitable opportunities in foreign markets in recent years, is beginning to attract the attention of their competitors in the traditional banking industry.
On the back of sustained economic growth in Malaysia and the region, FY11 was a prosperous year for Maybank. Profit after tax and minority interest (PATAMI) rose 16.6% to MYR4.45bn, up from MYR3.82bn a year earlier. Group revenue advanced 8.9% to MYR13.42bn from MYR12.32bn with all key business segments posting higher revenue spurred by strong loans and non-interest income growth. Gross loans grew 21.7% y-oy supported by strong overseas loans growth of 29.4% y-o-y, with both Singapore and Bank Internasional Indonesia (BII) recording 25.8%. Meanwhile, domestic loans growth of 16.8% was well above the industry average of 13.5%. Net interest income rose 6.1% y-o-y from MYR6.77bn to MYR7.19bn due to strong loans growth by Malaysia and BII, but was offset by lower margins as a result of intense competition. Islamic Banking income rose 8.9% with strong financing growth of 35.1%. Islamic Banking now accounts for 27.4% of Group loans from 24.0% a year prior, while net income from insurance business recorded 31.2% growth owing to a higher transfer of actuarial surplus to insurance business income from both conventional insurance and takaful. Overhead expenses, meanwhile, rose 14.2% y-o-y to MYR6.65bn, however, lower than the previous year's growth of 15.3% y-o-y.
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Table: Stock Market Indicators
2006 Market Capitalisation MYR Market Capitalisation US$ Share Price MYR Share Price US$ Share Price, % change (eop) Change, year-to-date Shares Outstanding (mn) 5,285 45,353 12,855 8.48 2.40 13.9
2007 44,822 13,555 8.26 2.50 4.0
2008 24,894 7,195 4.58 1.32 -47.0
2009 48,555 14,119 6.86 1.99 50.7
2010 62,239 20,214 8.50 2.76 38.4
2011 65,546 20,700 8.58 2.71
27-Dec-12 75,876 24,835 8.99 2.94
5.5 5,413 5,435 7,078 7,078 7,478
1.0 n.a.
Source: Malayan Banking, Bloomberg
2006 Total Assets Loans & Mortgages Total Deposits Total Shareholders' Equity Earnings per share (MYR) 224,284 131,454 136,278 17,477 0.53
2007 256,667 140,865 163,677 19,868 0.59
2008 269,101 164,800 187,112 20,092 0.54
2009 310,739 185,783 212,599 25,768 0.12
2010 336,700 205,555 236,910 28,665 0.54
2011 411,959 253,976 281,976 32,470 0.61
2006 Total Assets Loans & Mortgages Total Deposits Total Shareholders' Equity Earnings per share (US$) 61,038 35,775 37,088 4,756 0.14
2007 74,342 40,801 47,408 5,755 0.17
2008 82,357 50,436 57,265 6,149 0.16
2009 88,404 52,854 60,483 7,331 0.03
2010 104,387 63,728 73,449 8,887 0.16
2011 136,523 84,168 93,447 10,761 0.20
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2006 Return on Assets Return on Equities Loan Deposit Ratio Loan Asset Ratio Equity Asset Ratio Total Risk Based Capital Ratio Tier 1 Capital Ratio 1.3 16.7 101.2 61.5 7.5 13.3 9.4
2007 1.3 17.6 90.1 57.5 7.5 14.5 9.4
2008 1.1 15.2 91.5 63.6 7.2 14.1 10.2
2009 0.2 3.1 91.0 62.2 8.0 14.8 10.8
2010 1.2 14.5 90.0 63.3 8.3 14.7 11.0
2011 1.2 15.0 92.6 63.4 7.6 15.4 11.8
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Citibank
SWOT Analysis
Strengths
Strong market positions in mortgages, cards and wealth management. One of the most profitable banks in the country. Strong long and short-term financial institution ratings from RAM. Bank's liquidity continues to be exceptionally strong. Relatively small branch footprint. Marginal y-o-y decline in pre-tax profit in FY10. Space for expansion in customer base for cards business. Enjoyed steady growth from its credit card and mortgage businesses in FY10. Litigation and economic slowdown in home market could weigh on expansion plans in high-growth markets.
Weaknesses
Opportunities
Threats
Company Overview
Kuala Lumpur-based Citibank Berhad, a unit of the US' Citigroup, has been operational in Malaysia since 1959 but only locally incorporated in 1994. The bank has 11 branches in the country and over 4,000 employees. Local ratings agency RAM Ratings affirmed the bank's long- and short-term financial institution ratings at 'AAA' and 'P1' respectively in 2009. The bank opened a 'smart banking' retail branch in Jalan Ampang, Kuala Lumpur, in June 2011, which it hopes will boost its retail banking operations in the country. The new branch will include some of the latest banking facilities and focus on customer services, the unit's chief executive, Sanjeev Nanavati, said. The bank said that it may consider opening more branches in Penang and Johor Baharu if customer feedback is positive. Citibank and Royal Dutch Shell earlier launched a new version of their Shell Citibank Gold Credit Card in the country in April 2011. The bank hopes to double the total number of cardholders to 200,000 over the next three years by offering up to 8% a year in rebates on Shell fuel purchases and Shell Select retail purchases using the card.
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For the year ended December 31 2010, Citibank posted a pre-tax profit of MYR834mn, compared with MYR896mn achieved the previous year representing a slight decline yo-y. Total net income, meanwhile, saw a marginal increase from 2009 rising to MYR1.79bn in 2010. The bank's net interest income came in at MYR1.18bn in 2010 while non-interest income increased to MYR572mn in 2010 from MYR493mn a year earlier. The results reflected the strong performance of the bank's business divisions. The lender also kept overheads and expenses to a minimum in view of the increasing cost of funds. During the 2010 full-year, Citibank obtained steady growth from its credit card and mortgage businesses. The bank's return on equity before tax decreased to 24.2% for the financial period ended December 31 2010, compared with 27.0% in 2009. The bank's liquidity continues to be exceptionally strong, with cash and short-term funds and placements with financial institutions in excess of YRM11.3bn. The bank's risk weighted capital adequacy ratio stood at a comfortable 14.5% (before dividend), based on its audited capital base as of the end of December 2010.
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HSBC Bank Malaysia

SWOT Analysis
Strengths
Offers an extensive range of services in Malaysia. Strong on trade finance and cash management. Only foreign bank in Malaysia to offer yuan forward contracts onshore.
Revenue and profits came in higher in 2011 full-year. Weaknesses Opportunities
Strong competition from domestic majors Maybank and CIMB Group. The bank is seeing strong demand for Islamic funds. First international bank to have supported a transaction in the Malaysian IPP sector. Slowing economic activity in the country.
Threats
Company Overview
Kuala Lumpur-based HSBC Bank Malaysia, a subsidiary of the London-based banking giant HSBC Holdings, offers a full range of retail and commercial banking products and services in the country. HSBC describes itself as being the oldest bank in Malaysia but 'indirectly'. The banking group established an office in Malaysia in 1884 when it was known as the Hong Kong and Shanghai Banking Corporation. The bank recorded an earlier history when it acquired The Mercantile Bank - which began operations in the country in 1860 - around 1959. The bank now has over 5,000 employees in the country. The Group, meanwhile, serves customers worldwide from around 8,000 offices in 87 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. The bank opened its ninth Islamic branch in the country in July 2011, taking its entire branch network to 51, including 42 conventional branches. The bank was also the only foreign lender in the country offering yuan forward contracts onshore as of late 2011. HSBC's extensive range of services in Malaysia includes personal financial services, commercial banking, global banking and markets, Takaful (Islamic insurance) and Islamic financial solutions.
The bank's results for 2011 showed an increase in revenue to MYR3.6bn, up from MYR3.1bn in the 2010 full-year. The bank's profit for the year also came in higher, reaching MYR957.1mn compared with MYR720.9mn a year earlier. The bank's total
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assets increased sharply during 2011 to close at MYR73.63bn, against MYR59.12bn at the end of the 2011 full-year. HSBC Bank Malaysia Berhad is the first international bank to have supported a transaction in the Malaysian IPP sector. In March 2012, the bank played a central role in the landmark financing for Malakoff Corporation Berhad's new 1,000 MW supercritical coal-fired power plant in Tanjung Bin, Johor via its wholly-owned subsidiary, Tanjung Bin Energy Issuer Berhad. The MYR6.5bn deal is the first limited recourse financing Sukuk in 2012, is notable in setting a number of benchmarks in the Malaysian IPP financing market and is expected to set the standard for future transactions in the Malaysian infrastructure sector.
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OCBC Bank
SWOT Analysis
Strengths
One of the country's leading banks. Offers conventional and Shari'a-compliant products and services. Significant history in the country. Offers a broad spectrum of specialist financial services in the country.
Subsidiary Great Eastern Holdings is the largest insurance group in Singapore and Malaysia by assets. Weaknesses Opportunities
Strong competition in both Malaysia's retail and Islamic banking markets. The bank continues to attempt a larger share of the country's retail market. OCBC aims to lift its share of Malaysia's Islamic banking market. Higher net profit in 2011 was derived from a strong growth in operating profit. Aiming for a 40% share of Malaysia's retail banking by 2014. A merger between market leader Maybank and CIMB Group and a significant rival could set back OCBC's plans for a larger market share.
Threats
Company Overview
OCBC Bank (Malaysia) Berhad is a subsidiary of Singapore-based Oversea-Chinese Banking Corporation (OCBC). The Kuala Lumpur-based unit is claimed to have been operational in the country in some form for over 70 years. With a network of 31 branches located across both the Peninsula and East Malaysia, this Singapore-based bank renders its services to a diverse range of individuals and corporate/SME clients, including sole proprietorships and partnerships. It has a staff strength of 3,500 employees and offers a broad spectrum of specialist financial services in Malaysia to meet the needs of its customers across communities. These include consumer, corporate/business, investment, premier, transaction and Islamic banking, and global treasury services. OCBC Bank's insurance subsidiary, Great Eastern Holdings, is the largest insurance group in Singapore and Malaysia by assets. Its asset management subsidiary, Lion Global Investors, is one of the largest private sector asset management companies in
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Southeast Asia. Private banking services are provided by subsidiary Bank of Singapore, which continued to gain industry recognition in 2011 including being voted the 'Outstanding Private Bank in Asia Pacific' by Private Banker International. OCBC Bank offers Islamic banking products and services in Malaysia through its wholly-owned subsidiary, OCBC Al-Amin Bank Berhad.
The bank and its subsidiaries recorded a net profit of MYR749mn for the financial year ended December 31 2011, registering an increase of MYR43mn or 6% compared to 2010. Pre-tax profit rose 5% from the previous year to slightly over MYR1bn in 2011. The higher net profit was derived from the strong growth in operating profit over last year, rising MYR49mn or 5% to MYR1.13bn, coupled with a slight reduction in provisions of MYR2mn or 1% to MYR127mn. The bank's assets totalled MYR58.28bn as of the end of H111, compared to MYR52.47bn at the end of the previous half. The bank opened a new branch in the state of Selangor in July 2011, offering both individuals and businesses conventional and Islamic banking products and services. The bank also jointly launched a new life assurance product with Great Eastern Life Assurance (Malaysia) Berhad in May 2011. Meanwhile, the bank said in early 2011 that it was aiming to boost its share of Malaysia's retail banking market to have it generate about 40% of its total revenue from the country by 2014, up from an existing 27%. The bank also aims to increase its income from Islamic banking - through OCBC Al-Amin - by 3% to 10% of total revenue. OCBC Bank (Malaysia) held market share of around 5% in both retail and Islamic banking.
Table: Stock Market Indicator
2007 Shares Outstanding (mn) 288
2008 288
2009 288
2010 288
2011 288
Source: OCBC Bank (Malaysia), Bloomberg
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2007 Total Assets Loans & Mortgages Total Deposits Total Shareholders' Equity Earnings per share (MYR) 42,186 26,612 31,468 2,485 1.72
2008 47,873 30,174 36,644 3,126 2.08
2009 52,963 31,714 41,593 3,689 2.05
2010 55,706 35,143 43,237 4,352 2.39
2011 64,401 42,181 48,935 4,700 2.54
2007 Total Assets Loans & Mortgages Total Deposits Total Shareholders' Equity Earnings per share (US$) 12,758 8,048 9,516 752 0.50
2008 13,836 8,721 10,591 904 0.63
2009 15,401 9,222 12,094 1,073 0.58
2010 18,205 11,485 14,130 1,422 0.74
2011 20,338 13,321 15,454 1,484 0.83
2007 Return on Assets Return on Equities Loan Deposit Ratio Loan Asset Ratio Equity Asset Ratio Total Risk Based Capital Ratio n.a. n.a. 87.2 65.0 5.9 10.8
2008 1.4 22.0 84.8 64.9 6.5 11.6
2009 1.2 17.6 78.5 61.7 7.0 15.5
2010 1.3 17.4 83.4 64.7 7.8 15.5
2011 1.2 16.6 88.2 67.0 7.3 15.1
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United Overseas Bank

SWOT Analysis
Strengths
Largest branch network belonging to a foreign bank in Malaysia. Asset quality improved in 2011: net NPL ratio fell y-o-y. UOB banking Group has a strong global footprint. The bank offers an extensive range of commercial and personal financial services. At present does not offer any Islamic banking services. The bank is aiming to become an institution with regional scale. Strong growth in net profit and income in 2011 full-year. Consolidation among domestic banks could hamper UOB Malaysia's ambitions to expand in the country and regionally.
Threats
Operating expenses increased by 17.7% y-o-y in 2011.
Company Overview
United Overseas Bank (Malaysia) (UOB Malaysia) was locally incorporated in 1993 as a subsidiary of Singapore's United Overseas Bank (UOB). UOB Malaysia remains one of UOB's most important regional subsidiaries. As of July 2012, the UOB Group has a network of over 500 offices in 19 countries and territories in Asia Pacific, Western Europe and North America. 45 of those branches are in Malaysia having launching two in Cheras and Ampang in January 2011 - making it the foreign bank with the largest branch network in the country. UOB (Malaysia) offers an extensive range of commercial and personal financial services through its branches, subsidiaries and associate companies: commercial lending, investment banking, treasury services, trade services, cash management, home loans, credit cards, wealth management, general insurance and life assurance.
Despite the challenging global economic environment, UOB Malaysia continued to deliver strong growth in 2011. The bank posted a record net profit before tax of MYR1,028.5mn, an increase of MYR198.6mn or 23.9% over the previous year. Total income increased by 17.9% y-o-y to MYR1,874.3mn in 2011, up from MYR1,589.9mn in 2010, driven by higher net interest income andother operating income. Net interest
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income grew by 15.5% y-o-y toMYR1,316.1mn (2010: MYR1,139.0mn), largely on the back of strong loans growth. Gross loans, which increased by 35.4% to MYR47.7bn, compared with MYR35.2bn in 2010 outpaced the average industry growth of 13.6%. Operating income, meanwhile, increased by 23.8% y-o-y to MYR558.1mn from MYR450.9mn in 2010. This was driven by higher fee income from wealth management, treasury, trade and cash management activities. Bank employee costs and other operating expenses increased by 17.7% y-o-y to MYR695.3mn as the group continued to invest in talent development and ITinfrastructure. Overall, expenses were well managed with a healthy cost-to-income ratio of 37.1%. Asset quality continued to improve in 2011 with gross non-perfoming loans (NPL) ratio reduced to 1.7% from 2.5% and net NPL ratio similarly improved to 1.3% from 1.7% during the 2011 full-year.
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RHB Bank
SWOT Analysis
Strengths
The bank's focus on commercial and investment banking gives it a considerable advantage in a merger, which could see it dominate the region.
Total assets increased in 2011. The bank is not a significant player in the retail market. Merger with OSK would boost RHB's market position in the country, making it Malaysia's leading investment bank.
Fifth-consecutive y-o-y increase in operating profit in 2011. A merger deal between RHB and OSK is likely to provoke further consolidation in Malaysia's banking market as larger rivals attempt to maintain leadership.
Threats
Company Overview
RHB Bank Berhad, a subsidiary of RHB Capital Berhad, is one of Malaysia's seventh largest financial institutions, with a focus on commercial and investment banking. The bank was formed in 1997 through a merger between DCB Bank and Kwong Yik Bank. The bank spent much of 2011 negotiating potential merger and acquisition moves that were yet to lead to a certain deal by July 2012. RHB's businesses are offered through its main subsidiaries - RHB Bank Bhd and RHB Investment Bank Bhd, which are wholly owned by RHB Capital, and RHB Insurance Bhd, which is 94.7% owned by RHB Capital. Its Islamic Banking Unit, RHB ISLAMIC Bank Bhd, is wholly owned by RHB Bank, while its asset management and unit trust businesses are held under RHB Investment Management Sdn Bhd, a wholly owned subsidiary of RHB Investment Bank. Despite the global financial crisis, the financial services and banking sector remains a mainstay of demand for IT services vendors. The RHB banking group underwent a strategic transformation that involved investing US$5mn in a new IBM mainframe as the foundation for a new enterprise datacentre.
RHB saw its operating profit climb to MYR2,432.48mn in 2011, up from MYR2,374.81mn a year earlier. This represents the fifth consecutive year of growth in operating profits for the lender. Total assets climbed from MYR119,455mn in 2010 to
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MYR142,985mn as of the close of 2011. This was aided by an increase in gross loans, advances and financing which rose to MYR97,554mn in the 2011 full-year. Parent RHB Capital and OSK Investment Bank applied to the central bank for permission to begin merger talks in late September 2011, obtaining approval the following month. The merger, which would combine RHB's banking operations with OSK, would come after months of speculation of a merger by domestic rivals Maybank or CIMB Group. Separate talks conducted by the latter two with RHB fell through after both were discouraged by pricing on the potential deal. CIMB reiterated in September 2011 that it was not interested in acquiring RHB under existing conditions, despite suggestions that Abu Dhabi-based fund Aabar Investments was considering lowering the value of its 25% stake. CIMB said that it does did consider RHB to be 'on the table at this time'. Aabar's acquisition of the RHB stake for US$1.9bn from Abu Dhabi Commercial Bank in June 2011 effectively halted CIMB and Maybank's ambitions to take over the smaller rival. Although talks continued, both banks pulled out because of unfavourable pricing.
Table: Stock Market Indicators
2009 Shares Outstanding (mn) 6,636
2010 6,636
Source: RHB Bank, Bloomberg
2007 94,484 53,703 72,703 4,608
2008 94,938 60,128 71,011 6,828
2009 106,094 67,127 81,868 7,832
2010 119,455 81,531 92,403 9,164
2011 142,985 95,083 113,638 10,556
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2007 28,573 16,241 21,987 1,393
2008 27,439 17,378 20,523 1,973
2009 30,850 19,519 23,806 2,277
2010 39,037 26,644 30,197 2,995
2011 45,155 30,028 35,888 3,334
2006 Return on Assets Return on Equities Loan Deposit Ratio Loan Asset Ratio Equity Asset Ratio Total Risk Based Capital Ratio n.a. n.a. 0.0 0.0 4.9 11.8
2007 0.8 16.2 0.0 0.0 4.9 13.4
2008 1.1 18.2 0.0 0.0 7.2 12.4
2009 1.2 16.2 0.0 0.0 7.4 13.8
2010 1.3 16.8 n.a. n.a. 7.7 13.8
2011 1.2 15.8 85.8 68.2 7.4 15.8
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Regional Overview
Asia Overview
Assessing The Banking Boom In South East Asia BMI View: We expect South East Asian banks to continue expanding aggressively into the region, on the back of a surge in mergers and acquisitions (M&A) activity in 2013. Malaysian banks have taken the lead in terms of leveraging on the investment banking boom, partly driven by the country's status as the largest issuer of Islamic banking assets in the region. Meanwhile, we expect Thai commercial banks to ramp up efforts to expand into countries such as Cambodia and Myanmar, driven by government efforts to promote cross-border investment and trade between Thailand and these countries.
In recent years, South East Asian banks have become increasingly aggressive in expanding their operations in the region, and we expect this phenomenon to continue in 2013. Member countries of the Association of Southeast Asian Nations (ASEAN) have pledged to gradually open up their banking sectors to allow for increased foreign competition, as part of a broader agreement towards establishing the ASEAN Economic Community (AEC) in 2015. Proponents of the AEC claim that by deepening economic links through financial integration, cross-border investments, and promoting free trade in the region, member countries will gain access to a wider market for their exports. Crucially, we expect increased economic integration to also boost demand for more sophisticated and innovative financial products and services going forward.
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Investment Banks See Boom In Underwriting Business

Malaysia - Composition Of Loan Portfolio By Purpose Of Loans, %
Investment Banking Revenues Surge

We have already witnessed a significant increase in cross-border investment and intraregional mergers and acquisitions (M&A) in 2012. According to figures published by data provider Dealogic, investment banking fees in Southeast Asia have soared to the highest level on record for the first nine months of 2012. Looking ahead, we expect plans to further promote financial integration to open up more opportunities for the banking industry. For example, ASEAN countries have agreed to further integrate their capital markets by linking their stock exchanges to establish a common trading network for investors. The move is widely expected to boost liquidity and attract more foreign capital inflows into the region, rivalling fast-growing capital markets such as Hong Kong and China. We expect banks that have already established a strong investment banking presence in the region to benefit from the expected increase in M&A activity over the coming years.
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Malaysia Takes The Lead

Malaysian banks have taken the lead in terms of leveraging on the investment banking boom, partly driven by the country's status as the largest issuer of Islamic banking assets in the region. Malaysia is reportedly one of the key drivers responsible for the recent increase in investment banking fees, according to a report published by Dealogic. Investment banking revenue in the country reached US$416mn between January and October in 2012, a year-to-date record and a 46% increase y-o-y. Malaysia also commands a strong 36.7% share of total investment banking fees generated in South East Asia. We expect Malaysian banks including Maybank Group and CIMB Group to continue to leverage on their strengths as the region's leading issuers of Islamic banking products and solutions. Maybank Islamic, the Islamic banking arm of Maybank Group, is the largest Islamic bank in Asia having already established a strong presence in Singapore, Indonesia, Hong Kong and the Philippines. Meanwhile, CIMB has been playing catch-up aggressively and is currently deriving around 10% of its earnings from its Islamic banking operations in Indonesia, Singapore and Brunei. Given the competitive advantages that Malaysian banks hold in terms of technological capabilities, financial strength, risk management, and the country's deep economic links relative to the region, we expect Malaysian banks to maintain their lead over their regional counterparts at least over the medium term.
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Foreign Loans Set To Pick Up In 2013

Thailand - Loans To Foreign Entities, % chg y-o-y
Source: BMI, Bank of Thailand
Thai Commercial Banks Targeting High-Growth Economies

Banks in Thailand are adopting a slightly different strategy by expanding their networks in lower-income, high growth, and largely untapped countries in the region (such as Cambodia and Myanmar). Krungthai Bank and Siam Commercial Bank recently opened their first representative offices in Myanmar in 2012 and Kasikornbank has announced plans to open its first branch by February 2013. As the accompanying chart shows, loans issued by Thai commercial banks to foreign entities have enjoyed a spectacular boom in recent years, averaging expansion of 75.0% and 128.3% in 2011 and 2012, respectively.
Although we caution that aggressive expansion into countries such as Cambodia and Myanmar reflects a high-risk strategy for local banks, we believe that the potential for growth is much greater. Furthermore, given that the Thai government has been actively promoting cross-border investment and trade between Thailand and these countries, we believe that demand for trade financing and investment banking services will pick up significantly over the coming years. On the whole, we expect Thai banks to further accelerate efforts to expand their operations into the region, and this should contribute significantly to banking sector revenues in 2013.
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Islamic Finance
Having experienced one of its most tumultuous years in recent memory, the global Islamic finance industry has entered 2013 in a noticeably stronger position compared to where it began 2012. Although the Islamic debt market is only one part of the broader industry, the record sukuk issuance seen last year is nevertheless an indication that demand for shari'a-compliant financial products is continuing to expand at a rapid clip. According to data from Bloomberg, an all-time high of US$46.3bn in Islamic debt was issued in 2012, compared to the previous record of US$36.6bn recorded in 2011. At 366, a new record in terms of the number of deals which were placed was also registered, in comparison to 281, 194 and 202 sukuk issued in 2011, 2010 and 2009 respectively. In terms of sectoral breakdown, financial institutions remain the largest issuers of sukuk worldwide, accounting for 41.9% and 37.8% of new issues in the GCC and Malaysia respectively. As we elaborate below, we expect banks to remain the primary issuers of Islamic debt globally in 2013, particularly in the context of ongoing attempts at bolstering capital ratios required under Basel III. Not surprisingly, in the GCC governments also remained amongst the largest issuers of Islamic debt, accounting for 24.6% of the total in 2012. This is reflective of several trends, including a desire by regional governments to promote the Islamic banking industry, but also the sharp fall in borrowing costs (previously known as the 'sukuk premium') that has been witnessed alongside the global 'hunt for yield', and which has encouraged new borrowers to come to the market.
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A Record Year
Global Islamic Finance - International Sukuk Issued
Source: Bloomberg, BMI
In what we believe is a relatively positive development, HSBC overtook Malaysia's CIMB to become the world's largest underwriter of sukuk. The former held a market share of 23.9% in 2012, compared to only 10.3% in 2011, while the latter saw its market share fall to 13.4%, from 21.2% last year. Given HSBC's unexpected announcement in October 2012 that it would significantly scale down its global Islamic banking operations, the institution's desire to remain one of the most prominent underwriters of Islamic debt is significant (see our online service, 19 October, 'Islamic Finance: A Crisis Of Confidence'?). As we have argued on numerous occasions previously, the participation of large international banks such as HSBC is crucial to the long-term growth potential of the Islamic finance industry, particularly given their economies of scale, ability to help push product innovation, and lend a credible brand name to a sector which is still in the embryonic stages of development.
The other key development of 2012 centred on UAE-based Dana Gas' missed repayment of its US$920mn Islamic bond in early November. Although the firm was by no means a strategic government related entity, and was thus never likely to receive a last minute bailout, the first failure to redeem a corporate sukuk in the UAE nevertheless temporarily raised fears that confidence in the industry could be undermined. The
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subsequent successful restructuring of the Dana Gas sukuk, and steady yield compression in Islamic bonds witnessed since November, highlight that perceptions of the sector's maturity are more robust than many previously believed.
Banks Still The Key Issuers

GCC Islamic Debt by Sector, %
Outlook For 2013

With yields on sukuk likely to remain at record lows over the coming quarters, the attractiveness of tapping international Islamic debt markets will remain strong in 2013. As has been the case in previous years, banks and governments are likely to remain the primary issuers of shari'a-compliant bonds in our view, particularly in the GCC. One segment which we believe could outperform is the still emerging market of project bonds, as many of the key growth markets for Islamic finance have substantial plans to upgrade their underlying infrastructure networks (a sector which is a natural fit for sukuk). Indonesia is a case in point, with a relatively immature domestic debt market and underdeveloped banking sector making infrastructurebacked sukuk a possible avenue to help finance the Asian economy's capital spending plans (see our online service, 28 December, 'Islamic Bonds Take Root In Infrastructure').
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Although 2012 was a record year in many respects, a recently released report by Thomson Reuters shows the majority of market participants remain extremely bullish on the outlook for the sector over the coming years. The report, released in December, surveyed 169 investors and sukuk arrangers, predominantly from the Gulf and Asia, and stated that global demand for Islamic bonds is expected to reach US$421bn by 2016 from US$240bn in 2012. Although supply is also expected to expand, it will not occur at the same pace as demand, with the gap between the two widening to US$280bn by 2016, from US$160bn currently. However, highlighting ongoing issues surrounding liquidity, only 19% of investors said they expected to hold sukuk for less than one year for trading purposes, with 42% stating they would hold the bonds between one and three years, and more than 25% saying they would hold until maturity.
Well Diversified
Malaysia - Islamic Debt by Sector, %
As previously mentioned, sukuk is but a part of the broader US$1.5trn global Islamic finance industry. Indeed, according to the Ernst & Young's World Islamic Banking Competitiveness Report 2013, global Islamic banking assets held by commercial banks are set to cross US$1.8trn in 2013. Much of this bullish sentiment appears to be based around growth opportunities in markets with large Muslim populations which are relatively untapped, such as Egypt, Indonesia, Pakistan, India and Bangladesh. In a telling indication of
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some of the challenges that Islamic banks are likely to encounter over the coming years however, the leader of Islamic financial services at Ernst & Young stated in early December: "Success will be defined in the core markets through the transformation of Islamic banks so they are able to compete with the much bigger, conventional boys for mainstream customers". As we elaborate below, while tapping into new markets is certainly going to be a source of growth, the industry's long-term potential will likely increasingly be driven by innovation in only a handful of already well established markets.
'Organic Growth' Will Eventually Slow

At this stage, much of the growth taking place in the global Islamic finance industry is relatively organic, as shari'a-compliant banks continue to enter new and untapped markets around the world. Indeed, much of the bullish sentiment surrounding the industry has generally focused on the basic facts that some of the world's fastest growing economies are those with significant Muslim populations, and where the local banking sectors remain relatively underdeveloped. Banking sector assets-to-GDP (a rough gauge of the depth of a domestic banking sector) in Indonesia and Pakistan - the countries with the two largest Muslim populations - stands at only 49% and 45% respectively. In countries such as India moreover, which has a minority Muslim population of approximately 177mn, political obstructionism and regulations (such as laws requiring banking to be based on interest) are preventing Islamic finance from taking root. This stands to reason that given the sheer size of the markets which have yet to be introduced to shari'a-compliant financial products, the industry's growth potential over the coming years remains immense.
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Untapped Markets
Population of Select Muslim-Majority Countries, mn
Source: PEW, BMI
While we certainly agree that a significant degree of untapped potential across the industry exists, we also caution against assuming that this organic growth will continue at the same rapid pace which has been seen in recent years. Indeed, before shari'a-compliant banking is introduced into any particular country, national legislation must be amended or introduced to ensure the industry is compatible with the local regulatory framework. The legal complexities of introducing Islamic banking into a new market are immense, and require a strong willingness on the part of politicians to push the legislation forward.
As has been seen all too often however, in many cases there is often considerable opposition to the introduction of Islamic finance, even in markets with a large majority-Muslim population. Central Asia and the Caucasus are a case in point, where governments are often hesitant about developing the sector due to their belief that this could encourage Islamist politics (not including Kazakhstan, which is aiming to become the regional hub for shari'a-compliant banking). Indeed, in Azerbaijan, where Muslims account for 93% of the population, the fear of political Islam has prevented any of the necessary legislation from being put into place, with the only bank attempting to offer a full line of Islamic banking products, Kovsarbank, having seen its license revoked after the central bank said banking laws had been violated.
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Hunt For Yield Goes On

Dow Jones Sukuk Index
Source: Bloomberg
More often than not, much of the opposition to Islamic finance in these potential growth markets is simply based on populist politics. In India, the resistance mainly comes from the opposition Hindu-nationalist Bharatiya Janata Party, which appears to believe shari'a-compliant banking could be used by militants as a source of 'terrorist financing'. Elsewhere, ahead of the introduction of Islamic banking in Nigeria in 2011, many lawmakers and religious leaders also voiced their opposition to the industry, claiming that it was tantamount to the promotion of Islam. In many societies with sharp religious faultlines, the ability of populist politicians to obstruct the necessary legislation is likely to dampen the speed with which the sector will be able to enter these new markets.
In some cases however, even those governments that appear enthusiastic about the introduction of Islamic finance into their home markets can pose obstacles. Indeed, despite facing an imminent budget crisis and having a Muslim Brotherhood-dominated government, Egypt's draft law to allow sovereign sukuk was initially opposed by the country's religious scholars in 2012, who believed it would allow authorities to lease out national assets for up to 60 years (the bill was eventually approved in mid-January 2013). In the case of Oman in contrast, which only recently became the last GCC state to permit shari'a-compliant
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banking, the government's decision to take an extremely strict approach to regulating the industry could undermine banks' profitability from the very start. Included in the central bank's regulations is a restriction on the use of tawarruq, or commodity murabaha (an instrument which is criticised by Islamic scholars for having minimal links to the real economy) as a money market instrument for banks, which would limit the flexibility in managing overnight funds, raising costs in the process. In a competitive banking environment such as Oman's, this puts shari'a-compliant lenders at an immediate disadvantage.
'National Champions' Required

As Islamic finance is still in a relatively embryonic stage of development, we expect the strongest growth to take place in those markets in which the government has taken on the role of actively championing the development of the sector. With many potential customers still hesitant about using shari'a-compliant financial services, a benign regulatory environment may not be sufficient to attract key industry players. Rather, we believe those governments which are keen on making their countries regional or global Islamic finance hubs will need to push ahead with introducing increasingly attractive incentives to the industry, which could help facilitate more individuals and corporates shifting into the sector. It will be these key markets - most notably Malaysia and the UAE - which will drive the development of Islamic banking over the longer term, rather than the larger untapped markets of Asia and Africa, in our view.
The case of Malaysia clearly highlights the Islamic finance industry's potential when placed into a supportive regulatory environment. To be sure, the governor of the Malaysian central bank, Dr. Zeti Akhtar Aziz, is the industry's equivalent to US Fed Chairman Ben Bernanke, whose opinions and speeches on developments in the sector should be closely monitored. Despite having a population of only 30mn, 60% of which are Muslim, the Southeast Asian state is certainly the global leader, with a fifth of the domestic banking sector's assets being shari'a-compliant (compared to 12% for most other Muslim states), and the country dominates the global sukuk market. Several notable institutions set up by the central bank also play a role in the country's position as industry leader, including the International Centre for Education in Islamic Finance and the Islamic Banking and Finance Institute of Malaysia, both of which are broadly attempting to deepen the professionalization of the industry.
More importantly perhaps, Malaysia also hosts the Islamic Financial Services Board (IFSB), which is the closest institution the Islamic finance sector has to a global regulatory body. Indeed, the IFSB sets global guidelines for shari'a-compliant banking, having originally introduced guidelines on capital adequacy back in 2005. As one of the main weaknesses of the global industry is a lack of standardisation, with national financial regulators having the final say on the application of any legislation, the IFSB possesses a strong first-mover advantage. Although Bahrain's Accounting and Auditing Organisation for Islamic Financial
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Institutions (AAOIFI) is likely to remain the most influential body in the Gulf, we expect the majority of national regulators that are considering introducing Islamic banking into their home markets to look to the Kuala Lumpur-based IFSB for guidance, which will only solidify Malaysia's stature further in the years to come.
In its active efforts to become a global Islamic financial hub, Malaysia has also introduced a host of tax incentives for the industry over the years. These have included:
Tax exemptions until 2016 on income earned from international banking and takaful (shari'a-compliant insurance) operations conducted in FX. Stamp duty exemption until 2016 on instruments executed pertaining to Islamic banking and takaful businesses conducted in FX. Tax exemption on any profits paid out by an Islamic bank to non-resident depositors. Tax relief not exceeding US$1,362 per annum is provided for those taking Islamic finance courses. Up to 100% foreign ownership in the establishment of an International Islamic Bank. Banking institutions and takaful operators have flexibility to employ expatriates with expertise to contribute to the development of the Islamic financial system in Malaysia.
Given Malaysia's relatively small market size however, long-term growth opportunities will be contingent upon solidifying the country's reputation as the primary location for the issuance of international sukuk, in addition to the ability of national Islamic banks to expand their reach beyond Southeast Asia. The latter appears to be a key goal of the majority of shari'a-compliant lenders in the Gulf, which are gradually making inroads into frontier markets across Africa and Asia. Indeed, in late December 2012 the UAE's Abu Dhabi Islamic Bank launched a branch in the Sudanese capital Khartoum, which formed part of a broader regional expansion plan, while state-controlled Al Hilal Bank has opened in Kazakhstan. The strategic objectives of these governments - be they general such as the desire to promote Islamic finance, or based on more specific national interests such as expanding influence overseas - is likely to be a key driver of the push into new markets over the coming years.
Although the UAE's Islamic finance industry lags far behind both Bahrain and Malaysia, we certainly see scope for the Gulf state to become an increasingly important player in the sector over the coming years. In mid-January the UAE government suddenly announced that it would seek to make the sector one of the economy's 'core' industries, with plans to create an Islamic finance council that would regulate equity and fixed-income products. Given the tax-free environment and established financial sector infrastructure
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already present in the country, in addition to the ongoing political troubles in neighbouring Bahrain, the UAE certainly has the ability to become a hub for shari'a-compliant finance over the long term.
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Global Industry Overview

Global Commercial Banking Outlook
Implications Of Reforms To Basel III Liquidity Requirements BMI View: Global central bank heads agreed on January 6 2013 to loosen the Basel III liquidity requirements for major financial institutions. This decision is positive for industry profitability, and modestly improves the near-term outlook for loan and asset growth.
The Governors and Heads of Supervision of the Basel III accords emerged from their meeting with changes to the existing liquidity arrangements that will significantly ease the burden on major banks worldwide. To recap, Basel III is an improvement on the previous two iterations, as it lays out stricter definitions of high quality capital, and specifically, higher capital requirements and liquidity ratios. This is in response to the 2008 financial crisis, which laid bare the potential for liquidity risk, as opposed to just the solvency risk that was focused upon in Basel I and II. The so-called 'Liquidity Coverage Ratio' (LCR) is designed to allow banks to survive a 30-day funding crisis by relying on internal liquid assets, hence avoiding a Lehman-style meltdown. The numerator of the ratio is 'high quality liquid assets', while the denominator is the 'net liquidity outflows' that banks would face when put under a stress situation over a 30-day period during a severe system-wide shock. By the time this aspect of Basel III is fully implemented, the ratio must exceed 100%.
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Bank Share Prices Responding Well To Basel III Amendments

MSCI World Bank Equity Index
The changes agreed in January 2013 include a major redefinition of high quality liquid assets that would count towards banks' LCR. For example, in the set of rules agreed in 2010, corporate debt needed to be rated AA- or higher to be considered high quality; now, securities can be rated as low as BBB-, the lowest investment grade rating. Furthermore, banks can now use residential mortgage-backed securities and even some equities to meet the requirements (albeit they will count far less toward the liquidity requirements than government bonds, with 25-50% haircuts applied). Additionally, the timetable for the full introduction of the new liquidity requirements has been pushed back dramatically from the originally scheduled deadline of 2015. Banks will only have to hold 60% of the total buffer by 2015, rising by 10% per year to 2019. Meanwhile, the 'outflows' in the denominator of the LCR have been clarified, and many will be subject to less stringent conditions. For example, the assumed outflow rate under a stress scenario for maturing secured funding transactions with central banks will be reduced to 0% from 25%. The table below shows the main changes to the Basel III framework as agreed on January 6.
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Table: Selected Highlights Of Changes To The Formulation of the Basel III Liquid Coverage Ratio
Before Definition of 'High Quality Assets' Corporate debt rated AA- or higher (as Level 2 asset) No equity included No Residential MBS included
Now Corporate debt rated A+ to BBB- (with 50% haircut applied) Some equity (with 50% haircut applied) Residential MBS rated AA or higher (with 25% haircut applied)
Timetable For Introduction of LCR
100% of buffer to be in place by 1 January 2015
60% by 1 January 2015; 10% added annually to 100% by 1 January 2019
Inflows and Outflows
Non-financial, non-operational corporate deposits outflow rate: 75% Liquidity facilities to non-financial corporates outflow rate: 100% Trade finance - no outflow rate guidance Maturing secured funding transactions with central banks outflow rate: 25%
Now 40% Now 30% New guidance that low outflow rate (0-5%) expected to apply on trade finance Now 0%
Source: Bank for International Settlements, BMI
We interpret this agreement as having been taken for three pragmatic considerations. First, the 2010 regulations were agreed upon before the European banking crisis, which helps explain why some of the asset requirements needed to be amended. Banks in Europe, for example, would have been forced to purchase even greater quantities of their home governments' debt - only further extricating the banking sector into the sovereign crisis. Second, the quantity and availability of 'risk-free' liquid assets may not have been sufficient to meet all of the requirements, so some expansion of the eligible assets is both desirable and, perhaps, necessary from a pragmatic standpoint. Third, several of the world's major central bankers were faced with the dilemma of having reached the limit of conventional monetary easing, and are now resorting to easing regulations in an effort to open up lending channels. The degree to which this will work in the short run is probably limited, given that the existing expansion of the monetary base in many countries and low central bank funding costs have not translated into lending. However, it will remove some of the concern that the reluctance to lend has been a result of regulatory factors. Indeed, the revised timetable for the new regulations will relieve the urgency to quickly build up liquid assets, particularly for European banks which have been under stress and unwilling and unable to lend. Bank of England Governor Mervyn King, who announced the new measures on behalf of the committee, made this aspect of the revised
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legislation clear, arguing that the revisions 'will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery'.
We have a few additional thoughts:
Easing the capital requirements will make banks more profitable because it will allow them to count higher-yielding assets toward the liquidity requirements. This helps explain why bank share prices soared in the days immediately following the Basel announcement. By the end of 2011, 208 banks were short by EUR1.8trn (US$2.4trn) in LCR funding, according to the Basel committee. By contrast, Bank of England Governor King said that the 'vast majority' of the world's biggest 200 banks that abide by the Basel regulations already comply with the new relaxed standards. Many of those that do not are presumably European banks that are still rebuilding their balance sheets. Some of the clarifications are sensible by almost any standard. One is that 'countries with distressed banking systems will have complete flexibility in their application of the LCR until the distress has passed'. To put this another way, having saved for a rainy day, banks will be allowed to use their savings to cope with a crisis without worrying about meeting capital ratios in the short run. Emerging market banking sectors stand to be a major beneficiary of the new requirements. Regulators in major EM countries had complained that the supply of high quality assets, as defined in the 2010 agreement, was too limited, and that major EM banks would struggle in many cases to meet the requirements. While it is understandable that the Basel committee believe it wise to expand the definition of high quality liquid instruments, particularly given the European crisis, we have some concerns about the degree to which the rules have been watered down. It is a bit of a stretch, for example, to believe that in a 2008-style crisis that even with a 25% haircut that MBS could provide ready liquidity for a bank that is in trouble. This is especially the case since many banks in a single banking system could plausibly seek to use the same type of asset as collateral should it prove the most profitable (e.g. using significant amounts of MBS to meet the liquidity requirements), and that asset could prove to be very difficult to unload in a time of crisis. That said, we do not expect this to be a major problem given that the new, lower-rated securities can only count toward a maximum of 15% of the total of high-quality liquid assets. The new rules will ease the flow of trade finance, by including a low outflow rate (0-5%) in the denominator of the LCR. In other words, banks that engage heavily in trade finance will be able to hold a smaller liquidity buffer than they would have previously. This will be positive for several EM commercial banking markets that have high components of trade finance in their operations.
The next item on the agenda for the Basel committee will be the Net Stable Funding Ratio, which aims to address another salient aspect of the 2008 financial crisis - banks' funding mismatch between short-term borrowing and long-term lending. The idea is to require banks to hold a better match between long-term financing and long-term asset accumulation in order to avoid the type of rollover risk seen in the financial crisis. Like the LCR, the NSFR regulations will be enforced as of 2019, however, the Basel committee will only produce the framework of rules at some point in the next two years.
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Demographic Forecast
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements.
Source: World Bank, UN, BMI
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The accompanying charts detail Malaysia's population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split.
Table: Malaysia's Population By Age Group, 1990-2020 ('000)
1990 Total 0-4 years 5-9 years 10-14 years 15-19 years 20-24 years 25-29 years 30-34 years 35-39 years 40-44 years 45-49 years 50-54 years 55-59 years 60-64 years 65-69 years 70-74 years 75+ years 18,209 2,445 2,284 2,026 1,830 1,670 1,649 1,411 1,190 926 679 617 455 370 258 190 206
1995 20,721 2,652 2,460 2,285 2,039 1,856 1,708 1,689 1,444 1,208 930 670 593 420 322 210 235
2000 23,415 2,721 2,612 2,469 2,315 2,092 1,934 1,795 1,759 1,486 1,221 921 646 549 366 261 267
2005 26,100 2,953 2,840 2,614 2,483 2,341 2,115 1,942 1,791 1,746 1,467 1,195 887 605 489 306 327
2010 28,401 2,828 2,948 2,839 2,616 2,487 2,343 2,112 1,935 1,779 1,727 1,440 1,155 836 545 417 392
2012f 29,322 2,802 2,926 2,908 2,705 2,536 2,413 2,206 2,000 1,825 1,755 1,556 1,251 939 617 432 450
2015f 30,714 2,897 2,824 2,947 2,840 2,620 2,489 2,341 2,106 1,924 1,763 1,700 1,399 1,097 764 473 529
2020f 32,986 2,953 2,894 2,824 2,950 2,845 2,623 2,487 2,334 2,094 1,908 1,738 1,656 1,334 1,010 671 663
f = BMI forecast. Source: World Bank, UN, BMI
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Table: Malaysia's Population By Age Group, 1990-2020 (% of total)
1990 0-4 years 5-9 years 10-14 years 15-19 years 20-24 years 25-29 years 30-34 years 35-39 years 40-44 years 45-49 years 50-54 years 55-59 years 60-64 years 65-69 years 70-74 years 75+ years 13.43 12.54 11.13 10.05 9.17 9.05 7.75 6.53 5.09 3.73 3.39 2.50 2.03 1.42 1.04 1.13
1995 12.80 11.87 11.03 9.84 8.96 8.24 8.15 6.97 5.83 4.49 3.24 2.86 2.03 1.56 1.01 1.13
2000 11.62 11.16 10.55 9.89 8.93 8.26 7.67 7.51 6.34 5.21 3.94 2.76 2.35 1.56 1.12 1.14
2005 11.31 10.88 10.02 9.51 8.97 8.10 7.44 6.86 6.69 5.62 4.58 3.40 2.32 1.87 1.17 1.25
2010 9.96 10.38 10.00 9.21 8.76 8.25 7.44 6.81 6.26 6.08 5.07 4.07 2.94 1.92 1.47 1.38
2012f 9.55 9.98 9.92 9.23 8.65 8.23 7.52 6.82 6.22 5.99 5.31 4.27 3.20 2.11 1.47 1.54
2015f 9.43 9.19 9.59 9.25 8.53 8.11 7.62 6.86 6.26 5.74 5.54 4.55 3.57 2.49 1.54 1.72
2020f 8.95 8.77 8.56 8.94 8.63 7.95 7.54 7.08 6.35 5.78 5.27 5.02 4.04 3.06 2.03 2.01
f = BMI forecast. Source: World Bank, UN, BMI
Page 74
Table: Malaysia's Key Population Ratios, 1990-2020
1990 Dependent ratio, % of total working age 1 Dependent population, total, '000 2 Active population, % of total 3 Active population, total, '000
4 5
1995 65.0 8,164 60.6 12,557 58.9 7,396 6.1 767
2000 59.1 8,697 62.9 14,718 53.0 7,803 6.1 894
2005 57.5 9,529 63.5 16,572 50.7 8,406 6.8 1,122
2010 54.1 9,971 64.9 18,431 46.7 8,616 7.3 1,355
2012f 52.8 10,136 65.4 19,186 45.0 8,636 7.8 1,500
2015f 51.5 10,435 66.0 20,280 42.7 8,668 8.7 1,767
2020f 50.1 11,016 66.6 21,970 39.5 8,671 10.7 2,344
68.6 7,411 59.3 10,798 62.6 6,755 6.1 655
Youth population, % of total working age Youth population, total, '000 6
Pensionable population, % of total working age 7 Pensionable population, '000

8
f = BMI forecast; 1 0>15 plus 65+, as % of total working age population; 2 0>15 plus 65+; 3 15-64, as % of total population; 4 15-64; 5 0>15, % of total working age population; 6 0>15; 7 65+, % of total working age population; 8 65+. Source: World Bank, UN, BMI
Table: Malaysia's Rural And Urban Population, 1990-2020
1990 Urban population, % of total Rural population, % of total Urban population, '000 Rural population, '000 49.8 50.2 9,015.5 9,087.9
1995 55.7 44.3 11,470.8 9,123.1
2000 62.0 38.0 14,429.6 8,844.0
2005 67.6 32.4 17,328.2 8,305.2
2010 72.6 27.4 20,613.5 7,787.6
2012 74.3 25.7 21,793.1 7,528.7
2015 76.9 23.1 23,631.4 7,082.7
2020 80.7 19.3 26,612.7 6,372.8
Source: World Bank, UN, BMI
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Methodology
BMI's Commercial Banking Forecast Report series is closely integrated with our analysis of country risk, macroeconomic trends and financial markets. As such, the reports draw heavily on our extensive economic data set, which includes up to 550 indicators per country, as well as our in depth view of each local market. We collate our commercial banking databank from official sources (including central banks and regulators) wherever possible, and only fall back on secondary sources where all attempts to secure primary data have failed. Company data is sourced, in the first instance, from company reports, with central bank, regulator or trade association data only used as a backup. All of the risk ratings and forecasts within this report are a result of BMI's own proprietary research and do not in any circumstances include consensus or third party numbers.
How Our Data Set Is Structured The reports focus on total assets, client loans and client deposits.
Total assets are analogous to the combined balance sheet assets of all commercial banks in a particular country. They do not incorporate the balance sheet of the central bank of the country in question.
Client loans are loans to non-bank clients. They include loans to public sector and state-owned enterprises. However, they generally do not include loans to governments, government (or non-government) bonds held or loans to central banks. Client deposits are deposits from the non-bank public. They generally include deposits from public sector and state-owned enterprises. However, they only include government deposits if these are significant.
We take into account capital items and bond portfolios. The former include shareholders funds, and subordinated debt that may be counted as capital. The latter includes government and non-government bonds.
In quantifying the collective balance sheets of a particular country, we assume that three equations hold true:
Total assets = total liabilities and capital. Total assets = client loans + bond portfolio + other assets. Total liabilities and capital = capital items + client deposits + other liabilities.
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In terms of the equations, other assets and other liabilities are balancing items that ensure equations two and three can be reconciled with equation one. In practice, other assets and other liabilities are analogous to inter-bank transactions. In some cases, such transactions are generally with foreign banks.
In most countries for which we have compiled figures, building societies/thrifts are an insignificant part of the banking landscape, and we do not include them in our figures. The US is the main exception to this.
In some cases, total assets and client loans include significant amounts that are owned or that have been lent to customers in another country. In some cases, client deposits include significant amounts that have been deposited by residents of another country. Such cross-border business is particularly important in major financial centres such as Singapore and Hong Kong, the richer OECD countries and certain countries in Central and Eastern Europe.
Commercial Bank Business Environment Rating

In producing our Commercial Banking Business Environment Rating, our approach has been threefold. First, we have explicitly aimed to assess the market attractiveness and risks to the predictable realisation of profits in each state, thereby capturing the operational dangers facing companies operating in this industry globally. Second, we have, where possible, identified objective indicators that serve as proxies for issues/ trends within the industry to ensure consistent evaluate across states. Finally, we have used BMI's proprietary Country Risk Ratings in a nuanced manner to ensure that the ratings accurately capture broader issues that are relevant to the industry and which may either limit market attractiveness or imperil future returns. Overall, the ratings system, which integrates with all the other industry Business Environment Ratings covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe.
Conceptually, the ratings system divides into two distinct areas:
Limits of Potential Returns: Evaluation of industry's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to Realisation of Returns: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period.
In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based.
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Table: Commercial Banking Business Environment Indicators And Rationale
Limits of Potential Returns Banking market structure Estimated total assets, 2012 Estimated growth in total assets, 2012-2016 Estimated growth in client loans, 2012-2016 Country structure GDP per capita
Rationale
Indication of overall sector attractiveness. Large markets are considered more attractive than small ones Indication of growth potential. The greater the likely absolute growth in total assets, the higher the score Indication of the scope for expansion in profits through intermediation
A proxy for wealth. High-income states receive better scores than low-income states Those aged 16-64 in each state, as a % of total population. A high proportion suggests that the market is comparatively more attractive A measure of the general fiscal drag on profits Standard deviation of growth over seven-year economic cycle. A proxy for economic stability
Active population Corporate tax GDP volatility Risks to Realisation of Returns Banking market risks Regulatory framework and industry development Regulatory framework and competitive environment BMI's Country Risk Ratings (CRR) Short-term financial risk Policy continuity
Subjective evaluation of de facto/de jure regulations on overall development of the banking sector Subjective evaluation of the impact of the regulatory environment on the competitive landscape
Rating from CRR, evaluating currency volatility Rating from CRR, evaluating the risk of a sharp change in the broad direction of government policy Rating from CRR, to denote strength of legal institutions in each state. Security of investment can be a key risk in some emerging markets Rating from CRR to denote ease of conducting business in the state
Legal framework Bureaucracy
Source: BMI
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Weighting
Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal weight. Consequently, the following weights have been adopted.
Table: Weighting Of Indicators
Component Limits of Potential Returns, of which: - Banking market structure - Country Structure Risks to Realisation of Returns, of which: - Banking market risks - Country Risk
Weighting, % 70, of which 60 40 30, of which 40 60
Source: BMI
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Q2 2013

Malaysia Commercial Banking Report Q2 2013

Part of BMIs Industry Report & Forecasts Series

Malaysia Commercial Banking Report Q2 2013

Industry Forecast .............................................................................................................. 16

Industry Risk Reward Ratings .......................................................................................... 19

Market Overview ............................................................................................................... 21

Competitive Landscape .................................................................................................... 32

Definition Of The Commercial Banking Universe ......................................................................................... 32

Business Monitor International

Malaysia Commercial Banking Report Q2 2013 List Of Banks ......................................................................................................................................... 33

Company Profile ................................................................................................................ 34

Malayan Banking .................................................................................................................................... 38

Regional Overview ............................................................................................................ 54

Global Industry Overview .................................................................................................. 68

Demographic Forecast ..................................................................................................... 72

Business Monitor International

Business Monitor International

Malaysia Commercial Banking Report Q2 2013

BMI Industry View

Date August 2011 August 2012 Change, %

Total assets 1,624.63 1,817.16 11.9%

Client loans 952.21 1,070.10 12.4%

Bond portfolio 199.06 247.10 24.1%

Other 473.36 499.96 5.6%

Liabilities and capital 1,624.63 1,817.16 11.9%

Capital 142.31 161.45 13.4%

Client deposits 1,175.92 1,341.24 14.1%

Other 306.40 314.48 2.6%

Source: BMI; Central banks; Regulators

Table: Levels (US$bn)

Date August 2011 August 2012 Change, %

Total assets 546.74 581.56 6.4%

Client loans 320.45 342.47 6.9%

Bond portfolio 66.99 79.08 18.1%

Other 159.30 160.01 0.4%

Liabilities and capital 546.74 581.56 6.4%

Client Capital deposits 47.89 51.67 7.9% 395.73 429.25 8.5%

Other 103.11 100.64 -2.4%

Source: BMI; Central banks; Regulators

Table: Levels At August 2012

Loan/deposit ratio 79.78% Falling

Loan/asset ratio 58.89% Rising

Loan/GDP ratio n.a. Rising

GDP Per Capita, US$ 6,902.38 n.a.

Deposits per capita, US$ 14,716.69 n.a.

Source: BMI; Central banks; Regulators

Business Monitor International

Malaysia Commercial Banking Report Q2 2013

Table: Annual Growth Rate Projections 2012-2017 (%)

Assets Annual Growth Rate CAGR Ranking 12 11 20

Source: BMI; Central banks; Regulators

Table: Ranking Out Of 62 Countries Reviewed In 2013

Loan/deposit ratio 46 Local currency asset growth 22

Loan/asset ratio 36 Local currency loan growth 24

Loan/GDP ratio 11 Local currency deposit growth 17

Source: BMI; Central banks; Regulators

Table: Projected Levels (MYRbn)

2010 1,486.33 875.57 1,104.79

2011 1,713.82 994.89 1,263.23

2012e 1,868.07 1,094.38 1,395.87

2013f 2,054.87 1,203.82 1,549.42

2014f 2,280.91 1,330.22 1,719.85