The Usual Suspects (Asias Leading Regional Banks) 20150605

USUAL SUSPECTS
Asias leading regional banks

Special report
June 2015

Asian banks
Derek Ovington
Head of Asia Banks Research
derek.ovington@clsa.com
+852 2600 8730
Marcus Liu, CFA

+852 2600 8738
Contents
Executive summary ............................................................................ 3
Dawn of a new order .......................................................................... 6
OPM wars ......................................................................................... 14
I like big banks and I cannot lie ....................................................... 30
Mythbusters ..................................................................................... 42
Age and guile beat youth, innocence and a bad haircut .................... 59
Company profiles
The Usual Suspects
HSBC .................................................................................................. 69
Citigroup ............................................................................................. 97
Standard Chartered ............................................................................ 117
Emerging challengers
Bank of China .......................... 147
OCBC ...................................... 167
MUFG ..................................... 151
SMFG ...................................... 171
ANZ Bank ................................ 155
Mizuho Financial ....................... 175
DBS ........................................ 159
CIMB ...................................... 179
UOB ....................................... 163
Maybank ................................. 183
Appendix: Asian bank comps .......................................................... 187

Unless otherwise stated, all prices quoted herein are as at close of business 3 June 2015, with the
exception of Citigroup, which is a republished note priced to 2 February 2015
Bank research reserves
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
For important disclosures please refer to page 192.
5 June 2015

Asian banks
Executive summary
Asian cross-border
banking still dominated
by HSBC, Citigroup
and StanChart
The Usual Suspects
Asias population, economic growth and financial development point to its

looming emergence as the centre of world finance. The region overtook
Europe in outstanding credit during the global financial crisis (GFC) and is
rapidly gaining on the USA. This creates a massive structural opportunity in
cross-border corporate banking in Asia as trade and financial flows bloom
through the coming decades.
Asian cross-border banking is dominated by three established banks: the
Usual Suspects. While emerging regional players have entered the scene,
they are far from effective on a regional basis when lined up against their
bigger rivals. The primacy of the Usual Suspects will take years to dislodge.
Asia has 60% of worlds

population but has ground
to catch up economically
and financially
Population, growth and financialisation - Asian banking can grow faster for longer
Credit/GDP (%)
350
UK
Japan
300
China
Hong Kong
250
Taiwan
Malaysia
200
150
USA
Eurozone
Korea
Thailand
India
100
Singapore
Australia
= population 300m
Philippines
50
0
Indonesia
0
GDP per capita (US$)
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Source: CLSA, World Bank, IMF, central banks
Asias banking
opportunity is vast,
but fragmented and
hard to access
Many players in Asian

cross-border banking, but
few with true scale and a
regional platform
However, while the opportunity is vast and there are many players in Asian
cross-border banking, the reality is the markets are fragmented, highly varied
and there are few banks with the scale and platform to compete. These are
the Usual Suspects - HSBC, Citigroup and StanChart - and there are fewer
than a dozen realistic challengers.
Few banks have scale and true cross-border specialisation in Asian banking
4,000
Global assets (US$bn)
3,500
ICBC
3,000
MUFG
JPM
2,000
1,500
Mizuho
SMFG
Citi
ANZ
500
0
StanChart
UBS
1,000
= US$5bn in Asian
cross-border revenue
HSBC
BOC
2,500
10
SG & MY banks
20
30
40
BEA
Asian cross-border rev as % grp
50
60
70
80
Source: CLSA, company data
5 June 2015
3

Asian banks
Executive summary
Its commonly asserted

that competition has
changed; has become
more intense
There are few regional

challengers with capacity
to compete head-on with
the Usual Suspects
We often hear the assertion that the longstanding regional leaders have seen
their primacy eroded, that the competitive environment has shifted
structurally. We dont see the evidence for it. To the contrary, our analysis of
the banks and markets suggests that the Usual Suspects have entrenched
and persistent advantages. In overall scale, in the breadth and depth of their
regional networks and in their deposit funding bases, HSBC, Citigroup and
StanChart are in a league of their own.
Asian cross-border banking revenue by geographical mix
25
(US$bn)
Australia
Korea
Philippines
20
China
India
Thailand
Hong Kong
Singapore
Other
Taiwan
Indonesia
Japan
Malaysia
15
10
5
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Many challengers have

their own hurdles and
headwinds to overcome
Perhaps just as important, the oft-cited regional challengers are themselves

subject to significant constraints and hurdles in their ambition to unseat the
incumbent leaders. These constraints are structural, needing time, resources
and will to overcome. Its not easy to replicate the broad and deep legacy
regional banking networks of the Usual Suspects.
China and Japan are likely

to produce the strongest
regional challengers
We believe that the Chinese and Japanese banks - exemplified by their

leading regional challengers, BOC and MUFG - are most likely to present the
strongest threat on a medium-term view, given their greater relative balancesheet strength and, perhaps, willingness to suffer the short-term value
destruction required to muscle their way into regional markets.
Despite their ambitions,

many regional
challengers lack required
strength and capability
Asian cross-border banking franchise scale, strength and ambition
Franchise strength
No large challenger with

a strong regional
platform and ambition BOC? MUFG?
HSBC
Citi
The usual
suspects
StanChart
BOC
ANZ
UOB
Maybank
DBS
Mizuho
CIMB
OCBC
SMFG
Regional challengers
= US$2bn in Asia cross-border revenue

0
MUFG
Ambition/ aggression
3
5 June 2015

Asian banks
Executive summary
Citigroup, StanChart and

BOC are BUY rated
Among the banks we have analysed we have three BUY recommendations:

Citigroup, StanChart and BOC. In each case, the relatively positive outlook
for Asian regional operations contributes to our positive view of the stocks,
and these are either established regional leaders (Citigroup and StanChart) or
promising emerging challengers (BOC). We maintain our High Conviction BUY
on StanChart as its strong Asia franchise as one of the Usual Suspects
contributes to our confidence in the bank turnaround under its new CEO and
executive team.
SMFG and CIMB

are SELL rated
At the other extreme, we have two SELL recommendations in the list, but
here the link is more tenuous. Brian Waterhouses SELL recommendation on
SMFG is driven more by the overall group outlook and disappointment over
the stinginess of recent capital management than its Asian operations, which
are proportionately small. Anand Pathmakanthans SELL recommendation on
CIMB reflects the tough earnings outlook for the group overall, though the
observed earnings weakness in its material Indonesian operations is a
significant contributor to group underperformance.
Recommendations and comps

Code
Price Mkt cap

(lcl) (US$bn)
CLSA
rec
Target Upside
(%)
The Usual Suspects
PE
(x)
EPS gwth
(%)
PB
(x)
Div yield
(%)
FY1
FY2
FY1
FY2
FY1
FY2
FY1
FY2
10.1
18.3
10.1
1.00
0.97
5.3
6.0
HSBC
5 HK
73.90
186
O-PF
80.00
8.3
11.1
Citigroup
C US
55.63
169
BUY
73.00
31.2
9.9
8.7 154.3
14.2
0.81
0.75
0.3
1.2
StanChart
2888 HK
122.20
40
BUY
180.00
47.3
8.8
7.3
76.6
19.7
0.84
0.80
5.5
5.5
BOC
3988 HK
5.18
208
BUY
6.30
21.6
6.9
6.6 (2.2)
4.9
0.97
0.88
4.8
5.0
MUFG
8306 JP
914
104
O-PF
990
8.3
11.5
10.5
9.3
8.9
0.79
0.74
2.0
2.2
ANZ
ANZ AU
31.92
69
U-PF
33.50
4.9
11.9
11.7
3.1
1.8
1.65
1.57
5.8
5.9
DBS
DBS SP
20.11
37
O-PF
22.70
12.9
11.8
10.9
9.6
8.6
1.25
1.16
3.0
3.2
UOB
UOB SP
22.72
27
O-PF
26.05
14.7
11.3
10.9
1.8
3.7
1.24
1.16
3.5
3.6
OCBC
OCBC SP
10.04
30
U-PF
11.10
10.6
10.6
10.5 (7.9)
1.6
1.23
1.14
3.8
4.0
SMFG
8316 JP
5,574
64
SELL
4,800
(13.9)
10.3
28.3
6.8
0.82
0.79
2.7
2.2
Mizuho
8411 JP
267
53
U-R
235
(12.1)
10.8
10.5 (2.6)
3.3
0.77
0.74
2.8
2.8
CIMB
CIMB MK
5.32
12
SELL
4.70
(11.7)
11.2
10.5
19.2
13.5
1.12
1.05
3.4
3.9
Maybank
MAY MK
9.16
24
O-PF
10.00
9.2
13.1
12.4 (5.4)
5.2
1.53
1.45
6.1
6.4
Challengers
9.6
Note: Sorted by relative size in Asian cross-border banking; Raising target from HK$76 to HK$80; Moving from Underperform to Under Review.
5 June 2015
5

Asian banks
Section 1: Dawn of a new order
Dawn of a new order

Allalba vincero!
~ Prince Calaf, Turandot
Asian century
Asia overtook N America

as the worlds largest
regional economy
during the GFC
Asia, by which we mean East Asia, South Asia and the Pacific countries 1 ,
reached a rough level of economic parity - as measured in US-dollar GDP with North America and Europe in the 1990s. As Figure 1 shows, however,
Japan led that drive to parity. In the following two decades Japans economy
has declined significantly in relative size but that descent has been more than
offset by China, primarily, but also by growth in the rest of Asia.
Figure 1
Asia offers growth;

Europe and the USA
relative stagnation
GDP in current US$
25,000
(US$bn)
China
Other Asia-Pac
N America
20,000
S Asia
Japan
Euro area
GFC
15,000
10,000
5,000
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Source: CLSA, World Bank
While these relative growth trends had been obvious for years, if not decades,
the GFC that erupted in 2008 was a pivotal moment in the ascendancy of Asia
as the new economic centre of the world. The USA suffered a material
setback in economic growth and the Eurozone is still limping through a drawn
out recovery. It was also during this period that China surpassed Japan as
the worlds second-largest economy, more than doubling its nominal GDP
since 2008, while Japan has been treading water.
Asias relative underdevelopment promises
sustained superior
structural growth
Given Asias population preponderance (60% of the worlds people) and scope
for catch-up growth of relatively underdeveloped economies, it is no
surprise that the region has finally reclaimed its position of economic
dominance, lost when the West industrialised in the 18th and 19th Centuries.
This is all pretty obvious and well-known. Things get more interesting and
complicated when we look at the relative size of banking and credit markets.
Banking as an industry both drives and feeds off economic growth, through
the creation and intermediation of money and credit. That is, banking growth
is necessarily correlated with economic development.
Asia traditionally incorporates the bulk of Turkey, much of the Middle-East, Central Asia
and trans-Ural Russia. We exclude these in our definition of Asia.
5 June 2015

Asian banks
Banking and financial

development financialisation - lags
economic development
That said, the size and sophistication of banking systems often lags the
development of host economies. Richer countries tend to have deeper and
more sophisticated financial systems. Thus, the size of Asias banking and
credit markets have lagged Western capital markets. To this structural
issue we can also speculate on the extent of overleveraging in Western
economies in recent decades, resulting in their current debt hangover
and sluggish growth.
Figure 2
Weight of world finance is

tilting east, to Asia
Private sector credit in current US$
40,000
(US$bn)
China
Other Asia-Pac
N America
35,000
S Asia
Japan
Euro area
GFC
30,000
25,000
20,000
15,000
10,000
5,000
2013
2012
2010
2011
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1998
1999
1997
1996
1995
1994
1993
1992
1991
1990
Asia has yet to surpass the massive North American market in aggregate
credit. However, it overtook Europe during the GFC - despite, again,
Japans relative decline - and is gaining quickly on USA/North America.
Figure 3
Chinas rise is the most

important Asian growth
driver, but rest of Asia
(ex-JP) also contributed
Relative growth rates in private sector credit by region/country
25
(%)
Cagr 1990-2008
Cagr 2008-2013
20
15
10
5
0
(5)
China
Japan
S Asia
Other
Asia-Pac
N America
Euro area
World
Growth trends point to

Asia overtaking North
America within a decade
5 June 2015
Its always dangerous to over-extrapolate from recent growth trends but we

believe it fairly safe to assume that on relative economic growth alone Asias
aggregated credit markets are also likely to surpass North America within the
next decade or so, shifting the fulcrum of world finance to the East.
7

Asian banks
But Asian financial

systems are fragmented
and vary widely in their
stage of development
As noted, stages of economic development and financialisation - ie, the

deepening and broadening of financial systems and markets - vary widely
across countries. Alongside the potential for more rapid economic growth as
underdeveloped Asian countries gain on richer Western nations, the
deepening of their financial systems should also contribute to more rapid
growth in banking systems, as evidenced by the past few decades.
Indeed, when we look at crude measures of economic development - ie, GDP
per capita - and financial depth - ie, private sector credit/GDP - it becomes
even more obvious that Asias banking systems in aggregate have massive
structural potential to continue growing at rates far exceeding the West.
Figure 4
Asia contains both

advanced and very
backward economies and
financial systems
Economic development, credit penetration and credit
Private sector credit/GDP (%)
250
Japan
200
China
150
USA,
US$32tn
100
Other Asia
India
50
Eurozone
Size of bubble =
private sector credit
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Even Figure 4 above doesnt do justice to Asias potential, as the current pool
of credit is skewed by those relatively more developed countries, eg, Korea,
Australia and the financial centres of Hong Kong and Singapore. If we break
down Asia by country the banking growth potential of India, Indonesia and
the Philippines becomes even more stark.
Figure 5
Asias population
preponderance in poor,
underdeveloped financial
systems implies much
more rapid structural
growth than in the West
Population, growth and financialisation - Asian banking can grow faster for longer
Credit/GDP (%)
350
China
Taiwan
Malaysia
200
150
India
Singapore
Hong Kong
250
100
UK
Japan
300
USA
Korea
Eurozone
Thailand
Australia
= population 300m
Philippines
50
0
Indonesia
0
10,000

20,000
30,000
40,000
50,000
60,000
70,000
5 June 2015

Asian banks
This is even before we

include more than half a
billion people in Asias
frontier markets
Now for the bad news
Moreover, the previous analysis does not include frontier markets in Asia
that have huge populations but are economically underdeveloped and
underpenetrated in banking terms. Just four of these frontier countries
comprise half a billion people: Bangladesh (population: 157m people),
Myanmar (51m), Pakistan (196m) and Vietnam (90m). These four countries
are 50% larger than the European Union in population, but tiny in their
relative economic and financial size.
Cross-border opportunity
Hopefully the preceding section has convinced the reader of the stupendous
scale and scope of the growth opportunity in Asian banking. Now for the bad
news: in practice its hard to access.
Stijn Claessens and Neeltje van Horen of the IMF2 track the degree of global
financial integration and their data shows considerable variation in the share
of Asian banking assets controlled by foreign banks.
Figure 6
Proportion of bank assets controlled by foreign banks
Thailand
Taiwan
Singapore
Philippines
Malaysia
Korea
2013
Indonesia
India
Hong
Kong
China
Australia
2005
Japan
(%)
EU
100
90
80
70
60
50
40
30
20
10
0
USA
Typically, Asian banking

systems are relatively
closed and difficult
to access
Source: CLSA, Claessens & van Horen (2014)
Regulatory and economic

barriers to entry make it
hard for foreign banks to
access this growth
Unlike the massive US and EU capital markets, which are relatively

homogenous in pattern of development and regulatory environment, Asia is
fragmented and extremely heterogeneous. In particular, many markets have
considerable regulatory barriers to entry that restrict foreign banks access to a
trivial share of the market - China and India, in particular, fall into this group.
At the other extreme a handful of markets such as Hong Kong and Singapore
are thoroughly open and sophisticated regional financial centres. In other
markets, barriers to entry reflect domestic concentration and/or incumbency
advantages.
Occasional windows of
opportunity when
access improved
Figure 6 overstates the openness of many Asian markets. Foreign banks in

many of the regions countries owe their positions to legacy historical (eg,
colonial) entry and/or the permitted acquisition of local franchises at
opportune moments. This is notably the case in Indonesia, Korea, Malaysia
and Thailand, where substantial entry for foreign banks is far more difficult
today than it was in, say, the aftermath of the Asian Financial Crisis (AFC) in
the late 1990s/early 2000s.
These are not easy markets to enter today, as DBS of Singapore, for example,
discovered in its recently blocked (and thus aborted) attempt to purchase Bank
Danamon of Indonesia. Contrast DBSs failure with the successful Indonesia
banking acquisitions made by Farallon Capital (BCA), Temasek (Danamon),
CIMB (Niaga), Maybank (BII) and StanChart (Permata) in the early 2000s.
2
Stijn Claessens and Neeltje van Horen (2014), The Impact of the Global Financial Crisis on
Banking Globalization, IMF Working Paper.
5 June 2015
9

Asian banks
The barriers to crossborder banking have

resulted in narrow
home-country bias . . .
In practice, entry into many Asian banking markets has thus been limited to
historical windows of opportunity. Growing openness and sophistication
should lower these barriers over time, but Asias banking markets today are
highly balkanised and difficult to access for most foreign banks.
. . . and the dearth of

regional champions
There are thus many barriers for foreign banks, whether those banks come
from Asia itself or elsewhere, in exploiting the growth potential of many
markets. This has contributed to the dearth of indigenous regional
champions in Asian banking. Most Asian banks focus nearly exclusively on
their home market and do not participate in the growth of other Asian
banking systems or the growing cross-border banking opportunities from
banking corporate customers international needs.
Even the largest global

banks resign themselves
to more easily-accessed
wholesale markets
Similarly, even the largest global banks from other regions (ie, Europe and
the USA) tend to concentrate their Asian operations in the most easilyaccessed wholesale capital markets - ie, investment banking and wholesale
lending - and do not reach down into full service commercial banking, let
alone retail banking.
There is a small number of exceptional banks, both from Asia and elsewhere,
that do have material regional spread and diversification, but these positions
have been hard won through historical legacy or cross-border acquisition. As
these banks are the subject of this report, we will be discussing them at
length in the following sections.
Cross-border banking matters
Growing opportunity in
servicing the cross-border
banking needs of regional
and global corporations
Aside from the natural desire to participate in the variety of rapidly growing
Asian banking systems, cross-border banking also taps into the emerging
needs of regional and global multinational corporations that straddle multiple
countries and demand banking support and services.
Given the earlier discussion on the growing economic clout of Asia it should
not be too surprising that Asian companies now dominate the ranks of the
Fortune Global 500 (see Figure 7 below), overtaking both Europe and the USA
in the past dozen years, driven primarily by the rise of corporate China to add
to the existing ranks of Japanese giants.
These Asian corporations need banking support not just in their home
countries, but regionally and globally. Servicing these corporations is a major
opportunity that will be captured by banks that either have or develop the
necessary capabilities and geographical footprint.
Figure 7
Corporate weight follows

economic heft
Number of Fortune Global 500 companies by region of origin
250
2001
2014
200
150
100
50
0
North America
Europe
Asia
Source: CLSA, Fortune
10
5 June 2015

Asian banks
Asian intra-regional trade massive and growing
Asia built its growth

miracles on trade- and
investment-focused
One way to gauge the growth opportunity in this space is to consider Asias
changing trade patterns. Most observers of Asias economic growth miracles
understand the importance of trade and net exports in helping countries like
Japan, Korea, Taiwan, Singapore and China drive economic growth. Currentaccount surpluses with Western countries - principally the USA - were the
flipside of domestic savings-investment imbalances in fixed exchange-rate
regimes required to support rapid capital accumulation and industrialisation.
However, as shown in Figure 9, even as early as 2000 exports to other Asian
countries were far more dominant export destinations for Asian countries
than North America and Europe.
Figure 8
But intra-Asian trade has

long dominated
USA and Europe in
relative importance
Merchandise exports by reporting region and destination, 2013
(US$tn)
Exports to:
Other
S & C America
North America
Middle East
Europe
Asia
Africa
6
5
4
3
2
1
0
Africa
Asia
Europe
Middle East
North
America
S. & C.
America
Other
Source: CLSA, World Trade Organisation
In recent decades broader and more nuanced economic growth, involving far
more complicated supply chains, has driven considerable growth within Asia
as Asian economies have traded more with each other. Intra-regional trade
has thus grown even faster relative to exports to North America and Europe
over the past 13 years, despite being the largest share (see Figure 10 below).
Figure 9
Figure 10
Asia exports by destination
Asian-export Cagr by destination, 2000-13
100
(%)
80
60
World
26
18
S & C America
North America
17
Other
S & C America
49
Africa
16
North America
Middle East
Asia
16
15
Europe
40
20
Other
10
Middle East
53
15
Europe
Asia
11
Africa
2000
2013
18
10
15
(%)
20
Source: CLSA, World Trade Organisation
5 June 2015
11

Asian banks
There are developing

economic groupings
within Asia
Regional integration
Although Asias banking landscape is fragmented and highly varied, there are
identifiable economic groupings, or proto-groupings, that increase economic
and financial integration. The most obvious examples are Greater China, as
Hong Kong and Taiwan have become more integrated with the mainland, and
Asean, as it moves towards and through the creation of the Asean Economic
Community (AEC) by end-December 2015.
Region by country mix
Given some crude metrics it is possible to segregate Asias banking systems

into subgroups with similar characteristics, eg, around levels of absolute size,
credit penetration and growth potential. Figure 11 shows a simple map of
some of these.
Figure 11
Asia is incredibly diverse

in the nature of its
banking systems
Diversity in Asian banking systems
Credit/GDP (%)
350
300
UK
USA
Japan
Singapore
China
250
200
Korea
Taiwan
Hong Kong
Malaysia
150
Australia
100
India
Philippines
50
0
Eurozone
Thailand
= US$10tn in credit
5
Indonesia
Population (m, log)
50
500
Source: CLSA, central banks, IMF, World Bank

Figure 12
Chinas rise to dominance

reflects its population and
Asian countries by banking system loans & population
16,000
(US$bn)
(m)
Banking loans
Population (RHS, log scale)
14,000
1,000
12,000
10,000
100
8,000
6,000
10
4,000
2,000
Pakistan
Bangladesh
Philippines
Vietnam
Indonesia
Thailand
Malaysia
Singapore
HK
Taiwan
India
Australia
Korea
Japan
1
China
Source: CLSA, central banks
Chinas banking system is

massive but India and
Indonesia have greater
growth potential
12
1. Mega markets - countries with very large populations and thus

potentially large banking systems. This obviously includes the two
demographic superpowers, China and India, but arguably also
5 June 2015

Asian banks
Indonesia (population 252m). Within this group there is a huge divide

between China, with very high levels of credit penetration (China is in the
middle of a gargantuan credit bubble, in our opinion), and the much less
financially developed India and Indonesia. The implication is that India and
Indonesia offer greater structural growth than China, which has already
accumulated a massive debt burden for what is still an emerging economy.
Hong Kong and Singapore
are highly developed
regional financial hubs
2. Financial centres - at the other extreme are the small city-states - ie,
Hong Kong and Singapore - with highly developed capital markets. In
absolute size these are relatively small credit systems but relative to their
small populations highly sophisticated. These centres are also important as
booking centres for regional banking and typically serve as hubs for
regional and global banking groups, with Hong Kong increasingly
dominated by Greater China and Singapore likewise the entrept for Asean
and, to a lesser degree, South Asia.
Medium-sized markets
offer opportunities but
are neither compelling
nor easy to enter
3. Middle-markets - due to the intermediate size of their populations and

middle- to high-income developments, these banking systems are of
material size but lack the scope of growth potential seen in large markets.
Unlike financial centres, they tend also to be domestically dominated
without substantial regional connectivity. This includes relatively developed
banking systems like Australia, Korea and Taiwan, but also lessdeveloped middle-income countries such as Malaysia and Thailand.
Several frontier markets

that are trivial in size but
have substantial longterm potential
4. Developing growth - these share some of the characteristics of the

mega-markets above, notably relatively large populations that are
economically underdeveloped and have low credit penetration. Where
these countries - ie, the Philippines, Vietnam, Pakistan and
Bangladesh - differ is that current levels of credit outstanding make them
relatively trivial in a regional context right now. They have compelling
growth optionality - we nominate the Philippines as particularly attractive
in this context - but their relatively small economic size makes them less
compelling, which correlates with their frontier designation, for the most
part. Note that we do not cover Bangladesh, Pakistan or Vietnam.
Japans banking system is

very large but ex-growth
5. Geriatric market - this is a group comprised of only one banking system,

Japan, which suffers from an extreme combination of demographic
decline, economic stagnation and high credit penetration, though that is
dominated by government debt. While a very large banking system by
regional (and global) standards, its growth prospects are dim.
5 June 2015
13

Section 2: OPM wars
Asian banks
OPM wars
Never get involved in a land war in Asia.
~ General Douglas MacArthur
Silo markets
Patchwork of fragmented
silo markets
In this section we introduce the key players in the contest for OPM, ie, other
peoples money, the Asian cross-border banking prize. As noted above, Asias
banking systems show little relative international integration, with the
exception of open regional financial centres like Hong Kong and Singapore.
Asias banking landscape is thus characterised by fragmented and silo-like
country-level banking systems.
Focusing on the home

market is often the most
rational strategy
Most Asian banks are highly focused on domestic opportunities and tend not to
pursue cross-border banking. There are good economic reasons to stay put. The
opportunities in some domestic banking systems are simply much more attractive,
eg, high-growth and/or high-return banking systems like Indonesia and India.
Moreover, a bank expanding out of its home country into a foreign market typically
sails into two headwinds: losing its home ground advantage and suffering the
scale and inertia disadvantages of a new entrant. The latter point explains why
foreign expansion is often pursued via cross-border acquisitions.
For most of the big US

and European banks, Asia
is a small contributor
Many European and North American banks have been drawn to Asia. For
some their Asian operations are sizeable. Relative to their global scale,
however, Asia is a small contributor for all but a handful of Western banks.
Only a few banks from

any region have
substantial cross-border
revenue from Asia
Figure 13 maps out the global assets and Asia-cross border revenue of large
European, North American and Asian banks. By Asian cross-border revenues
we refer only to banking revenue earned in Asian markets, excluding a banks
home country, whereas assets include all (ie, global) banking assets.
Figure 13
Western and Asian banks by global assets and Asian cross-border revenue
3,500
3,000
(US$bn)
Assets
Asia X-border revenues (RHS)
(US$bn)
Western banks
30
25
2,500
20
2,000
15
1,500
10
1,000
500
0
HSBC
BARC
RBS
BNP
CA
DB
UBS
CS
SG
BPCE
Sant
ING
STAN
Unicredit
Nordea
BBVA
State
JPM
BoAML
Citi
Wells
BoNYM
NAB
CBA
WBC
ANZ
ICBC
CCB
ABC
BOC
CDB
Bocom
CMB
Minsheng
BOCHK
HSB
BEA
SBI
BOB
ICICI
BOI
PNB
HDFCB
Canara
Axis
Corp
Kotak
BMRI
BRI
BCA
BNI
MUFG
Mizuho
SMFG
Hana
Shinhan
KB
Woori
IBK
Maybank
CIMB
Public
BDO
MBT
BPI
DBS
OCBC
UOB
BoT
Mega
TCB
CTBC
Land
First
BBL
SCB
KTB
KBANK
Note: Asian cross-border revenue includes revenue from Asian countries excluding a banks home market. Source: CLSA, company data
14
5 June 2015

Section 2: OPM wars
Asian banks
This comparison allows us to highlight a number of key points:

Few global giants from
Asia - mostly from
China and Japan
1. Asia has relatively few truly large banks by global standards, with only
Chinese, Japanese and, to a lesser extent, Australian banks comparable in
size to the largest European and US banks.
Few banks with sizeable

Asian cross-border scale
2. Few banks - Western or Asian - have sizeable (eg, US$5bn-plus) Asian

cross-border revenue, and this is typically independent of global size. For
instance, Barclays of the UK and ICBC of China are both very large by total
assets but their Asian cross-border revenues are just a little larger than
DBS of Singapore, which is a fraction of their global size.
Only a little over a dozen

banks have a sizeable
cross-border presence
in Asia
3. In fact, there are only about a dozen banks globally that have a sizeable
cross-border presence in Asia, and there are three to four in particular that
stand above their peers: HSBC, Citigroup, StanChart and Bank of China.
But what if we place Asian cross-border revenue in the context of total Asian
revenue? Figure 14 below shows all Asian revenues for the same banks, but
split between domestic (home-country) Asian banking revenue and those
from foreign countries in Asia. Naturally, for European and North American
banks all Asian revenues are cross-border.
Figure 14
Asian banking revenues - domestic and cross-border
100
(US$bn)
Asia domestic revenue
Asia X-Border Revenues
Asia x-border as % of global (RHS) (%)
Western banks
90
70
80
60
70
50
60
50
40
40
30
30
20
20
10
HSBC
BARC
RBS
BNP
CA
DB
UBS
CS
SG
BPCE
Sant
ING
STAN
Unicredit
Nordea
BBVA
State
JPM
BoAML
Citi
Wells
BoNYM
NAB
CBA
WBC
ANZ
ICBC
CCB
ABC
BOC
CDB
Bocom
CMB
Minsheng
BOCHK
HSB
BEA
SBI
BOB
ICICI
BOI
PNB
HDFCB
Canara
Axis
Corp
Kotak
BMRI
BRI
BCA
BNI
MUFG
Mizuho
SMFG
Hana
Shinhan
KB
Woori
IBK
Maybank
CIMB
Public
BDO
MBT
BPI
DBS
OCBC
UOB
BoT
Mega
TCB
CTBC
Land
First
BBL
SCB
KTB
KBANK
10
0
80
This reinforces the key points more starkly: the Chinese banking industry is
massive but remarkably domestically focused, as are the vast majority of
Asian banks.
Very few Western banks
with Asian operations
that are large in absolute
and relative size
5 June 2015
Similarly, there are very few Western banks that have both material scale in
Asian banking revenues and see those Asian revenues as a material
proportion of group revenues. StanChart is the Western bank most clearly
focused on Asia but even HSBC earns close to two fifths of its revenue from
Asia and Citigroup a fifth. Among the second-tier are large
wholesale/investment banks like JPMorgan, UBS, Deutsche Bank, Bank of
America Merrill Lynch and Credit Suisse, which have material Asian revenues
but these are typically a much smaller proportion of global group revenues
and highly skewed to investment banking as opposed to commercial banking.
15

Asian banks
Section 2: OPM wars
We focus on banks with

scale and focus in
cross-border
commercial banking
For our purposes in identifying and comparing regional banking leaders or

champions we have three major criteria:
1. Scale in Asian cross-border banking - the banks that have breadth and
depth in banking operations across the region;
2. Relative specialisation - Asia should be a meaningful proportion of
group operations and thus a strategic focus; and
3. Commercial banking - we are most interested in banks operating in
traditional
commercial
banking
and
less
so
broad
capital
markets/investment banking.
Large global banks

dominate by total crossborder Asian revenues
Keeping these three criteria in mind and weeding out the smaller banks in
Asia we recut the data to produce the following chart, highlighting in yellow
those banks that best make the cut.
Figure 15
But for most, Asia is 10%

or less of global revenues
Few banks have both scale and true cross-border specialisation in Asian banking
4,000
Global assets (US$bn)
3,500
ICBC
3,000
The list of banks with
material cross-border
revenues in Asia and
relative specialisation is
much smaller and led by
HSBC, Citi and StanChart
MUFG
JPM
2,000
1,500
Mizuho
SMFG
Citi
ANZ
500
0
StanChart
UBS
1,000
= US$5bn in Asian
cross-border revenue
HSBC
BOC
2,500
10
SG & MY banks
20
30
40
BEA
Asian cross-border rev as % grp
50
60
70
80
There are some marginal

cases that we have
excluded from analysis
Before focusing on the banks we have included in the list, it is important to

explain briefly the reasons why we have not selected certain banks.
Single-country focus - BEA of Hong Kong has a very high proportion of

cross-border revenues, but these revenues are almost exclusively from
mainland China and Macau; BEA has little in other parts of Asia.
Investment banks - groups such as Bank of America Merrill Lynch, UBS
and Credit Suisse have sizeable Asian revenues but these are concentrated
in capital markets/investment banking and wealth management in
developed financial centres, not broader commercial banking.
Less focus - banking giants JPMorgan and ICBC have sizeable crossborder Asian banking revenues, but these are a small proportion of group
revenues and more a function of overall scale than strategic focus.
There are two more banks that we believe are more arguable cases:
Deutsche Bank and BNP Paribas.
Deutsche Bank and BNP
Paribas are both arguable
cases given their scale in
Asian and globally
16
Both are large global players with sizeable Asian revenues and a broad base
of commercial banking operations across Asia. They are both noticeably
prominent in transactional banking in Asia, helped by their leadership in
Europe - their strength in servicing the European side of Asia-Europe banking
is clearly an advantage.
5 June 2015

Asian banks
Section 2: OPM wars
Asia is a relatively small

contributor, neither bank
reports considerable
financial data
However, for both Deutsche and BNP, Asia is a relatively small regional
contributor and, aside from the consequently arguable strategic focus, this
creates a material problem in our analysis: neither bank reports considerable
financial data on its Asian operations. This makes it difficult for us to compare
their Asian operations with peers in any detail. As a result we will occasionally
make reference to these banks in following discussion, but will not focus
much analysis upon them directly.
Our list of regional leaders and challengers is thus highlighted in Figure 16.
Figure 16
Usual Suspects dominate

the list along with BOC
and Japans megabank
Banks with Asian x-border scale and specialisation, ranked by x-border revenues
30
25
(US$bn)
23.7
20
14.7
15
12.6
12.0
10
2.7
2.7
2.4
2.4
2.3
2.2
1.9
1.9
ANZ
DBS
UOB
OCBC
SMFG
Mizuho
CIMB
Maybank
5.7
5
MUFG
BOC
StanChart
Citi
HSBC
We present more detailed company summaries at the end of the report, but
we provide some background on these banks below before we move on to
more detailed comparative analysis in Section 3.
We focus first on current
and traditional leaders
The Usual Suspects
A handful of banks have traditionally dominated cross-border banking in Asia,

and still do. As shown above, these banks are in a different league in terms of
cross-border banking scale, but their breadth and depth of operations is also
quantitatively and qualitatively different from other banks in the region.
HSBC, Citigroup and StanChart have more than a century each of history
in Asia and over this time have accumulated networks of coverage and
corporate relationships that are unmatched by other players. Their
geographical footprints and business mix are different but they share one
characteristic: they are the commercial banks most often met as leading
competitors in Asian corporate banking.
A legacy of 150 years of

leadership in Asia
HSBC went global in the

1980s and 1990s
5 June 2015
HSBC
HSBC was founded in Hong Kong and Shanghai in 1865, growing to dominate
the Hong Kong banking industry and even to function occasionally as its
lender of last resort before the formal creation of the Hong Kong Monetary
Authority in 1993. From its dominant position in Hong Kong, HSBC grew
throughout Asia, benefiting from the reach of the British colonial empire.
From the late 1980s, HSBC expanded aggressively into the UK, North America
and Europe in the pursuit of a more global footprint and diversification away
from concentration in Hong Kong, prior to the handover of control of the
HKSAR to the Peoples Republic of China in 1997.
17

Asian banks
Section 2: OPM wars
The acquisition of
Midland Bank triggered
the redomicile from
Hong Kong to the UK
The pivotal acquisitions were Midland Bank in the UK over 1987-92, which
triggered the creation of HSBC Holdings and redomicile from Hong Kong to
the UK, and Household International, a US subprime lender in 2003. These
two acquisitions radically shifted HSBCs geographical focus to Europe and
North America, visible from 1991 to 2005 in Figure 17 below.
Figure 17
Past decade has seen Asia

re-emerge as HSBCs
core driver after European
and US expansion met
with disappointment, with
a lot of help from the GFC
HSBC group revenue by geography
100
80
(%)
Hong Kong
Rest of A-P
27
LatAm
10
13
32
44
40
35
35
49
18
7
6
23
N America
10
11
9
20
MidEast
14
4
60
Europe
9
1991
2000
15
2005
20
2014
Household purchase in
USA was exceptionally
destructive
Household gave HSBC a substantial increase in US exposure but the entirety

of its investment was effectively written off in the GFC Crisis of 2007-09 and
the attendant subprime implosion. This, and the following run-off/downsizing
of the US operations, explains the compression in North American revenue
from 2005 to 2014. Its testament to the resilience of the HSBC group attributable to both scale and diversity - that it was able to absorb these
massive losses and yet still remain the leading regional bank in Asia (and,
indeed, a leading global bank).
HSBC remains formidable

in Hong Kong and strong
throughout Asia
HSBC retains by far the leading position in Hong Kong, owns 19% of Chinas
sixth-largest bank (Bank of Communications) and has a strong platform of
banking operations right across Asia. Geographically, it is most skewed to the
UK and Hong Kong banking markets, but has sizeable exposure to the rest of
Asia, North America, Latin America and the Middle-East.
Citis antecedents have a

long history in Asia
18
Citigroup
Citigroup is the creation of multiple mergers - most importantly the TravelersCiticorp merger of 1998 - but the core antecedent that gifted todays group
with its Asian network was International Banking Corporation (IBC). IBC was
a US bank founded in Connecticut in 1901 to specialise in Asian trade finance,
opening branches in Shanghai, Singapore, Hong Kong, Yokohama and Manila
in 1902 and Bombay soon after.
Citigroup is the one US

bank with a legacy of
international success
IBC was acquired by National City Bank (founded as City Bank of New York in
1812) over 1915-18. From that point on National City Bank (later renamed
First National City Bank, then Citibank) was the most international of the
USAs banks and it continued to build upon its Asian and Latin American
network, unrivalled by any other US bank.
But Citibank had

its share of disasters
Rapid domestic and international expansion was temporarily derailed in the

early 1990s when bad debts in US real estate, Latin America and Australia
forced a recapitalisation and restructure. While Citicorp rebounded from the
5 June 2015

Asian banks
Section 2: OPM wars
experience, its weakened state facilitated the 1998 takeover by Travelers

Group, a financial-services conglomerate dominated by insurance and
investment banking.
The core Citibank is
finally re-emerging from
the ill-fated CitigroupTravelers merger
The renamed Citigroup demerged and disposed of the insurance operations

over 2002-05 before enduring another near-death experience in the GFC, as
substantial losses in the US business forced a US government rescue and set
the course for another group restructuring. In 2012 the chairman and CEO
roles were turned over, with new chairman Michael ONeill and CEO Michael
Corbat launching another restructuring aimed at returning Citigroup to its
core commercial banking roots.
Figure 18
Asia has been a

consistent and growing
contributor to the group
Citicorp/Citigroup revenue by geography
100
80
60
N America
(%)
11
20
9
LatAm
EMEA
Asia-Pacific
18
20
12
15
21
15
19
40
59
62
57
45
20
0
Citicorp 1991
2000
2005
2014
Source: CLSA, company data EMEA = Europe, Middle-East & Africa
Citigroup is the Usual

Suspect least exposed
to Asia
Of the three large regional banking groups, Citigroup is proportionally the

least exposed to Asia and has a greater relative skew to investment banking
and US domestic operations. Its international operations are well-spread
across Asia, Latin America and Europe (including Eastern Europe, the MiddleEast and Africa).
Standard Chartered
StanChart is the smallest of the three regional banking champions but the
bank most proportionally exposed to Asia.
A regional network that

dates back well into the
19th Century
StanCharts history is similar to that of HSBC, as a British colonial bank

established to facilitate 19th Century trade and finance. StanChart is different
in that it has two separate strands to its history. The Chartered Bank was
founded in 1853 to focus on India- and China-related trade whereas Standard
Bank was founded in 1862 in what is now South Africa to target Africa. These
two banks merged to form Standard Chartered in 1969.
Similar to HSBC, StanChart suffered numerous upheavals through its history,
ranging from two World Wars, revolution in China, apartheid in South Africa
and periodic regional and global economic downturns.
Unlike bigger and

stronger HSBC, StanChart
kept ambitions modest,
focusing on core regions
5 June 2015
Unlike HSBC, however, StanChart from the 1980s onwards shed its exposure
to domestic Western banking markets (principally the UK and USA) to focus
strategically on Asia, the Middle-East and Africa. This explains why its
proportional focus on Asia is so much greater than Western banking peers.
19

Asian banks
Section 2: OPM wars
Figure 19
StanChart reinforced its

focus on Asia, the MiddleEast and Africa over the
past two decades
StanChart group revenue by geography
100
80
(%)
Hong Kong
Other Asia
6
20
11
60
40
20
0
Africa
Mid-East
12
12
Europe
Americas
5
7
10
10
28
36
30
29
1992
2000
50
46
22
22
2005
2014
MESA = Middle-East & South Asia. Source: CLSA, company data
StanChart escaped the

worst of the GFC, but has
suffered from its own
problems in recent years
Relatively small exposure to Western capital markets enabled StanChart

to outperform Western banking peers through the GFC. However, the
group has stumbled badly over the past two years as chronic
underperformance in its Korean operations (acquired in 2005), margin
pressure from low US-dollar interest rates, weak financial-markets
revenue and rising credit costs have contributed to repeated earnings
disappointments and lower returns.
An impressive network in
growth regions is a good
basis for long-term
expansion
StanCharts network remains impressive, covering the bulk of Asia and

the Middle-East (principally the Gulf), with an unrivalled network in subSaharan Africa. Its business mix is dominated by its historical strength in
corporate/commercial banking, though it does have meaningful consumer
banking operations in selected countries such as Hong Kong, Singapore
and Korea.
New Kids on the Block
The principal threats to HSBC, Citigroup and StanChart leadership in Asian

cross-border banking are the emerging regional challengers from China,
Japan, Singapore, Malaysia and Australia.
BOC is Chinas foremost

international bank, having
built a sizeable offshore
balance sheet very rapidly
Bank of China
Bank of Chinas cross-border Asian banking revenues are much larger than
the other banks in this group, but it shares with them a relatively recent
history of cross-border growth and success. This is driven largely by:
1) the rapid growth of Chinas banking system since the 1980s;
2) Bank of Chinas legacy as Chinas most international bank; and
3) the success of Bank of China (HK), formed in 2001.
A multi-decade headstart
over its mainland peers
20
While BOC was subsumed into the PBOC over 1949-79, its foundation dates
back to the dying days of the Qing dynasty, in 1905. In 1979 it was carved
out of the PBOC and re-established as a separate policy bank to focus on
international and foreign-exchange banking. This has given BOC a multidecade headstart in international operations over domestic peers.
5 June 2015

Asian banks
Section 2: OPM wars
Figure 20
Figure 21
BOCs revenue mix by geography
BOCs revenue mix by geography - absolute numbers
100
(%)
Mainland China
HK, Macau & Taiwan

2
2
20
80
26
Other
5
15
500
450
(bn)
Mainland China
HK, Macau & Taiwan
Other
21
400
67
350
300
60
250
40
78
72
81
150
20
2004
2007
200
51
2
100
21
50
81
2014
369
141
2004
2007
2014
International operations
have not grown as a
share of the group, but
have grown quickly in
absolute terms
For BOCs geographical split we show both the proportion and actual amount
of revenue. While its foreign operations have actually shrunk as a percentage
of group revenue from 2004 to 2014, this is only because domestic China has
grown explosively. By any reasonable measure, BOCs offshore revenue has
grown quickly: ex-mainland revenue has posted 16% Cagr since 2004, or
28% if we exclude the more established Hong Kong, Macau and Taiwan
operations. As these numbers are in renminbi, which has appreciated
materially over the period, US-dollar-equivalent growth was higher.
However, bulk of BOCs

foreign exposure is
concentrated in HK
That said, we estimate more than half of BOCs foreign exposure is in Hong
Kong, in the form of its 66%-owned subsidiary, BOC (HK). The rest of its
international exposure is spread relatively thinly around Asia and the world.
This means BOC arguably lacks critical mass outside of Greater China.
However, given corporate Chinas rapidly growing need for international
banking support as it expands globally, we expect BOCs international
operations to continue to grow strongly. BOC will almost certainly be a
stronger international player in 5-10 years time.
Japanese banks first

emerged regionally and
globally in the 1980s
Domestic consolidation
has concentrated Japans
regional champions into
three megabanks
5 June 2015
Megabanks move out

The Japanese banks first gained international prominence in the 1980s, when
Japans economic rise was followed by the emergence of its banks as global
giants when measured by assets - much like Chinas banks today. At their
peak in the late 1980s Japanese banks emerged as aggressive balance-sheet
lenders around the world. Of course, this was followed by the lost decade of
the 1990s, with sizeable credit losses, restructuring and consolidation.
The three megabanks that emerged in the 2000s have in recent years
begun to expand geographically yet again and are much more active in
Asian regional banking. This is, in part, to enjoy the growth in regional
markets and to follow and fund their Japanese corporate clients in their
regional investments. It is also to escape their stagnant and unrewarding
home banking system, as well as the deliberate depreciation of the
Japanese yen by the BoJ.
21

Asian banks
Section 2: OPM wars
Figure 22
Japanese megabanks revenue split by geography
100
Japan
(%)
Americas
Europe
Asia x-JP
Other
80
60
40
20
0
Mar 04
Mar 09
MUFJ
Mar 14
Mar 04
Mar 09
Mizuho
Mar 14
Mar 04
Mar 09
Mar 14
SMFG
MUFG is Japans largest

bank and leading regional
challenger from Japan
MUFG is Japans largest financial group and one of the worlds largest banks,
with total assets of over 286tn. It is the result of two decades of mergers,
including the city banks Bank of Tokyo, Mitsubishi Bank, Sanwa Bank and
Tokai Bank and a number of trust banks. The final merger in 2005 was of
Mitsubishi Tokyo Financial Group and UFJ Holdings.
In Japan, MUFG runs a universal bank model, as well as securities,
investment banking, credit cards and consumer finance. Like other Japanese
megabanks it has been growing its offshore operations aggressively in recent
years. Its offshore loan book has grown 65% over the past three years, to
represent a third of group loans, spread across Asia, EMEA and the Americas.
MUFG took a 72% stake in Bank of Ayudhya in Thailand in 2013.
Mizuho is Japans second-largest universal bank, competing across retail
banking, corporate banking and securities. It was formed from the 2000
merger of Dai-Ichi Kangyo Bank (once the worlds largest bank), Fuji Bank
and Industrial Bank of Japan, inheriting the historical corporate-banking
strength and relationships of these banks.
Mizuho has nearly doubled its overseas loan book over the past three years,
taking it from 12% of group loans to 20%, with more than half of offshore
exposure in Asia, followed in size by the Americas, then Europe.
Mizuho and SMFG are

large by balance sheet
but are well behind MUFG
in Asian regional banking
SMFG is Japans third-largest bank, formed in 2001 from the merger of

Sumitomo Bank with Sakura Bank, itself formed from the earlier merger of
Mitsui Bank and Taiyo Kobe Bank. SMFGs business strategy has been more
focused on the core commercial banking operations of Sumitomo Mitsui
Banking Corporation, with less diversification into broader financial services,
though it also maintains subsidiaries in securities/investment banking, leasing
and consumer finance.
SMFG has increased its overseas loan book by 83% over the past four years,
spread across Asia, the Americas and EME and taking it to just under a
quarter of group loans. SMFG has taken stakes in BTPN in Indonesia, Bank of
East Asia in Hong Kong, Kotak Mahindra in India and Eximbank in Vietnam.
22
5 June 2015

Asian banks
Section 2: OPM wars
Singapores banks have

moved offshore in
significant fashion since
the late 1990s
Singapores expanding red dots

The history of foreign expansion for Singapores three banks divides into two
eras: that prior to the late 1990s and that after. The late 1990s marks not
just the Asian crisis, which forced open a number of previously closed banking
markets (eg, Indonesia), but also the beginning of Singapores banking
deregulation, which permitted foreign banks into the Red Dots domestic
banking industry, thereby catalysing a shift in strategy among its banks.
Figure 23
Singapore banks revenue split by geography
100
(%)
Singapore
Hong Kong
Other China
Malaysia
Indonesia
Thailand
India
Other Asia
Rest of World
80
60
40
20
0
2000
2007
DBS
2014
2000
2007
OCBC
2014
2000
2007
2014
UOB
Before the late 1990s the only material offshore presence of the Singapore
banks were relatively inert colonial legacy positions in Malaysia that predated
independence, alongside small outposts around the region and globe.
Opening up of Singapore
market triggered
domestic consolidation
and a push offshore
The opening up of domestic banking to foreign banks from 1999 triggered

consolidation of the pre-existing domestic players into three surviving
groups - DBS, OCBC and UOB - by 2001. Slowing domestic growth as the
banking industry matured and rising competitive intensity, notably from
foreign entrants, also pushed the Singapore banks to look outward to fastergrowing and more profitable markets in the region.
The offshore growth path of Singapore banks varied materially, however,
which explains the differences in their geographical spread, targeting
different geographies due to differences in strategy and opportunity.
DBS is most regionally

ambitious Singapore
bank, but also frustrated
by hurdles and setbacks
5 June 2015
The most regionally aggressive and ambitious Singapore bank has been
DBS. Established as the Development Bank of Singapore in 1968 by its
government, DBS focused primarily on corporate and wholesale banking
until the 1998 acquisition of the government-controlled Post Office Savings
Bank (POSB). This retail banking acquisition gave DBS a large domestic
deposits and mortgages business. DBS made a number of mostly
expensive and unsuccessful foreign acquisitions in the late 1990s and early
2000s in Thailand, Indonesia and the Philippines but by far its most
material purchase was the Dao Heng Group from 2001. This immediately
gave it the fifth-largest banking operation in Hong Kong and remains the
nucleus of its Hong Kong operations - by far its largest offshore business.
23

Asian banks
Section 2: OPM wars
DBS has long-presented itself as a regional champion with a stated desire to

expand in three key regions: Greater China, India/South Asia and Asean. In
respect to the latter, it attempted to acquire Bank Danamon of Indonesia
during 2012-13, only to be blocked by regulation.
In contrast, OCBC and UOB originated as commercial/retail banks established
by ethnic Chinese families in the British colonial era.
OCBC has advanced its
regional platform
significantly with Wing
Hang acquisition . . .
. . . but it remains of
small scale relative to
regional leaders
Most risk-averse and least

aggressive in regional
expansion, UOB is
searching for a winning
formula in SE Asia
Oversea-Chinese Bank was founded in 1919 by a group of Chinese rubber

magnates. In the 1930s it came under the control of the Lee family, which
also made its original fortune in rubber. OCBC became part of a broader
industrial conglomerate in post-WWII Malaysia and Singapore, acquiring a
controlling stake in the leading Singapore and Malaysian life insurer, Great
Eastern (established 1908), in 1958, becoming the largest bank in
Singapore by 1970. In 2001 OCBC acquired the Keppel TatLee Bank in the
domestic consolidation boom and lifted its stake in Great Eastern to 87.1%
over 2004-08. It bought a strategic stake in Chinas Bank of Ningbo in 2006.
In 2014 OCBC acquired the listed Wing Hang Bank in Hong Kong, which
then became OCBCs third major geography after Singapore and Malaysia.
United Overseas Bank was founded in 1935 as the United Chinese Bank by
the Wee family and others. The Wee family still controls the bank - CEO Wee
Ee Cheong is the grandson of the founder. UOB achieved a dramatic increase
in relative size with the 2001 merger with Overseas Union Bank, enabling
UOB to leapfrog OCBC to become the second-largest bank in Singapore after
DBS. Like OCBC, UOBs Malaysian business is a legacy from the colonial era.
UOB has made a number of small acquisitions in regional markets from the
late 1990s onwards, including in Thailand and Indonesia, which formed the
basis for its small operations in those countries. UOB has not made a large
cross-border acquisition to-date, however.
Malaysians banking on Asean
Two of Malaysias leading three banks have pushed outwards since the late
1990s, with Public Bank far less aggressive in regional expansion. Maybank
and CIMB, both government-controlled, have focused largely on their home
Asean region.
Figure 24
Malaysias leading
regional players have
expended their foreign
operations dramatically
over the past decade
Malaysian banks revenue split by geography
100
(%)
Malaysia
Singapore
Indonesia
Thailand
2002
2008
Other
80
60
40
20
0
2002
2008
2014
Maybank
2014
CIMB
Split by PBT, not revenue. Source: CLSA, company data
24
5 June 2015

Section 2: OPM wars
Malaysias largest bank

has focused on Singapore
and Indonesia
Asian banks
Maybank is Malaysias largest bank, and also a leading provider of insurance,

stockbroking/investment banking, Islamic banking and Islamic insurance in
Malaysia. It has sizeable operations in Singapore and Indonesia (via Bank
Internasional Indonesia, BII), but has points of representation throughout
Asean and Asia more broadly.
Maybank was established in 1960 by Chinese-Malaysian banker Khoo Teck
Puat, the former General Manager of OCBC in Singapore. He was ousted in
1965 by the Malaysian government, which retains control through the
ownership stakes held by the government pension institutions PNB and EPF.
Maybank grew to become the largest bank in Malaysia and participated in the
restructuring and consolidation of the domestic banking sector in the
aftermath of the Asian crisis post-1998. It also acquired regionally in the
Philippines and, more significantly, Indonesia with the 2008 purchase of a
97.5% stake in Bank Internasional Indonesia (BII). In 2005 Maybank
acquired Malaysian National Insurance, which formed the core of its large
insurance operations, now named Etiqa. In 2011 it acquired the Singaporebased Asean broker Kim Eng Securities.
CIMB has been more

aggressive in its Asean
expansion, suffering from
growing pains as a result
CIMB is Malaysias second-largest banking group after Maybank by total

assets, but the third-largest bank by Malaysian bank assets after Public Bank.
Like Maybank CIMB is government controlled, albeit by different Malaysian
government-linked investors: Khazanah and EPF.
CIMB is the result of multiple Malaysian bank mergers in the years following
the Asian Crisis, notably Commerce International Merchant Bankers (hence
CIMB), Bank Bumiputra Malaysia and Southern Banking. The result is a
universal bank in Malaysia with an historical strength in investment banking.
Indonesia is a major
contributor to the group
CIMB has been an active acquirer regionally through the past dozen years. It
acquired Bank Niaga (now CIMB Niaga) in Indonesia in 2002, followed by
Bank Lippo in 2008. In 2008 CIMB acquired Bank Thai Public (now CIMB
Thai). CIMB has also been an acquirer in investment banking. In 2005 it
acquired Singapore-based GK Goh and in 2012 it acquired the bulk of Royal
Bank of Scotlands Asia-Pacific investment banking business. Last year it
launched a three-way merger with RHB Capital and Malaysian Building
Society, abandoned in January due to market conditions and sentiment.
Unsurprisingly, CIMBs ex-Malaysian operations are dominated by its
acquisitions of the past decade, led by Indonesia and Thailand, though CIMB
has also grown organically in Singapore, Cambodia and elsewhere in Asia.
ANZ - with friends like these
ANZ is the most Asia-focused Australian bank and historically the smallest of
the Big-4 in its domestic operations, where it has had a relatively stronger
skew to corporate/institutional banking than peers. Its offshore operations
outside of Australia and New Zealand are concentrated in Asia, mostly in
wholesale banking. It also holds strategic stakes in banks in China, Malaysia
and Indonesia. Its Asian earnings add up to around 12% of group-adjusted
NPAT - material but not large enough, yet, to be critical.
ANZ has a relatively long

history in Asia
5 June 2015
ANZs exposure outside of Australia and New Zealand was substantially

boosted by the 1984 purchase of the British colonial bank, Grindlays, which
had an extensive banking network through the Middle-East and Asia.
Grindlays Bank or, rather, its South Asian and Middle-East operations, was onsold to Standard Chartered in 2000, leaving ANZ with the East Asian network.
25

Asian banks
Section 2: OPM wars
Figure 25
ANZ is Australian bank

most exposed to Asia but
region still accounts for
just 12% of group NPAT
Adjusted (Cash) NPAT by geography
(%)
100
Australia
NZ
Asia
EU & Am
Pacific
80
60
40
20
0
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Note: Fiscal year ended 30 September. Source: CLSA, company data
Boosted by some
successful opportunistic
acquisitions
This 100%-owned Asian network was further expanded by the 2009

acquisition of selected Royal Bank of Scotland retail and institutional banking
assets across Asia. These, in turn, included assets acquired by RBS in the
ABN AMRO purchase in 2007. That is, much of ANZs current network of
operations was not grown organically, but represents legacy businesses
acquired from colonial-era banks (Grindlays and ABN AMRO).
ANZs Asian earnings are

dominated by its portfolio
of strategic investments
ANZ has acquired several strategic stakes in Asian regional banks over the
past two decades: a 39% stake in Panin Bank (Indonesia), accumulated over
1999-2010; a 20% stake in Shanghai Rural Commercial Bank (China) in
2005, a 19.9% stake (since diluted to 14%) in Bank of Tianjin (China) in
2006 and a stake of 24% in AMMB (Malaysia) in 2006. ANZ is reported to be
in negotiations to sell its stake in Panin Bank to Mizuho of Japan.
As shown below, ANZ is relatively unusual among the banks in this report in
deriving the bulk (at least prior to FY14) of its Asian earnings from the equityaccounted earnings streams of its associate investments in regional partners.
As we will discuss in the next section, this significantly impedes ANZs ability
to exploit its network. An alternative way to put this is that the accounting
earnings base overstates the strength of ANZs regional franchise.
Figure 26
ANZs Asian earnings

arent from an integrated,
wholly-owned network
ANZs Asian adjusted (cash) NPAT by source
900
800
The patchwork mix

is unwieldy and
capital-intensive
700
600
500
400
(US$m)
Asia w/sale
Asia retail
Metrocard (Phil)
AMMB (Malaysia)
Shanghai RCB (China)
Bank of Tianjin (China)
Panin Bank (Indo.)
300
200
100
0
(100)
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Note: Excludes Pacific earnings. Source: CLSA, company data
26
5 June 2015

Asian banks
Section 2: OPM wars
The dragon in the room
While we include BOC in our list of regional challengers, special mention is

required for the other large Chinese banks that we dont include.
Figure 27
BOC is far ahead of its

peers in the development
of its foreign operations
Foreign assets of the largest Chinese banks
1,800
1,600
1,400
1,200
1,000
(US$bn)
BoCom
CDB
ABC
BOC
CCB
ICBC
800
600
400
200
0
2007
2008
2009
2010
2011
2012
2013
2014
Mainland banks have

grown so large they are
spilling out into regional
and global markets
As seen earlier in Figure 14 these banks are now so massive that even
modest proportional expansion out of their domestic market implies a large
absolute impact. As shown in Figure 27, they have rapidly accumulated a
substantial pile of assets outside of mainland China and momentum suggests
that they will continue to grow ever larger. While BOC stands out as the
mainland Chinese bank that is most internationally active, ICBC, CDB and
CCB have all grown substantial foreign assets in half a dozen years.
Chinas largest banks are following a similar path to the large Japanese banks
of the 1980s, which burst onto the global scene with massive balance sheets
after Japans arrival as a major economic power.
However, similar to their 1980s Japanese counterparts, the Chinese banks with the notable exception of BOC - lack the breadth and depth of
international network to penetrate deeply into Asian regional and global
banking systems. This limits significantly their capacity to compete in fullservice commercial banking outside of mainland China and Hong Kong.
Figure 28
Chinese banks do not

have FX deposit-gathering
franchise to support their
FX asset growth . . .
Six largest Chinese banks foreign currency assets, deposits, wholesale liabilities
1,800
FX
FX
FX
FX
(US$bn)
1,600
1,400
. . . this forces them to

raise their funding from
wholesale sources
assets (LHS)
deposits (LHS)
w/sale liabilities (LHS)
w/sale liabilities as % of FX assets
(%)
35
30
1,200
25
1,000
800
20
600
400
15
200
0
2007
2008
2009
2010
2011
2012
2013
2014
10
5 June 2015
27

Asian banks
Section 2: OPM wars
Chinese banks are

particularly vulnerable in
US$ deposit-gathering
This is most visible in the Chinese banks funding base, which is massively
skewed to their domestic renminbi deposits. With relatively weaker depositgathering capacity outside of mainland China these banks are highly
dependent upon wholesale funding to support US-dollar lending. This is
shown in Figure 28 and Figure 29. The latter demonstrates that growth in
foreign-currency lending has generally driven forex LDRs well above 100% - a
tell-tale sign of a weak deposit franchise.
Figure 29 overstates their funding capacity, as foreign currency for these banks
includes Hong Kong dollars, which is the third-most important currency for the
Chinese banks, given their foreign operations are dominated by Hong Kong,
where they have established banking operations over the past two decades.
Even BOC is relatively

weak in USD deposits
If we consider just US-dollars, in Figure 30 below, it becomes apparent that a

dearth of US-dollar deposit funding is a material headwind for the Chinese
banks, even BOC. Note also that the LDR for China Development Bank (CDB)
is not a typo - it is actually 1,351%. CDB is a policy bank funded primarily by
bond issuance, not deposits, so its LDR is naturally very high in renminbi
terms, and spectacularly high in US-dollar terms.
Figure 29
Only BOC has a LDR under

100% in foreign currency
Chinese banks foreign currency loans/deposits
220
(%)
ICBC
CCB
BOC
ABC
BoCom
200
180
160
140
120
100
80
60
2007
2008
2009
2010
2011
2012
2013
2014
Figure 30
However, even BOC

struggles to fund its USD
loans with US$ deposits
US$ loans and US$ loan/deposit rate, 2014
250
(US$bn)
US$ loans
USD LDR (RHS)
(%)
1,351
250
200
193
179
150
133
140
200
134
150
100
100
50
0
1,500
300
50
ABC
BOC
CCB
ICBC
BoCom
CDB
28
5 June 2015

Section 2: OPM wars
Asian banks
While the ultra-loose monetary policies of Western (and arguably global)

central banks make wholesale funding relatively inexpensive at this time, it is
more expensive and unreliable than the deposit base that comes from
established customer relationships, and places the Chinese banks at a distinct
relative disadvantage outside of their home market.
Weak FX depositgathering is a similarity
between the Chinese and
Japanese banks
This doesnt preclude the Chinese banks competing aggressively for wholesale
business but, much like the Japanese banks before them, weak
deposit/liability franchises outside of Greater China are a material headwind.
In conclusion, while we see the mainland Chinese banks - excluding BOC - as
relatively weaker regional competitors outside of Greater China, their sheer
size and financial muscle suggests that they are highly likely to emerge as
formidable regional competitors in the medium to long term. This will require
greater investment in network and development of their funding base.
5 June 2015
29

Asian banks
Section 3: I like big banks and I cannot lie
I like big banks and I cannot lie

My anaconda dont want none unless youve got buns, hon.
~ Sir Mix-a-Lot
The Usual Suspects
leadership is more robust
than often asserted
We often hear that the competitive landscape in Asian banking is changing,

that competitive tension has increased, that the leadership position of the
Usual Suspects is eroding. We dont see the evidence for it. Indeed, we
present contradicting evidence in this section, analysing and contrasting the
competitive positions of the incumbents and challengers.
The survey says . . .

Surveys are interesting
but not conclusive
points of data
Greenwich Associates surveys Asian corporates on their attitudes to their

corporate banker(s), including some differentiation on the subjects of
cash management, trade finance and debt capital markets.
By construction, we view these surveys as skewed to larger multinationals
and also, because they survey perceptions, we suspect they are also more
backward-looking. This suggests to us that they are likely to be relatively
more favourable to high-profile incumbent banks than newer/more aggressive
challengers that may be succeeding/winning share, but are not recognised for
that progress.
HSBC, Citigroup and

StanChart consistently
rank best
Figures 31 to 34 show the

consistent story: there is
StanChart - that dominate
where no other bank consistently well.
survey results for the past few years. They tell a

a top tier of banks - ie, HSBC, Citigroup and
mind share and a large gap to the second tier,
apart from Deutsche Bank, perhaps - ranks
Because of the caveats above, we hesitate to attach too much weight to these
results, but its hard not to conclude that there is a substantial divide between
the leading players and the rest, at least when measured by the perceptions
of the most important customer base in regional cross-border banking.
Figure 31
ANZ has improved most,

though Deutsche has also
scored well; DBS and BOC
have been more patchy
Greenwich Associates survey - Asian large corporate banking market penetration
80
(%)
2010
2011
2012
2013
2014
2015
70
60
50
40
30
20
10
0
HSBC
StanChart
Citi
ANZ
Deutsche
DBS
BOC
Source: CLSA, Greenwich Associates
30
5 June 2015

Asian banks
Figure 32
Usual Suspects have seen

some vote deterioration
but its not apparent that
Deutsche or BOC have
gained at their expense
Greenwich Associates survey - Asian corporate cash mgmt market penetration
60
(%)
2010
2011
2012
2013
2014
2015
50
40
30
20
10
0
HSBC
Citi
Deutsche
StanChart
BOC
Figure 33
Usual Suspects dominate

DCM, with very patchy
performance from
Barclays, ANZ and JPM
Greenwich Associates survey - Asian debt capital markets penetration
60
(%)
2010
2012
2011
2013
2014
50
40
30
20
10
0
HSBC
StanChart
Citi
Deutsche
Barclays
ANZ
JPM
Figure 34
ANZ has improved

materially, but other
votes have been
relatively constant
Greenwich Associates survey - Asian trade finance markets penetration
50
(%)
2011
2012
2013
2014
45
40
35
30
25
20
15
10
5
0
HSBC
StanChart
Citi
Deutsche
ANZ
RBS
Source: CLSA, Greenwich Associates
5 June 2015
31

Greenwich Surveys assess

perceptions, but dont
quantify differences
Asian banks
Compare and contrast
The Greenwich survey results are interesting, but as we noted previously,

have their flaws. Most importantly, they do not quantify the differences in
capability across Asian regional banking, particularly in terms of hard
financials. In this section we aim to provide a more qualitative and
quantitative comparison of the competing franchises.
Before we progress to the numbers, we provide our own subjective overview
of the regional banks positioning across Asian markets and our assessment
of their franchise strength. This sets the scene and is based on the views
of our country-level bank analysts in each of the 12 countries. It is
necessarily subjective, but is informed by our understanding of these banks
and the markets.
The following table summarises the categories and scoring system. Essentially
we score each bank in each country as regards to their perceived strength in
wholesale, commercial and retail banking. The scoring is simple and ranges
from -, which is effectively immaterial presence, to 3 which represents a
market-leading player.
Figure 35
We form our own

judgements on how each
bank is positioned in each
country across segments
Regional franchise scoring approach

Categories
Wholesale [W]
Commercial [C]
Retail [R]
Scoring
"3"
"2"
"1"
"-"
Comment
Banking and capital markets services for large corporates,
institutions and governments
Banking services for small/medium enterprises up to local/mid-tier
corporates
Retail and private banking services for the mass-market up to
high-net worth individuals
Comment
Broad & deep participation with high market share - a leading
presence in the domestic market
A scale player, but not in top tier
Small or niche operations
Zero or only nominal presence
Source: CLSA
The scoring is best appreciated at the country level, because we do not

weight the scores across countries. For instance, HSBCs Hong Kong
operations are massive, but only produce the same aggregate score (ie, 9
overall) as Maybanks much smaller operations in Malaysia.
We caution that banks are
only assessed within each
country - the scoring isnt
additive regionally
We provide the aggregate scores across all of the 12 countries, but these
should be interpreted as a measure of breadth and diversity rather than
overall strength. So, for instance, Citigroup scores highest, given it has
material operations across so many countries (ie, excellent breadth and
diversity), but this doesnt necessarily mean that we score it overall as a
superior regional franchise to HSBC, say, which is much larger overall, but
less diversified and more concentrated, eg, in Hong Kong.
The results are colour-coded for easy visual recognition, and show the Usual
Suspects as being generally well-represented in most markets - particularly
the key financial centres of Hong Kong and Singapore and the megamarkets
of China, India and Indonesia. At the other extreme are the Malaysian banks
and two of the Japanese megabanks, with relatively thin exposure to many
markets. The remaining banks cluster in the middle with varying
concentrations of strength and weakness.
32
5 June 2015

5 June 2015
Figure 36
Regional franchise scoring
HSBC
Financial centres
W3 C3 R3
Hong Kong
Citi
StanChart
BOC
MUFG
ANZ
DBS
UOB
OCBC
SMFG
Mizuho
CIMB
Maybank
W3 C1 R2
W3 C2 R3
W3 C3 R3
W2 C- R-
W2 C- R-
W2 C2 R2
W1 C1 R-
W1 C2 R1
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
9
W3 C1 R2
6
W3 C1 R2
8
W3 C2 R2
9
W2 C- R-
2
W2 C- R-
2
W2 C1 R1
6
W3 C3 R3
2
W2 C3 R3
4
W2 C3 R3
1
W1 C- R-
1
W1 C- R-
1
W2 C1 R1
1
W2 C1 R2
Singapore
W2 C1 R1
W2 C1 R1
W2 C1 R1
W3 C3 R3
W2 C- R-
W1 C1 R-
W1 C1 R-
W1 C1 R-
W1 C1 R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
India
4
W2 C1 R1
4
W2 C1 R1
4
W2 C1 R1
9
W1 C- R-
2
W1 C- R-
2
W1 C- R-
2
W1 C1 R-
2
W- C- R-
2
W- C- R-
1
W1 C- R-
1
W1 C- R-
1
W- C- R-
1
W- C- R-
Indonesia
4
W2 C1 R1
4
W2 C1 R1
4
W2 C1 R1
1
W1 C- R-
1
W2 C- R-
1
W1 C1 R1
2
W1 C1 R-
0
W1 C1 R1
0
W1 C1 R1
1
W1 C- R-
1
W1 C- R-
0
W2 C2 R2
0
W1 C2 R2
W2 C1 R1
W3 C- R1
W- C- R-
W1 C- R-
W2 C- R-
W3 C3 R3
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W- C- R-
Korea
4
W1 C- R-
4
W2 C1 R1
0
W2 C1 R1
1
W1 C- R-
2
W1 C- R-
9
W1 C- R-
1
W1 C- R-
1
W- C- R-
1
W- C- R-
1
W1 C- R-
1
W1 C- R-
1
W- C- R-
0
W- C- R-
Malaysia
1
W2 C1 R1
4
W2 C1 R1
4
W2 C1 R1
1
W1 C- R-
1
W1 C- R-
1
W1 C2 R2
1
W1 C- R-
0
W1 C2 R2
0
W1 C2 R2
1
W1 C- R-
1
W1 C- R-
0
W3 C3 R3
0
W3 C3 R3
Taiwan
4
W2 C- R-
4
W2 C1 R1
4
W2 C1 R1
1
W3 C1 R1
1
W1 C- R-
5
W1 C- R-
1
W1 C1 R1
5
W1 C1 R-
5
W1 C1 R-
1
W1 C- R-
1
W1 C- R-
9
W- C- R-
9
W- C- R-
Thailand
2
W1 C- R-
4
W2 C1 R1
4
W2 C1 R1
5
W1 C- R-
1
W2 C2 R2
1
W- C- R-
3
W1 C- R-
2
W1 C1 R1
2
W- C- R-
1
W2 C- R-
1
W2 C- R-
0
W1 C1 R1
0
W1 C- R-
W1 C1 R1
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R1
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W2 C- R-
W2 C1 R1
W2 C- R-
W1 C- R-
W3 C3 R3
W1 C- R1
W- C- R-
W- C- R-
W- C- R-
W3 C3 R3
W3 C3 R3
W- C- R-
W- C- R-
2
W: 23
C: 9
R: 10
T: 42
42
4
W: 26
C: 10
R: 15
T: 53
51
2
W: 23
C: 11
R: 12
T: 46
46
1
W: 19
C: 7
R: 7
T: 33
33
9
W: 20
C: 5
R: 5
T: 30
30
1
W: 15
C: 8
R: 8
T: 31
31
0
W: 14
C: 9
R: 6
T: 29
29
0
W: 10
C: 10
R: 7
T: 27
27
0
W: 9
C: 10
R: 7
T: 26
26
9
W: 15
C: 3
R: 3
T: 21
21
9
W: 15
C: 3
R: 3
T: 21
21
0
W: 12
C: 7
R: 7
T: 26
26
0
W: 10
C: 6
R: 7
T: 23
23
Developing growth
W1 C- RPhilippines
Geriatric
Japan
TOTALS
Source: CLSA
33

Asian banks
Middle-markets
Australia
Mega-markets
China
Asian banks
Brute strength,
scale is important
Size matters
In terms of raw size, there is an obvious and substantial difference between
HSBC, Citigroup and StanChart - the Usual Suspects - and the other regional
players. On the available data of cross-border revenue, assets and loans,
HSBC is clearly the leader, followed by Citigroup and StanChart, with a tail of
much smaller players.
BOC is the significant anomaly among the challenger banks, with large
cross-border scale, but this overstates the strength of BOCs regional platform
given this mass of banking operations is highly concentrated just in Hong
Kong and Taiwan, as we will demonstrate shortly.
Figure 37
30
(US$bn)
23.7
25
20
14.7
15
12.6
12.0
10
2.7
2.7
2.4
2.4
2.3
2.2
1.9
1.9
ANZ
DBS
UOB
OCBC
SMFG
Mizuho
CIMB
Maybank
5.7
5
MUFG
StanChart
BOC
0
HSBC
OCBCs Wing Hang

acquisition consolidated
in 3Q14 is not fully
annualised, and OCBC
includes material
Malaysian life-insurance
revenue
Asian cross-border banking revenues
Citi
Sizeable gap between the

Usual Suspects and BOC,
and regional contenders
Note: ANZ includes proportional revenue of associate investments. Source: CLSA, company data
Figure 38
1,200
1,000
(US$bn)
879
800
600
474
542
346
400
216
200
90
101
70
121
155
124
44
64
SMFG
Mizuho
Maybank
84
32
43
Maybank
Mizuho
76
CIMB
SMFG
81
CIMB
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
0
HSBC
Japanese banks clearly

more asset-intensive
given their balance-sheet
lending strategy
Asian cross-border banking assets
Citi
Citigroup has much lower

asset intensity than
peers, reflecting a greater
business skew to feegenerating business
(investment banking)
Figure 39
Asian cross-border loans
364
300
221
200
218
96
100
60
66
66
OCBC
162
UOB
400
(US$bn)
DBS
500
ANZ
As noted, the banks

varying business mix
differentiates their
loan intensity
MUFG
BOC
StanChart
Citi
HSBC
34
5 June 2015

Asian banks
Geographical breadth
While aggregate cross-border banking size is telling, its also important to
know where each bank is concentrated regionally, shown in Figures 40-41.
Figure 40
Asian cross-border revenue - geographical mix
(US$bn)
25
Australia
Singapore
China
Indonesia
Hong Kong
Malaysia
Taiwan
Philippines
Japan
Thailand
Korea
Other
India
20
15
10
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Figure 41
Asian cross-border revenues - geographic proportional mix
100
(%)
Australia
Singapore
China
Indonesia
Hong Kong
Malaysia
Taiwan
Philippines
Japan
Thailand
Korea
Other
India
80
60
40
20
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
5 June 2015
35

Asian banks
No Asia market, but

many different markets
These charts show tremendous variety in geographical mix across the various
banks. It should be obvious that there is no one Asia cross-border banking
market. While it may be asserted that, for example, bank XYZ is winning
share in Asia this is a meaningless statement given Asia is so fragmented.
We will tease out more detail on individual countries later, but we make some
initial observations from these charts:
Huge difference in scale

and breadth
The Usual Suspects - as a general statement it is clear that only three
Very different profiles
New Kids on the Block - all other banks tend to have specific geographical
Dominates Hong Kong
HSBC - heavily dominated by its traditional home, Hong Kong, where it
Most diversified
Citigroup - arguably the most diversified of the big Asian regional players,
Strong in Hong Kong and

Singapore, plus regional
breadth
StanChart - highly diversified like Citigroup across North, East, Southeast
Skewed to Hong Kong

and Taiwan
Bank of China - BOCs non-mainland operations are extremely skewed to
Spread thinly across Asia
Japanese megabanks - the megabanks have sizeable regional loan
Dominated by strategic
investments
ANZ - as discussed in Section 2, the bulk of ANZs regional exposure is via
Foreign ops concentrated

in Hong Kong
DBS - proportionally highly skewed to Hong Kong, followed by mainland
Asean focus
UOB - heavily skewed to Asean, primarily Malaysia, Thailand and Indonesia,
Focus on Malaysia and

Hong Kong
OCBC - the previous charts understate the importance of Hong Kong,
Asean focus
CIMB and Maybank - the Malaysian banks are heavily skewed to their
banks - HSBC, Citigroup and StanChart - have material exposures to a

broad swathe of Asia.
concentrations. The arguable exceptions are the Japanese megabanks,
which have corporate loan books spread thinly across all of Asia.
leads the market, but has sizeable exposure to Australia, China (where it is
the largest foreign bank), Taiwan, India and Asean countries.
Citigroup is well-spread across North Asian (Japan and Korea), Greater

China, Asean and South Asia.
and South Asia, but with large businesses in Hong Kong (its largest
country exposure) and Singapore (where it is the largest foreign bank).
other Greater China, ie, Hong Kong (where it is the second-largest banking
group after HSBC) and Taiwan. Its operations in the rest of Asia are much
smaller in significance (relatively) and arguably lack critical mass.
books spread thinly across many regional offices, but this belies limited
penetration of local banking systems and high reliance upon lending to
Japanese corporate clients in the region.
proportional stakes in domestic banks in China, Malaysia and Indonesia.

ANZs 100%-owned operations are more heavily concentrated in Hong
Kong and Singapore, but small in scale relative to the players above.
China and Taiwan. It has small businesses in India and Indonesia.
though it has small exposure to Hong Kong and mainland China.
which increased materially for OCBC with the Wing Hang purchase, so
OCBCs key exposures are Malaysia (in life insurance, as well as banking),
Hong Kong, Indonesia and mainland China.
home Asean region, notably Indonesia, Singapore and (for CIMB) Thailand.
In the following charts (Figures 42-53) we show these same banks revenues
for each of the relevant countries to demonstrate relative size.
Note that in the case of Singapore and Malaysia we show the home revenue of
the Singaporean and Malaysian banks to provide some context on relative size.
36
5 June 2015

Asian banks
Similarly, Hong Kong is thoroughly dominated by foreign banks. In all other

countries these cross-border players are overshadowed (in some cases - eg,
China and India - overwhelmingly) by much larger domestic players.
Perhaps, unsurprisingly by this point, there are only a handful (three) of
names that appear consistently across these countries: HSBC, Citigroup and
StanChart.
Figure 42
Figure 43
Australia - cross-border revenues
China - cross-border revenues
(US$bn)
3.0
1.6
(US$bn)
2.5
1.4
1.2
2.0
1.0
1.5
0.8
0.6
1.0
0.4
0.5
0.2
Mizuho
CIMB
Maybank
Mizuho
CIMB
Maybank
Mizuho
CIMB
Maybank
OCBC
SMFG
UOB
(US$bn)
1.8
1.6
12
1.4
10
1.2
1.0
0.8
0.6
0.4
0.2
DBS
ANZ
MUFG
BOC
StanChart
HSBC
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
0.0
HSBC
Figure 46
Figure 47
Indonesia - cross-border revenues
Japan - cross-border revenues
DBS
ANZ
MUFG
BOC
Maybank
CIMB
0.0
Mizuho
0.0
SMFG
0.2
OCBC
0.2
UOB
0.4
DBS
0.4
ANZ
0.6
MUFG
0.6
BOC
0.8
StanChart
0.8
Citi
1.0
HSBC
1.0
(US$bn)
StanChart
1.2
Citi
(US$bn)
HSBC
1.2
SMFG
2.0
SMFG
(US$bn)
14
Citi
16
OCBC
India - cross-border revenues
OCBC
Figure 45
Hong Kong - cross-border revenues
UOB
Figure 44
UOB
DBS
ANZ
MUFG
BOC
StanChart
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Citi
0.0
0.0
HSBC
1.8
5 June 2015
37

Asian banks
Figure 48
Figure 49
Korea - cross-border revenues
Malaysia - cross-border revenues
1.6
4.0
CIMB
Maybank
CIMB
Maybank
Singapore- cross-border revenues
0.05
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
0.00
DBS
0.10
ANZ
0.15
MUFG
0.20
BOC
0.25
(US$bn)
StanChart
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Citi
(US$bn)
0.30
HSBC
0.35
Figure 52
Figure 53
Taiwan - cross-border revenues
Thailand - cross-border revenues
(US$bn)
0.6
4.0
(US$bn)
0.5
3.5
3.0
0.4
2.5
0.3
2.0
1.5
0.2
1.0
0.1
0.5
DBS
ANZ
MUFG
BOC
StanChart
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Citi
0.0
0.0
HSBC
4.5
Maybank
Mizuho
Mizuho
Figure 51
Philippines - cross-border revenues
CIMB
SMFG
SMFG
SMFG
Figure 50
Mizuho
OCBC
OCBC
OCBC
UOB
UOB
UOB
DBS
ANZ
MUFG
BOC
StanChart
(US$bn)
HSBC
Maybank
CIMB
Mizuho
SMFG
OCBC
0.0
UOB
0.5
0.0
DBS
1.0
0.2
ANZ
1.5
0.4
MUFG
2.0
0.6
BOC
2.5
0.8
StanChart
3.0
1.0
Citi
1.2
HSBC
3.5
Citi
(US$bn)
1.4
A sound deposit base and

liability franchise is an
important differentiator
Funding and deposit franchises

A key differentiator between regional banking platforms is the strength of
funding franchise. That is, to what extent do these banking platforms have
strong liability businesses with their corporate and other customers?
Local deposit funding from relationship customers not only provides a
structurally cheaper and more reliable funding source for banks than
borrowing wholesale; it also enables more natural and organic asset-liability
management, particularly in the critical US dollar.
38
5 June 2015

Asian banks
US dollar is the key

regional currency, so US$
deposits are critical
The US dollar is the key functional currency for corporations in Asia and we
have seen several episodes in the past decade where dollar liquidity has dried
up, hurting those banks dependent upon wholesale funding. Thus, funding
from corporate and other customers is a vitally important component of
running a successful/sustainable cross-border banking operation in Asia.
Unfortunately, most of the banks reviewed in this report do not provide a
good country-level breakdown of their deposits. However, we can construct an
aggregate cross-border picture of loan/deposit ratios using available data and
after making reasonable guesstimates for a number of the banks. This is
shown in Figure 54.
Figure 54
Large difference between

the Usual Suspects and
the rest, particularly the
Japanese megabanks
Asia cross-border loans/deposits ratio
250
(%)
194
200
177
149
150
67
Citi
75
81
BOC
63
HSBC
100
StanChart
109
116
98
101
90
94
50
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
The most striking observation is that the Usual Suspects and the Japanese
banks are at opposite ends of the spectrum. HSBC, Citigroup and StanChart
have strong deposit franchises with low LDRs whereas the Japanese banks do
not, with high LDRs. While the Japanese banks have sizeable loan books
across Asia, they do not have deposit/liability franchises to match. This is a
tell-tale sign of relatively shallow banking penetration for these groups.
US$ loan/deposit ratio is
not always the same as
overall cross-border LDR
BOC also appears to have a solid deposit base, given its Asian cross-border LDR,
but it should be remembered from Figure 30 in Section 2 that this is massively
skewed by its Hong Kong and Taiwan operations, which are highly liquid.
Elsewhere it is far more reliant upon wholesale funding, so the overall picture is
deceptive. For instance, its 2014 US$ LDR was 133%, versus 77% in HK$.
The other regional banks - the Singaporean and Malaysian banks, ANZ - are
in-between, with generally aggressive LDR ratios relative to the big regional
leaders, and this reflects the fact that their cross-border banking operations
are relatively weaker deposit-gathering franchises.
Banks typically have

weaker LDRs outside of
their home market
5 June 2015
DBS is a good example of this, both because its Hong Kong operation is one
of the more sizeable cross-border businesses of this group, but also has a
long history and available data. Figure 55 shows that DBSs Hong Kong
operation has seen much higher LDR ratios than the Hong Kong system
itself, despite its Hong Kong operation losing market share in lending. We
discuss this further in Section 4, but it appears that the DBS franchise in
Hong Kong has actually deteriorated since DBS bought the Dao Heng
banking group in 2001.
39

Asian banks
Figure 55
DBSs HK operations are a

good example of typical
cross-border funding
headwind faced by banks
DBS Hong Kong lending market share and LDR versus system
(%)
160
(%)
DBS HK market share of loans (RHS)

DBS HK loans/deposits
HK system loans/deposits
140
120
6.0
5.5
100
80
5.0
60
40
4.5
20
0
2008
2009
2010
2011
2013
2012
2014
4.0
Note: DBS Hong Kong includes subsidiary and branch operations. Source: CLSA, company data
Financial performance
Assessing and comparing profitability across these regional banking business
is complicated by varying degrees of data availability, as well as the often
material differences in a groups business mix and geographical exposure.
Geographical reporting on
profitability is often
rubbery and unreliable for
use in benchmarking
On the data front, most banks do not provide more than cursory P&L and
balance sheet items across individual countries. Group-level accounts
generally reflect management accounting of geographical divisions, and these
often do not marry up with subsidiary accounts, which can often be materially
skewed by intra-group items and allocations.
None of the banks provide equity allocations by region or country, so ROE is
near-impossible to derive or estimate with accuracy.
Pretax ROA seems to be

the most consistent and
robust measure of
profitability available
However, as capital-adequacy requirements - and bank approaches to

managing capital regionally - vary, we prefer to use ROA as a superior
measure of unlevered profitability. Fortunately, most banks provide at least
Asia-aggregated pretax profit and assets to derive an estimate of Asian crossborder banking pretax ROA, ie, the pretax ROA of operations outside of each
banks home market. For HSBC, Citigroup and StanChart, this is their entire
Asian businesses. We show this across the selected banks in Figure 56 below.
Figure 56
Very wide differences in

pretax ROA
Pretax ROA estimates for Asian cross-border banking businesses
2.5
(%)
2013
2014
2.0
1.5
1.0
0.5
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
0.0
40
5 June 2015

Asian banks
This chart must be treated with caution because of the material differences in
business structure and reporting across the banks.
Structural differences eg, large associate
earnings - can have
a big impact
For instance, ANZ has the lowest profitability, but this reflects the fact that we
have not included associate earnings and investments from the calculation.
Why do we exclude these earnings? Because such earnings generate high
ROAs when compared to the relevant denominator, ie, the investment in
equity of the associate. If they are not excluded they skew the ROA.
Unfortunately, while the pretax ROA for ANZ thus reflects its wholly-owned
operations in a more comparable way to other banks, these represent the
minority of ANZs Asian earnings and we suspect attract sizeable cost
allocations from group level. In short, the ANZ figures arent very meaningful.
Similarly, HSBCs Asian pretax ROA is understated in these calculations as we
have excluded the associate income and investments from its Chinese
associates (principally BoCom in Asia). If we were to include these associates,
its pretax ROA would be 1.66% in 2014 and 1.91% in 2013. Note, that it was
much higher in 2013 due to the inclusion of the Industrial Bank and Ping An
associate earnings in that year, which dropped out in 2014 following the sale
of the stake in Ping An and the change in accounting treatment for Industrial
Bank. Bank-specific factors can make a material difference to comparisons.
Geographical footprint
makes a difference given
country-based differences
in ROA
Geographical footprint makes a big difference. StanCharts pretax ROA is

suppressed by the negative ROA of its Korean operations, going through a
restructuring, and this is worth about 0.20% in pretax ROA terms. As we
discuss in the StanChart company summary, there are StanChart-specific
reasons for its underperformance.
Conversely, banks like CIMB, Maybank, UOB and, to a lesser extent, OCBC
benefit from a relative skew to higher ROA countries, eg, Indonesia.
The Japanese banks, excluding MUFG, appear to generate low ROAs in their
cross-border operations. We are tempted to attribute this to their focus on
low-margin corporate lending with weak funding franchises, and their Hong
Kong regulatory accounts suggest this, but without a good breakdown of their
cross-border P&Ls this is just speculation on our part.
5 June 2015
41

Asian banks
Section 4: Mythbusters
Mythbusters
If you see a Swiss banker jumping out a window, follow him - there is
sure to be profit in it.
~ Voltaire
We challenge some
popular assertions
Before we proceed to our conclusions, wed like to use some of our data to
challenge a number of popular assertions on the kind of network banking
dominated by the Usual Suspects, particularly in Asia.
The Economist newspaper has done us a large favour by summarising many
of these assertions in a recent article, reinforcing its modern reputation for
bien pensant conformism. Thus we were disappointed but not terribly
surprised by the article from its 7 March edition: A world of pain - the giants
of global finance are in trouble.
Most common assertions

we come across on Asian
network banking
Fortunately for this report the article was well-timed and reasonably
comprehensive, summarising in one piece the most prominent and
commonly-cited assertions on this complicated issue:
The global network bank model is in deep trouble and domestic lenders
are doing far better than these global banks;
The global banks results have been weak, generating low ROEs and . . .
there is a growing fear that the costs of global reach - in terms of

regulation and complexity - exceed the potential benefits.
The global network bank model is in trouble because (1) these giant firms
proved hard to manage;
The global network bank model is in trouble because (2) competition
proved to be fiercer than expected. That is, The global giants also lost
market share in Asia to so-called super-regional banks, such as ANZ of
Australia and DBS of Singapore. Big local banks in emerging markets, such
as ICBC in China Itau in Brazil and ICICI in India also began to build out
cross-border operations.
The global network bank model is in trouble because (3) there has been a
regulatory backlash, on issues such as money-laundering, tax evasion,

sanctions and capital requirements.
There are new competitors to push down margins, ie, Japanese banks
are on a cross-border lending bender for the first time since the 1980s.
Chinas banks are steadily expanding.
Myth No.1: Global network bank model is in deep trouble
The Economist cites the following examples of global banks in trouble in

support of this assertion, and we provide our rejoinders.
Are banks breaking up

because network banking
is failing?
In recent weeks Jamie Dimon, the boss of JPMorgan Chase, has
been forced to field questions about breaking up his bank.
This is undoubtedly true, in that many observers question the benefits to size
for JPM. Our analyst, Mike Mayo, is one of them, noting that its capitaladequacy burden is much larger than peers due to its size and complexity and
that the group has failed to demonstrate the benefits of its scale.
However, we disagree with the inference that this has necessary implications
for the network bank model. Rather, it is a function of JPMs sheer size notably in its home market - and the complexity and capital intensity of its
investment bank, notably following its 2008 purchase of Bear Stearns.
42
5 June 2015

Asian banks
Put another way, we would argue that JPMs problems do not arise from its
international network, so much as its domestic footprint and business mix.
Are HSBCs returns falling
because of its networking
banking operations?
Stuart Gulliver, the head of HSBC, has abandoned the financial

targets he set upon taking the job in 2011.
Again, it is true that HSBC has resiled from its previous ROE target of 1215% in the medium term, settling for more than 10% in the new operating
environment. However, that qualifier is important - as HSBC explained itself
(see Figure 57, from HSBCs 2014 results presentation) the regulatory
imposition of higher capital adequacy requirements, increased regulatory
costs and the UK bank levy have all compressed HSBCs return potential.
Figure 57
HSBC blames regulation,

with considerable
justification in our view
HSBC revised group financial targets
Source: HSBC
While HSBCs capital requirements include an additional buffer for its rating as
a Global Systemically Important Bank (G-SIB), this is only one component
of the increased capital required by its regulator, the PRA.
Increased capital
intensity isnt an issue
specific to network
banking
Most importantly, the increased cap ad requirement and other regulatory

costs imposed upon HSBC are the result of a post-GFC industrywide increase
in regulatory oversight, particularly in the UK and USA, not a response to
particular problems with network banking in general, let alone in Asia,
specifically.
Because HSBC is the largest of the regional banks highlighted in this report
we also provide some additional context around HSBCs return profile.
Specifically, we show that it is emphatically not the case that HSBCs weak
return profile is due to its network model.
As seen in Figure 58, it is obvious that the sustained return
underperformance at HSBC in recent years is attributable to its UK/European
and North American operations and not its global network, let alone Asia.
5 June 2015
43

Asian banks
Figure 58
Drag in HSBCs ROE

profile is due to the UK
and USA, not Asia
Blame where its due - HSBCs return on risk-weighted assets, by region
(%)
8
6
4
2
0
Europe
Mena
Group
(2)
(4)
2009
2010
HK
N America
2011
Rest of Asia
LatAm
2012
2013
2014
Includes Hong Kong from 2014. Source: CLSA, company data
This is largely the result of the post-GFC hangover - and monetary

environment - in the UK/Europe and North America, regions where HSBC still
has the bulk of its assets. Indeed, HSBCs Asian network operations have
consistently outperformed.
HSBCs ROE compression
is not due to network
banking
Does Citigroup have a

capital problem?
The answer is no,
it seems
The implication that HSBCs returns have been retarded by its network
banking model thus doesnt hold up under scrutiny. The vast bulk of HSBCs
return problems can be attributed to regulatory overkill, the UK - its home
market - and the USA, where the Household Finance business it acquired
blew up.
Citigroup is awaiting the results of its annual exam from the
Federal Reserve. If it fails, calls for a mercy killing will be

deafening.
Citigroup passed. No mercy killing eventuated.

Did Peter Sands go
because network
banking is failing?
Standard Chartered, which operates in Asia, Africa and the Middle
East, is parting with its longstanding boss, Peter Sands.
Wed argue that the immediate cause of Peter Sands resignation is this shareprice chart, triggered by successive earnings disappointments at StanChart.
Figure 59
StanChart certainly
has been failing to
match peers
Standard Chartered share price versus UK banks, 2012-14 (rebased to 100)
350
(Rebased)
STAN
BARC
HSBC
LLOY
RBS
300
250
200
150
100
50
Jan 12
May 12
Sep 12
Jan 13
May 13
Sep 13
Jan 14
May 14
Sep 14
Source: CLSA, Bloomberg
44
5 June 2015

Asian banks
Wed suggest that its rare to find shareholders willing to accept that degree
of underperformance without demanding accountability from a CEO and, as
we discuss in this report, StanChart has clearly underperformed in
fundamental terms in recent years.
Its possible to overstate
recent underperformance
within the context of a
longer-term view
However, we make two additional observations: first, StanCharts

underperformance does not necessarily imply similar underperformance at
other network banks; and, second, while StanCharts recent performance
has disappointed, this should be placed in context.
Figure 60
Figure 61
Rebased growth in EPS of UK-listed banks
Rebased growth in BVPS of UK-listed banks
160
140
(Rebased)
BARC
250
HSBC
LLOY
RBS
(Rebased)
STAN
BARC
HSBC
LLOY
RBS
STAN
200
120
100
150
80
60
100
40
20
50
0
(20)
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
That is, StanCharts recent earnings performance has been very

disappointing, but its overall performance in the context of the past eight
years, pre- and post-GFC, has been superior to its UK banking peers.
Were more inclined to
attribute Peter Sands
departure to StanChartspecific problems
Is network banking an
inferior business model?
Note that we do not attribute StanCharts outperformance since 2006 to Peter

Sands genius. StanChart simply wasnt as exposed to the geographies and
business lines that destroyed so much capital in the GFC. However, the banks
operating performance over the past two years has been weak and the share
prices consequent underperformance triggered the change in management.
We see the connection between StanCharts woes and the performance of
network banks in general as spurious at best.
Myth No.2: Domestic lenders are doing far better.

The problem with this assertion is that it is supported by inconsistent
examples of doing better:
1. Lloyds has recovered smartly over the past two years.
2. In America the most highly rated banks - based on their share price
relative to their book value - are Wells Fargo and a host of midsize firms.
We shouldnt confuse
stock performance with
underlying business
performance - theyre not
always the same
5 June 2015
The Economist does not define how Lloyds has recovered smartly but, given
its vastly superior share-price performance (see Figure 59 above) over still
lacklustre EPS growth (see Figure 60), wed suggest its the former that drove
the judgement. However, this is a very specific case. As those charts show,
LLOY endured a massive collapse in earnings and book value and was rescued
by the UK government. Given this context, recovery from that nasty nadir
tells us precisely nothing about the implied superiority of domestic lending
over network banking - LLOY is simply a stock that has enjoyed a successful
resurrection after bombing out.
45

Asian banks
Similarly, the high price/book multiples attached to Wells Fargo and other
midsize firms suggests that these banks achieve higher returns than
network banks and this is true:
Figure 62
Some banks undoubtedly

have more valuable
franchises, but this isnt
always a function of
business model
Price/book ratio versus ROE for European and North American banks
PB (x)
2.5
2.0
1.5
Wells Fargo
RBC
CIBC
US Bancorp
NBC
Lloyds
JPM
1.0
RBS
Citi
BMPS
0.5
0.0
R2 = 84%
HSBC
StanChart
N America
Eurozone
UK
Commerzbank
ROE (%)
0
10
12
14
16
18
20
However, this isnt new. Wells Fargo has long been a high-return, high
multiple bank, as have other banks like, for example, the Canadian banks.
This reflects generally superior ROE, driven by its particular business and
geographical mix, as well as superior execution.
Figure 63
WFC has long traded at a

premium to Citigroup . . .
Wells Fargo trailing PB versus Citigroup
3.5
(x)
Wells Fargo
Citigroup
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: CLSA
. . . but theyre very

different banks; Citigroup
cant become WFC any
more than vice versa
However, the fact that high-return banks like Wells Fargo exist and trade on
higher multiples than, say, Citigroup does not necessarily imply that network
banking is an inherently bad business or, more importantly, is getting worse.
All it tells us is that Wells Fargo is a high-return bank.
Again, we are faced with a non-sequitur argument.
A different - and perhaps more interesting - angle on this issue is the
observation that network banks in Asia earn lower returns than domestic
lenders in Asian countries. Weve seen this observation raised in relation to
StanChart recently, but it similarly misses a very important point: network
banks cater to a difference client mix, with a different mix of business, to
most banks in Asian domestic banking markets.
46
5 June 2015

Asian banks
Banks differ in many

ways; a comparison must
allow for such differences
to be meaningful
Most notably, the core client base for network banks are multinationals
corporations (MNC), not retail or SME clients. This has dramatic implications
for returns, as MNCs are sophisticated and demanding clients, thus unwilling
to pay rich profit spreads to their relationship banks. We should not be
surprised, therefore, that banks focused on MNCs like HSBC, Citigroup or
StanChart should have a different return profile to domestically-focused
banks in various markets.
Have global banks ROEs

fallen because theyre
too global?
Myth No.3: The global banks results have been weak,

generating low ROEs - . . . there is a growing fear that the
costs of global reach - in terms of regulation and complexity
- exceed the potential benefits.
This is a tough one. On the one hand, its certainly true that the ROEs of
network banks like HSBC, Citigroup and StanChart have been weak recently.
However, The Economist infers from this observation the thesis that the costs
of global reach in terms of regulation and complexity - exceed the potential
benefits. That is, there is little attempt - actually no attempt - to dissect the
returns to identify the origin of the weakness.
Were not going to go through that exercise for JPMorgan and Deutsche Bank
etc because they are outside the scope of this report. However, we can and
should look at the return structures of HSBC, Citigroup and StanChart to
identify the key drivers of weakness.
We dont cover all

global operations
Its not me, its you

The first point to make is that a simple analysis of the three banks geographical
returns profiles tells us that Asian network banking is not the problem.
Yes, StanChart has seen a material fall in the profitability of its Asian
operations in the past two years, but returns over 2009-12 were OK. Its
recent weakness is independent of the generally good returns achieved in
Asia by HSBC and Citigroup. StanCharts underperformance is thus far more
bank-specific than driven by its network banking model, or Asian network
banking in particular.
Figure 64
But its clear from HSBCs

numbers that its ROE
problem stems from
Europe and North
America, not Asia
HSBC pretax ROA by region
(%)
3
2
1
0
(1)
(2)
(3)
(4)
2006
Europe
NA
2007
2008
HK
LatAm
2009
RAP
Group
2010
2011
Mena
2012
2013
2014
5 June 2015
47

Asian banks
Figure 65
Likewise, Citigroups
problems arent
due to Asia
Citigroup ROA by region
3.0
(%)
NA
EMEA
LatAm
Asia
Group
2.5
2.0
1.5
1.0
0.5
0.0
(0.5)
(1.0)
(1.5)
(2.0)
2007
2008
2009
2010
2011
2012
2013
2014
Figure 66
StanCharts definitely has

problems in some of its
Asian operations,
but not others
StanChart pretax ROA by region
SG
Africa
HK
Mesa
(%)
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
(0.5)
(1.0)
2006
2007
2008
IN
EU & Ams
2009
2010
KR
Group
2011
2012
Other A-P
2013
2014
Is networking banking
more difficult to manage?
Myth No.4: The global network bank model is in trouble

because these giant firms proved hard to manage
We think so, but no more

than it used to be
Large, international businesses are inherently more complex and difficult to

manage than simple domestic businesses. However, we are not convinced
that network banking has become more difficult to manage over time.
Indeed, we would argue contra: in many ways modern information and
communications technology and transport make it even easier to manage
large international businesses. The network banking operations of HSBC,
StanChart and Citigroup were built and thrived during the age of steam
power, the telegraph and the slide-rule. Moreover, we find the points of
argument given in support of this assertion to be very weak.
Do global banks lack

synergies, causing their
cost/income ratios
to be bloated?
Theres a good argument
on incomplete or
ineffective integration
of acquisitions
48
Their subsidiaries struggled to build common IT systems, let alone

establish a common culture. Synergies have been elusive and global
banks cost-to-income ratios, bloated by the costs of being in lots of
countries, have rarely been better than those of local banks.
There is a good argument here that multiple acquisitions - for example at

HSBC - over recent decades have made effective integration difficult, thereby
impeding the realisation of synergies. Additionally, there are good grounds to
attribute significant compliance and governance failures to incomplete or
5 June 2015

Asian banks
ineffective integration. Again, HSBC is a good example given its anti-moneylaundering failures in Mexico (it acquired Banco Internacional in 2002) and
facilitation of tax evasion in Swiss private banking (it acquired Republic Bank
in 1999, which formed the core of its global private banking operation).
However, this isnt about
network banking
However, these issues clearly relate to execution risks around acquisitions,

not network banking as such. We agree thoroughly with the view that HSBC
botched many acquisitions - in many ways its M&A spree of the past 25 or so
years was highly value destructive however, these strategic mistakes do not
invalidate its core network banking business model.
Asias leading network

banks do have good - not
perfect - degrees of
cultural and systems
integration
For instance, the Asian regional banking platforms of HSBC, Citigroup and
StanChart have not seen much acquisition activity in the past decade and are
run on generally common systems with a common culture. The exceptions
that arguably prove the rule are Citigroups and StanCharts respective
acquisitions in Korea (Citigroup acquired KorAm Bank in 2003 and StanChart
bought Korea First Bank in 2005). However, the underperformance of these
acquired businesses is due more to the generally woeful profitability of the
entire Korean banking industry than any particular problem arising from the
Citigroup or StanChart approach to network banking.
Cost/income can be a
misleading measure of
cost efficiency when
applied to banks that are
very different
On the final point, that cost/income ratios are bloated by being in lots of
countries and, by implication, worse than local banks as a result, its
important once again to clarify. A wholesale-focused network bank will have
a different return and risk profile from a local bank servicing a materially
different customer base, with different products and different cost, risk and
profit structures. It is thus not a realistic comparison. Further, the
cost/income ratio is often an unreliable measure of cost efficiency given the
denominator (ie, income, or revenue) does not necessarily have a decisive
bearing on cost-efficiency.
HSBC has a lower

cost/income ratio in Hong
Kong than the rest of
Asia, but the rest of Asia
has higher ROA
Consider the following example. HSBC operates as a universal bank in Hong

Kong (it is the dominant local bank), but predominantly as a network bank
in the rest of Asia. Figure 67 shows that HSBCs cost/income ratio is
significantly lower in its Hong Kong operations than in the rest of Asia. This is
unsurprising and reflects HSBCs scale economies in a densely-populated and
wealthy city-state. However, when we consider pre-provision profitability (ie,
pre-provision profit to average assets), its not obvious from Figure 68 that
Hong Kong is materially more profitable than the rest of Asia-Pacific.
What have we learned?

cost/income isnt always
a helpful basis for
comparison
The point here is not that one particular business mix or mode of operation is
inherently superior to another, but that we have to allow for fundamental
business differences not just across countries but also across different banks
when assessing performance. Blanket statements like the one made by The
Economist above show no such differentiation and are not meaningful.
Figure 67
Figure 68
HSBC cost/income: Hong Kong and Rest of Asia-Pacific
HSBC pre-provision profit/avg assets: HK & Rest of AP
2.0
RAP
2013
2012
2011
2010
2009
2008
2007
HK
2006
2013
2012
2011
2010
2009
2008
0.0
2007
2006
0.5
2005
10
2004
1.0
2003
20
2002
1.5
2001
30
2005
HK
2004
40
2.5
2003
RAP
2002
50
2000
(%)
3.0
2001
(%)
2000
60
Note: HK = Hong Kong, RAP = Rest of Asia-Pacific. Source: CLSA, company data
5 June 2015
49

Did big network banks

make dumb
strategic decisions?
Asian banks
As
a result these firms have all too often been tempted to make a
fast buck. Citi made a kamikaze excursion into mortgage-backed
bonds in 2005-08. StanChart made loans to indebted Asian tycoons.
Hindsight is always
20/20, but how could
Citigroup - a big retail and
investment bank - not be
exposed to MBS?
The first assertion here is particularly ignorant. Citigroup was and remains
one of the largest retail banks in the USA. Moreover, since the 1998 TravelersCiticorp merger the core of Citigroups investment banking business has been
the former Salomon Bros - a core bulge-bracket bond firm and the pioneer
in mortgage-backed securities from the days of Lewis Ranieri. Citigroup was
thus inevitably exposed to the US mortgage meltdown in the GFC - no
kamikaze excursion was necessary. It is possible to argue about the degree
to which it was exposed and management handling of its exposure, but it
would be nave in the extreme to expect Citigroup to have been able to dodge
that particular bullet altogether given the configuration of its US operations.
Subprime meltdown was

not a network
banking problem
More importantly, Citigroups exposure to the mortgage meltdown has

nothing to do with network banking and everything to do with the domestic
risk concentrations of Citigroups US retail and wholesale banking operations.
StanChart sank some own

goals, but was this the
fault of the network
banking model, or simply
bad execution?
The second assertion, that: StanChart made loans to indebted Asian tycoons.
is unsubstantiated. It is nevertheless true that StanChart (like most banks in
Asia) makes loans to Asian tycoons, but it has done so since the 19th Century,
and thrived doing so, notwithstanding these customers occasionally
defaulting. Thats a known hazard in banking - bad debts are a cost of doing
business. The implication is that StanChart has somehow deviated from its
previous path (making a fast buck), but this isnt proven.
Is competition tougher
for the network banks?
First question: how is
competition defined and
measured? Data backing
this assertion is
usually absent
Have global giants lost

share to ANZ and DBS?

because competition proved to be fiercer than expected
We encounter this assertion often, and it is typically not accompanied by any
substantive data. For one thing, how does one measure the intensity of
competition? For another, as seen in Section 3, competition varies across
markets. There is no single Asian market - within Asia there are multiple
fragmented markets with varying degrees of competition. As we examine
below, the typical assertions on competition are usually couched in terms of
anecdotes based upon the perceived relative success of individual banks of
groups of banks. These anecdotes dont bear up under scrutiny, however.
Global giants also lost market share in Asia to so-called super-
regional banks, such as ANZ of Australia and DBS of Singapore.
ANZ and DBS present themselves as ambitious/aspiring regional banking

challengers in Asia and are thus unsurprisingly keen to highlight their
successes. Unsurprisingly, many media observers follow the respective
company lines uncritically.
50
No
However, being familiar with both of these super-regional banks and having
gone through the exercise in Section 3 of comparing their cross-border
franchises to peers we find the assertions above to be grossly overstated, if
not simply wrong.
ANZs Asian operations

are primarily of portfolio
Taking ANZ first, it should be apparent from our work in Sections 2 and 3 that
the bulk of its Asian banking earnings is associate income from its portfolio of
strategic investments in a variety of banks. However, this is not an integrated
business; it is a bundle of non-controlling stakes in disparate, unconnected
banks. This portfolio certainly has value, and wed argue that ANZ has done
well as an investor. However, this investment portfolio is not an effective
competitive network and will attract growing capital-adequacy deductions
under the phase-in of Basel 3.
5 June 2015

Asian banks
ANZs wholly-owned
operations are of small
scale and have not won
material share
ANZs wholly-owned operations in Asia have grown nicely off a small base,
augmented by some opportunistic bolt-on acquisitions, but are still of small
scale in all relevant markets. The largest concentrations are naturally in
Hong Kong and Singapore but in both of these markets ANZ is an also-ran in
comparison to the Usual Suspects and local players. Wed also note that
there is no evidence that we can see of material gains in market share.
Outside of Singapore DBS

only has meaningful scale
in Hong Kong, and it has
not won share there
In the case of DBS, it was shown in Section 3 that its only material
operation outside of Singapore is in Hong Kong. It has grown its other
Greater China exposure quickly, but this is a trivial slice of the Chinese
market. Not only that, it is largely trade-finance provided to mainland
China corporations by DBSs Singapore balance sheet. DBSs on-theground presence in mainland China is small, with inadequate deposit
funding to sustain the groups overall increase in loans to mainland clients.
The lack of organic, on-the-ground funding is a tell-tale sign of a weak
cross-border franchise.
Figure 69
DBS Other Greater China loans
DBS has rapidly expanded

its lending to mainland
China corporations, but
has funded this from its
Singapore and Hong Kong
balance sheets,
not China operations
60,000
(S$m)
Loans to Greater China (ex-HK) customers

Loans booked to Greater China (ex-HK) ops
Gap funded by rest of DBS group
50,000
40,000
30,000
20,000
10,000
0
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
Even in Hong Kong - DBSs one large cross-border operation - its franchise
has deteriorated over the years. Since 2008 it has lost material share in
Hong Kong loans and has only maintained share in deposits.
Figure 70
Figure 71
DBS share of Hong Kong deposits
DBS share of loans for use in Hong Kong
4.5
(%)
DBS (HK) subsidiary
DBS branch
4.0
DBS (HK) subsidiary
DBS branch
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
(%)
2008
2009
2010
2011
2012
2013
2014
2008
2009
2010
2011
2012
2013
2014
Note: Includes both DBS subsidiary and branch operations. Source: CLSA, HKMA, company data
5 June 2015
51

Asian banks
DBSs HK operations
appear to have lost
ground since it bought
them in early 2000s
Indeed, as shown in Figure 72 below, DBSs market position is arguably even

worse given the hollowing out of the retail lending operations and increased
reliance upon trade finance. The trade-finance boom is a Hong Kong industrywide phenomenon, driven by currency and interest-rate arbitrage and feeding
mainland Chinese corporate demand for cheap US-dollar funding, not
sustainable Hong Kong-based business. To put this in perspective, Dao Heng
Bank had around 42% of its loan book in home loans and 9% in trade finance
when DBS acquired it in 2001. In 2014, DBSs Hong Kong operation had only
8% of its loan book in home loans but 27% in trade finance.
Again, the assertion that DBS has been winning market share in cross-border
is not borne out by this data, which represents DBSs largest business outside
of Singapore.
Figure 72
DBSs HK loan mix has

substituted trade finance
loans for mortgages
DBS Hong Kong loan mix
100
(%)
ex-HK
Trade finance
80
Other comm.
Transport
60
Manufacturing
W/sale & retail
40
Finance
Commercial property
20
Other personal
Home loans
2008
2009
2010
2011
2012
2013
2014
Note: Includes both DBS subsidiary and branch operations in Hong Kong. Source: CLSA, company data
Have big local banks in

EM built out material
cross-border operations?
Big local banks in emerging markets, such as ICBC in China Itau in
Brazil and ICICI in India also began to build out cross-border

operations.
We wont comment on Brazil, or emerging markets more broadly, as they are

outside the scope of this Asia-focused report.
52
Not in Asia
However, we showed in Section 2 that there are relatively few regional

challengers in cross-border banking in Asia.
ICICI is relatively smallscale outside of India
Moreover, it should be evident from Figure 13 in Section 2 that ICICI is not

one of these given its relatively small scale outside of India.
BOC is key regional

challenger from China,
but its worked on its
international operations
for decades
Similarly, Chinas leading regional challenger is not ICBC, but BOC, and even
BOC has a relatively weak presence outside of Hong Kong and Taiwan. We
have no doubt that the large China banks will become more formidable
competitors in time, but they are many years away from establishing strong
regional or global platforms.
Its harder than it looks
As we have demonstrated in previous sections, it is difficult for local banks in

general to break into Asian cross-border banking. Material increases in crossborder scale have typically required acquisitions or many years of patient
organic growth. Its just not that easy to build a competitive regional
platform, despite glib assertions to the contrary.
5 June 2015

Asian banks
Are global network banks

in trouble because theyre
subject to a regulatory
backlash?

because there has been a regulatory backlash
There is no doubt that banks have been struck by a regulatory backlash,
arguably much-deserved given the rogue behaviour of large banks in the
credit-bubble days leading up to and including the GFC. This encompasses
tighter regulation of capital adequacy, liquidity and conduct in a number of
markets, but particularly the USA and UK, the two banking systems that
required extensive government intervention to prevent the failure of large
banking groups.
All banks face increased

regulatory costs; its not a
network banking issue
However, the fact that banks in the West - and, to a lesser extent, the rest of
the world - have seen a dramatic escalation in regulatory oversight does not
necessarily imply that network banking has become relatively more difficult or
less profitable than other banking models as a result. For instance, all banks,
regardless of their business model and structure have to hold more capital
these days, not just network banks.
The biggest regulatory

costs have been inflicted
on domestic banking
operations
As we show below, its far from obvious that network banks have been
disproportionately hit by regulatory fines and costs. It is a sad fact that the
banks worst hit by increased regulatory burden are domestic banks in the UK
and USA. This happens to include HSBC, Citigroup and StanChart because of
their domicile and geographical exposures but it is not because they are
network banks - quite the contrary, as we will show.
Are global network banks

more exposed to
regulatory fines?
The biggest fines have

generally been levied in
home banking markets,
and not in network
banking activities
American officials have begun to enforce strict rules on money-
laundering, tax evasion and sanctions, meaning that global banks

must know their customers, and their customers customers, if
they want to maintain access to Americas financial system, which
is essential given that the dollar is the worlds reserve currency.
Huge fines have been imposed on StanChart, BNP and HSBC,
among others, for breaking these rules.
In Figures 73-75 below we have summarised the regulatory fines, penalties,

settlements and levies that HSBC, Citigroup and StanChart attracted over
2009-14. This list is not exhaustive, as some issues are ongoing (eg, Libor
manipulation, investigation of Swiss private banking) and have not
crystallised into fines yet. However, it is a comprehensive assessment to-date.
Note that we do not show or separate ongoing/recurring compliance and
governance costs - it is impossible to identify and segment these in the same
way, though it is clear from banks commentary that these have also
increased substantially.
Figure 73
Figure 74
Figure 75
HSBC fines, settlements & levies
Citigroup fines, settlements & levies
StanChart fines, settlements & levies
14,000
12,000
(US$m)
Retail
9,000
Wholesale
8,000
Retail
Wholesale
6,000
8,000
5,000
6,000
4,000
USA
Rest of World
Wholesale
400
200
1,000
UK
Retail
600
2,000
2,000
(US$m)
800
3,000
4,000
1,200
1,000
7,000
10,000
(US$m)
UK
USA
Rest of World
UK
USA
Rest of World
Note: Accumulated amounts of regulatory fines, penalties, settlements and levies for the period 2009-14. Source: CLSA, company data
5 June 2015
53

Asian banks
The first point to note is that the regulatory backlash is extremely

concentrated in just two countries: the UK and USA, which have seen fit to
levy an extraordinary array of fines, penalties and levies on their banks.
Regulatory fines levied
disproportionately by just
two countries: UK and USA
The rest of the world simply hasnt generated anything like these regulatory
imposts. That HSBC, Citigroup and StanChart have been fined by UK and US
regulators is undoubtedly due in large part to the fact that these three banks
are domiciled and thus regulated in these countries. However, as we discuss
below, the details on the fines and levies shows that these imposts have, in
the main, not been due to network-banking activities, but specifically
domestic banking issues.
However, money
laundering and US
sanctions violations have
clearly been a painful
area for many banks
The one clear issue where network banking has been in the regulatory
gunsights has been money-laundering and US sanctions violations, as a key
part of network banking is facilitating cross-border financial flows. The fines in
this area represent US$967m in USA-imposed fines for StanChart and
US$1,921m in global fines for HSBC. This is clearly the leading share of
StanCharts regulatory cost but, hard as it may be to believe, its actually a
small proportion of HSBCs total regulatory imposts over 2009-14.
Its also very important to note in relation to the US sanctions violations that
StanChart and HSBC (among other banks) were fined for activities that took
place a decade ago, in the lead-up to the GFC, not in the recent past.
Is the problem network

banking or regulatory
over-reach?
Its certainly also arguable in the case of US sanctions violations (the key
issue for StanChart, as HSBC also had material money-laundering failures in
relation to its Mexican operations) that the fines represent as much US
regulatory hubris in its regulators extra-territorial control of US-dollar
transfers outside of the USA as evidence of any criminal activity facilitated by
these banks.
So where did the rest of the regulatory fines come from? In short: domestic
retail and wholesale banking were the primary drivers, not network banking.
We provide a table for HSBC - by far the worst hit - to highlight the various
imposts. These show conclusively that by far the biggest regulatory problem
for HSBC has not been money-laundering, tax evasion and sanctions but
ordinary retail banking in the UK, as well as the USA, by a wide margin.
Figure 76
HSBC summary of regulatory fines etc

2009
UK/Europe
FX investigations (wholesale)
Private banking regulatory provisions (retail)
UK Consumer Credit Act provisions (retail)
UK customer redress (retail)
UK bank levy (retail)
AML and sanction fines (network banking)
USA
Settlement with Federal Housing Finance Authority (retail)
Customer redress under CRS (retail)
AML and sanction fines (network banking)
US mortgage foreclosure costs (retail)
Rest of World
Private banking regulatory provisions (retail)
2010
2011
2012
2013
317
78
898
570
2,338
571
375
1,235
916
2014
TOTAL
1,187
16
632
1,275
1,100
1,187
333
632
5,824
3,157
375
550
550
100
1,546
257
49
84
100
1,546
257
35
54
5 June 2015

HSBCs largest fines were

driven by UK retail
banking nothing to do
with network banking
Asian banks
HSBCs single-largest expense has been compensating UK retail customers

for the mis-selling of banking and insurance products. Next largest is the
US$3.1bn in levies collected so far by the UK government, ostensibly to
curb excessive borrowing by UK banks and thus help prevent future bank
failures. This is despite the fact that HSBC (and StanChart, for that matter)
was conspicuous in not needing a government rescue during the GFC.
Indeed, HSBC sources the bulk of its funding from outside of the UK, and
that funding is focused conservatively on deposits and not wholesale
borrowing. And yet HSBC for its pains has become a disproportionate
contributor to the HM Treasury.
On that point, it is even more perverse that StanChart has paid US$940m on
the same levy over four years despite having minimal reliance upon UK
depositors for funding - it has practically zero retail banking business in the
UK. It has effectively been forced to pay for insurance it doesnt need.
Bulk of Citigroups fines

related to domestic US
banking, not its
global network
For Citigroup, it paid out US$3,749m on a settlement relating to its US

investment banking activities in residential mortgage-backed securities
(RMBS) and collateralised debt obligations (CDOs), US$2.2bn in a settlement
related to the servicing of US residential loans and US$2.7bn recent
settlements with UK and US regulators over foreign-exchange market
manipulation. The latter could be attributed, at least in part, to network
banking, but the first two settlements were due to Citigroups domestic US
retail and investment banking operations.
Using The Economists logic and the known facts, it should be apparent that
network banking is apparently far safer from a regulatory perspective than
retail banking!
Are new competitors

driving down margins?
Are Japanese and Chinese

banks changing the
competitive environment?
Myth No.7: There are new competitors to push down margins
This assertion is an evolution or elaboration of No.5 above. The implication is

that the competitive environment in network banking has changed materially
because of the change in composition of the competing players. That is, that
there has been a structural shift, unlike those seen in the past, that has
permanently changed competitive returns. This is usually couched in specifics
such as those employed by The Economist:
Japanese banks are on a cross-border lending bender for the first
time since the 1980s. Chinas banks are steadily expanding.
The IMF, in its April, 2015 Financial Stability Report makes a similar point,
contrasting the international expansion of the Chinese and Japanese banks,
observing that both groups have followed their domestic customers overseas.
However, the pattern of growth has generally involved considerable
acquisition activity by the Japanese banks, whereas the Chinese banks have
grown their loan books more organically.
These banks are clearly
growing their Asian
businesses . . .
The kernel of truth here is that, as we showed earlier, Japanese and Chinese
banks have indeed grown their offshore operations rapidly. However, we point
out the following:
1. Japanese banks have long - ie, since the 1980s - been active participants
in Asian and global banking. They were competitive lenders one and two
decades ago and remain competitive. We are thus doubtful that they have
materially tilted competitive intensity;
5 June 2015
55

Asian banks
2. The rapid proportionate growth of offshore loans for Japanese banks is as

much a function of moribund domestic lending. Figures 77 and 78 below
show that the proportionate increase of offshore lending is not due to
extraordinarily rapid foreign loan growth as much as a dead home market;
Figure 77
. . . and foreign loans are

increasing as a share of
group lending
Foreign loans as a % of total - large Japanese and Chinese banks
40
(%)
MUFG
BOC
35
Mizuho
CCB
SMFG
ICBC
ABC
30
25
20
15
10
5
0
2008
2009
2010
2012
2011
2013
2014
Note: Japanese banks FYE 31-March. Source: CLSA, company data

Figure 78
But Japanese banks arent

growing that quickly
ex-Japan . . .
Cagr of domestic and foreign loan growth, JP and CN banks 2008-14
80
(%)
Domestic
Foreign
68
70
60
50
40
35
30
18
20
10
10
18
22
18
33
17
10
0
(10)
(2)
MUFG
(1)
Mizuho
(1)
SMFG
ABC
BOC
CCB
ICBC
56
. . . and Chinese banks

foreign loan books are
growing off a small base
3. Chinese banks have grown very quickly (see Figure 78 above, for example)
but off a generally small base (see Figure 79) and with a substantial skew
to the Greater China markets of Hong Kong and Taiwan. As we discussed
earlier in Section 3 this is most obviously the case for the most
internationally active Chinese bank, BOC; and
Moreover, the Chinese

banks foreign loans are
concentrated in Hong
Kong and Taiwan
4. As shown in the previous section, in no Asian markets other than Hong

Kong and Taiwan are the Chinese banks material. And the Japanese banks
suffer the opposite problem, in that they are spread thinly. Similarly,
market shares have changed little in recent years, with the exception of
Hong Kong, where we do see mainland banks as successful challengers.
Overall, however, it is hard to identify a material competitive impact from
Chinese and Japanese banks on Asian cross-border banking.
5 June 2015

Asian banks
Figure 79
MUFG and BOC are the

two banks that are clear
challengers regionally
Foreign loans (in US$bn) of Japanese and Chinese banks, 2008 and 2014
(US$bn)
500
2008
2014
450
388
400
350
303
300
250
214
206
181
200
150
150
114
109
107
93
100
64
50
0
MUFG
Mizuho
ABC
SMFG
27
18
BOC
CCB
ICBC
Lastly, as The Economist and the IMF both acknowledge, much of the growth
in the foreign operations of Chinese and Japanese banks has simply filled the
void left by retreating European banks. We can see in Figure 80 that global
banks claims on Asian countries show UK (ie, HSBC and StanChart), US and
Japanese banks gaining at the expense of (non-UK) European banks. Note
that Chinese banks reporting data is not available in the BIS data set.
Figure 80
If Japanese and Chinese

banks simply fill the void
left by exiting Eurozone
banks, has the
competitive environment
really changed?
Foreign banks claims on Asian banking systems, by country/region of origin
1,800
(US$bn)
UK
USA
Japan
Europe ex-UK
1,600
1,400
1,200
1,000
800
600
400
200
0
Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14
Source: CLSA, Bank for International Settlements
From their peak level of March, 2008, European banks, excluding the UK,
have shed US$615bn in claims on Asia, as of September, 2014. That is nearly
double the increase in Japanese banks claims on Asia (ex-Japan).
It also understates the true extent of European banks retreat, as the UK
banks sector includes both Asian leaders like HSBC and StanChart (which
have driven the increased exposure of the UK to Asia), as well as banks like
RBS and Barclays that have shrunk their Asian exposures. Indeed, RBS and
Barclays have reduced their aggregate credit exposure to Asia by around
150bn since 2008.
5 June 2015
57

Asian banks
If rising Chinese and Japanese banks have simply replaced European banks
as marginal competitors in Asia can we safely conclude that overall
competition has increased in Asian cross-border banking? We dont think so.
Regional market is
competitive, but its hard
to demonstrate that it has
become materially more
competitive
58
Our conclusion is that the competitive environment in Asian cross-border

banking has seen a shuffling of the players, but no obvious increase in overall
competitive intensity. This is not to say that Asian cross-border wholesale
banking is not competitive - we think it is, and always has been. However,
claims that the environment is structurally more competitive are hard to
substantiate with the data and thus overstated, if at all accurate.
5 June 2015

Asian banks
Section 5: Age and guile beat youth
Age and guile beat youth, innocence and

a bad haircut
The report of my death was an exaggeration.
~ Mark Twain
In this section we complete our comparison of the competing regional
banking networks of the Usual Suspects and their challengers, forming a view
of their capacity to alter the competitive landscape and the implications for
their individual outlook.
Franchise assessment
In forming our view of the strength of the respective Asian cross-border

regional banking franchises we have utilised our qualitative and quantitative
observations from the earlier sections - notably Sections 2 and 3 - to inform
our conclusions. Note that these are necessarily subjective, but we hope that
the evidence above has clearly underpinned the conclusions.
How do we assess the

competing regional
franchises?
The results are summarised in Figure 81 below, which we explain and

interpret in the following subsection.
Figure 81
Asia cross-border franchise scoring, banks sorted by Asia cross-border revenues
HSBC
Citi
StanChart
BOC
MUFG
ANZ
DBS
UOB
OCBC
SMFG
Mizuho
CIMB
Maybank
Scale
Breadth
Depth
Funding
5
4
3
4
4
2
2
2
2
3
3
1
1
4
5
4
1
3
3
2
2
2
3
3
2
2
5
3
4
4
2
2
2
1
1
1
1
1
1
5
5
4
2
1
2
2
1
2
1
1
2
2
Structure Average Aggression

score /ambition
4
4
4
2
2
1
3
2
2
1
2
2
2
4.6
4.2
3.8
2.6
2.4
2.0
2.2
1.6
1.8
1.8
2.0
1.6
1.6
2
1
1
4
4
3
4
2
3
4
4
3
2
Asia x-border
revenue
(US$bn)
23.7
14.7
12.6
12.0
5.7
2.7
2.7
2.4
2.4
2.3
2.2
1.9
1.9
As % of
group
revenue
38
21
69
19
13
12
38
42
43
7
9
30
35
Our overall conclusion is derived from a simple weighted average of the

scores (1 to 5) against five relative measures:
Brute force counts
Scale - this compares not just the aggregate size of Asian cross-border
operations, but also global group resources, to measure the financial muscle
of a banking group, and thus capacity to drive resources into its Asian
regional platform. So, for example, this favours the global giants like HSBC,
Citigroup and MUFG, as well as the very large regional banks, eg, BOC and
the other Japanese megabanks.
A broad network of
coverage is important
Breadth - compares regional platforms by the degree of spread across Asian

banking systems, particularly the regional financial centres (ie, Hong Kong
and Singapore), the large growth systems (ie, China, India and Indonesia)
and other markets. This measure favours those networks that achieve broad
coverage across all key markets in Asia. So, for example, Citigroup, HSBC and
StanChart have the greatest breadth of cross-border operations, whereas
BOC is highly concentrated just in Hong Kong and Taiwan.
5 June 2015
59

Asian banks
Material operations at
country level entrench
the network
Depth - compares banks on scale within individual markets, favouring banks

that achieve critical mass in multiple markets. This will favour those banks
that have established and sizeable anchor businesses operating within an
integrated and effective network. The banks that rank best by this
comparison are the likes of HSBC, StanChart and BOC that have achieved
significant scale in a number of markets. At the opposite extreme, the
Japanese megabanks SMFG and Mizuho have operations across many
countries (ie, good breadth) but at an individual country level their
operations are small and with only shallow penetration.
Banking customers on the

liability side - ie,
deposits- is critical
Funding - compares the deposit-gathering franchises of cross-border

networks, eg, via cross-border LDR, in particular the scale of US-dollar depositgathering. Given the dominance of the US dollar in cross-border corporate
banking, this is a critical marker of a well-balanced liability business to support
balance-sheet growth. There is an innate bias in this measure towards banks
that have strong corporate transaction-banking operations, eg, HSBC, Citigroup
and StanChart. At the other extreme, the Japanese megabanks are relatively
more constrained in their local deposit funding against regional lending, relying
upon domestic Japanese deposits and wholesale funding.
Structure of the regional

network can help or
hinder operating
effectiveness
Structure - this measure compares the regional banking networks on their

integration, cohesiveness, brand and legacy. It favours well-integrated
networks with long tenure in their markets of operation, on the argument that
longstanding existing networks benefit from incumbency and accumulated
customer goodwill. So, for example, the most-established networks are those
belonging to HSBC, Citigroup and StanChart, whereas banks like ANZ and
SMFG have a relative overreliance upon associate investments rather than
100%-owned and integrated network operations.
Figure 82
Unsurprisingly, the Usual

Suspects are better
placed on these criteria
Aggregate scoring of Asia cross-border franchises (ranked by x-border revenues)
25
Scale
Breadth
Depth
Funding
Structure
20
15
10
5
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Source: CLSA
The scores are 1-5 and

necessarily subjective
60
Our Usual Suspects and challenger banks are scored on a relative basis,
from 1-5, 1 being the weakest and 5 the best relative score. We use a
simple average of these scores to derive the overall score which we then use
to represent our - necessarily subjective - view of the strength and capability
of the respective Asian cross-border franchises. The aggregated scores (ie,
the sum of the five scores) are shown in Figure 82 above for a visual
comparison. Note that we sort the banks by Asian cross-border revenues.
5 June 2015

Asian banks
Arguably the more

interesting scores are
between the challengers
How do we interpret the table and chart? Not surprisingly given our earlier
commentary we rank the Usual Suspects highly. Similarly, the smaller
Malaysian and Singaporean (ie, UOB) banks with a narrower geographical
focus on Asean dont score as well. However, there are some relative
surprises, for example we rate DBS as a stronger overall franchise than ANZ,
and largely because ANZ suffers from the relative lack of integration between
its associate investments and its own wholly-owned network.
BOC, MUFG, DBS and

perhaps ANZ, form the
leading group of
challengers
The banks that emerge in the strong second tier of competitors - ie, those
more likely to represent a competitive threat to the Usual Suspects within a
reasonable timeframe - are BOC, MUFG and DBS, with ANZ and perhaps
Mizuho and SMFG lagging. We discuss the competitive implications in more
detail later in this section. However, before we progress it would be helpful to
quickly summarise our thoughts on the individual banks.
Bank-level summaries
HSBC (Avg: 4.6)
Scale (5)
Structure
(4)
Breadth
(4)
Funding
(5)
Depth
(5)
Citi (Avg: 4.2)

Scale (4)
Structure
(4)
Breadth
(5)
Funding
(5)
Depth
(3)
StanChart (Avg: 3.8)

Scale (3)
Structure
(4)
Funding
(4)
5 June 2015
Breadth
(4)
Depth
(4)
HSBC (HSBA LN, 5 HK, O-PF)

HSBC scores generally highly across all measures - the benefit of its absolute
advantages in regional and global scale and the longstanding strength of its
broad and deep regional network. We assess HSBC to be a relatively passive
incumbent leader, hence the relatively low aggression score. It has little
need to acquire regionally and may even continue to dispose of selected
assets at the margin, given its global pursuit of improved returns. We believe
the strength and materiality of HSBCs Asian operations are major positive
drivers of the stock, but are diluted at the group level by generally
underperforming operations in Europe and North America. However, potential
redomiciling and/or more aggressive group restructuring (eg, demerger of the
UK retail bank) give HSBC strategic optionality that challenge this view.
Citigroup (C US, BUY)
Citigroups Asian operations rate very highly across all metrics apart from
depth, where the lack of scale in any one market marks it relatively lower
than HSBC and StanChart, which are stronger in Hong Kong and Singapore.
Citigroups network is formidable, however, with longstanding integrated
operations across diverse geographies, including key financial centres and
emerging growth banking systems. Within the context of a global group
restructuring to lift returns, the Asian business is a superior franchise. It
represents only one-fifth of group revenue, however, so cannot drive the
stock overall. We rate its aggression at a low level at this point given the
group distractions and the greater relative likelihood of divestments than
acquisitions or aggressive expansion in Asia.
Standard Chartered (STAN LN, 2888 HK, BUY)
StanChart is the smallest and weakest of the Usual Suspects, but of the three
it is the bank that is proportionately most exposed to Asia. This means that
the Asian earnings base is much more critically important to StanChart than
for HSBC and Citigroup. While its Asian business has suffered a large fall in
profitability in the past two years, it retains considerable strengths in its
breadth of operations, good depth in multiple markets and a strong legacy
network throughout Asia with solid deposit funding. We rate it among the
least aggressive banks in Asia at this time, given the overhaul of
management and group restructure, likely to involve much tighter balancesheet management and perhaps further incremental divestments.
61

BOC (Avg: 2.4)

Scale (4)
Structure
(2)
Breadth
(1)
Funding
(2)
Depth
(3)
MUFG (Avg: 2.4)

Scale (4)
Structure
(2)
Breadth
(3)
Funding
(1)
Depth
(2)
ANZ (Avg: 2)
Scale (2)
Structure
(1)
Breadth
(3)
Funding
(2)
Depth
(2)
DBS (Avg: 2.2)

Scale (2)
Structure
(3)
Breadth
(2)
Funding
(2)
Depth
(2)
UOB (Avg: 1.6)

Scale (2)
Structure
(2)
Funding
(1)
62
Breadth
(2)
Depth
(1)
Asian banks
Bank of China (3988 HK, BUY)

Bank of China is undoubtedly the leading regional challenger from China and
perhaps the most aggressive incremental competitor to the incumbent
regional leaders. While its offshore operations outside of Greater China are
relatively stunted, it is by far the most internationally-developed of the PRCs
large state-controlled banks and has a huge balance sheet to back its
ambitions. We expect it to be an aggressive opportunistic acquirer and to
become a more effective competitor as it invests in its offshore network
outside of Hong Kong and Taiwan. We estimate that Asia ex-PRC represents
19% of group revenue, so mainland operations remain the dominant driver,
but the group has an ambitious target of 40% in five years.
MUFG (8306 JP, O-PF)
Alongside HSBC and Citigroup, MUFG is one of the true global giants in this
list of banks, and it is much larger in Asia than its Japanese megabank peers.
Simply by virtue of its scale and history in the region, MUFG has a large
legacy portfolio of banking operations spread across Asia, albeit mostly
lacking depth in individual markets. This is changing, however, as MUFG has
committed itself to more aggressive acquisitions and balance-sheet growth in
the region. To compete more effectively in cross-border banking, we expect
MUFG to need greater local penetration and domestic deposit gathering in key
countries of operation. Its overall scale means that Asia ex-Japan (13% of
group revenues) is a relatively small driver of the group, however.
ANZ Bank (ANZ AU, U-PF)
ANZ is the Australian bank most exposed to Asia, both in absolute terms and
relative to group revenue. As a regional platform it has solid breadth across
multiple countries in Asia but the bulk of this exposure is only indirect, via
strategic investments in partner banks, which ANZ does not control and
cannot integrate with its own parallel wholly-owned network. At the same
time ANZs own network, relative to its regional peers, lacks scale, depth and
funding strength. While Asia is clearly a strategic focus for ANZ, we view the
banks management as frustrated by the structure of its Asian platform, and
just as likely to divest strategic stakes as to acquire, hence the middling score
on aggression. Moreover, at 12% of adjusted NPAT Asia is not a critical
fundamental driver of the group.
DBS (DBS SP, O-PF)
DBS is both the largest Singapore bank and long the most aggressive
internationally, despite multiple instances of frustration in its history of
regional expansion. DBS has made good progress in growing its wholesale
banking and wealth-management businesses but has little scale in Asia
outside of Singapore and Hong Kong, where it bought into the market more
than a dozen years ago. This gives it modest depth but little regional breadth,
though it has a well-integrated structure. In funding terms it remains overreliant on its Singapore balance sheet and wholesale funding. It has shown
with actual and attempted regional acquisitions that it is committed to forging
a strong regional platform, hence its high score for aggression.
UOB (UOB SP, O-PF)
UOB and OCBC are roughly comparable in the size of cross-border Asian
revenue, but UOB has a greater relative skew to Asean. While UOB has made
small cross-border acquisitions (eg, in Indonesia and Thailand) its strategy
has been risk averse in general and focused more upon organic growth in
developing the capacity to service mid-tier corporations regional banking
needs. This means its regional platform attracts low scores overall and we
have given UOB a relatively lower score for aggression.
5 June 2015

OCBC (Avg: 1.8)

Scale (2)
Structure
(2)
Breadth
(2)
Funding
(2)
Depth
(1)
SMFG (Avg: 1.8)

Scale (3)
Structure
(1)
Breadth
(3)
Funding
(1)
Depth
(1)
Mizuho (Avg: 2)
Scale (3)
Structure
(2)
Breadth
(3)
Funding
(1)
Depth
(1)
CIMB (Avg: 1.6)

Scale (1)
Structure
(2)
Breadth
(2)
Funding
(2)
Depth
(1)
Maybank (Avg: 1.6)

Scale (1)
Structure
(2)
Funding
(2)
5 June 2015
Breadth
(2)
Depth
(1)
Asian banks
OCBC (OCBC SP, U-PF)

OCBC and UOB are roughly comparable in size and historically OCBC shared a
similar geographical skew to Asean (ie, Malaysia and Indonesia). However,
OCBC has recently (2014) differentiated itself by acquiring Wing Hang Bank of
Hong Kong, dramatically increasing its exposure to Hong Kong and mainland
China. That said, OCBCs combined Hong Kong and China business remains of
small scale relative to its larger regional rivals and its overall regional network
similarly does not rank particularly well on scale, breadth, depth and funding
strength. We have rated OCBC a middling score on aggression, based on its
pursuit of Wing Hang, but it may be relatively quiet strategically for a period
as it digests that acquisition.
SMFG (8316 JP, SELL)
Like its megabank peers, SMFG has expanded aggressively in Asia in recent
years. Alongside building its loan portfolio, SMFG has also acquired strategic
stakes in a variety of partner banks. While these have increased its overall
economic exposure, they do not result in an integrated network and add little
depth to its regional corporate-lending portfolio, which is spread thin across
Asia. SMFG as a group has considerable financial muscle to push more
aggressively in Asia, but its current regional network does not score well on
our metrics. Importantly, Asia ex-Japan also represents only 7% of group
revenues, so does not drive the group.
Mizuho Financial (8411 JP, U-R)
Mizuhos Asian regional business is similar to that of its megabank peers in
consisting of a portfolio of corporate loans spread thinly across Asian markets,
giving Mizuho considerable geographical diversification but little depth in
individual markets. It has low profitability and has little organic local deposit
funding, meaning the business does not score well on our metrics. Mizuho,
like its megabank peers, does have substantial global scale, however, so has
the potential to drive more resources into Asia. At 9% of revenue, Asia exJapan is not a critical contributor to Mizuho at group level.
CIMB (CIMB MK, SELL)
CIMB is Malaysias third-largest bank by total assets but has a little more Asia
cross-border revenue than its larger peer, Maybank. Its regional businesses
have been acquired and grown over the past decade, and have some depth in
Indonesia (through CIMB Niaga), though not Singapore or Thailand. The
overall regional network relative to the larger peers above lacks scale,
breadth, depth, funding and established structure. While CIMB has the
ambition and potential to grow into a stronger pan-Asean regional bank, this
does not make it an effective Asia-wide competitor.
Maybank (MAY MK, O-PF)
Similar to CIMB, Maybanks cross-border aspirations are more modest than
many of the banks above, with a greater relative focus on Asean, principally
Singapore and Indonesia. Maybank has generally been less acquisitive than
CIMB and has achieved good growth organically in its Singapore business, but
its overall scoring reflects the limitations of its smaller regional network and
smaller overall scale, despite being Malaysias largest bank.
63

Asian banks
Strategic intent and will

are important, too
Implications for the competitive situation and outlook
We included not just a scoring of relative franchise strength above, but also
our assessment of each banks relative ambition or aggression to grow larger
and measures of absolute size (actual cross-border revenue), as well as
relative materiality of Asian cross-border business for each bank.
So, for instance, we can use the scoring to map out the players according to
their relative strength and ambition to form a view on which banks are most
likely to present the most competitive threat. That is, our assumption is that
the banks most likely to disrupt the competitive environment are those with a
powerful combination of:
Potential for challengers

to disrupt competition is a
function of their franchise
strength, scale and their
willingness to attack the
market (ambition or
aggression)
1. Franchise strength - how material is bank XYZ as a competitor, both in its

overall scale and ability to disrupt existing competition?
2. Regional ambition - how aggressive is bank XYZ in deploying resources
into Asian cross-border banking, potentially even to the detriment of its
own returns?
Figure 83 below maps out our views on these characteristics of the banks.
Figure 83
As yet, no challenger has

sufficient franchise
strength to pose a
material threat to the
Usual Suspects this could change,
however . . .
Asia cross-border franchise scale, strength and ambition
Franchise strength
5
4
StanChart
No large challenger with

a strong regional
platform and ambition BOC? MUFG?
HSBC
Citi
The usual
suspects
BOC
ANZ
UOB
OCBC
SMFG
Regional challengers

0
DBS
Mizuho
CIMB
Maybank
MUFG
Ambition/ aggression
Similarly, we can map out relative ambition/aggression versus the relative

materiality of Asian cross-border business to each group, as we do in Figure
84 below:
Figure 84
Large banks like MUFG

and BOC have scope to
increase their Asian
exposure materially
Asia cross-border ambition, materiality and scale
Ambition/aggression
Mizuho
MUFG
SMFG
OCBC
CIMB
ANZ
HSBC
UOB
Maybank
1
0
DBS
BOC
StanChart
Citi
Asia x-border revenue as % of group

0
10
20
30
40
50
60
70
80
90
100
64
5 June 2015

Asian banks
We draw the following conclusions from this analysis:

HSBC, Citigroup and
StanChart have robust
leading positions
The Usual Suspects retain a commanding lead over their regional
Immediate challengers
face significant hurdles . . .
The second tier of challengers face varying but significant
. . . which can be
overcome, but not
easily or quickly
These constraints are structural, needing time, resources and will
BOC and MUFG have the

most potential to
challenge successfully
The most challenging regional banks in the medium-term are likely
Not all banks are equally

committed to, or invested
in, their Asian operations
Asia is more material for some banks. For many of the banks in this
This has implications

for the willingness to
attack and defend
market positions
The degree of materiality interacts with strategic ambition. Banks
Contrasting strategic
positions imply some
banks are more likely to be
sellers, others acquirers
The M&A outlook is highly dynamic - two of the Usual Suspects -
5 June 2015
challengers. There is a material qualitative and quantitative difference

between the regional banking networks of HSBC, Citigroup and StanChart
and even the leading regional challengers, such as BOC and MUFG. This is
a material positive factor in our ratings of HSBC, Citigroup and StanChart.
constraints. BOC, MUFG, DBS and ANZ arguably form the vanguard of
regional challengers, but have significant limitations in their current
network configuration - noticeably they lack depth and/or breadth in their
regional footprint, requiring much more investment - and perhaps
acquisitions - to match the capability of the Usual Suspects.
to overcome. We see little scope for the competitive positions of the
various banks listed here to change materially over the coming one to two
years. True structural change requires considerable time and resources to
effect organically and fast-tracking such changes through acquisition is
usually expensive and risky.
to be the scale players from China and Japan. BOC and MUFG have
significant limitations but have a solid starting position and the financial
resources, given sufficient time and ambition, to develop into stronger
players. BOC, in particular, has progressed at an impressive rate in the
past decade. Longer-term we must also allow for other mainland banks particularly ICBC and CCB - to follow BOCs path offshore. For the large
banks of China and Japan, however, there is likely to be a significant
return sacrifice required to deal into many markets, eg, the premium
prices required to purchase entry and/or sunk costs attached to building
from subscale positions.
analysis success or failure in Asia cross-border banking makes little

fundamental difference to group returns, simply because Asia is not
material enough. The best examples of this are the Japanese megabanks,
which have only 7-13% of group revenue from Asia ex-Japan. At the other
extreme, the cross-border competitive environment is very important to
StanChart and, arguably, HSBC also given the concentration of HSBCs
profit base that comes from Asia, as opposed to revenue.
like StanChart, the Singaporean banks, HSBC and the Malaysian banks
have far greater strategic sensitivity to their cross-border competitive
positions in Asia than, say, the Japanese megabanks. This has important
ramifications for the respective willingness to attack and defend in the
market. That is, a bank like Mizuho (7% of revenue from Asia ex-Japan)
could be more likely to undercut competitors in Asia in the pursuit of more
scale than, say, StanChart. However, conversely, Asia ex-Japan is less
likely to command as much strategic attention (and resources) for Mizuho
when compared with StanChart, which sees Asia as critical.
Citigroup and StanChart - are in restructuring/consolidation mode that
could lead to divestments and ANZ is widely reported to be interested in
divesting one or more of its strategic bank investments. At the same time,
we reckon a number of banks to be aggressive enough on to be willing to
accelerate regional growth via acquisition, as OCBC did last year. This
presents a regional-banking environment in which cross-border bank
acquisitions could increase in frequency, particularly if currently buoyant
equity-market conditions persist.
65

Asian banks
Competition is dynamic,
with relative winners and
losers, but the structural
growth backdrop for Asia
remains attractive
Our final point is that, while competitive shifts within Asia can obviously
benefit or hurt individual banks in a relative sense, we should remember the
key points from Section 1: Asia has a superior structural growth profile
relative to North America and Europe.
We can allow for cyclical downturns - and higher US-dollar interest rates also
pose a headwind for many markets - but absolute growth in credit and
revenue is thus likely to remain relatively stronger in Asian cross-border
banking into the medium and longer term. This remains a positive backdrop
for all of the banks above.
Investment conclusions and recommendations
As noted above, for many of the banks the Asia ex-Japan exposure is
relatively immaterial, thus makes little difference to our view of the stocks.
The best example of this is the Japanese megabanks: at 7-13% of group
revenue Asia ex-Japan is less likely to be a material driver of the fundamental
outlook for MUFG, SMFG and Mizuho.
Three BUYs:
Citigroup (C US, BUY)
StanChart (2888 HK, BUY)
BOC (3988 HK, BUY)
Among the banks we have analysed we have three BUY recommendations:

Citigroup, StanChart and BOC. In each case, the relatively positive outlook
for Asian regional operations contributes to our positive view of the stocks,
and these are either established regional leaders (ie, Citigroup and
StanChart) or promising emerging challengers (ie, BOC).
Two SELLs:
SMFG (8316 JP, SELL)
CIMB (CIMB MK, SELL)
At the other extreme, we have two SELL recommendations in the list, but
here the link is more tenuous. Brian Waterhouses SELL recommendation on
SMFG is driven more by the overall group outlook and disappointment over
the stinginess of recent capital management. Anand Pathmakanthans SELL
recommendation on CIMB reflects the tough earnings outlook for the group
overall, though the observed earnings weakness in the Indonesian operations
is a significant contributor to group underperformance.
Figure 85
Recommendations and comps

Code
The Usual Suspects
HSBC
5 HK
Citigroup
C US
StanChart
2888 HK
Challengers
BOC
3988 HK
MUFG
8306 JP
ANZ
ANZ AU
DBS
DBS SP
UOB
UOB SP
OCBC
OCBC SP
SMFG
8316 JP
Mizuho
8411 JP
CIMB
CIMB MK
Maybank
MAY MK
Price Mkt cap

(lcl) (US$bn)
CLSA
rec
Target Upside
(%)
PE
(x)
EPS gwth
(%)
PB
(x)
Div yield
(%)
73.90
55.63
122.20
186
169
40
O-PF
BUY
BUY
80.00
73.00
180.00
8.3
31.2
47.3
FY1
11.1
9.9
8.8
FY2 FY1
10.1 18.3
8.7 154.3
7.3 76.6
FY2
10.1
14.2
19.7
FY1
1.00
0.81
0.84
FY2
0.97
0.75
0.80
FY1
5.3
0.3
5.5
FY2
6.0
1.2
5.5
5.18
914
31.92
20.11
22.72
10.04
5,574
267
5.32
9.16
208
104
69
37
27
30
64
53
12
24
BUY
O-PF
U-PF
O-PF
O-PF
U-PF
SELL
U-R
SELL
O-PF
6.30
990
33.50
22.70
26.05
11.10
4,800
235
4.70
10.00
21.6
8.3
4.9
12.9
14.7
10.6
(13.9)
(12.1)
(11.7)
9.2
6.9
11.5
11.9
11.8
11.3
10.6
10.3
10.8
11.2
13.1
6.6
10.5
11.7
10.9
10.9
10.5
9.6
10.5
10.5
12.4
4.9
8.9
1.8
8.6
3.7
1.6
6.8
3.3
13.5
5.2
0.97
0.79
1.65
1.25
1.24
1.23
0.82
0.77
1.12
1.53
0.88
0.74
1.57
1.16
1.16
1.14
0.79
0.74
1.05
1.45
4.8
2.0
5.8
3.0
3.5
3.8
2.7
2.8
3.4
6.1
5.0
2.2
5.9
3.2
3.6
4.0
2.2
2.8
3.9
6.4
(2.2)
9.3
3.1
9.6
1.8
(7.9)
28.3
(2.6)
19.2
(5.4)
66
5 June 2015

Asian banks
Company profiles
The Usual Suspects
HSBC .................................................................................................. 69
Citigroup ............................................................................................. 97
Standard Chartered ............................................................................ 117
Emerging challengers
Bank of China .................................................................................... 147
MUFG ............................................................................................... 151
ANZ Bank .......................................................................................... 155
DBS .................................................................................................. 159
UOB ................................................................................................. 163
OCBC ................................................................................................ 167
SMFG ................................................................................................ 171
Mizuho Financial ................................................................................. 175
CIMB ................................................................................................ 179
Maybank ........................................................................................... 183
Unless otherwise stated, all prices quoted herein are as at close of business 3 June 2015, with the
exception of Citigroup, which is a republished note priced to 2 February 2015
Sorted by relative size in Asian cross-border banking
5 June 2015
67

Asian banks
Notes
68
5 June 2015

HSBC
HK$73.90 - OUTPERFORM
Atlas slugged
Derek Ovington
Outstanding in Asia, but weighed down by the West

+852 2600 8730
As a global giant and regions largest cross-border bank, HSBC is ideally

placed to benefit from the Asian century as economic and financial power
shifts east. This is a tremendous structural advantage for HSBC, but it
carries considerable dead weight in its underperforming European and US
units. These drag on its growth and return profile, making it difficult to
justify a more positive recommendation on a 12-month view. We
maintain our Outperform call and raise our target from HK$76 to HK$80.
Asias global bank
Originating in Hong Kong and Shanghai, HSBC has spent 150 years building
one of the worlds largest banking networks, and the biggest across Asia.
While many of HSBCs international acquisitions of the past 30 years have
disappointed, its core network banking operation in Asia has not: the Hong
Kong and regional operations remain HSBCs crown jewels.
5 June 2015
Hong Kong
Financial services
Reuters
Bloomberg
ADR
0005.HK
5 HK
HBC.N
Asia in focus
HSBCs birthplace of Hong Kong dominates the Asian business, generating
more than one-half of regional profit before tax and greater than one-third of
global PBT. It is a formidable business, but HSBCs network-banking
operations across the rest of the region also have scale, diversity, earnings
power and more than a century of legacy backing their competitive position.
Priced on 3 June 2015

HK HSI @ 27,657.5
12M hi/lo
HK$84.20/64.65
12M price target

% potential
HK$80.00
+8%
Shares in issue
Free float (est.)
19,217.9m
82.0%
Market cap
US$185,969m
3M average daily volume
HK$1,914.4m
(US$246.9m)
Foreign s'holding 68.5%

Major shareholders
JP Morgan & Chase 7.6%

Blackrock 6.6%
Stock performance (%)

Absolute
Relative
Abs (US$)
95
1M
3M
12M
(4.0)
(2.3)
(4.0)
5.9
(5.4)
6.0
(9.3)
(23.6)
(9.3)
(HK$)
90
HSBC (LHS) (%)

Rel to HSI
115
110
105
85
100
80
95
75
90
70
85
80
65
75
60
55
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
70
Oct 13
65
Jun 15
Not drowning, waiting

HSBCs global problems with weak profitability are largely due to its
overexposure to UK/European and North American banking systems which
have enjoyed a remarkably feeble and drawn-out recovery from the GFC.
Unfortunately, so long as macroeconomic conditions in the UK and USA
suppress growth and profitability, the group as a whole will not recover,
despite the excellent performance of HSBCs Asian businesses.
Delayed gratification vs strategic optionality
Unfortunately, it is not possible to directly buy into HSBCs Asian operation.
The group overall remains captive to western macro drivers, but there is
strategic optionality around redomiciling (ie, to Hong Kong) and, perhaps,
demerging its UK retail bank. Absent such radical restructure, we expect a
delayed recovery in ROE. This makes it difficult to justify a more aggressive
price target than 1.05x 16CL book value over the next 12 months, hence our
HK$80 price target (up from HK$76, about 6.72). While we see
medium/long-term upside, our one-year call remains Outperform.
Financials
Year to 31 December
Operating profit (US$m)
Net profit (US$m)
EPS (US$)
CL/consensus (33) (EPS%)
EPS growth (% YoY)
PE (x)
Adjusted EPS (US$)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
21,301
15,631
0.84
13.8
11.4
0.88
10.8
5.1
1.0
9.1
14A
19,115
13,115
0.69
(17.9)
13.9
0.81
11.8
5.2
1.0
7.4
15CL
20,607
15,901
0.81
97
18.3
11.7
0.86
11.1
5.3
1.0
8.7
16CL
23,038
17,903
0.90
102
10.1
10.6
0.94
10.1
6.0
1.0
9.3
17CL
25,991
20,322
0.99
103
10.9
9.6
1.04
9.2
6.1
0.9
10.0
Source: CLSA

Asian banks
HSBC - O-PF
Asias global bank
Originating in Asia, HSBC

is a global and
regional giant
HSBC is one of the worlds largest banks, and one of its most globally
diversified. Established in Hong Kong and Shanghai (hence the name . . .)
during the British colonial era in 1865, Wayfoong ( - hui-feng meaning abundant exchange or plentiful remittances) grew quickly to
dominate Hong Kong banking.
Its footprint is the legacy

of more than 30 years of
global acquisitions
and expansion
HSBCs current footprint is the legacy of more than 30 years of international

acquisitions and expansion, leaving HSBC with essentially two home markets
- the UK and Hong Kong - with a spread of relatively smaller operations
across the regions of Asia, Europe, North America, Latin America and the
Middle East and North Africa (MENA).
HSBC grew aggressively

over the 20 years to the
GFC, which dramatically
stalled its progress
HSBC adjusted revenue by geography
70
(US$bn)
Hong Kong
Rest of Asia Pacific
Europe
MidEast
North America
Latin America
60
50
40
6.1
6.5
8.2
2.5
19.8
1.7
21.6
30
2.2
3.5
20
HSBC has two key home

markets, in the UK and
Hong Kong, but is also
geographically broadly
diversified
11.0
10.9
10
0
21.6
0.7
3.5
1.7
1991
12.7
9.6
5.8
2000
2005
2014
HSBC adjusted revenue mix by geography, 2014
Other N.
America
0.4%
Brazil
7.4%
Canada
3.0%
Mexico
3.5%
Other Latin
America
1.7%
UK
24.7%
USA
9.4%
France
4.5%
Other MENA
1.7%
UAE
2.2%
Other Asia
11.5%
Hong Kong
21.1%
Other Europe
5.0%
China
3.8%
70
5 June 2015

Asian banks
HSBC - O-PF
The balance sheet is still

heavily skewed to
UK/Europe and
North America
HSBC gross loans by geography, 2014
Other N.
America
0.3%
Canada
3.6%
Brazil
2.6%
Mexico
1.6%
USA
9.5%
Other MENA
1.1%
Other Latin
America
0.5%
UK
33.1%
UAE
2.0%
Other Asia
11.4%
France
4.6%
Hong Kong
21.7%
China
3.8%
Other Europe
4.3%
A universal bank in Hong

Kong and the UK . . .
In some markets, notably the UK and Hong Kong, HSBC operates as a

universal bank - ie, servicing the gamut of customers from mass-market
retail to commercial, corporate and wholesale.
. . . but principally a
network bank elsewhere
However, in most countries of operation, it functions primarily as a network

bank dedicated to servicing the corporate banking needs of transnational
corporations. It has historically been its core competency, with this focus
sharpened under CEO Stuart Gulliver since the strategic restructure launched
in 2011. This accelerated the runoff and divestment of noncore operations
around the world, most notably in the USA where HSBC had been badly
burned by its overexposure to the collapse of subprime.
HSBC retains by far the

leading position among
banks in Hong Kong
HSBC retains by far the leading position in Hong Kong. It owns 19% of
Chinas sixth-largest lender (Bank of Communications) and has a strong
platform of banking operations across Asia. Geographically, it is most skewed
to the UK and Hong Kong, but has sizeable exposure to the rest of Asia, North
America, Latin America and the Middle East.
We use the average of

2012-14, given the
volatility in reported
earnings due to
exceptional items and
underlying volatility
HSBCs geographic mix of adjusted PBT - average of 2012-14
Latin America
5%
N. America
7%
ME & Africa
7%
Europe
16%
Hong Kong
35%
Rest of Asia
Pacific
30%
5 June 2015
71

Asian banks
HSBC - O-PF
Hong Kong and the rest of

Asia disproportionately
profitable for the group
As seen in the group mix of revenue, loans and PBT, it is very apparent that
HSBCs Hong Kong and Asian operations have in recent years been
disproportionately profitable relative to the bulk of balance-sheet weight
located in UK/Europe and North America. We discuss HSBCs return profile
and its struggle with profitability later in this report.
Going global
From its dominant position in Hong Kong, HSBC grew throughout Asia during
the 19th and 20th Centuries, benefiting from the reach of the British empire.
HSBC acquired
aggressively around the
world over the
past 25 years
From the late 1980s, HSBC expanded aggressively into the UK and Europe,
North America and Latin America. This was a pursuit of a more global
footprint but also a deliberate diversification away from concentration in Hong
Kong, prior to the British handover of control of the HKSAR to the Peoples
Republic of China in 1997. We include a group structure chart and summary
of key operating subsidiaries later in this HSBC company section.
Pivotal deals were made

over 1987-1992
and in 2003
Pivotal acquisitions were Midland Bank in the UK over 1987-1992 - which

triggered the creation of HSBC Holdings plc and its redomicile from Hong
Kong to the UK in 1992 - and Household International, a US subprime lender,
in 2003. These two acquisitions radically shifted HSBCs geographic focus to
Europe and North America, visible from 1991 to 2005.
Midland Bank and

Household International
shifted HSBCs economic
exposure decisively from
Asia to the UK and USA . . .
. . . and then they blew
up in the GFC
HSBC revenue by geography through time
100
90
80
70
60
50
(%)
Hong Kong
Rest of Asia Pac

9
27
4
20
10
N. America
LatAm
10
13
32
35
11
9
44
35
49
18
7
6
23
10
0
Middle East
14
40
30
Europe
1991
2000
15
2005
20
2014
72
Household International
was a catastrophically
bad acquisition
Household gave HSBC a substantial increase in US exposure but the entirety

of its investment was effectively written off in the global financial crisis of
2007-09 and the attendant subprime implosion. This, and the following
runoff/downsizing of the US operations, explains the compression in North
American revenue from 2005-14. It is testament to the resilience of the
banking group - attributable to both scale and diversity - that it was able to
absorb these massive losses and yet still remain the leading regional bank in
Asia (and, indeed, a leading global lender).
HSBC owns 19%

of Chinas sixthlargest lender
HSBC retains by far the leading position in Hong Kong, owns 19% of Chinas
sixth-largest lender (Bank of Communications) and has a strong platform of
operations across Asia. Geographically, it is most skewed to the UK and Hong
Kong, but has sizeable exposure to the rest of Asia, North America, Latin
America and the Middle East.
5 June 2015

Asian banks
HSBC - O-PF
HK and Asia now yield a

disproportionate share of
profit, in part because
Europe and North America
are still underperforming
HSBC adjusted PBT by geography through time
100
(%)
Hong Kong
Rest of Asia Pac
15
80
37
60
40
3
9
5
Middle East
8
28
4
38
30
8
22
(20)
LatAm
9
5
8
8
34
85
20
0
N. America
36
(5)
(4)
1991
2000
2005
2013
Asia in focus
HSBC has a
hometown advantage 150 years worth
HSBC was initially established in Hong Kong and Shanghai in 1865 and, while
Hong Kong remains its strongest base globally, the group spread rapidly
throughout Asia in the late 19th Century. In most of its Asian countries of
operation, from Japan to India, HSBC has typically had a presence for more
than a century.
Chinas 1949 Communist

revolution destroyed the
bulk of HSBCs business in
the country
Chinas 1949 Communist revolution destroyed the bulk of HSBCs business in

that country, where it had once been the largest foreign bank. This forced the
group to concentrate resources in the booming post-Second World War Kong
economy, but also to diversify to India, the Middle East and North America.
HSBCs branch network 50 years ago
Source: HSBC
5 June 2015
73

Asian banks
HSBC - O-PF
Sizeable earnings in
China, India, Taiwan,
Singapore, Malaysia,
Australia and Indonesia
HSBCs Hong Kong
business is massive and
dominant, but the rest of
Asia is well diversified
Hong Kong remains dominant in HSBCs Asian revenue mix, followed by

sizeable revenues in mainland China, India, Singapore, Malaysia, Australia,
Indonesia and Taiwan.
HSBC Asia - adjusted revenue by country in 2014
Taiwan
2%
Singapore
6%
Other Asia
5%
Malaysia
5%
China
10%
Hong Kong
58%
Indonesia
2%
India
8%
Australia
4%
Source: CLSA, company data.
PBT from China is a

materially larger share of
Asian PBT than revenue
Profitability broadly follows the revenue base, with the notable exception that
PBT from China is a materially larger share of Asian PBT than revenue due to
the inclusion of equity-accounted earnings from HSBCs 19% stake in Bank of
Communications (BoCom).
Its 19% stake in BoCom

provides a material chunk
of global earnings
The earnings stream from BoCom - US$1,974m in 2014 - alone represents

around 13% of Asian PBT (or about 9% of adjusted group PBT) alongside the
7% that comes from HSBCs 100%-owned direct operations in mainland
China, where HSBC is again the largest foreign bank.
Profitability broadly
matches revenue, except
China due to associate
income from BoCom
HSBC Asia - PBT by country in 2014
Singapore
4%
Taiwan Other Asia

6%
2%
Malaysia
3%
China - assoc.
13%
Hong Kong
56%
China - HSBC
7%
Indonesia
1%
India
5%
Australia
3%
China and Singapore are

slightly over-represented
in balance-sheet exposure
74
Balance-sheet exposure is also broadly similar to the revenue base, although

China and Singapore are modestly overrepresented, given a relatively greater
share of loans than revenue or PBT.
5 June 2015

Asian banks
HSBC - O-PF
Balance sheet broadly

matches revenue mix
HSBC Asia - gross loans by country in 2014
Singapore
9%
Taiwan
3%
Other Asia
6%
Malaysia
4%
China
10%
Hong Kong
59%
Indonesia
2%
India
2%
Australia
5%
HSBC provides a breakdown of Asian PBT by its designated business lines:

retail banking and wealth management, commercial banking, global
banking and markets, global private banking, and other. We cut these
numbers two ways in to illustrate the mix of business line by country,
highlighting the dominance of Hong Kong, and to also show the country
mix for each unit.
Hong Kong is relatively
large in every business
line, but particularly retail
HSBC Asia PBT by business mix by country in 2014
9,000
(US$bn)
8,000
7,000
Retail
Commercial
Markets
Private banking
Other
6,000
5,000
4,000
3,000
2,000
1,000
0
Other Asia
Taiwan
Singapore
Malaysia
China associates
China HSBC
Indonesia
India
Australia
Hong Kong
(1,000)
In Asia, Hong Kong is the

only country where
HSBC competes directly
in mass-market
retail banking
5 June 2015
There are several points to make here. The first is that retail banking is most
heavily concentrated in Hong Kong, where HSBC is the dominant retail bank,
both via its own operations and its subsidiary Hang Seng Bank. In other
countries in Asia retail banking is much smaller in scale, servicing niche
segments (ie, expat professional, high-net-worth and private banking clients),
and HSBC is much more skewed to wholesale and commercial banking - ie,
network-banking operations.
75

Asian banks
HSBC - O-PF
We provide a breakdown that excludes Hong Kong to highlight the degree to

which the ex-HK operations are heavily skewed to global banking and
markets - which is essentially the wholesale banking operations servicing
large corporations and institutions - followed by commercial banking,
servicing smaller corporate/business customers.
Outside of Hong Kong,
HSBCs network banking
operations are more
focused on wholesale
(ie, corporate and
institutional) clients
HSBC Asia PBT country mix by line of business in 2014
5,000
Hong Kong
(US$bn)
Australia
India
4,000
Indonesia
China - HSBC
3,000
Malaysia
Singapore
2,000
Taiwan
Other Asia
1,000
China - associates
0
(1,000)
Retail
Commercial
Markets
Private banking
Other
HSBCs associate
income from BoCom is
largely designated as
commercial banking
We isolate the China associates PBT to show the degree to which Bank of
Communications (ie, the only remaining major associate in Asia) is more
heavily skewed to commercial banking, versus the wholesale skew evident in
HSBCs regional operations.
It has high hopes for its

global private
banking unit
The last business line is global private banking, for which HSBC has high
hopes, but remains by far the groups smallest division in Asia, as well as
globally. It is concentrated in Asias two leading private-banking centres of
Singapore and Hong Kong and is not material in size.
Global banking and

markets is by far the
dominant business line
outside of Hong Kong
HSBC Asia PBT business mix by country in 2014 - Excluding Hong Kong
3,000
(US$bn)
Australia
India
2,500
Indonesia
China - HSBC
2,000
Malaysia
1,500
Singapore
1,000
Other Asia
Taiwan
China - associates
500
0
(500)
Retail
Commercial
Markets
Private banking
Other
76
5 June 2015

Asian banks
HSBC - O-PF
From 2014, HSBC has

chosen to include Hong
Kong into its rest of
Asia Pac financial results
Prior to 2014, HSBC reported the financial results for Asia via two geographic
segments, Hong Kong and rest of Asia Pacific (RAP). From 2014, HSBC has
chosen to include Hong Kong into RAP and not to report the HK division
results in the same detail. This is unfortunate, as it means we have lost the
detail in HSBCs single-most profitable country operation, globally, typically
representing a third or more of global PBT.
We provide financial summaries of these two segments at the back of this
HSBC note, but highlight the trend in ROA below.
Overall profitability has

been solid in Asia, but
Hong Kong has suffered
from NIM compression
due to ultra-low
interest rates
Pretax ROA - Hong Kong and RAP
(%)
3.0
HK
RAP
Asia
2.5
2.0
1.5
1.0
0.5
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0.0
The Hong Kong division

suffered a material step
down in profitability after
the financial crisis
HSBCs Asian operations have generally produced a strong return profile, and
not just in its Hong Kong home base. However, the Hong Kong division
suffered a material step down in profitability after the financial crisis, whereas
the rest of Asia recovered to levels prevailing before the GFC. Why?
Net interest margin

compression is the culprit
in explaining the
decline in ROA
A decomposition of pretax ROA in below shows the key driver of Hong Kongs
decline in profitability was compression of net interest margin. This is
thoroughly unsurprising, given the known compression of net interest
margins in Hong Kong as a result of near-zero nominal interest rates. We
return to this issue later, as it is a global drag on HSBCs earnings, and is not
just Hong Kong-specific.
HSBC Hong Kong pretax ROA decomposition

ROA drivers (%)
Net interest
Net fees
Net trading
FV gains, invts, divs
Net insurance
Other
Revenue
Opex
PPP
Credit charge
Operating profit
Associates
Pretax ROA
2006
2007
2008
2009
2010
2011
2012
2013
1.85
1.81
1.53
1.03
1.02
1.04
1.07
1.12
0.81
0.24
0.19
(0.03)
0.33
3.39
(1.29)
2.10
(0.07)
2.03
0.01
2.04
1.11
0.41
0.26
(0.14)
0.28
3.74
(1.25)
2.49
(0.08)
2.42
0.01
2.43
0.69
0.32
(0.39)
0.35
0.22
2.72
(1.06)
1.66
(0.20)
1.46
0.00
1.46
0.66
0.30
0.20
(0.18)
0.31
2.33
(0.97)
1.36
(0.12)
1.23
0.00
1.24
0.71
0.32
0.12
(0.10)
0.39
2.46
(1.07)
1.39
(0.03)
1.37
0.01
1.37
0.69
0.26
(0.11)
0.11
0.37
2.37
(1.05)
1.31
(0.03)
1.28
0.01
1.29
0.67
0.30
0.16
(0.08)
0.39
2.51
(0.98)
1.53
(0.01)
1.51
0.02
1.53
0.72
0.29
0.09
(0.09)
0.33
2.46
(0.94)
1.52
(0.03)
1.49
0.01
1.51
5 June 2015
77

Asian banks
HSBC - O-PF
Shadow of the dragon
As we have flagged in previous research (please see our September 2014

report, Hong Kong banks (A city of two tales: Mainland banks chase the
British lion)), HSBC has materially increased its exposure to mainland China
in recent years and this is a building risk factor, given our concerns on its
credit bubble and likelihood of credit deterioration in the coming years.
Given pervasive government control of the mainland financial system, we see
little scope for a lurch into uncontrolled crisis. However, rising nonperforming
loan (NPL) ratios and numerous anecdotes on building credit stress in the
decelerating mainland economy suggest that China has entered a multiyear
credit downcycle following the long credit boom of the past decade.
While we have established that we are attracted to HSBCs strong crossborder Asian banking platform, our enthusiasm is mitigated by our
developing concerns over potential downside from exposure to mainland
China. This is not an issue for 2015, because of the likely drawn-out
nature of the credit downturn described above, but in the medium term,
HSBC will face developing headwinds from the dip in China, and the flowon effects to Hong Kong.
Quantifying HSBCs exposure to the mainland
As we illustrate below, China-related earnings now represent around 13-14%
of HSBC global adjusted PBT, of which around two-thirds is provided by the
groups equity-accounted share (ie, 19.0%) of BoComs earnings, and the
remaining one-third by HSBCs directly (100%) owned mainland operations.
Mainland China generates

13-14% of group
adjusted PBT
HSBC's PBT from mainland China

(US$m)
2004
BoCom
Industrial Bank
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
175
259
445
741
754
987
1,370
1,670
1,878
1,974
46
71
128
221
216
327
471
670
na
na
China - direct
32
96
133
181
319
111
215
706
792
746
978
Total
32
317
463
754
1,281
1,081
1,529
2,547
3,132
2,624
2,952
18,943
20,333
21,693
19,852
10,959
12,152
18,465
18,962
22,962
23,626
21,647
BoCom
0.9
1.2
2.2
6.8
6.2
5.3
7.2
7.3
7.9
9.1
Industrial Bank
0.2
0.3
0.6
2.0
1.8
1.8
2.5
2.9
0.0
0.0
Group adj PBT

As a % of group PBT
China - direct
0.5
0.6
0.9
2.9
0.9
1.2
3.7
3.4
3.2
4.5
Total
1.6
2.1
3.8
11.7
8.9
8.3
13.4
13.6
11.1
13.6
Note: excludes earnings from Ping An, exited in 2012. Industrial Bank derecognised as an associate from 2013. Source: CLSA, company data
78
Economic exposure has

reduced with the selldown of the stake in
Industrial Bank
The mainland earnings are understated due to the derecognition of Industrial

Bank as an associate from 2013. As a result, HSBC no longer equity-accounts
for the earnings of Industrial Bank, in which HSBCs Hang Seng Bank
subsidiary holds a stake. As Hang Seng Bank sold down 10% of its 10.9%
stake in Industrial Bank over February and May 2015, this is somewhat moot.
HSBCs China operations

in China have
grown strongly
HSBCs own operations in China have grown strongly but remain highly
concentrated in wholesale banking - a much easier segment for it to
penetrate, given its competitive advantages, relative to retail and
commercial banking.
5 June 2015

Asian banks
HSBC - O-PF
HSBC PBT from mainland China

China - direct
(US$m)
16
BoCom
3,000
China - direct
(%)
BoCom
14
Industrial Bank
Industrial Bank
12
2,500
10
2,000
1,500
1,000
HSBCs mainland China

operations are dominated
by wholesale PBT, given
that retail is still
aggressively growing
its cost base
2014
2013
2012
2011
2010
2009
2008
2005
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
500
2007
2006
3,500
HSBC PBT from mainland China as % of group
HSBC mainland China PBT by business line (excluding associate income)
1,200
(US$m)
1,000
Retail
Commercial
Markets
Private Bank
Other
Total China direct
800
600
400
200
0
(200)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Wholly-owned mainland
operations are under 5%
of group-adjusted PBT
HSBCs 100%-owned mainland operations thus generate nearly US$1tn in

PBT, but this still represents less than 5% of group adjusted PBT, and not too
different from the 4% of group loans.
The key risks from China

are the threat to BoCom
associate income and the
indirect effects on HSBCs
Hong Kong earnings
Given the relative contributions, the key threat to HSBCs earnings and
balance sheet from a China downturn is thus not from its directly-owned
operations, but the risks to the BoCom equity-accounted earnings stream
and investment.
HSBC key risk from a

China downturn is the
knock-on effect to its
Hong Kong earnings
More importantly, as we flagged in our A city of two tales report, the key
risk for HSBC from a China downturn is likely to be the indirect/knock-on
effect on its Hong Kong earnings from a mainland-triggered blow to the
Hong Kong economy.
US-dollar interest rates

appear likely to normalise
at higher levels
That this could emerge in the next few years, at a time when US-dollar (to
which the HK dollar is pegged) interest rates appear likely to normalise at
higher levels, making us cautious about the medium-term earnings outlook
for HSBCs HK/China operations, notwithstanding our confidence in the
strength of the groups Hong Kong and broader Asia franchise.
5 June 2015
79

Asian banks
HSBC - O-PF
HSBC has not recovered

fully from the GFC
Book value per share has

been rebuilt, but earnings
remain depressed
Not drowning, waiting
From its redomicile to the UK in 1992 to the GFC in 2007-09, HSBC

experienced material setbacks - eg, the Asian financial crisis of 1998 and the
early 2000s recession - but these were temporary within the context of a long
period of growth. However, the GFC delivered a major blow to financial
strength and performance, from which HSBC has yet to recover fully.
HSBC share price, EPS and BVPS
14
(US$)
BVPS
Share price
(US$)
EPS (RHS)
1.6
1.4
12
1.2
10
1.0
0.8
6
0.6
0.4
0.2
0
1992
1995
1998
2001
2003
2006
2009
0.0
2014
2012
Source: CLSA, company data, Bloomberg
Average EPS over

2010-14 is below
the level of 2004
While BVPS was rebuilt since 2008, EPS over 2010-14 averaged only US$0.78
- beneath the level of 2004. Even if we exclude the many exceptional items
over 2010-14, adjusted EPS still averaged only US$0.80.
HSBC suffered an apparently permanent negative shock to earnings capacity.
What happened?
We dig a little deeper, decomposing ROE into its drivers: ROA and leverage
(ie, assets/equity).
Deleveraging only
partially to blame ROA compression
more important
ROE, ROA and assets/equity
Adj ROE (%)
25
Assets/equity (x)
(%)
Adj ROA (RHS)
1.4
1.2
20
1.0
15
0.8
0.6
10
0.4
5
0.2
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0.0
1992
80
5 June 2015

Asian banks
HSBC - O-PF
ROA has compressed

dramatically from the
pre-2006 period
While HSBC has reduced leverage since 2008 due to higher capital-adequacy
requirements, assets/equity has only returned to the relative lows of 200203. In contrast, ROA has compressed dramatically from the pre-2006 period,
with only a modest recovery evident six years after the 2008 low.
Part of the explanation

lies in HSBCs
geographic mix
Part of the explanation lies in HSBCs geographic mix. As we highlighted

earlier, HSBC experienced a significant drop in growth and profitability in its
North American and European operations with the GFC, and profitability in
these regions has not recovered, so still drags on group returns.
By geography, the key

drags are Europe and
North America
HSBC pretax ROA by region
(%)
Europe
HK
RAP
MENA
3
2
1
0
(1)
(2)
(3)
(4)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Note: RAP = Rest of Asia Pacific (includes Hong Kong from 2014); MENA = Middle East and North Africa
(including in RAP prior to 2008). Source: CLSA, company data
However, that does not explain why those regions ROAs have compressed.
Slave to the macro
Why have returns remained depressed for so long after the GFC? We
decompose group ROE and ROA on the next page. As it is a busy table, we
highlight the key drivers of operating profitability (OP %) below.
Revenue compression has
suppressed the rebound
of ROA, ROE
HSBC has suffered severe compression in revenue yield
(%)
5
4
Net interest
Net fees
Trading & invt
Net insurance & Other
Opex
Credit costs
PPP
OP
3
2
1
0
(1)
(2)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
(3)
Note: Adjusted to exclude exceptionals. Source: CLSA, company data
5 June 2015
81

82
HSBC ROE decomposition

(% of avg assets)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest
2.23
2.11
2.11
2.67
2.49
2.09
2.04
1.79
1.70
1.67
1.58
1.47
1.39
1.32
1.29
Net fees
1.19
1.07
1.07
1.09
1.04
0.96
1.02
1.04
0.80
0.72
0.69
0.62
0.61
0.61
0.60
Trading income
0.26
0.24
0.18
0.23
0.22
0.39
0.49
0.47
0.30
0.41
0.29
0.24
0.26
0.32
0.25
Invt income
0.08
0.13
0.11
0.07
0.17
0.13
0.14
0.16
(0.09)
0.15
0.09
0.02
0.14
0.16
0.12
Net insurance
0.00
0.00
0.00
0.00
0.06
0.09
0.06
0.02
0.16
(0.08)
(0.02)
0.06
(0.04)
(0.07)
(0.05)
Other income
0.28
0.26
0.23
0.28
0.13
0.14
0.10
0.06
0.04
0.07
0.07
0.05
0.07
0.01
0.08
Non-int income
1.81
1.71
1.59
1.66
1.62
1.71
1.80
1.74
1.20
1.27
1.12
0.99
1.04
1.04
0.99
Revenue
4.04
3.82
3.70
4.34
4.11
3.80
3.85
3.53
2.90
2.93
2.70
2.46
2.43
2.36
2.28
(2.29)
(2.21)
(2.16)
(2.35)
(2.12)
(1.97)
(1.99)
(1.85)
(1.54)
(1.43)
(1.50)
(1.45)
(1.41)
(1.35)
(1.42)
1.75
1.61
1.54
1.98
1.99
1.83
1.86
1.69
1.36
1.51
1.20
1.01
1.02
1.01
0.86
(0.16)
(0.39)
(0.19)
(0.64)
(0.50)
(0.52)
(0.63)
(0.82)
(0.99)
(1.08)
(0.56)
(0.44)
(0.31)
(0.22)
(0.14)
Associates
0.00
0.01
0.01
0.01
0.02
0.04
0.05
0.07
0.07
0.07
0.10
0.12
0.13
0.09
0.09
Adjusted PBT
1.59
1.24
1.36
1.35
1.52
1.35
1.28
0.94
0.44
0.50
0.74
0.69
0.85
0.88
0.81
(0.39)
(0.31)
(0.36)
(0.33)
(0.37)
(0.33)
(0.30)
(0.15)
(0.13)
(0.03)
(0.19)
(0.12)
(0.22)
(0.19)
(0.17)
1.20
0.93
1.01
1.02
1.15
1.02
0.98
0.79
0.30
0.47
0.55
0.56
0.63
0.69
0.64
(0.15)
(0.15)
(0.12)
(0.10)
(0.11)
(0.05)
(0.07)
(0.07)
(0.04)
(0.05)
(0.06)
(0.06)
(0.07)
(0.08)
(0.06)
Adjusted ROA
1.05
0.78
0.89
0.93
1.04
0.97
0.91
0.73
0.27
0.42
0.49
0.50
0.56
0.61
0.58
Exceptional, DVA etc
0.00
(0.07)
(0.04)
(0.01)
0.02
0.03
0.02
0.17
(0.05)
(0.20)
0.02
0.09
(0.06)
(0.03)
(0.09)
Reported ROA
1.05
0.72
0.85
0.92
1.06
1.00
0.93
0.90
0.22
0.23
0.51
0.59
0.50
0.58
0.49
Avg assets/avg equity (x)
15.6
15.2
14.9
15.2
15.6
16.9
16.8
17.9
22.8
22.5
18.6
18.8
16.8
15.6
15.1
Adjusted ROE
16.4
11.9
13.2
14.1
16.2
16.4
15.3
13.0
6.1
9.5
9.2
9.4
9.4
9.5
8.7
Reported ROE
16.4
10.9
12.7
13.9
16.5
16.9
15.6
16.1
5.1
5.1
9.5
11.0
8.3
9.1
7.4
Op expenses
Preprovision profit
Credit charge
Estimated tax
Adjusted NPAT
Minorities, prefs
HSBC - O-PF
2000
Asian banks
5 June 2015

Asian banks
HSBC - O-PF
A significant decline in
operating expenses and
credit costs was swamped
by the collapse in
revenues/average assets
interest income
While HSBC has achieved significant declines in operating expenses and credit
costs relative to average assets (the latter due primarily to cyclical
improvement), this was swamped by the collapse in revenue/average assets,
particularly net interest income. This is visible both in the compression of
preprovision profitability (PPP %) and operating profitability (OP %).
HSBC has suffered a huge

reduction in revenue yield
If we compare average returns for 2005-06 with those of 2013-14, the effects
are starkly visible - HSBC has suffered a huge reduction in revenue yield,
particularly net interest income, relative to the pre-GFC period.
Net interest margin

compression by far the
biggest drag on
ROA recovery
Operating profitability: Comparison of 2005-06 to 2013-14
1.4
(%)
1.27
1.2
1.0
0.8
0.6
0.4
+0.39
0.75
Credit
costs
Avg OP%
(2013-14)
+0.59
-0.76
0.2
-0.39
0.0
-0.15
(0.2)
(0.4)
-0.21
Avg OP%
(2005-06)
Net
interest
Net
fees
Trading
& invt
Net
insurance
& Other
Opex
Note: Adjusted to exclude exceptionals. Source: CLSA, company data
Some NIM compression

was self-inflicted
The monetary
environment has
suppressed HSBCs
earnings capacity
Part of the explanation for the compression of revenue yield lies in the pattern
of HSBCs restructure since the GFC. In particular, the runoff of higher-yield
US consumer credit portfolios has hurt average yields, as did the divestment
of the US cards and retail services (CRS) business in 2012. HSBC has lost
about US$2.9bn in net fee income from cards since 2006, driving the bulk of
the decline in net fees/average assets.
HSBC net interest margin (NIM) and US$ 3M Libor
3.5
NIM (LHS)
(%)
US$ 3M Libor
(%)
3.0
6
5
2.5
2.0
1.5
1.0
2H14
1H14
2H13
1H13
2H12
1H12
2H11
1H11
2H10
1H10
2H09
1H09
2H08
1H08
2H07
1H07
0.0
2H06
1H06
0.5
Source: CLSA, company data, Bloomberg
A large part of revenueyield compression is due

to the squeeze of NIM in
HSBCs major currencies
5 June 2015
However, a large part - we would argue the greater part - of the compression
in revenue yield has been due to the squeeze of net interest margin as a
result of ultra-low interest rates in HSBCs major currencies: the US dollar
(and thus HK dollar) and British pound.
83

Asian banks
HSBC - O-PF
US interest rates are not

expected to rise quickly,
only gradually
US Treasuries yield curve
4.0
(%)
3.5
Jan 11
3.0
Jan 14
2.5
Jun 15
Jan 13
2.0
Jan 12
1.5
1.0
0.5
0.0
1M
3M
6M
1Y
2Y
3Y
5Y
7Y
10Y
An interest rate hike will

benefit HSBC from 2016
at the earliest
While we expect US-dollar interest rates to rise at some point (our economists
expect the first rate hike in September 2014), the recovery will be gradual, so is
more likely to benefit HSBC and other banks from 2016 at the earliest.
Higher interest rates to

widen NIM over
2015-17CL
We summarise our key forecast assumptions below, including a widening of

net interest margin over 2015-17CL, but we also expect this to be partially
offset by rising credit costs. The end result is only a gradual recovery of ROA
and ROE, which in turn implies weak momentum in earnings growth and thus
little urgency in chasing HSBC.
ROE recovery to be
gradual: 10-11% ROE in
16-17CL is not inspiring!
HSBC actual and forecast NIM, ROA and ROE
3.5
(%)
Adj ROA
NIM
(%)
adj ROE (RHS)
18
16
3.0
14
2.5
12
2.0
10
1.5
8
6
1.0
0.5
2
17CL
16CL
15CL
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
0.0
Delayed gratification versus strategic optionality

HSBC has an outstanding
franchise in Asia
HSBC is one of the worlds few truly global banking groups with, as we have
shown, a very strong footprint in Asian regional banking.
The bulk of its balance

sheet weight is locked in
Europe and North America
That said, the bulk of HSBCs balance sheet weight is locked in two regions of
the world - Europe and North America - currently generating little growth and
low returns due to macroeconomic constraints, most notably excessive debt
burdens and ultra-low interest rates.
84
5 June 2015

Asian banks
HSBC - O-PF
But we cant buy that

business! You have to
take the bad with
the good
HSBC looks a little cheap

given its weak return
profile, but only a
little cheap
Thus, while we are very positive on HSBCs Asian operations, this is not a
business that we can buy directly! The available stock we can purchase offers
a frustrating mix of structurally-advantaged growth and returns in Asia,
chained to a considerable amount of underperforming dead weight in Europe
and North America.
Forward price/book versus ROE - western banks
PB (x)
2.5
HSBC
StanChart
N. America
Eurozone
RBC
UK
2.0
R2
Wells Fargo
1.5
= 84%
US Bancorp
CIBC
NBC
Lloyds
JPM
1.0
RBS
0.5
0.0
Citi
BMPS
Commerzbank
ROE (%)
0%
5%
10%
15%
20%
The geographic pattern of

profitability is shifting:
Asia tougher, the West a
little easier (we hope!)
As we acknowledged earlier, Asia - most particularly China and Hong Kong may be sliding into a much tougher operating environment in the coming
years. Conversely, recovery in the West is emerging, but proving to be
frustratingly slow.
There is strategic optionality in HSBC, however. Its review of its domicile, with
a potentially more radical restructure of the group, holds the promise of
structurally improving HSBCs return profile from its depressed state.
But the west is not

recovering quickly enough
to power HSBC - the stock
looks better on a mediumterm than a 12-month
view and thus we
maintain our O-PF call
HSBC has substantially
derated on PB with the
compression of ROE
In short, we believe HSBC is captive to global macro conditions, particularly

monetary policy in the West. This dampens and dilutes our enthusiasm for the
stock, notwithstanding its attractive Asian franchise, and means that we see
greater upside for HSBC into the medium- to long-term than in the coming
year, notwithstanding the fact that HSBC appears cheap versus its own
history on multiple measures. We maintain our Outperform recommendation.
Forward price/book
2.8
(x)
2.6
2.4
2.2
2.0
+1sd1.9x
1.8
1.6
avg1.44x
1.4
1.2
1.0
-1sd0.98x
0.8
0.6
0.4
Jun 05
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Source: CLSA
5 June 2015
85

Asian banks
HSBC - O-PF
On PE, HSBC is closer to

long-term averages
Forward price/earnings
45
(x)
40
35
30
25
+1sd22.73x
20
avg15.55x
15
10
-1sd8.36x
5
Jun 05
Earnings have been
bolstered by low credit
costs - price/preprovision
profit is less attractive
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Forward price/preprovision profit
(x)
+1sd7.46x
7
6
avg6.03x
-1sd4.6x
4
3
2
1
Jun 05
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Source: CLSA
Our 12-month price target

is set around a target PB
of 1.05x, reflecting the
likely ROE profile over the
next few years
We value HSBC using a

target PB multiple of 1x
on forward book value
HSBC Gordon Growth Model valuation summary

Risk-free rate, Rf (%)
Equity-risk premium, ERP (%)
Beta,
Cost of equity, COE (%)
Sustainable ROE (%)
10-year avg ROE (%)
20-year avg ROE (%)
Terminal-growth rate, g (%)
Sustainable dividend payout (%)
5.0
5.5
1.0
10.5
10.8
12.1
14.7
4.0
50.0
Target forward PB
=
=
16CL BVPS (US$)

12M valuation (US$)
12M valuation (HK$)
12M valuation ()
(ROE - g)
(COE - g)
(10.8% - 4.0%)
(10.5% - 4.0%)
1.05
9.85
10.31
80.00
6.72
Valuation details
We value HSBC using a target price/book multiple of 1.05x on forward book

value, that multiple derived using the Gordon Growth Model and appropriate
assumptions on sustainable ROE (10.8%), cost of equity (10.5%) and
terminal growth rate (4%).
Investment risks
As a global bank, HSBC is
exposed to a number of
macroeconomic risks
which affect its P&L and
balance sheet
86
HSBC is one of the world's largest and most truly global banking groups with
operations diversified across a wide range of regions, principally UK/Europe,
Hong Asia & Asia, North America, Latin America and the Middle-East. It is
thus exposed to a number of macro-economic risks which affect its P&L and
balance sheet, notably the economic/business cycle (and interaction with the
credit cycle), interest rates and currency risk. As a large international bank
HSBC is exposed to market risk, through its involvement in capital markets as
both agent and principal, and operational risk given the wide range of its
financial processing and intermediation activities.
5 June 2015

Asian banks
HSBC - O-PF
HSBC financial summary - key ratios

Company
HSBC Holdings plc
Short name
HSBC
Recommendation
B'berg code
5 HK
Price target (HK$)
80.00
DDM Valuation (HK$)
67.58
Share price (HK$)
73.90
Share price (US$)
9.53
No. of shares (m)
19,218
Market cap (US$bn)

Year to 31 Dec
Reported NPAT (US$m)
185
2005
2006
2007
Outperform
Upside/(downside) (%)
8.3
Implied cash PE (x)
11.0
Implied PB (x)
1.05
2008
2009
2010
2011
2012
2013
2014
15CL
16CL
17CL
20,895
15,081
15,789
19,133
5,728
5,834
13,159
16,797
14,027
16,204
13,688
16,474
18,476
Growth (%)
14.4
4.7
21.2
(70.1)
1.9
125.6
27.6
(16.5)
15.5
(15.5)
20.4
12.2
13.1
NPAT (U$m)
15,060
15,699
19,043
5,546
5,565
12,746
16,224
13,454
15,631
13,115
15,901
17,903
20,322
Cash NPAT (US$m)
14,581
15,399
15,360
6,699
10,362
12,320
13,837
15,172
16,468
15,451
16,731
18,774
21,237
Growth (%)
12.3
5.6
(0.3)
(56.4)
54.7
18.9
12.3
9.6
8.5
(6.2)
8.3
12.2
13.1
Reported EPS (US$)
1.13
1.17
1.35
0.84
0.27
0.72
0.98
0.65
0.86
0.86
0.89
0.97
1.07
EPS (US$)
1.17
1.21
1.42
0.41
0.34
0.72
0.91
0.74
0.84
0.69
0.81
0.90
0.99
Cash EPS (US$)
1.14
1.19
1.15
0.49
0.63
0.70
0.77
0.83
0.88
0.81
0.86
0.94
1.04
Growth (%)
11.1
4.2
(3.2)
(57.3)
28.8
10.7
10.5
7.6
6.3
(8.2)
5.7
9.8
10.5
DPS (US$)
0.64
0.71
0.78
0.56
0.34
0.36
0.41
0.45
0.49
0.50
0.51
0.57
0.58
Price/earnings ratio (x)
13.5
13.4
8.1
14.5
29.8
15.0
9.6
14.8
12.9
13.5
11.7
10.6
9.6
Adj PE ratio (x)
13.9
13.6
10.0
12.0
16.0
15.5
11.3
13.1
12.2
11.5
11.1
10.1
9.2
7.4
6.7
4.3
2.4
4.5
6.4
5.6
7.2
7.4
7.7
7.6
6.9
6.2
2.23
1.98
1.22
0.89
1.39
1.35
1.02
1.19
1.16
1.00
1.00
0.97
0.94
Pricing & valuation
Price/underlying profit (x)

Price/book ratio (x)
Dividend yield (%)
4.0
4.4
6.8
9.5
3.4
3.3
4.7
4.1
4.5
5.4
5.4
6.0
6.1
0.28
0.24
0.14
0.07
0.15
0.16
0.13
0.15
0.15
0.13
0.13
0.13
0.13
Spot asset growth (%)
17.3
23.9
26.5
7.4
(6.4)
3.8
4.1
5.4
(0.8)
(1.4)
2.9
5.2
5.3
Avg asset growth (%)
20.2
12.5
25.0
18.8
(2.5)
2.2
10.7
(2.2)
(0.6)
(0.4)
3.2
5.2
5.3
9.6
17.3
13.5
(4.4)
(3.7)
6.1
(2.1)
5.8
(0.6)
(2.0)
3.8
5.2
5.3
101.6
98.3
91.3
85.8
79.5
79.7
76.4
75.7
74.0
73.1
73.0
73.0
73.0
Net interest spread (%)
2.89
2.94
2.86
2.87
2.91
2.55
2.32
2.13
1.97
1.80
1.80
1.89
2.00
Free funds benefit (%)
0.25
0.16
0.06
0.03
0.04
0.13
0.18
0.19
0.16
0.14
0.14
0.13
0.13
Net interest margin (%)
3.14
3.10
2.91
2.90
2.94
2.68
2.51
2.32
2.13
1.94
1.94
2.03
2.12
Net interest growth (%)
0.8
10.1
9.6
12.6
(4.3)
(3.2)
3.1
(7.4)
(5.7)
(2.3)
3.6
9.9
10.2
Non-int rev growth (%)
26.7
18.8
20.8
(18.0)
2.7
(9.8)
(2.0)
2.6
(0.4)
(5.7)
3.9
3.9
5.4
Revenue/avg assets (%)
3.80
3.85
3.53
2.90
2.93
2.70
2.46
2.43
2.36
2.28
2.29
2.34
2.40
Non-int rev/revenue (%)
45.0
46.9
49.4
41.5
43.2
41.5
40.3
42.8
44.1
43.2
43.3
41.9
40.8
Cost/avg assets (%)
1.97
1.99
1.85
1.54
1.43
1.50
1.45
1.41
1.35
1.42
1.41
1.39
1.38
Cost/income (%)
51.8
51.6
52.3
53.0
48.6
55.5
59.1
57.9
57.3
62.4
61.5
59.4
57.4
NPAs/RWAs (%)
1.39
1.47
1.69
2.36
3.01
4.53
3.80
3.83
3.62
2.66
2.45
2.25
2.14
Total provisions/NPAs (%)
99.1
98.4
97.4
88.5
75.3
40.5
38.4
37.6
38.4
38.1
41.2
45.0
49.0
Loan prov'ns/gross loans (%)
1.51
1.54
1.92
2.50
2.77
2.05
1.83
1.59
1.50
1.25
1.23
1.26
1.33
Credit charges/avg assets (%)
0.52
0.63
0.82
0.99
1.08
0.56
0.44
0.31
0.22
0.14
0.14
0.16
0.18
Underlying profitability (%)
1.83
1.86
1.69
1.36
1.51
1.20
1.01
1.02
1.01
0.86
0.88
0.95
1.02
Adj return on assets (%)
0.97
0.91
0.73
0.27
0.42
0.49
0.50
0.56
0.61
0.58
0.61
0.65
0.69
Return on equity (%)
16.9
15.6
16.1
5.1
5.1
9.5
11.0
8.3
9.1
7.4
8.7
9.3
10.0
Adj return on equity (%)
16.4
15.3
13.0
6.1
9.5
9.2
9.4
9.4
9.5
8.7
9.1
9.7
10.4
CET-1 ratio (%)
7.8
8.2
7.5
7.0
9.4
10.5
10.1
12.3
13.6
10.9
11.3
11.4
11.4
Tier-1 Ratio (%)
9.0
9.4
8.7
8.3
10.8
12.1
11.5
13.4
14.5
12.5
12.9
12.8
12.7
Capital-adequacy ratio (%)
12.7
13.5
11.4
11.5
13.7
15.2
14.1
16.1
17.8
15.6
16.1
16.0
15.9
RWA/Assets (%)
55.1
50.4
49.5
45.4
47.9
44.9
47.3
41.7
40.9
46.3
46.3
47.0
48.0
Tax ratio (%)
24.3
23.6
15.5
30.2
5.4
25.5
18.0
25.7
21.1
21.3
21.0
21.0
21.0
Dividend payout (%)
54.1
58.4
55.1
137.5
100.3
49.8
45.3
61.1
58.5
72.6
62.6
63.5
58.3
Price/Deposits ratio (x)

Key ratios
Growth
Gross lending growth (%)

Loans/deposit Ratio (%)
Margins
Revenue
Efficiency
Credit costs
Profitability
Capital Adequacy
Other
Avg balance sheet (US$bn)

Avg int-earning assets
Avg assets
999
1,113
1,297
1,467
1,385
1,472
1,623
1,625
1,669
1,787
1,853
1,950
2,052
1,502
1,690
2,112
2,509
2,446
2,499
2,767
2,707
2,692
2,680
2,765
2,910
3,063
Avg int-bearing Liabs
920
1,068
1,279
1,452
1,353
1,339
1,434
1,401
1,426
1,547
1,612
1,696
1,785
1,502
1,690
2,112
2,509
2,446
2,499
2,767
2,707
2,692
2,680
2,561
2,696
2,838
Avg equity
99
107
125
118
118
145
161
175
187
195
204
214
225
Avg ordinary equity
89
100
118
110
109
134
147
161
173
177
183
193
204
Avg liabilities
5 June 2015
87

Asian banks
HSBC - O-PF
HSBC financial summary - P&L and balance sheet

Profit & Loss (US$m)
Interest revenue
Interest expense
Net interest
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
15CL
16CL
17CL
60,094
75,879
92,359
91,301
62,096
58,345
63,005
56,702
51,192
50,955
52,906
56,670
60,827
28,760
41,393
54,564
48,738
21,366
18,904
22,343
19,030
15,653
16,250
16,943
17,161
17,269
31,334
34,486
37,795
42,563
40,730
39,441
40,662
37,672
35,539
34,705
35,963
39,508
43,558
Other income
25,670
30,487
36,838
30,207
31,023
27,980
27,420
28,136
28,016
26,433
27,453
28,534
30,063
Total income
57,004
64,973
74,633
72,770
71,753
67,421
68,082
65,808
63,555
61,138
63,415
68,043
73,621
Op. expenses
Underlying profit
Credit charges
29,514
33,553
39,042
38,535
34,894
37,434
40,257
38,092
36,405
38,172
38,986
40,447
42,269
27,490
31,420
35,591
34,235
36,859
29,987
27,825
27,716
27,150
22,966
24,430
27,595
31,352
7,801
10,573
17,242
24,937
26,488
14,039
12,127
8,311
5,849
3,851
3,823
4,557
5,361
Associates
644
846
1,503
1,661
1,781
2,517
3,264
3,557
2,325
2,532
2,584
2,739
2,903
Debt value adj (DVA)
(70)
(388)
3,055
6,570
(6,533)
(63)
3,933
(5,215)
(1,246)
417
Exceptional items
703
781
1,305
(8,222)
1,460
635
(1,023)
2,902
185
(3,384)
(1,050)
(1,103)
(1,158)
20,966
22,086
24,212
9,307
7,079
19,037
21,872
20,649
22,565
18,680
22,141
24,675
27,737
5,093
5,215
3,757
2,809
385
4,846
3,928
5,315
4,765
3,975
4,650
5,182
5,825
15,873
16,871
20,455
6,498
6,694
14,191
17,944
15,334
17,800
14,705
17,491
19,493
21,912
Pre-tax profit
Taxation
Profit after tax
Minorities
Reported NPAT
792
1,082
1,322
770
860
1,032
1,147
1,307
1,596
1,017
1,017
1,017
1,017
15,081
15,789
19,133
5,728
5,834
13,159
16,797
14,027
16,204
13,688
16,474
18,476
20,895
Pref. dividends
21
90
90
182
269
413
573
573
573
573
573
573
573
15,060
15,699
19,043
5,546
5,565
12,746
16,224
13,454
15,631
13,115
15,901
17,903
20,322
LESS: DVA (after-tax)
(53)
(296)
2,581
4,587
(6,178)
(47)
3,227
(3,873)
(983)
328
LESS: Excep. Items (net)
532
597
1,103
(5,740)
1,381
473
(839)
2,155
146
(2,664)
(830)
(871)
(915)
14,581
15,399
15,360
6,699
10,362
12,320
13,837
15,172
16,468
15,451
16,731
18,774
21,237
Asset yield
6.01
6.82
7.12
6.23
4.48
3.96
3.88
3.49
3.07
2.85
2.86
2.91
2.96
Cost of funding
3.13
3.88
4.26
3.36
1.58
1.41
1.56
1.36
1.10
1.05
1.05
1.01
0.97
Net interest spread
2.89
2.94
2.86
2.87
2.91
2.55
2.32
2.13
1.97
1.80
1.80
1.89
2.00
NPAT attributable
Adj NPAT
Drivers (%)
Free funds benefit
0.25
0.16
0.06
0.03
0.04
0.13
0.18
0.19
0.16
0.14
0.14
0.13
0.13
Net interest margin
3.14
3.10
2.91
2.90
2.94
2.68
2.51
2.32
2.13
1.94
1.94
2.03
2.12
Other revenue/AIEA
2.57
2.74
2.84
2.06
2.24
1.90
1.69
1.73
1.68
1.48
1.48
1.46
1.46
Revenue/AIEA
5.70
5.84
5.76
4.96
5.18
4.58
4.20
4.05
3.81
3.42
3.42
3.49
3.59
AIEA/avg assets
66.5
65.9
61.4
58.5
56.6
58.9
58.6
60.0
62.0
66.7
67.0
67.0
67.0
Revenue/avg assets
3.80
3.85
3.53
2.90
2.93
2.70
2.46
2.43
2.36
2.28
2.29
2.34
2.40
Cost/avg assets
1.97
1.99
1.85
1.54
1.43
1.50
1.45
1.41
1.35
1.42
1.41
1.39
1.38
Underlying profit
1.83
1.86
1.69
1.36
1.51
1.20
1.01
1.02
1.01
0.86
0.88
0.95
1.02
B&DD/avg assets
0.52
0.63
0.82
0.99
1.08
0.56
0.44
0.31
0.22
0.14
0.14
0.16
0.18
Associates/avg assets
0.04
0.05
0.07
0.07
0.07
0.10
0.12
0.13
0.09
0.09
0.09
0.09
0.09
Pretax ROA
1.35
1.28
0.94
0.44
0.50
0.74
0.69
0.85
0.88
0.81
0.84
0.89
0.94
Adj tax expense
0.33
0.30
0.15
0.13
0.03
0.19
0.12
0.22
0.19
0.17
0.17
0.18
0.19
Post-tax ROA
1.02
0.98
0.79
0.30
0.47
0.55
0.56
0.63
0.69
0.64
0.67
0.71
0.75
Mins, prefs
0.05
0.07
0.07
0.04
0.05
0.06
0.06
0.07
0.08
0.06
0.06
0.05
0.05
Net adj ROA
0.97
0.91
0.73
0.27
0.42
0.49
0.50
0.56
0.61
0.58
0.61
0.65
0.70
16.9
16.8
17.9
22.8
22.5
18.6
18.8
16.8
15.6
15.1
15.1
15.1
15.0
Adj ROE
16.4
15.3
13.0
6.1
9.5
9.2
9.4
9.4
9.5
8.7
9.2
9.8
10.5
Loans to banks
137
199
247
160
186
214
189
160
126
117
120
127
133
Loans to customers
751
882
1,001
957
922
978
958
1,014
1,007
987
1,025
1,079
1,135
B&DD provisions
Balance sheet (US$bn)
(11)
(14)
(19)
(24)
(26)
(20)
(18)
(16)
(15)
(12)
(13)
(14)
(15)
Cash and Securities
14
13
22
52
61
57
130
142
167
130
134
141
148
Trading & FV assets
261
362
501
471
476
441
382
465
367
361
371
391
411
Financial invts
182
205
283
300
369
401
400
421
606
577
594
625
658
74
104
188
495
251
261
346
357
282
345
355
374
393
10
12
13
17
20
18
17
18
19
20
21
Property, plant & equ't
15
16
16
14
14
12
11
11
11
11
11
11
12
Goodwill
29
32
34
22
23
22
21
21
21
19
19
19
19
180
252
318
228
261
285
304
260
209
199
196
207
220
1,502
1,861
2,354
2,527
2,364
2,455
2,556
2,693
2,671
2,634
2,711
2,853
3,003
77
112
141
137
131
117
122
115
93
83
102
108
114
Deposits
739
897
1,096
1,115
1,159
1,228
1,254
1,340
1,361
1,351
1,404
1,477
1,555
Trading liabilities
236
297
405
322
348
389
351
392
296
267
328
345
363
Debt issues
205
253
271
209
177
179
162
149
133
123
151
159
167
Insurance liabilities
14
18
43
44
54
59
61
68
74
74
76
80
84
Derivative liabilities
74
101
183
487
248
259
345
359
274
341
350
369
388
Derivative assets
Associates/investments
Other assets
Total assets
Deposits from banks
Other liabilities
59
68
80
112
112
70
95
87
249
196
91
96
101
1,404
1,746
2,219
2,427
2,229
2,300
2,389
2,509
2,481
2,434
2,502
2,634
2,772
Ordinary share capital
10
10
10
10
Pref/hybrid capital
12
12
12
12
Reserves
24
29
33
(4)
22
25
24
30
27
20
20
20
20
Retained earnings
56
65
81
81
87
99
112
120
129
137
146
156
167
Equity (excl. mins)
86
101
120
85
120
139
150
165
171
179
187
198
209
10
10
10
10
91
107
127
92
127
146
158
173
179
188
197
207
219
Total liabilities
Minorities
Equity (incl. mins)
88
5 June 2015

Asian banks
HSBC - O-PF
HSBC is configured
as a UK-domiciled
holding company
HSBC structure and key operating entities
Structurally, HSBC is configured as a UK-domiciled holding company, with a

handful of major operating subsidiaries, through which it owns a network of
subsidiary companies.
HSBC group: Simplified structure chart
HSBC Holdings plc

Assets: US$2,634bn
The Hongkong &

Shanghai Banking Corp.
Assets: US$887bn
Heng Seng (62.1%)
HSBC Bank plc

(UK/Europe)
Assets: US$1,241bn
HSBC North
America Holdings
HSBC Latin America

Holdings (UK) Ltd
HSBC France
HSBC USA Inc
HSBC Bank Brasil S.A
HSBC Finance Corp
Grupo Financiero HSBC
Assets: US$163bn
Assets: US$267bn
Bank of Communications
(19.0%)
HSBC Bank A.S (Turkey)
HSBC Bank (China)
HSBC Trinkaus &

Burkhardt AG
Assets: US$55bn
Assets: US$186bn
Assets: US$32bn
HSBC Bank Canada

Assets: US$76bn
Assets: US$40bn
HSBC Bank Argentina S.A
HSBC Bank (Australia)
HSBC Bank (Malaysia)
HSBC Bank (Taiwan)
HSBC Bank Middle

East Limited
Assets: US$50bn
HSBC Bank Egypt S.A.E
Saudi British Bank (40%)
Holding company
Operating subsidiary
Associate
HSBC has more than a

dozen key subsidiaries
This structure chart carries within it the history of the past 30-odd years, as
well as explaining much of HSBCs legacy issues with operating profitability
and regulatory problems. The key subsidiaries are:
The Hongkong and Shanghai Banking Corporation - the core
antecedent of the entire group and its second-largest operating entity
globally, HK&SHBC is HSBCs dominant entity in Asia. It not only owns
the subsidiaries in Asia, its massive balance sheet is also deployed
throughout the region in addition to dominating Hong Kongs financial
system directly.
Hang Seng Bank - HSB is HSBCs local Hong Kong banking subsidiary,
serving the Cantonese-speaking mass-market retail and SME customer
segments in Hong Kong and Guangdong province in China. HK&SHBC took
a controlling stake in HSB in 1965 during a liquidity crisis and HSB
remains listed in Hong Kong, Bloomberg code 11 HK.
5 June 2015
89

HSBC - O-PF
HSBC took a 19.9%

stake in BoCom in 2004,
subsequently diluted to
19.03%
Asian banks
Bank of Communications - Chinas sixth-largest bank and the largest

headquartered in Shanghai. It was established in 1908 under the Qing
dynasty, nationalised under communism then reformed in 1987. HSBC
took a 19.9% stake in 2004, subsequently diluted to 19.03%. It is
listed on both the Shanghai (601328 CH) and Hong Kong Exchanges
(3328 HK).
HSBC Bank plc - HSBCs core operating entity in the UK and Europe
and its largest operating entity by assets globally. It was formerly
known as Midland Bank (est. 1836 in Birmingham) and one of the
top four banks in the UK when HSBC took a stake in 1987, buying
out minorities in 1992. As the principal vehicle for further expansion
in Europe, HSBC Bank plc grew further through the 1990s
with acquisitions.
HSBC France is the

groups key operating
entity in the Eurozone
HSBC France - HSBC acquired Credit Commercial de France in 2000,

renamed HSBC France in 2005. This was the vehicle for the purchase
of numerous regional banks in France, mostly subsequently sold by
HSBC in 2008 as it exited the bulk of its French retail banking
exposure. HSBC France remains the groups key operating entity in
the Eurozone.
HSBC USA Inc - HSBCs core operating entity in the USA was formed
from the merger of two bank operations: Marine Midland Bank (acquired
1980-87) and Republic New York (purchased in 1999).
HSBC Finance suffered

catastrophic credit losses
over 2007-09
HSBC Finance - the renamed Household International Inc, acquired in

2003. This was a leading US provider of subprime lending, focused on
mortgages, credit cards and credit insurance. It suffered catastrophic
credit losses over 2007-09, essentially wiping out HSBCs entire
investment. It was placed into runoff but still has a sizeable balance sheet
with substantial capital and tax losses trapped in the structure.
HSBC Bank Canada - the largest foreign-owned bank in Canada, formed
in 1981 when HSBC incorporated its existing branch operations.
HSBC Bank Middle East - the British Bank of the Middle East was
acquired in 1959 and represents the bulk of HSBCs exposure to countries
in the Persian Gulf.
HSBC has a 40% stake in

publicly-listed Saudi
British Bank
The Saudi British Bank - established in 1978 when the British Bank
of the Middle East (see above) converted its branch operations in Saudi
Arabia into a new listed bank in which HSBC retained a 40% stake.
The bank is listed on the Tadawul (Saudi SE) under Bloomberg code
SABB AB.
HSBC Bank Brasil - this lender was formed from selected assets and
liabilities of Banco Bamerindus do Brasil acquired by HSBC in 1997.
Grupo Financiero HSBC - HSBC acquired Grupo Financiero Bital (Banco
Internacional) in 2002.
HSBC Bank Argentina - formed from Grupo Roberts and controlled by
Midland Bank, with HSBC buying out minorities in 1997.
90
5 June 2015

Asian banks
HSBC - O-PF
Geographic divisionals - Hong Kong

HSBC Hong Kong1
Hong Kong
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Net interest income
3,638
4,064
4,685
5,483
5,698
4,195
4,246
4,691
5,316
5,993
Net fee income
1,703
1,674
2,056
3,362
2,580
2,669
2,962
3,097
3,335
3,877
659
546
617
1,242
1,193
1,225
1,312
1,189
1,463
1,570
(6)
260
676
(1,191)
785
378
(537)
447
258
533
108
162
94
(309)
98
24
322
53
27
41
61
31
41
28
30
39
24
150
Profit & loss (US$m)
Net trading income

FV gains
Financial investments
Dividends
Net earned premiums
Net claims
Other income
Revenue
Operating expenses
Preprovision profit
Credit charge
Operating profit
2,247
2,334
2,628
2,797
3,247
3,674
4,332
5,088
5,957
6,081
(2,154)
(2,059)
(2,699)
(3,208)
(1,922)
(4,392)
(4,762)
(4,593)
(6,366)
(6,570)
492
805
834
845
817
1,274
1,606
1,684
1,924
1,791
7,145
7,507
8,604
11,322
10,154
9,467
10,202
10,682
12,422
13,203
(2,558)
(2,867)
(3,269)
(3,780)
(3,943)
(3,946)
(4,431)
(4,758)
(4,848)
(5,045)
4,587
4,640
5,335
7,542
6,211
5,521
5,771
5,924
7,574
8,158
220
(146)
(172)
(231)
(765)
(500)
(114)
(156)
(74)
(137)
4,807
4,494
5,163
7,311
5,446
5,021
5,657
5,768
7,500
8,021
Associates
Pretax profit
Adj. pretax profit
Gross loans
23
23
19
28
15
35
55
82
68
4,830
4,517
5,182
7,339
5,461
5,029
5,692
5,823
7,582
8,089
4,830
4,517
5,182
7,339
5,461
5,029
5,692
5,823
7,582
8,089
79,394
83,606
84,647
90,014
100,953
100,185
141,320
158,246
174,086
195,998
- growth (%)
Deposits
5.7
5.3
1.2
6.3
12.2
(0.8)
41.1
12.0
10.0
12.6
178,033
173,726
196,691
234,488
250,517
275,441
297,484
315,345
346,208
365,993
- growth (%)
8.5
(2.4)
13.2
19.2
6.8
9.9
8.0
6.0
9.8
5.7
44.6
48.1
43.0
38.4
40.3
36.4
47.5
50.2
50.3
53.6
Assets
213,479
235,376
272,428
332,691
414,484
399,243
429,565
473,024
518,334
555,413
Avg assets
205,483
224,428
253,902
302,560
373,588
406,864
414,404
451,295
495,679
536,874
119,500
106,900
105,700
111,900
138,300
LDR (%)
Risk-weighted assets
Loan mix (%)
Home loans
37
34
34
33
33
35
30
30
30
27
Other personal
11
12
12
15
13
13
10
10
10
10
Real estate
13
15
15
14
14
14
14
13
13
13
10
10
11
11
10
28
29
27
26
27
25
32
34
34
36
Financial & other
Total gross loans
100
100
100
100
100
100
100
100
100
100
Other property
Other commercial
ROA drivers (% of avg assets)

Net interest
1.77
1.81
1.85
1.81
1.53
1.03
1.02
1.04
1.07
1.12
Net fees
0.83
0.75
0.81
1.11
0.69
0.66
0.71
0.69
0.67
0.72
Net trading
0.32
0.24
0.24
0.41
0.32
0.30
0.32
0.26
0.30
0.29
0.27
0.06
0.19
0.26
(0.39)
0.20
0.12
(0.11)
0.16
0.09
Net insurance
0.05
0.12
(0.03)
(0.14)
0.35
(0.18)
(0.10)
0.11
(0.08)
(0.09)
Other
0.24
0.36
0.33
0.28
0.22
0.31
0.39
0.37
0.39
0.33
Revenue
3.48
3.34
3.39
3.74
2.72
2.33
2.46
2.37
2.51
2.46
(0.94)
Opex
(1.24)
(1.28)
(1.29)
(1.25)
(1.06)
(0.97)
(1.07)
(1.05)
(0.98)
PPP%
2.23
2.07
2.10
2.49
1.66
1.36
1.39
1.31
1.53
1.52
Credit charge
0.11
(0.07)
(0.07)
(0.08)
(0.20)
(0.12)
(0.03)
(0.03)
(0.01)
(0.03)
Operating profit %
2.34
2.00
2.03
2.42
1.46
1.23
1.37
1.28
1.51
1.49
Associates
0.01
0.01
0.01
0.01
0.00
0.00
0.01
0.01
0.02
0.01
Pretax ROA
2.35
2.01
2.04
2.43
1.46
1.24
1.37
1.29
1.53
1.51
Adj pretax ROA
2.35
2.01
2.04
2.43
1.46
1.24
1.37
1.29
1.53
1.51
No longer reported separately from 2014. Source: CLSA, company data
5 June 2015
91

Asian banks
HSBC - O-PF
HSBC Rest of Asia Pacific1

Rest of Asia Pacific
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest income
2,060
2,412
3,047
4,143
3,937
3,539
3,828
5,102
5,391
5,439
12,273
Net fee income
1,041
1,340
1,622
2,246
1,867
1,557
1,932
2,111
2,083
2,059
5,910
494
860
1,181
1,643
2,042
1,606
1,618
1,658
1,053
456
2,622
58
79
111
(171)
110
24
(16)
106
56
533
49
18
41
38
24
(19)
146
(23)
16
1,222
200
179
97
155
174
226
197
365
448
759
812
837
7,390
Net claims
(82)
(166)
(192)
(253)
28
(395)
(363)
(591)
(718)
(726)
(7,761)
Other income
146
335
765
798
1,055
1,238
1,598
1,711
1,824
2,633
2,331
3,808
5,017
6,722
8,960
8,981
8,003
9,232
10,713
10,572
11,978
23,677
(2,087)
(2,762)
(3,548)
(4,764)
(4,704)
(4,450)
(5,143)
(5,806)
(5,806)
(5,640)
(10,427)
1,721
2,255
3,174
4,196
4,277
3,553
4,089
4,907
4,766
6,338
13,250
(89)
(134)
(512)
(616)
(852)
(896)
(439)
(267)
(436)
(361)
(647)
1,632
2,121
2,662
3,580
3,425
2,657
3,650
4,640
4,330
5,977
12,603
Net trading income

FV gains
Dividends
Net earned premiums
Revenue
Operating expenses
Preprovision profit
Credit charge
Operating profit
Associates
215
453
865
1,348
1,297
1,543
2,252
2,831
3,106
1,787
2,022
- BoCom
175
259
445
741
754
987
1,370
1,670
1,878
1,974
- Ping An
17
245
518
324
551
848
946
763
- Industrial Bank
46
71
128
221
216
327
471
670
215
215
290
257
11
22
90
44
(91)
48
- Other
Net exceptionals
Pretax profit
Adj. pretax profit
Gross loans
- growth (%)
1,081
3,012
1,847
2,574
3,527
6,009
4,722
4,200
5,902
7,471
10,448
7,764
14,625
1,847
2,574
3,527
4,928
4,722
4,200
5,902
7,471
7,436
7,764
14,625
61,747
70,852
78,475
102,778
81,474
81,039
109,690
124,650
138,865
142,113
364,311
25.3
14.7
10.8
31.0
(20.7)
(0.5)
35.4
13.6
11.4
2.3
156.4
78,613
89,118
108,995
150,233
124,194
133,999
158,155
174,012
183,621
182,626
577,491
- growth (%)
20.1
13.4
22.3
37.8
(17.3)
7.9
18.0
10.0
5.5
(0.5)
216.2
LDR (%)
78.5
79.5
72.0
68.4
65.6
60.5
69.4
71.6
75.6
77.8
63.1
Assets
120,530
142,014
167,668
228,112
225,573
222,139
278,062
317,816
342,269
335,937
878,723
Avg assets
109,306
131,272
154,841
197,890
226,843
223,856
250,101
297,939
330,043
339,103
885,335
173,900
217,500
279,300
302,200
292,400
430,700
Deposits
Loan Mix (%)
Retail (RBWM)
38
39
37
34
34
38
35
33
33
33
32
Commercial (CMB)
27
27
28
32
27
28
29
31
32
34
37
Markets (GBM)
32
31
31
32
35
30
33
33
32
29
28
Private (GPB)
Other
100
100
100
100
100
100
100
100
100
100
100
Total gross loans

Net interest
1.88
1.84
1.97
2.09
1.74
1.58
1.53
1.71
1.63
1.60
1.39
Net fees
0.95
1.02
1.05
1.13
0.82
0.70
0.77
0.71
0.63
0.61
0.67
Net trading
0.45
0.66
0.76
0.83
0.90
0.72
0.65
0.56
0.32
0.13
0.30
0.05
0.06
0.08
0.08
(0.06)
0.04
0.07
(0.01)
0.04
0.38
0.10
Net insurance
0.01
(0.01)
(0.01)
(0.01)
0.10
(0.01)
0.03
0.06
0.03
0.03
(0.04)
Other
0.13
0.26
0.49
0.40
0.47
0.55
0.64
0.57
0.55
0.78
0.26
Revenue
3.48
3.82
4.34
4.53
3.96
3.58
3.69
3.60
3.20
3.53
2.67
(1.91)
(2.10)
(2.29)
(2.41)
(2.07)
(1.99)
(2.06)
(1.95)
(1.76)
(1.66)
(1.18)
1.57
1.72
2.05
2.12
1.89
1.59
1.63
1.65
1.44
1.87
1.50
(0.08)
(0.10)
(0.33)
(0.31)
(0.38)
(0.40)
(0.18)
(0.09)
(0.13)
(0.11)
(0.07)
Operating profit %
1.49
1.62
1.72
1.81
1.51
1.19
1.46
1.56
1.31
1.76
1.42
Associates
0.20
0.35
0.56
0.68
0.57
0.69
0.90
0.95
0.94
0.53
0.23
Net exceptionals
0.00
0.00
0.00
0.55
0.00
0.00
0.00
0.00
0.91
0.00
0.00
Pretax ROA
1.69
1.96
2.28
3.04
2.08
1.88
2.36
2.51
3.17
2.29
1.65
Adj pretax ROA
1.69
1.96
2.28
2.49
2.08
1.88
2.36
2.51
2.25
2.29
1.65
Opex
PPP%
Credit charge
Includes MENA to 2007; Asia includes Hong Kong from 2014. Source: CLSA, company data
92
5 June 2015

Asian banks
HSBC - O-PF
HSBC Europe
Europe
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest income
9,098
8,221
8,289
7,746
9,696
12,268
11,250
11,001
10,394
10,693
10,611
Net fee income
5,980
6,299
7,108
8,431
7,492
6,267
6,371
6,236
6,169
6,032
6,042
997
3,036
4,529
6,943
5,357
5,459
2,863
2,161
2,707
4,423
2,534
362
144
1,226
1,113
(1,425)
282
2,468
(2,215)
418
1,351
838
439
624
1,326
418
50
486
515
364
379
772
Dividends
558
63
183
171
130
29
20
49
111
75
65
1,875
1,599
1,298
4,010
5,299
4,223
4,067
4,136
3,630
3,158
3,008
(1,628)
(818)
(531)
(3,479)
(3,367)
(5,589)
(4,706)
(3,499)
(4,630)
(4,740)
(3,819)
Net trading income

FV gains
Net earned premiums

Net claims
Other income
Revenue
Operating expenses
1,062
1,603
1,428
1,193
2,096
2,262
2,117
1,179
1,078
529
1,007
18,780
20,804
23,072
27,567
28,234
23,544
22,750
24,246
17,608
20,967
21,571
(12,028)
(12,639)
(13,871)
(16,525)
(16,072)
(13,988)
(15,445)
(17,069)
(19,095)
(17,613)
(20,217)
6,752
8,165
9,201
11,042
12,162
9,556
7,305
7,177
(1,487)
3,354
1,354
(1,033)
(1,929)
(2,155)
(2,542)
(3,754)
(5,568)
(3,020)
(2,512)
(1,921)
(1,530)
(764)
5,719
6,236
7,046
8,500
8,408
3,988
4,285
4,665
(3,408)
1,824
590
37
120
(72)
95
16
21
17
(6)
2,445
5,756
6,356
6,974
8,595
10,869
4,009
4,302
4,671
(3,414)
1,825
596
Preprovision profit
Credit charge
Operating profit
Associates
Net exceptionals
Pretax profit
Adj. pretax profit
Gross loans
5,756
6,356
6,974
8,595
8,424
4,009
4,302
4,671
(3,414)
1,825
596
282,476
316,028
396,175
456,206
430,050
445,616
441,462
439,578
468,761
461,673
414,157
- growth (%)
31.3
11.9
25.4
15.2
(5.7)
3.6
(0.9)
(0.4)
6.6
(1.5)
(10.3)
292,568
334,200
419,365
504,954
502,476
495,019
491,563
493,404
555,009
644,816
545,959
- growth (%)
20.5
14.2
25.5
20.4
(0.5)
(1.5)
(0.7)
0.4
12.5
16.2
(15.3)
LDR (%)
96.6
94.6
94.5
90.3
85.6
90.0
89.8
89.1
84.5
71.6
75.9
Assets
545,540
636,703
828,701 1,184,315 1,392,049 1,268,600 1,249,527 1,281,945 1,389,240 1,392,959 1,290,926
Avg assets
485,426
591,122
732,702 1,006,508 1,288,182 1,330,325 1,259,064 1,265,736 1,335,593 1,391,100 1,341,943
Deposits
339,700
301,600
340,200
314,700
300,100
375,400
Loan mix (%)

Retail (RBWM)
43
38
38
34
30
34
33
35
37
39
40
Commercial (CMB)
24
21
21
24
20
20
21
23
23
23
26
Markets (GBM)
27
35
36
36
44
40
39
36
34
32
28
Private (GPB)
Other
100
100
100
100
100
100
100
100
100
100
100
Total

Net interest
1.87
1.39
1.13
0.77
0.75
0.92
0.89
0.87
0.78
0.77
0.79
Net fees
1.23
1.07
0.97
0.84
0.58
0.47
0.51
0.49
0.46
0.43
0.45
Net trading
0.21
0.51
0.62
0.69
0.42
0.41
0.23
0.17
0.20
0.32
0.19
0.29
0.15
0.13
0.27
0.13
(0.10)
0.06
0.24
(0.13)
0.06
0.16
Net insurance
0.05
0.13
0.10
0.05
0.15
(0.10)
(0.05)
0.05
(0.07)
(0.11)
(0.06)
Other
0.22
0.27
0.19
0.12
0.16
0.17
0.17
0.09
0.08
0.04
0.08
Revenue
Opex
3.87
3.52
3.15
2.74
2.19
1.77
1.81
1.92
1.32
1.51
1.61
(2.48)
(2.14)
(1.89)
(1.64)
(1.25)
(1.05)
(1.23)
(1.35)
(1.43)
(1.27)
(1.51)
PPP%
1.39
1.38
1.26
1.10
0.94
0.72
0.58
0.57
(0.11)
0.24
0.10
(0.21)
(0.33)
(0.29)
(0.25)
(0.29)
(0.42)
(0.24)
(0.20)
(0.14)
(0.11)
(0.06)
Operating profit %
1.18
1.05
0.96
0.84
0.65
0.30
0.34
0.37
(0.26)
0.13
0.04
Associates
0.01
0.02
(0.01)
0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Credit charge
Net exceptionals
0.00
0.00
0.00
0.00
0.19
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
1.19
1.08
0.95
0.85
0.84
0.30
0.34
0.37
(0.26)
0.13
0.04
Adj pretax ROA
1.19
1.08
0.95
0.85
0.65
0.30
0.34
0.37
(0.26)
0.13
0.04
5 June 2015
93

Asian banks
HSBC - O-PF
HSBC North America

North America
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
14,993
14,887
14,268
14,847
15,218
13,670
12,439
11,480
8,117
5,742
5,015
3,535
4,606
4,766
5,810
5,227
4,817
3,664
3,308
2,513
2,143
1,940
415
1,013
1,358
(542)
(3,135)
331
314
(362)
507
948
411
434
(63)
1,750
3,737
(3,496)
111
964
(1,219)
(288)
(99)
236
88
58
245
(120)
296
143
262
251
294
257
32
42
85
105
77
53
42
40
61
77
44
553
602
492
449
390
309
245
236
193
34
(312)
(333)
(259)
(241)
(238)
(241)
(144)
(154)
(148)
(39)
718
740
922
360
23
566
233
226
406
(108)
584

Net interest income
Net fee income
Net trading income
FV gains
Dividends
Net earned premiums
Net claims
Other income
Revenue
20,170
22,079
21,627
22,783
21,179
16,305
17,047
16,000
10,681
8,803
8,152
Operating expenses
(9,070)
(10,217)
(10,193)
(10,556)
(9,359)
(8,391)
(8,322)
(8,919)
(8,940)
(6,416)
(6,429)
(10,564)
Preprovision profit
11,100
11,862
11,434
12,227
1,256
7,914
8,725
7,081
1,741
2,387
1,723
Credit charge
(5,022)
(5,038)
(6,796)
(12,156)
(16,795)
(15,664)
(8,295)
(7,016)
(3,457)
(1,197)
(322)
6,078
6,824
4,638
71 (15,539)
(7,750)
430
65
(1,716)
1,190
1,401
(8)
48
30
20
11
12
24
35
31
16
4,012
6,070
6,872
4,668
91 (15,528)
(7,738)
454
100
2,299
1,221
1,417
91 (15,528)
(7,738)
454
100
(1,713)
1,221
1,417
220,529
199,702
149,928
146,372
132,190
132,427
Goodwill amortisation
Operating profit
Associates
Net exceptionals
Pretax profit
Adj. pretax profit
Gross loans
6,070
6,872
4,668
254,346
270,770
285,234
- growth (%)
Deposits
301,840
272,304
28.5
6.5
5.3
5.8
(9.8)
(19.0)
(9.4)
(24.9)
(2.4)
(9.7)
0.2
132,900
125,830
120,922
145,173
143,532
149,157
158,486
171,126
149,037
196,495
138,884
(29.3)
- growth (%)
41.4
(5.3)
(3.9)
20.1
(1.1)
3.9
6.3
8.0
(12.9)
31.8
191.4
215.2
235.9
207.9
189.7
147.9
126.0
87.6
98.2
67.3
95.4
Assets
371,183
463,143
511,190
510,092
596,302
475,014
492,487
504,302
490,247
432,035
436,859
Avg assets
330,492
417,163
487,167
510,641
553,197
535,658
483,751
498,395
497,275
461,141
434,447
369,200
330,700
337,300
253,000
223,800
221,400
LDR (%)
Loan mix (%)
Retail (RBWM)
77
80
79
75
70
73
69
67
54
52
47
Commercial (CMB)
11
12
12
13
14
15
16
19
26
29
32
Markets (GBM)
11
14
13
11
16
14
16
Private (GPB)
Other
Total
100
100
100
100
100
100
100
100
100
100
100

Net interest
4.54
3.57
2.93
2.91
2.75
2.55
2.57
2.30
1.63
1.25
1.15
Net fees
1.07
1.10
0.98
1.14
0.94
0.90
0.76
0.66
0.51
0.46
0.45
Net trading
0.13
0.24
0.28
(0.11)
(0.57)
0.06
0.06
(0.07)
0.10
0.21
0.09
0.08
0.14
0.02
0.41
0.67
(0.59)
0.06
0.25
(0.18)
0.02
0.05
Net insurance
0.07
0.06
0.05
0.04
0.03
0.01
0.02
0.02
0.01
0.00
0.00
Other
0.22
0.18
0.19
0.07
0.00
0.11
0.05
0.05
0.08
(0.02)
0.13
Revenue
Opex
PPP%
6.10
5.29
4.44
4.46
3.83
3.04
3.52
3.21
2.15
1.91
1.88
(2.74)
(2.45)
(2.09)
(2.07)
(3.60)
(1.57)
(1.72)
(1.79)
(1.80)
(1.39)
(1.48)
3.36
2.84
2.35
2.39
0.23
1.48
1.80
1.42
0.35
0.52
0.40
(1.52)
(1.21)
(1.40)
(2.38)
(3.04)
(2.92)
(1.71)
(1.41)
(0.70)
(0.26)
(0.07)
Operating profit %
1.84
1.64
0.95
0.01
(2.81)
(1.4)
0.09
0.01
(0.3)
0.26
0.32
Associates
0.00
0.01
0.01
0.00
0.00
0.00
0.00
0.01
0.00
0.01
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.81
0.00
0.00
Pretax ROA
1.84
1.65
0.96
0.02
(2.81)
(1.4)
0.09
0.02
0.46
0.26
0.33
Adj pretax ROA
1.84
1.65
0.96
0.02
(2.81)
(1.4)
0.09
0.02
(0.3)
0.26
0.33
Credit charge
94
5 June 2015

Asian banks
HSBC - O-PF
HSBC Latin America

Latin America
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
1,310
1,750
4,197
5,576
6,458
5,573
6,311
6,956
6,984
6,186
5,310
459
537
1,630
2,153
2,167
1,729
1,749
1,781
1,735
1,701
1,415
54
409
537
548
701
848
733
1,378
971
936
856
186
237
320
364
495
425
550
667
326
691
129
39
84
253
176
168
98
137
227
82
84
20
11
12
14
15

Net interest income
Net fee income
Net trading income
FV gains
Dividends
Net earned premiums
Net claims
Other income
596
746
1,076
1,594
1,717
1,900
2,054
2,653
2,452
1,830
1,523
(459)
(691)
(1,023)
(1,427)
(1,390)
(1,833)
(1,792)
(2,344)
(2,353)
(1,617)
(1,765)
28
188
91
228
300
133
141
328
253
1,115
149
2,119
3,168
6,835
9,254
10,513
9,024
9,731
11,453
10,951
10,568
8,272
(1,413)
(1,967)
(4,166)
(5,402)
(5,990)
(5,375)
(6,394)
(7,255)
(6,430)
(5,930)
(5,932)
706
1,201
2,669
3,852
4,523
3,649
3,337
4,198
4,521
4,638
2,340
(267)
(554)
(938)
(1,697)
(2,492)
(2,526)
(1,544)
(1,883)
(2,137)
(2,666)
(2,124)
439
647
1,731
2,155
2,031
1,123
1,793
2,315
2,384
1,972
216
Associates
12
Net exceptionals
11
440
647
1,735
2,178
2,037
1,124
1,795
2,315
2,384
1,972
216
Revenue
Operating expenses
Preprovision profit
Credit charge
Operating profit
Pretax profit
Adj. pretax profit
Gross loans
- growth (%)
440
647
1,735
2,167
2,037
1,124
1,795
2,315
2,384
1,972
216
7,809
10,103
37,180
49,915
44,287
50,182
59,997
57,949
55,771
46,482
45,652
39.3
29.4
268.0
34.3
(11.3)
13.3
19.6
(3.4)
(3.8)
(16.7)
(1.8)
10,958
16,545
50,861
61,292
59,443
72,889
88,526
78,760
66,556
54,199
48,588
- growth (%)
57.8
51.0
207.4
20.5
(3.0)
22.6
21.5
(11.0)
(15.5)
(18.6)
(10.4)
LDR (%)
71.3
61.1
73.1
81.4
74.5
68.8
67.8
73.6
83.8
85.8
94.0
Assets
17,368
24,734
80,771
99,056
102,946
115,967
139,938
144,889
131,277
113,999
115,354
Avg assets
14,959
21,051
52,753
89,914
101,001
109,457
127,953
142,414
138,083
122,638
114,677
81,700
95,900
102,300
97,900
89,500
88,800
Deposits
Loan mix (%)
Retail (RBWM)
49
51
45
45
44
41
36
34
32
31
29
Commercial (CMB)
21
36
32
34
37
38
43
46
47
45
47
Markets (GBM)
25
12
23
21
20
20
21
20
20
23
25
Private (GPB)
Other
100
100
100
100
100
100
100
100
100
100
100
Total

Net interest
8.76
8.31
7.96
6.20
6.39
5.09
4.93
4.88
5.06
5.04
4.63
Net fees
3.07
2.55
3.09
2.39
2.15
1.58
1.37
1.25
1.26
1.39
1.23
Net trading
0.36
1.94
1.02
0.61
0.69
0.77
0.57
0.97
0.70
0.76
0.75
0.88
1.09
0.62
0.65
0.55
0.62
0.42
0.49
0.66
0.34
0.68
Net insurance
0.92
0.26
0.10
0.19
0.32
0.06
0.20
0.22
0.07
0.17
(0.21)
Other
0.19
0.89
0.17
0.25
0.30
0.12
0.11
0.23
0.18
0.91
0.13
Revenue
14.17
15.05
12.96
10.29
10.41
8.24
7.61
8.04
7.93
8.62
7.21
Opex
(9.45)
(9.34)
(7.90)
(6.01)
(5.93)
(4.91)
(5.00)
(5.09)
(4.66)
(4.84)
(5.17)
PPP (%)
4.72
5.71
5.06
4.28
4.48
3.33
2.61
2.95
3.27
3.78
2.04
(1.78)
(2.63)
(1.78)
(1.89)
(2.47)
(2.31)
(1.21)
(1.32)
(1.55)
(2.17)
(1.85)
Operating profit (%)
2.93
3.07
3.28
2.40
2.01
1.03
1.40
1.63
1.73
1.61
0.19
Associates
0.01
0.00
0.01
0.01
0.01
0.00
0.00
0.00
0.00
0.00
0.00
Credit charge
Net exceptionals
0.00
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
2.94
3.07
3.29
2.42
2.02
1.03
1.40
1.63
1.73
1.61
0.19
Adj pretax ROA
2.94
3.07
3.29
2.41
2.02
1.03
1.40
1.63
1.73
1.61
0.19
5 June 2015
95

Asian banks
HSBC - O-PF
HSBC Middle East & North Africa1

Middle East & N Africa
2008
2009
2010
2011
2012
2013
2014

Net interest income
1,556
1,485
1,367
1,432
1,470
1,486
1,519
Net fee income
691
625
677
627
595
622
650
Net trading income
402
394
370
482
390
357
314
FV gains
10
(12)
(2)
(3)
16
(3)
(8)
(18)
22
Dividends
14
Net earned premiums
Net claims
Other income
71
(8)
59
(27)
49
32
Revenue
Operating expenses
Goodwill amortisation
Preprovision profit
Credit charge
Operating profit
Associates
Net exceptionals
Pretax profit
Adj pretax profit
Gross loans
- growth (%)
Deposits
- growth (%)
2,668
2,594
2,410
2,607
2,430
2,503
2,548
(959)
(1,001)
(1,078)
(1,159)
(1,166)
(1,289)
(1,216)
1,709
1,593
1,332
1,448
1,264
1,214
1,332
(279)
(1,334)
(627)
(293)
(286)
42
1,430
259
705
1,155
978
1,256
1,338
316
196
187
337
372
438
488
1,746
455
892
1,492
1,350
1,694
1,826
1,746
455
892
1,492
1,350
1,694
1,826
27,709
24,222
26,278
27,589
29,880
28,776
30,450
na
(12.6)
8.5
5.0
8.3
(3.7)
5.8
35,165
32,529
33,511
36,422
39,583
38,683
38,720
na
(7.5)
3.0
8.7
8.7
(2.3)
0.1
78.8
74.5
78.4
75.7
75.5
74.4
78.6
Assets
50,952
48,107
52,757
57,464
62,605
60,810
62,417
Avg assets
50,952
49,530
50,432
55,111
60,035
61,708
61,614
54,300
54,100
58,900
62,200
62,500
63,000
LDR (%)
Loan mix (%)
Retail (RBWM)
26
26
21
19
21
23
22
Commercial (CMB)
48
45
50
48
48
43
45
Markets (GBM)
24
29
29
33
31
34
33
Private (GPB)
Other
100
100
100
100
100
100
100
Net interest
3.05
3.00
2.71
2.60
2.45
2.41
2.47
Net fees
1.36
1.26
1.34
1.14
0.99
1.01
1.05
Net trading
0.79
0.80
0.73
0.87
0.65
0.58
0.51
0.02
0.04
0.01
0.01
0.00
(0.02)
0.05
Net insurance
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Other
0.02
0.14
(0.02)
0.11
(0.04)
0.08
0.05
Revenue
5.24
5.24
4.78
4.73
4.05
4.06
4.14
(1.88)
(2.02)
(2.14)
(2.10)
(1.94)
(2.09)
(1.97)
3.35
3.22
2.64
2.63
2.11
1.97
2.16
(0.55)
(2.69)
(1.24)
(0.53)
(0.48)
0.07
0.01
2.81
0.52
1.40
2.10
1.63
2.04
2.17
Associates
0.62
0.40
0.37
0.61
0.62
0.71
0.79
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
3.43
0.92
1.77
2.71
2.25
2.75
2.96
Adj pretax ROA
3.43
0.92
1.77
2.71
2.25
2.75
2.96
Total
Opex
PPP%
Credit charge
Included in Rest of Asia Pacific prior to 2008. Source: CLSA, company data
96
5 June 2015

Citigroup
US$47.72 - BUY
Premier Asian bank
Mike Mayo
Microcosm of Citis possible future
mike.mayo@clsa.com
+1 212 549 5000
Even while Citigroup needs to get back to average, Citi Asia is already
above-average and likely to get better based on our meeting with the CEO
of Asia. Structurally, it is a premier Asian bank that benefits from faster
growth, high-end customers, and better-than-peer performance.
Cyclically, revenue headwinds have hurt but performance should improve
as it benefits from restructuring that seems farther along than for the
firm as a whole. Citi Asia is one reason that Citis stock price discount to
tangible book seems like an investment opportunity, as discussed more
fully in our 200-page report Alpha banks.
Chris Spahr
+1 212 549 5005
3 February 2015
USA
Structural strength
Citi Asia (one-fifth of Citigroup) has a superior franchise based on competitor
positioning (top three in Asia), expansiveness (18 countries), consumer
clients (affluent and urban) and wholesale clients (emerging-market
champions, multinationals). ROA is one-tenth higher than regional
competitors (weighted average by market). Credit is better vs the likes of
StanChart, aided by changes in India and Korea and deeper moves into the
affluent. Citi looks to export Asian best practices, such as those related to
digital delivery, service, and systems.
Financial services
Reuters
Bloomberg
C.N
C US
Priced on 2 February 2015

S&P 500 @ 2,020.9
12M hi/lo
US$56.37/45.68
12M price target

% potential
US$73.00
+53%
Shares in issue
Free float (est.)
2,848.3m
62.0%
Market cap
US$144,567m
US$949.4m
(US$949.4m)

Major shareholders
BlackRock Global Investors 2.9%
Cyclical weakness should improve

The ROA declined from 1.4% to 1.0% (2010-14) given sluggish revenue
growth in both consumer (margin pressure) and wholesale (fees) and worse
efficiency (56% to 59%). The main issue has been Consumer (1/2 of Asia),
whose ROA declined from 2% to 1% and efficiency got worse but now, given
restructuring, should improve. Notwithstanding ongoing pressures from rates,
regulation, and competition, and while we wish there were more firm financial
metrics for the initiatives, the ROA should nevertheless rebound given
progress with Project Rainbow (80% done), Korean restructuring (done), and
a new insurance joint venture. Overall, Citi Asia is a sign of where Citigroup
as a whole potentially can go, and it looks quite good.

Absolute
Relative
Abs (US$)
60
1M
3M
12M
(12.1)
(10.4)
(12.1)
(10.9)
(11.0)
(10.9)
0.6
(10.7)
0.6
(% )
150
(U S $ )
55
100
50
44
50
39
34
Jan -13
Jul-13
Jan -14
Jul-14
Citigroup (LH S)
Rel to 500 (RHS )
Source: Bloomberg
www.clsa.com
Financials
Year to 31 December
Operating income (US$m)
Net income (US$m)
EPS (US$)
EPS growth (% YoY)
ROA (%)
ROE (%)
PE (x)
PB (x)
DPS (US$)
Dividend yield (%)
13A
76,366
12,943
4.34
74.6
0.7
6.9
11.0
0.8
0.04
0.1
14A
76,882
6,694
2.20
(49.3)
0.4
3.4
21.7
0.7
0.04
0.1
15CL
74,314
16,508
5.50
102
149.9
0.9
8.1
8.7
0.7
0.34
0.7
16CL
78,960
18,689
6.40
109
16.4
1.0
8.8
7.5
0.6
0.77
1.6
17CL
84,748
20,280
7.15
110
11.6
1.1
9.1
6.7
0.6
1.14
2.4
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, CapIQ and themarkets.com - and profit from our evalu@tor proprietary database at clsa.com
Produced by CLSA Americas LLC. For important disclosures please refer to page 192.

Asian banks
Citigroup - BUY
AsiaXposiaTM
Asia accounts for one-fifth of Citigroups revenue - the largest revenue

contributor outside of North America. It should be Citis fastest-growth region
given superior GDP growth (notwithstanding a slower pace than before),
growth in the emerging affluent category, under-levered consumers and
expanding companies.
Citi activities are made up of about half consumer and half wholesale (both
for revenue and net income), and it has a heritage of more than a century in
the region and a brand name that carries a degree of cachet. Consistent with
its strategy for better focused growth, Citis target customers include the
affluent and emerging affluent in consumer and the worlds 1,000 largest
corporations and multinationals in wholesale.
Asia, one-fifth of Citis
revenues, should be Citis
fastest-growth region
Citigroup revenue mix by region
Asia
LatAm 19%
17%
EMEA
14%
North
America
42%
Holdings
8%
Citicorp Asia revenue mix
ICG
49%
Retail
banking
31%
Cards
20%
Note: ICG is Institutional Clients Group; 2014 full-year revenues excluding credit valuation and debt
valuation adjustments (CVA/DVA). Source: Company
Summary
We met with the CEO of Citi Asia (Stephen Bird), which comprises one-fifth of
Citi and consists of equal parts consumer and wholesale. For his entire time at
Citigroup, he has been in emerging markets and mostly in Asia. This includes
Singapore in 1998 and other positions during market turmoil, including
Argentina (2000), Japan consumer finance (2001-05) and the Global Financial
Crisis (as head of Citis Asia Consumer Banking from 2006-08). In other
words, this is not his first rodeo.
We used the meeting as a chance to take another look at the Asian franchise
and consult with CLSAs 20-person Asian banking team. The most exciting
takeaway is that Citi Asia can potentially reflect Citi (the entire firm) of the
future, at least based on customers, costs, and credit. First, with customers,
Citigroup has further transitioned from mass market to mass affluent, and Citi
Asia is farther along. This is a high-end business that has become higher end.
This partly reflects the history. Citi couldn't open so many branches and so
they were more selective. This also reflects a reaction to legacy problems,
which led to eliminating subprime, rejiggering India, and aligning other
markets. The 20-person on-the-ground CLSA Asian banking team agrees
about the competitive positioning.
Second, with costs, Citigroup as a whole is restructuring, and Citi Asia is
farther along and should see the benefits sooner. Theres direct benefits, such
as the completion of the Korea restructuring (estimated $300m of charges in
2014), retooling with Project Rainbow or systems standardization (est.
another $100m of charges), and front-loaded costs related to a new
insurance joint venture with AIA. There are also indirect benefits to Project
98
mike.mayo@clsa.com
5 June 2015

Citigroup - BUY
Asian banks
Rainbow since more common systems leads to greater ability to streamlining

mid and back office (estimated 40% of headcount). The result should be a
turning point in Citi Asia efficiency.
Third, with credit, Citigroup looks for more stability, and Citi Asia has it.
Credit losses are only 50bp and seem fine for the immediate future, in our
view. Citi Asia is helped by having eight countries with over $1bn in revenues
on a base of $14bn (Hong Kong, Korea, Taiwan, Singapore, Australia, Japan,
India and China) - ie, this is modern portfolio theory at work.
The hope is that the retooling can increasingly get exported to other regions.
One of the best examples is Project Rainbow, which is 80% done except for
India and Korea (on backend after the rest of Citigroup; estimated 24
months). Project Rainbow, while better late than never (some systems are
getting standardized that have been around for more than a decade), creates
an object-oriented architecture for customer attributes and a real-time
customer data warehouse for Citi globally. In laymans terms, a customer only
needs to give Citi information once when opening an account, regardless of
whether it is savings, checking, credit, investments, etc. This seems basic,
but it is not so easy to execute over so many countries and it eliminates the
insulting (term of the Citi Asia CEO) task of asking a customer for the same
information more than once. The other important benefit is that it should
result in greater efficiency. Citi could reduce its regional support headcount by
estimated one-fourth or more if and as it consolidates functions like product
development and management and decision sciences into regional centers of
excellence.
There are risks, such as ongoing low rates, which has led to flat revenues for
the past several years, competition (hurts margins) and regulation, though
this latter impact might be lessening. Also, detailed financial metrics seem
lacking and the meeting lacked enough specifics. Moreover, while Citi
management appears to have learned from past mistakes, the proof will be
during the next credit/macro cycle given unreliable reassurances in the past albeit with a completely different senior executive team in New York City.
Indeed, mitigants, as they relate to Citi Asia, include the roots that the Citi
Asia CEO has in the region, along with a team that has been with him.
The bottom line: Citi Asia seems like a microcosm of where Citigroup is going
as it relates to customers, costs, and credit, and it looks good.
Structural strength
Citi Asia (one-fifth of Citi) has a superior franchise based on competitor

positioning (top three along with HSBC and Standard Chartered),
expansiveness (transactional bank in 18 countries; trading desks in 17; top
three advisory/underwriting), consumer clients (affluent and urban) and
wholesale clients (EM champions, multinationals moving into region). Its
biggest Asian markets tend to have done okay, including Hong Kong, India,
Singapore, and Australia (2% of revenues each), or otherwise turning the
corner for Citi with Korea (also 2%). The ROA is one-tenth higher than
regional competitors (weighted average by market). Credit is better
(especially vs StanChart), aided by changes in India and Korea and efforts to
move deeper into the affluent. The opportunity is to better export best
practices into other regions, such as those related to digital delivery, service,
and systems.
5 June 2015
mike.mayo@clsa.com
99

Asian banks
Citigroup - BUY
Compared to regional
peers, Citi is
outperforming in
terms of ROA
Citis Asia ROA is above regional peers
The ROA at Citi Asia is about one-tenth greater than those of regional peers
based on a weighted average of individual country ROAs (1.05% vs 0.95%).
Indeed, without Korean restructuring charges in 2014 (estimated $300m),
Citis ROA would have been slightly higher (1.08%). In part, the difference
reflects Citis product mix, which is very card heavy, and card activities tend
to have high ROAs in stable to benign consumer credit environments. On the
other hand, we should expect a greater differential given Citi has a more
focused distribution platform, which should keep costs lower over time.
Figure 1
ROAs in Asia vary

by country
2014 ROA by country - Asia

CLSA ROA
Citi Asia
Wtd ROA
Australia
0.93
14.5
0.14
China
1.29
10.0
0.13
HK
0.72
10.1
0.07
India
1.02
10.2
0.10
Indonesia
2.69
4.0
0.11
Japan
0.44
2.5
0.01
Korea
0.48
10.0
0.05
Malaysia
1.15
4.0
0.05
Philippines
1.19
4.0
0.05
Singapore
1.04
10.3
0.11
Taiwan
1.22
8.2
0.10
Thailand
1.56
4.0
0.02
Other EM
1.32
8.2
0.02
Weighted avg ROA
0.95
Citi Asia Consumer ROA
1.01
Citi Institutional Client Group ROA
1.07
Citi Asia ROA (all segments)
1.05
Note: Weights are based on Citicorp Asia presentation November 2014; Other EM ROA is the average the
individual country ROAs less Japan, Korea and Australia; Australia and Japan weights are estimated and
based on DM Asia exposures further broken down by consumer loans. Country ROAs provided by CLSA
financial-services analysts covering each country. Source: CLSA, company
A good place to be
Asia should continue to grow at a faster pace than the USA given a variety of
reasons discussed by CLSA, such as an emerging middle class, faster
economic growth (more so in China and India), transition to capital markets,
and likely faster GDP growth. Per IMF estimates, GDP growth should be twice
as fast for emerging and developing Asia as for the USA for 2015-19 (est.
6.5% vs 2.9%).
100
mike.mayo@clsa.com
5 June 2015

Asian banks
Citigroup - BUY
Figure 2
Key Asian markets should grow much faster than developed Western markets
(%)
2014E
2015E
7.3
6.5
6.9
5.6
4.2
5.0
4.6
4.2
3.2
2.2
3.0
3.3
2.2
1.7
0.8
Developed
markets
Emerging
markets
1.1
Euro Area
US
Asia (exChina)
ASEAN
India
China
Note: Citis Global Economic Outlook and Strategy October 2014. ASEAN includes the five largest countries in the region: Singapore, Indonesia,
Malaysia, Thailand and Philippines. Source: Company
Summary - Asia is a nice feature of Citigroup
Citi ranks top three in Asia along with HSBC and Standard Chartered in Asia
Pacific ex-Japan based on both size and expansiveness. On the one hand, Citi
ranks only 17% largest in Asia based on net income. Yet, it is broader than
others, including many Chinese and Japanese banks (and also Australian, to a
degree) that have very large domestic operations but not much elsewhere in
the region. Citi serves institutional and individual clients in 18 countries, with
over half of those contributing at least $1bn in annual revenue. Citi Asia
reports $15bn across the region in total. Thus, while Citi does not rank top
three in any given country, its regional presence is felt given its size, breadth
and legacy in the region.
Unique franchise
Citi Asia overall has a top

three market share
though it is not top three
in any one market
Citi ranks top three in Asia along with HSBC and Standard Chartered in Asia
Pacific ex-Japan based on both size and expansiveness. On the one hand, Citi
ranks only 17% largest in Asia based on net income. Yet, it is broader than
others, including many Chinese and Japanese banks (and also Australian, to a
degree) that have very large domestic operations but not much elsewhere in
the region. Citi serves institutional and individual clients in 18 countries, with
over half of those contributing at least $1bn in annual revenue. Citi Asia
reports $15bn across the region in total. Thus, while Citi does not rank top
three in any given country, its regional presence is felt given its size, breadth
and legacy in the region.
One of the few regional

banking groups with a
material network across
all key markets in Asia
CLSA has a team of 20 analysts on-the-ground in Asia. The view of this team,
led by Derek Ovington, is that Citi has a unique franchise with an effective
strategy and valuable management, as summarized below for the region and
for specific countries on the subsequent few pages:
5 June 2015
mike.mayo@clsa.com
101

Asian banks
Citigroup - BUY
Citigroup is one of the few regional banking groups with a material network
across many key trading countries and financial centres in Asia, competing
in both wholesale/corporate and retail banking. Its spread of operations
enables it to compete effectively in transactional banking for multinational
corporations. Citis executives are, in general, well regarded and regularly
hired by competitors. For example, the current CEO of DBS (Piyush Gupta)
of Singapore is formerly of Citibank, as are HSBCs Head of Asia (Peter
Wong) and ANZs Head of Institutional and International Banking (Andrew
Geczy). We believe these competitive hires do not represent a brain-drain at
Citigroup, but rather that the firm has demonstrated an ability to identify
and develop local talent across the region, and that its management bench
is deep.
Citigroup has withstood the Global Financial Crisis, from an Asian marketshare point of view, and remains a keen competitor. In consumer banking,
Citi is a leading brand aimed at the lucrative professional/expatriate/massaffluent segment, with a particular strength in credit cards. Its key weakness
lies in its relatively small scale given its choice not to compete in the mass
market of consumer banking. In wholesale banking, Citigroup is a leading
investment bank, a top-three transactional bank and one of the largest
regional lenders in Asia, with a historical legacy and geographic spread
matched only by HSBC and Standard Chartered.
In terms of identifying regional market share, Citigroup and its main
competitors (HSBC and StanChart) are not huge by total loan book in Asia,
but these are sizable regional portfolios, as opposed to the domestic banking
operations of the large banks in China, Japan and Australia.
Figure 3
Figure 4
Citicorp Asia revenue mix by market
Citicorp Asia loans by country
Other EM
8%
Taiwan
8%
DM
17%
Korea
10%
Other Asia
32%
ASEAN ex
Singapore
16%
China
10%
Hong Kong
10%
Korea
18%
India
10%
China
11%
Singapore
10%
Note: excluding CVA/DVA; last twelve months of ended September 30,

2014; ASEAN includes Singapore, Indonesia, Malaysia, Thailand,
Philippines, Vietnam, Bangladesh, Sri Lanka, Guam and Brunei.
Source: Company
Singapore
14%
Hong
Kong
14%
Australia
11%
Note: as of 3Q14. Source: Company
Country-by-country analysis
Below we give brief summaries of Citis presence in select Asian country

markets as described by CLSA bank/financial analysts operating in that
market (presented in alphabetical order):
102
mike.mayo@clsa.com
5 June 2015

Citigroup - BUY
Asian banks
Australia - Citibank has been operating in Australia since legacy First
National City Bank acquired 22% of Industrial Acceptance Corporation in

1971. By 1977, Citicorp acquired 100% of Industrial Acceptance and in
1985 Citi was granted a full banking license in Australia. Today, Citi serves
over a million retail customers and about one thousand corporate
customers, primarily in coastal cities Sydney, Melbourne, Perth, Adelaide
and Brisbane.
According to CLSAs Australian financials analyst Brian Johnson, Citigroup
has a relatively small retail bank franchise with about 0.7% market share
of gross loans, and equally smallish share in housing (about 0.7%), total
deposits (0.3%) and household deposits (0.5%). Citi is a larger player in
credit cards with 10.1% share. On the Cash Equity side, Citis market
share is around 9-10% and ranked in the top three.
China - Citi has been in China since 1902. Similar to other foreign banks
operating in China, Citibank only has limited operations and relatively

smallish market presence overall. This is not the problem of their strategy,
according to CLSAs Hong Kong and Chinese bank analyst Patricia Cheng,
but the result of regulatory policies. Standalone financial data for Citibank
China is limited; however, total balance sheet of all the foreign banks
(1.7% of the total industry as of 2013) gives a sense of how restricted
foreign bank operations are in China.
Per Patricia Cheng, it takes time to change this situation as the country is
only gradually and slowly liberalizing its financial market. For instance,
China only granted the first batch of private banking licenses (five so far)
in 2014. We believe there is still long way to go before the country will
allow competition from foreign banks.
Hong Kong - Citi opened its first Hong Kong banking office in 1902 and is
one of the largest foreign financial institutions in the region (No.1 US

bank), though lagging well behind HSBC, Standard Chartered, local players
and increasingly Chinese banks (in terms of local assets and profits). It is
a full-service bank offering a complete set of retail and wholesale banking
products to its consumer and institutional clients. Citibank operates 41
branches and seven consumer-lending outlets. According to CLSAs Hong
Kong and Chinese bank analyst Patricia Cheng, Citi HKs loan book is
mostly concentrated in housing loans, and their overall market share of
loans for use in HK has fallen in recent years from around 1.6% in 2012 to
1.3% in 1H14. Market share of deposits is around 1%.
India - Citi began operating in Kolkata in 1902. The firm offers a full suite
of retail products and services in its 44 full-service branches located in 28

cities across the country. Its somewhat limited branch network, relative to
potential banking opportunities, reflects branch-licensing restrictions on
foreign banks. Citibank India is second-largest foreign bank in India (No.1
is Standard Chartered) with loan market share of 19% among foreign
banks and 0.8% in overall Indian banking sector. With its limited presence,
Citis operations are largely focused on corporates and affluent households
in metro/urban centers of India. Per CLSA Indias research head Aashish
Agarwal, we understand that Citibank largely focuses on consumer
segment where it arguably has one the best credit card programs. Growth
over last three years has been (12% Cagr), and its ROA in India as
improved as it focused on consolidating business.
5 June 2015
mike.mayo@clsa.com
103

Citigroup - BUY
Asian banks
Figure 5
Strong franchise in an
attractive region
Citi Asia consumer and institutional footprint
Note: 19 November 2014 presentation. Source: Company
Indonesia - According to CLSAs Indonesian bank analyst Jayden
Vantarakis, Citibank Indonesia booked loans were $3bn (as of November

2014), up 7% year-over-year (versus 12% for the industry). Its loan
market share was unchanged at about 1% overall. It has $4bn in local
deposits (1% market share), which were flat year-over-year and well
below the industry growth rate (up 14%).
Japan - Citi opened its first Japanese branch in 1902 (in Yokohama) and
historically was a major foreign bank in both wholesale and retail banking
for most of last century. Citibank Asia operates a domestic banking
subsidiary in Japan with branches in all major urban centers. In terms of
deposits, Citibank Japan is currently ranked the 45th-largest bank with
deposits of ($33.11bn) as of end-September 2014. However, according to
CLSAs Japanese bank analyst Brian Waterhouse, severe interbank
competition for loan business and unacceptably low returns on most
commercial loans have limited Citibanks Japanese loan portfolio to just
$4.3bn, ranking the bank 148th-largest bank in Japan by loan assets.
Citibank is currently in the process of selling its retail deposits and credit
card businesses to Japanese megabank SMBC, reportedly for an amount in
the region of $340m.
104
mike.mayo@clsa.com
5 June 2015

Citigroup - BUY
Asian banks
Korea - In 1967, Citi became the first foreign bank to set up operations in
Korea. In November 2004, Citi became one of the largest local players
with its acquisition of KorAm Bank; however, it has been reducing its local
presence the past few years.
According to CLSAs Korean bank analyst Shaun Cochran, the overly tight
regulatory environment of Korea has led many foreign banks to severely
cut costs or close their Korean businesses. Citi Korea was not an exception
to this. Citi Capital Korea made net losses in 2011, 2012 and 2013, and
finally decided to sell off its Korean capital business. Citigroup announced
it will focus on consumer and corporate banking businesses which they will
not be closing down anytime in the future.
Citibank has adopted a digital sales model in which they shut down
physical locations and move everything on-line. Hence the bank has shut
down 56 branch offices and laid off 650 employees in 2014. Currently 91%
of Citibank Koreas transactions are done online (smartphone / internet).
In line with the digital sales model, Citibank Korea has recently created a
new department called customer franchise department which analyses
client information, digital banking, marketing / customer satisfaction data.
Malaysia - Citibank (Berhad) Malaysia was founded in 1959. According to
Malaysian bank analyst Asheefa Sarangi, Citi has been struggling to get
deposits in the door as balances are going backwards and it appears that
Citi is not paying up for liquidity in this competitive market. As a
consequence, loan growth is below the industry average. Citibank Malaysia
is consumer bank weighed towards credit cards (industry leading market
share but balances havent grown in the past year) and mortgages. Overall,
it has less than 2% market share. Citis subscale presence probably means
that they dont bring in enough revenues to cover their cost of investment
as the overhead ratio (expenses/revenues) is 53% based on local regulatory
filings. This, along with low leverage (<9x) is holding back ROE to 4.4%. On
the other hand, asset quality is holding up quite well.
Philippines - According to CLSAs Philippine bank analyst Alfred Dy,
Citibank is the biggest foreign bank operating in the Philippines. It is

ranked No.11 overall in terms of assets at $6bn. Over the years, the bank
has been posting ROEs in excess of 20%. Citibank is strong in the
Philippines in project finance, syndication, and consumer banking. They
are also strong in wealth management.
Singapore - Citigroup has been in Singapore since 1902 and offers a
complete range of retail and wholesale products and services. Per the
company, Citi is the largest banking employer in Singapore (10,000
workforce per Singapore Business Review; 2013 data). It is the site of
many processing and datacenter hubs serving 60 countries around the
world, and it is the regional service center supporting 16 Asian countries.
Including both wholesale and consumer activities, Citibank Singapore is
the seventh-largest bank in the country (based on 2013 data); however,
Citibank Singapore has less financial information disclosed than other
countries limiting direct performance comparisons with local competitors.
Taiwan - Citi opened its first branch in Taiwan in 1965. Citibank is one of
three foreign banks that has a meaningful presence in Taiwan, the other
two being HSBC and StanChart. But this is a market that is dominated by
local players, with the foreign peers trailing the local players materially in
terms of loans and assets. Citi does have a good presence in the credit
card business though, ranked third behind Chinatrust and Cathay.
5 June 2015
mike.mayo@clsa.com
105

Asian banks
Citigroup - BUY
Thailand - Citis presence in Thailand dates back to 1967 when legacy
Citicorp took a 50% stake in Bangkok First Investment Trust. In 1984, Citi
acquired the Mercantile Bank in Thailand that ultimately resulted in the
bank getting a full banking license at the start of the following year.
Today, Citi Thailand offers a full range of retail and wholesale banking
products and services, including credit cards, Ready Credit (a cash
product), personal loans and wealth management. Its market share is not
considered material relative to the large local banks according to CLSAs
Thailand bank analyst David Beller.
Figure 6
Top 25 banks in Asia (ranked by net income)

Rank
Bank
Assets
Loans
Deposits
Revenues
Net income
1
2
ICBC
3,237
1,757
2,475
103.2
44.2
CCB
2,680
1,522
2,105
90.0
36.9
Agricultural Bank
2,588
1,289
2,049
85.2
29.2
Bank of China
2,490
1,356
1,785
74.0
26.1
HSBC
2,647
1,140
1,520
61.0
16.1
Bocom
982
565
672
29.0
10.5
CMB
787
398
523
27.9
9.4
MUFG
2,192
866
1,362
40.8
9.1
Minsheng
574
284
387
20.8
7.3
10
CBA
11
SMFG
12
626
480
394
18.1
7.0
1,372
579
918
35.6
6.9
Westpac
609
461
364
15.9
6.1
13
ANZ Bank
610
416
403
15.3
5.7
14
Mizuho Financial
1,493
589
865
22.8
5.4
15
NAB
698
430
376
15.2
4.4
16
Standard Chartered
672
303
378
18.2
4.0
17
Citi Asia
337
157
246
14.7
3.6
18
Bank of China (HK)
280
137
195
5.9
3.2
19
DBS
319
201
232
7.2
3.1
20
OCBC
296
155
180
6.2
2.8
21
SBI
390
263
299
18.7
2.8
22
UOB
228
148
169
5.5
2.3
23
Shinhan
310
209
173
7.6
2.0
24
Maybank
171
111
120
5.0
1.8
25
Woori Financial
244
187
169
4.7
1.5
Note: Citi Asia assets based on average assets for 4Q14, loans and deposits as of 3Q14-end and revenues and net income as reported for full-year
2014; all other companies are CLSA estimates. Source: CLSA, companies
106
mike.mayo@clsa.com
5 June 2015

Asian banks
Citigroup - BUY
Strong consumer footprint
Operating primarily under the Citibank brand, Citis Asia Consumer represents
about a fifth of Global Consumer Banking revenue and a little less than one
third of consumer loans and deposits. It is one of the regions oldest (since
1902), broadest across countries (more so than HSBC, which is focused more
around Hong Kong) and largest retail distributors in Asia (130 Smart Banking
branches, 465 total retail branches, 2,500 ATMs), even though it does not
rank in the top three in consumer in any one country. The brand name carries
a degree of cachet. Through Citigold Private Client and Citigold banking
services, Citi Asia serves more than 600,000 of the region's most affluent
consumers. Citibank is also the top card issuer in Asia Pacific, with about 17m
open card accounts. Asia Consumer largest markets are mostly in developed
Asia (Korea, Singapore, Australia, Hong Kong and Taiwan) with growth
opportunities in Asias biggest consumer markets (China and India).
Figure 7
Figure 8
Figure 9
GCB average loans by region
GCB average deposits by region
GCB revenues by region
EMEA
3% Latin
America
13%
EMEA
4%
Latin
America
14%
North
America
52%
North
America
53%
Asia
31%
EMEA
4%
North
America
52%
Asia
30%
Latin
America
24%
Asia
20%
Note: average loans and deposits as of 4Q14; revenues are full-year 2014. Source: Company
Figure 10
Asia Consumers largest

markets are in developed
countries
Citi Asia Consumer loan mix by country
Taiwan
8%
Australia
13%
Hong
Kong
12%
India
7%
Malaysia
6%
China
5%
Singapore
16%
Korea
26%
Japan
2%
Thailand
2%
Indonesia
1%
Other Asia
1%
Note: 4Q14 average loans. Source: Company
Targeting largely urban,

high-quality, high-spend
affluent customers across
the region
5 June 2015
Over the long term, Asia Consumer should be its fastest-growing consumer
segment, and the unit should reflect Citis prototype for the rest of the
franchise for three reasons. First, the target segment is the affluent and
emerging affluent as opposed to the mass market. To that end, Citi has been
allowing exposures to down-market customers to roll off, such as in Korea, or
consumer finance in general across the region as a whole. Second, branch
networks are geared towards major metropolitan areas. If markets do not
have sufficient and consistent affluent customer base, Citi has been closing
mike.mayo@clsa.com
107

Asian banks
Citigroup - BUY
branches in rural areas, while adding new ones in urban ones. In certain
circumstances, Citi has been pulling out of entire countries such as Japan,
Pakistan and Guam. Citi intends to target more growth in Asia Consumer,
especially given favorable risk-adjusted returns due to the combination of an
ability to charge more for risk (as opposed to the USA) and customers who
pay back more often (as opposed to Latin America).
Aiding the client experience is integrating systems, which should also lead to
improved synergies. For example, Citi Asia has developed and launched a
common operating platform that serves as model for global Rainbow project.
It is also enhancing its retail ecosystem by optimizing physical and digital
touch points, creasing a lower-cost but high-impact footprint.
An opportunity for Citi Asia is its relationship with insurance company AIA,
which is the legacy Asia franchise of AIG. The arrangement allows for Citi to
switch from a somewhat generalized open-architecture platform to one that
eventually will exclusively sell AIA life insurance products across its entire
Asia branch network. While Citi has not given specific financial metrics with
regards to upfront costs that are shared with AIA (including training and
systems), the back-end revenue benefits have the potential to accelerate
revenue growth as well as improve the regions efficiency ratio. Citi said it
takes about two years for arrangements like the AIA-Citi deal work, and the
company entered this deal in December 2013.
Citi has a top-tier market

share in investment
banking and trading
across Asia
Structural potential in institutional
Like Asian consumer banking, investment banking and other institutional

activities within specific countries tend to be dominated by the largest banks
and brokers within in those countries. Collectively around the region,
however, Citi is one of the largest institutional players with top-tier share in
underwriting and advisory activities and as well as having one of the largest
trading houses in the region (desks in 17 countries). What truly sets
Citigroup from its global banking competitors is that it also a top-three
transactional bank in the region (physical network 18 Asian countries), with
a historical legacy and geographic spread matched only by HSBC and
Standard Chartered.
Within Citigroup, Asia Institutional Clients Group, about a fifth of ICG overall
and about a tenth of Citicorp as a whole. While Citigroup does not break down
Asia ICG revenues by country, the bulk of its ICG activities and profits are
projected to be largest in markets with large multinationals and financial
institutions as reflected by its loan mix by country.
Figure 11
Figure 12
Figure 13
ICG average loans by region
ICG average deposits by region
ICG revenues by region
EMEA
3%
North
America
53%
Asia
31%
Latin
America
13%
EMEA
4%
North
America
52%
Latin
America
14%
Asia
30%
EMEA
4%
North
America
52%
Asia
20%
Latin
America
24%
Note: average loans and deposits as of 4Q14; revenues are full-year 2014. Source: Company
108
mike.mayo@clsa.com
5 June 2015

Asian banks
Citigroup - BUY
Figure 14
The bulk of Asia ICG loans

are to institutions
domiciled in develop
markets within the region
Asia ICG loans by country
Korea
7%
Other Asia
38%
Singapore
12%
Hong Kong
18%
China
18%
Australia
7%
Note: estimated loan mix based on Citicorp Asia loan mix by country as disclosed in a November 2014
presentation and adjusted for consumer loans by country as disclosed in its 4Q14 earnings presentation.
Source: CLSA, company
Existing and budding

regional wholesale
banking players see
Citigroup as one of the
top-three players
Per CLSAs Derek Ovington, all of the existing and budding regional wholesale
banking players see Citigroup as one of the top-three players. HSBC and
StanChart - the others in the top three - also nominate Citi as a key
competitor as well. Per league tables in 2014, Citi ranked No.2 in debt
underwriting, No.3 in M&A and No.6 in equity underwriting. In lending,
however, Citi ranks No.16, as the company has been deemphasizing excessive
balance sheet usage for several years. Citi also has been among the largest
foreign-exchange players in the region (along with Deutsche Bank).
Citigroups ICG revenues are materially higher than its US competitors with
significant operations in Asia. For example, Citis ICG businesses are over
50% larger than US competitor average. In addition, while Citis ICG revenue
growth rate has sluggish (0.5% Cagr between 2010 and 2014), it still has
been better than its US competitors, which collectively have averaged a
-2.8% Cagr over that same time period.
Figure 15
Asia wholesale banking revenues among large US banks and brokers

2010
2011
2012
2013
2014
Cagr
7,029
7,192
7,102
7,382
7,172
0.5
GS
7,148
3,864
5,392
5,520
5,313
(7.1)
MS
4,320
3,302
2,824
4,593
4,397
0.4
BAC
4,187
10,890
3,478
4,442
na
nm
JPM
4,775
4,589
4,100
4,698
4,461
(1.7)
Note: 2014 is annualized data reported for the first nine months of 2014 for all companies except
Citigroup. Source: Companies
5 June 2015
mike.mayo@clsa.com
109

Asian banks
Citigroup - BUY
Figure 16
Citi is No.2 in Asian-based

debt underwriting
Debt underwriting - top 10 underwriters in Asia during 2014

Volume
(US$bn)
Market
Share
Number of
Issues
Morgan Stanley
53.4
5.3
368
Citigroup
49.3
4.9
219
HSBC Holdings PLC
46.8
4.7
397
Mizuho Financial Group
45.1
4.5
422
Nomura
40.6
4.0
273
JP Morgan
36.5
3.6
175
Deutsche Bank
36.3
3.6
229
Bank of America Merrill Lynch
32.2
3.2
136
CITIC
29.5
2.9
87
10
UBS
Rank
Book Runner
Industry Total
28.8
2.9
149
1,004.7
100.0
4,325
Note: 2014 issuance volume. Source: Thomson Reuters

Figure 17
Citi is No.3 in Asia

advisory services
Mergers & acquisitions - top 10 advisors in Asia during 2014

Rank
Financial Advisor
Deal values
($bn)
Market
Share
Number of
Deals
1
2
Morgan Stanley
165.3
17.6
118
Goldman Sachs & Co
127.6
13.6
119
Citigroup
91.4
9.8
98
90.1
9.6
56
CITIC
81.2
8.7
42
UBS
78.6
8.4
72
Somerley
77.7
8.3
46
JP Morgan
69.2
7.4
78
China International Capital Co
58.2
6.2
38
10
Deutsche Bank
54.9
5.9
47
Subtotal with Financial Advisor
627.1
66.9
3,155
Subtotal without Financial Advisor
309.7
33.1
11,569
Industry Total
936.8
100.0
14,724
Note: 2014 gross deal values. Source: Thomson Reuters

Figure 18
Citis ICG ranked No.6 in

equity underwriting
Equity underwriting - top 10 underwriters in Asia during 2014

Rank
Book Runner
Volume
(US$bn)
Market
Share
Number of
Issues
1
2
Morgan Stanley
25.1
8.3
104
Goldman Sachs & Co
23.2
7.7
91
UBS
15.8
5.2
127
Deutsche Bank
15.5
5.1
69
Nomura
14.6
4.9
111
Citigroup
13.9
4.6
64
Credit Suisse
13.2
4.4
87
JP Morgan
12.1
4.0
70
10.6
3.5
51
10
CITIC
8.3
2.7
56
301.0
100.0
2,532
Industry Total
Note: 2014 issuance volume. Source: Thomson Reuters
Consistent with the change in the tone at the top of Citigroup, the company
insists that league tables are not the key measure of its success as opposed
110
mike.mayo@clsa.com
5 June 2015

Citigroup - BUY
Existing and budding

regional wholesale
banking players see
Citigroup as one of the
top-three players
Asian banks
to revenue growth and profitability. This should help Citigroup achieve its
ROA, ROE and efficiency targets. Also, compared to Citis consumer
businesses in Asia, ICG appears to be farther along given a more developed
client focus and somewhat less silo'ed approach. This creates more potential
for the firm to leverage its heft in the region. Citi remains a major player in
the region that varies by product. Per CLSAs Derek Ovington, all of the
existing and budding regional wholesale banking players see Citigroup as one
of the top-three players. HSBC and StanChart - the others in the top three also nominate Citi as a key competitor as well. Citi also has been among the
largest foreign-exchange players in the region (along with Deutsche Bank).
Citis ICG strategy in Asia mirrors its global focus generally. The product
offerings are similar given investment banking, trading, large corporate
lending (formerly known as legacy Banking & Securities activities) and cash
management, trade finance and securities and fund services (Citi Transaction
Services). Citi looks to focus on the markets and segments where it has a
competitive advantage, particularly the world's 1,000 largest corporate and
multinational customers and the world's 500 largest investors.
The focus now is to better

streamline operations and
improve margins
ICGs focus, consistent with ICG on a global basis, is to better streamline

operations and improve margins, especially in investment banking (such as
equity capital markets and advisory) and derivatives (where Citi revamped
Asia management a year ago and feels that it is making progress). Its also
investing where necessary. Equities have slipped over the past few years and
now Citi feels that a focus on improvement is paying off.
By activity, investment banking has rolled out dedicated product and client
coverage for multi-nationals and regional champions. In markets (fixed
income and equity trading), Citi has created hubs for product expertise and
specialization in FX, rates & commodities. Legacy Treasury & Trade Solutions
(facilitating cross-border trade flows) and Private Bank (serving high net
worth clients across Asia) have largely unchanged strategies and ICG is
focused on improved execution. Across a number of ICG activities, Citi
continues to try to capture natural adjacencies to drive scale (eg, cash
management and foreign exchange).
5 June 2015
mike.mayo@clsa.com
111

Asian banks
Citigroup - BUY
Cyclical weakness should improve
Citi Asias ROA has declined from 1.4% to 1.0% (2010-14) given sluggish
revenue growth in both consumer (margin pressure) and wholesale (fees)
and worse efficiency (56% to 59%). The main issue has been Consumer (1/2
of Asia), whose ROA declined from 2% to 1% and efficiency got much worse.
At least some of the issue, restructuring in Korea, seems done and should
help an improvement. Our expectation is that the ROA will increase back to
1.4%. Another issue is the change in tax allocation (to take advantage of
Citis large deferred tax asset base), which increased Citis effective tax rate
in Asia and, as a consequence, has hurt ROA by estimated 20bp.
On balance, our meeting with the CEO gave us increased confidence that Citi
can take advantage of its relative strengths and comparative advantages,
especially its brand (100% awareness in many countries) and unique countryspecific knowledge. Part of the expected improvement seems only a matter of
avoiding certain charges from 2014. We estimate that Citi Asias 2014 ROA of
1.05% is really closer to around 1.13% after adjusting total restructuring
charges, and this could increase to around 1.20% or more assuming midsingle digit growth in core drivers (assuming global growth of around 3% and
Asia growth of 4-5%) and increased optimization of core investments. Over
time, this growth rate along with higher interest rates, could push the regions
ROA back to around 1.4% (CLSA estimate).
Sluggish revenue growth across Citi Asia as a whole
Citicorp Asias revenues have not grown much since the Global Financial Crisis
with sluggish growth in both consumer (weakness due to margin
compression) and wholesale activities (weak fee growth). Combined revenue
growth has averaged just 0.5% in annual growth between 2010 and 2014.
Moreover, the overall expense level has increased (1.8% Cagr), and resulted
in a higher expense/revenue ratio (up 290bp to 59.0%). As a consequence,
Citi Asia ROA has been just a little north of 1% over the past three years even
though we believe its ROA should be closer to 1.4% (the level in 2010) or
higher. Achieving a 1.4% ROA in Citi Asia would improve consolidated ROA by
2-3bp and add around 40 cents to EPS.
Figure 19
Citicorp Asia income statement (Consumer and ICG)

(US$m)
2010
2011
2012
2013
2014
4Y Cagr (%)
NII
8,001
8,924
8,679
8,048
7,951
(0.2)
Fee revenues
6,437
6,292
6,351
6,958
6,767
1.3
14,438
15,216
15,030
15,006
14,718
0.5
Expenses
8,103
9,076
9,106
8,532
8,689
1.8
PPP
6,335
6,140
5,924
6,474
6,029
(1.2)
Credit losses
1,021
902
985
790
779
(6.5)
Reserve build/release
(356)
(46)
(46)
90
(176)
(16.1)
Total revenues
Provisions
665
856
939
880
603
(2.4)
Pretax income
5,670
5,284
4,985
5,594
5,426
(1.1)
Taxes
1,251
1,452
1,383
1,902
1,802
9.6
4,415
3,828
3,598
3,688
3,620
56.1
59.6
60.6
56.9
59.0
Non-controlling interest
Net income
Efficiency ratio (%)
Avg assets (US$bn)
ROA (%)
319
350
352
349
346
1.38
1.09
1.02
1.06
1.05
(4.8)
2.1
Note: years prior to 2014 have been restated based on the companys disclosures as of 2 April 2014. Source: company
112
mike.mayo@clsa.com
5 June 2015

Asian banks
Citigroup - BUY
Citi realizes that Citicorp Asia needs to improve its overall performance for the
company to surpass its Citicorp operating targets (mid-50s efficiency for
Citicorp and 90-110bp in ROA). Despite the sluggish revenue growth, Citi Asia
can grow the bottom line by improved allocation of finite resources across
products, markets and clients, standardizing platforms and processes,
rationalizing product offerings, simplifying organizational structure, and
centralizing resources in global and regional support sites. One consequence
of better expense discipline is that many growth investments become selffunded by shifting resources to higher-return opportunities (eg, recent
consumer actions).
Citis global operating structure and organization chart changed every few
years, creating confusion among global product and local client teams and at
a times leading to poor risk management outcomes, such as private banking
in Japan. Strategically, a consistent vision that includes accountable operating
targets for Asia as a whole should help drive results over time. To that end,
Citi looks to maintain focus on target client segments globally while also
efficiently serve target clients across multiple products and geographies.
Figure 20
Figure 21
Citicorp Asia expense trends
Citicorp Asia ROA has declined

61.0
400
9,000
60.0
350
1.40
8,800
59.0
300
1.20
8,600
58.0
250
1.00
8,400
57.0
200
0.80
8,200
56.0
150
0.60
8,000
55.0
100
0.40
7,800
54.0
50
0.20
53.0
9,200
7,600
Expenses ($m)
2010
2011
2012
2013
2014
Note: years prior to 2014 have been restated based on the companys
disclosures as of 2 April 2014. Source: Company
Asia Consumer ROA has

declined about half to
1.0% due to negative
operating leverage
5 June 2015
Assets ($bn)
2010
2011
2012
ROA (%)
2013
2014
1.60
Note: years prior to 2014 have been restated based on the companys
disclosures as of 2 April 2014. Source: Company
Consumer financial metrics have declined
Looking at Asia Consumer operating results since 2010, total revenues have
been flat with a 0.5% Cagr between 2010 and 2014 owing to margin
compression (largely in the retail bank) partially offset by good fee growth
(purchase sales volumes, higher client assets under management). Even
though Citi has been reducing its Asia country footprint and branch count
overall across the region (down about 700 branches at the end of 2010 to
465 as of year-end 2014), expenses have increased materially relative to
revenues (4% Cagr). Indeed, Asia Consumers efficiency ratio has increased
by about a fifth to 65% in 2014. Credit quality has been fairly consistent and
strong especially as Citi reduced its legacy consumer finance activities,
especially in Japan. Net-net, Citi Asia Consumer return on average assets has
declined about half since 2010, from 1.9% in 2010 to 1.0% during 2014.
mike.mayo@clsa.com
113

Asian banks
Citigroup - BUY
Figure 22
Citi Asia Consumer income statement

(US$m)
2010
2011
2012
2013
2014
4Y Cagr (%)
NII
5,090
5,377
5,154
4,756
4,581
(2.6)
Fee revenues
2,319
2,647
2,774
2,868
2,965
6.3
Total revenues
7,409
8,024
7,928
7,624
7,546
0.5
Expenses
4,186
4,759
4,898
4,586
4,896
4.0
PPP
3,223
3,265
3,030
3,038
2,650
(4.8)
Credit losses
1,013
883
841
782
779
(6.4)
(287)
(63)
(36)
40
(112)
(21.0)
Provisions
726
820
805
822
667
(2.1)
2,497
2,445
2,225
2,216
1,983
(5.6)
448
624
513
735
663
10.3
2,049
1,821
1,712
1,481
1,320
56.5
59.3
61.8
60.2
64.9
Avg assets (US$bn)
108
122
127
129
131
1.90
1.50
1.35
1.15
1.01
Pretax income
Taxes
Net income
ROA (%)
(10.4)
5.0
Note: years prior to 2014 have been restated based on the companys disclosures as of 2 April 2014. Source: Company
114
mike.mayo@clsa.com
5 June 2015

Asian banks
Citigroup - BUY
Citis Asia Consumer

businesses still performed
relatively well compared
to local peers
Compared to peers, however, Asia Consumer franchise has held up through

the cycle. Based on the analysis of CLSAs Asian banks team, Citi is a leading
banking brand aimed at the lucrative professional/expatriate/mass-affluent
segment, with a particular strength in credit cards. A key weakness is its
relatively small scale, given its choice not to compete in the mass market of
consumer banking.
Citis Asia Consumer unit has pulled back across the region, shedding
unprofitable businesses like consumer finance and reducing total branches by
over a third. And yet, expenses are up 17% since 2010 (4% Cagr), which
stands out because revenues have been flat (0.5% Cagr). As a result, Asia
Consumers efficiency ratio has gotten worse (up over 8 percentage points to
65% in 2014) and its ROA has declined about half (from 1.9% to 1.0%).
While the company has not assigned specific operating targets for Asia
Consumer, each 25bp improvement in Asia Consumer ROA should help
consolidated ROA by about 2bp (all else equal).
Figure 23
Figure 24
Citi Asia Consumer expenses and efficiency ratio
Citi Asia Consumer average assets and ROA

66.0
140
64.0
120
62.0
100
60.0
80
58.0
60
56.0
40
4,000
54.0
20
3,800
52.0
5,000
Expenses ($m)
4,800
4,600
4,400
4,200
2010
2011
2012
2013
2014
Source: company
Assets ($bn)
ROA (%)
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
2010
2011
2012
2013
2014
Source: company
Good cost controls offset sluggish wholesale revenues
Asia wholesale revenues have been essentially flat since 2010 (0.5% Cagr),
reflecting lower fee revenues offset by higher spread income. Expense
management has been somewhat proportional to fee revenues, and as a
consequence expenses have declined (-0.8% Cagr). The positive operating
leverage has led to an improving efficiency ratio (52.9% in 2014, down 280bp
since 2010). The segments ROA was 1.1% in both 2010 and in 2014 though
it dipped in 2011 and 2012 due to higher credit costs.
5 June 2015
mike.mayo@clsa.com
115

Asian banks
Citigroup - BUY
Figure 25
Citi Asia ICG income statement

(US$m)
2010
2011
2012
2013
2014
NII
2,911
3,547
3,525
3,292
3,370
3.7
Fee revenues
4,118
3,645
3,577
4,090
3,802
(2.0)
Total revenues
7,029
7,192
7,102
7,382
7,172
0.5
Expenses
3,917
4,317
4,208
3,946
3,793
(0.8)
PPP
3,112
2,875
2,894
3,436
3,379
2.1
19
144
(100.0)
(69)
17
(10)
50
(64)
(1.9)
Provisions
(61)
36
134
58
(64)
1.2
3,173
2,839
2,760
3,378
3,443
2.1
803
828
870
1,167
1,139
9.1
2,366
2,007
1,886
2,207
2,300
55.7
60.0
59.3
53.5
52.9
Avg assets (US$bn)
211
229
226
220
215
1.12
0.88
0.84
1.00
1.07
Credit losses
Pretax income
Taxes
Net income
ROA (%)
4Y Cagr (%)
(0.7)
0.4
Note: years prior to 2014 have been restated based on the companys disclosures as of 2 April 2014; Asia ICG financial results based on Citicorp
Asia results less Asia Consumer (both disclosed) Source: Company
Valuation details
We believe the valuation of Citigroup should take into account the earnings
potential within its core franchise (Citicorp) and the potential for increased
consolidated returns on assets and equity if and when the company
undertakes a more aggressive look at its business model and capital
allocation. On the other hand, this valuation also needs to reflect the
company's earnings prospects over the next two to three years due to its
evolving business model (as Citigroup looks to shed its businesses in Citi
Holdings), as well as ongoing country and regulatory/political risks in the USA
and abroad. With these conditions in mind, we use a simple average of six
valuation techniques (PE, price-to-book, discount dividend model, PE/G ratio
analysis and sum of the parts for both PE and PB). This average yields a
target price of $73, which reflects 1.15x 15CL tangible book value of $63 per
share (minor variance due to rounding).
Investment risks
Citigroup has material high-risk exposures within the core franchise

(regardless of asset/business sales). A sluggish economic recovery in
developed markets will likely lead to persistently high unemployment, which
negatively impacts global consumer performance in terms of asset levels (less
demand for credit and spending volumes) and losses (more bankruptcies).
The company also faces significant regulatory and political risks over the near
and long terms given the types of business activities in which the company
undertakes and the geographies in which these activities are located.
116
mike.mayo@clsa.com
5 June 2015

Standard Chartered
HK$122.20 - BUY
The hangover
Derek Ovington
2015 is the beginning of StanCharts turnaround

+852 2600 8730
StanChart is the large western bank with the greatest proportional

exposure to Asia through a diversified portfolio of operations. While it has
substantial structural (eg, Korea), cyclical (eg, interest-rate), and stockspecific (eg, financial markets and credit costs) headwinds suppressing
current returns, it has a strong, resilient franchise. The stock is
excessively discounted and has substantial scope to perform as
operations are turned around under new management. Maintain BUY.
Asia, Africa and the Middle East
Of the Usual Suspects, StanChart is the bank most proportionately exposed
to Asia, with about 69% of global revenue sourced from the region. Asia is
home not only to StanCharts two single largest markets, Hong Kong and
Singapore, but also its most underperforming division, Korea.
5 June 2015
Hong Kong
Financial services
Reuters
Bloomberg
What went wrong?

The derating over the past two years is directly attributable to fundamental
underperformance. Aside from industry factors (ie, low interest rates
pressuring NIM and weak trading income) there are also StanChart-specific
issues deriving from its geographic footprint - notably its exposure to Korea financial markets underperformance and excessive credit losses.
2888.HK
2888 HK

HK HSI @ 27,657.5
12M hi/lo
HK$174.00/103.10
12M price target

% potential
HK$180.00
+47%
Shares in issue
Free float (est.)
2,473.0m
65.3%
Market cap
US$40,128m
The turnaround
StanCharts financial and share-price underperformance has already triggered
a substantial overhaul of senior executive ranks and the board, creating the
environment for a thorough review and restructure of the group under new
CEO Bill Winters, who takes the helm in June 2015. We anticipate heightened
focus on the three Cs of banking: costs, credit and capital, as well as an
overhaul of the financial markets business. More uncertain is the scope for
larger-scale strategic changes eg, redomiciling or large divestments.
HK$264.6m
(US$34.1m)

Major shareholders
Temasek Holdings 17.7%

Aberdeen 10.9%

Absolute
Relative
Abs (US$)
270
250
230
1M
3M
12M
(4.5)
(2.9)
(4.5)
4.0
(7.1)
4.0
(29.9)
(40.9)
(29.9)
(HK$)
(%)
Standard Chartered
Rel to HSI (RHS)
130
120
110
210
100
190
90
170
80
150
70
130
60
110
50
90
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
Oct 13
40
Jun 15
A moveable feast
StanChart is a stock in flux, given the likely overhaul of strategy and
operations. The strategic outlook is thus uncertain, but on one subject we are
confident: the share price has been pushed down to an excessive discount to
book value, let alone its normalised trading range, and we see considerable
upside from a multiyear turnaround. Our 12-month target is HK$180
(~14.16) - based on a Gordon Growth Model-derived PB target of 1.15x on
16CL BVPS - but there is more upside with execution on improved ROE. We
maintain our High-Conviction BUY rating.
Financials
Year to 31 December
Operating profit (US$m)
Net profit (US$m)
EPS (US$)
EPS growth (% YoY)
PE (x)
Adjusted EPS (US$)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
6,914
3,989
1.63
(17.5)
9.7
1.93
8.1
5.5
0.9
9.0
14A
5,264
2,512
1.02
(37.7)
15.5
1.35
11.7
5.5
0.9
5.6
15CL
6,387
4,510
1.79
130
76.6
8.8
1.88
8.4
5.5
0.8
9.8
16CL
7,632
5,508
2.15
135
19.7
7.3
2.24
7.0
5.5
0.8
11.2
17CL
9,553
6,943
2.65
148
23.5
5.9
2.75
5.7
6.7
0.7
13.0
Source: CLSA

Asian banks
Standard Chartered - BUY
Greater focus on markets

in the east and Africa
Through the 1990s

StanChart exited domestic
banking in the UK and
USA, focusing on growth
in Asia, Africa and the
Middle East
Asia, Africa and the Middle East
Unlike HSBC, StanChart took a different path through the 1990s and 2000s,
opting to shed exposure to domestic banking in the UK and USA in favour of
increasing exposure to its existing geographic footprint of Asia, Africa and the
Middle East. Of these regions, Asia is - and always has been - dominant,
accounting for about 69% of global revenue in 2014. Visible in the revenue
mix below is the decisive shift further towards emerging markets, which has
long-coloured investor perceptions of the stock.
Revenue mix by geography
100
(%)
6
90
12
20
80
60
12
11
3
8
70
5
7
10
50
36
50
46
30
MESA
Other Asia
20
10
0
StanChart grew very

rapidly over the past two
decades, achieving 10%
CAGR in revenue over
1994-2014, with Asia
providing the lions share
of that growth
Europe
Africa
28
40
Americas
10
30
29
1992
2000
22
22
2005
2014
Hong Kong
Revenue by geography
20,000
(US$m)
18,000
Americas
16,000
Europe
14,000
12,000
Africa
10,000
MESA
8,000
6,000
Other Asia
4,000
2,000
0
Hong Kong
1992
2000
2005
2014
Note: MESA = Middle East and South Asia, or Middle East, North Africa and Pakistan.
Commonly perceived
as an emergingmarkets bank
In practice, however, while StanChart is commonly perceived as an emergingmarkets bank, much of the increased exposure in Asia and the Middle East
was to relatively developed markets.
Its Middle East exposure

is concentrated
in the UAE
For instance, the bulk of StanCharts Asia exposure is concentrated in the

financial centres of Hong Kong and Singapore and also developed economies
such as Korea and Taiwan. Likewise, its Middle East exposure is
concentrated in the UAE, as the financial entrept for the Gulf states and
broader Middle East.
118
5 June 2015

Asian banks
While focused on nonwestern markets, the bulk

of StanCharts geographic
footprint is still in
developed markets,
notably in Asia (eg, Hong
Kong and Singapore)
Revenue mix by country, 2014
UK
5%
Americas
5%
Other Europe
1%
Hong Kong
22%
Africa
10%
Other MENAP
4%
China
5%
Taiwan
3%
UAE
6%
Korea
8%
Other Asean
9%
Other North Asia

1%
Singapore
11%
Other South Asia

2%
India
8%
Singapore operations
have grown rapidly
since 1999
Indeed, if we add up the percentages of revenue from developed countries

(Hong Kong, Taiwan, Korea, Singapore, UAE, UK, Europe and Americas) the
sum of 61% outweighs the emerging remainder by a significant margin.
Below, we illustrate its geographic mix of loans, highlighting the degree to
which Singapore is a major regional booking centre. StanCharts Singapore
operations have grown rapidly since 1999 to become its second major
operating centre.
StanChart benefits from a

genuinely international
outlook
StanChart is also highly unusual in that its single-largest market, Hong Kong,
is not its domicile (ie, the UK). StanChart is thus habitually a foreign bank
wherever it operates. The downside of this odd status is that StanChart thus
has no strong home market advantage, but it benefits from a genuinely
international outlook and extraordinary geographic diversification.
StanCharts balance sheet

is highly diversified, with
the largest component in
Hong Kong (21%)
Loan mix by geography in 2014

UK
6.4%
Other Europe
1.0%
Americas
3.8%
Hong Kong
21.4%
Africa
4.5%
Other MENAP
2.9%
China
5.5%
UAE
5.0%
Taiwan
4.2%
Other Asean
7.9%
Singapore
19.3%
Korea
9.9%
Other South Asia

1.1%
Other North Asia

0.3%
India
6.8%
5 June 2015
119

Asian banks
StanCharts core business

is network banking
StanChart is primarily a
corporate/wholesale
bank, but does have a
material retail banking
business, concentrated in
selected markets
Breakdown by business line
By business line, StanCharts core business is network banking ie, the

provision of banking services to multinational companies, facilitating
international trade and finance flows. This is shown in the dominance of
corporate and institutional customers in its business mix.
Line of business mix in 2014
100
(%)
Corporate and institutional

3
90
80
33
18
21
70
60
Commercial
Retail
Private
6
34
50
40
30
74
71
57
55
20
10
0
Revenue
PBT
Assets
Loans
StanChart has limited

capacity to compete in the
domestic mass market in
all but a few countries
The bulk of StanCharts

revenues by product line
come from its core
network/relationship
corporate banking
operations
To this core business, StanChart also reaches down into domestic retail and
SME banking in a number of countries, with a small private banking
operation. These smaller businesses tend to be niche-orientated in most
countries of operation - eg, targeting expatriate professionals, mass-affluent
customers - as StanChart has limited capacity (ie, distribution and brand) to
compete in the domestic mass market in all but a few countries. The compact
city-states of Hong Kong and Singapore are the key exceptions where
StanChart has been able to operate effectively as a universal bank.
Revenue mix by product group, 2014
Asset liability
management
3%
Retail
26%
Principal finance
2%
Transaction
banking
21%
Financial
markets
19%
Wealth
management
9%
Corporate
finance
14%
Lending
6%
120
5 June 2015

Asian banks
Korea, the one large

market where StanChart
made an attempt at massmarket retail banking,
proved to be a disaster
The one large market where StanChart made an attempt at mass-market

retail banking, Korea, proved to be a disaster. StanChart bought Korea First
Bank, a bank heavily skewed to mortgage and personal lending, in 2005.
Korea was still StanCharts second-largest (after Hong Kong) country market
for retail banking in 2013 (the last available data point with the consumer
division broken down by geography), but is a deeply underperforming unit
and is being heavily restructured (ie, shrunk) to improve its profitability.
StanCharts retail banking

operations are
concentrated in three
countries - Hong Kong,
Korea and Singapore
Consumer/wholesale revenue mix by geography in 2013
In most countries of
operation StanChart is
predominantly a
wholesale bank
(US$m)
4,000
Consumer
Wholesale
3,500
3,000
58%
2,500
53%
2,000
1,500
53%
64%
33%
47%
42%
500
67%
47%
36%
27%
Hong
Kong
92%
70%
73%
1,000
Singapore
Korea
Other
Asia Pac
India
30%
MESA
Africa
8%
EU &
Americas
Historic consumer/wholesale revenue mix
Wholesale
Consumer
4,000
0
46%
45%
49%
48%
47%
49%
8,000
50%
47%
12,000
61%
16,000
62%
20,000
62%
(US$m)
62%
24,000
62%
The corporate/wholesale
banking share of group
revenues stepped up
dramatically from 20072009 with a surge in
wholesale revenues
rather than a material fall
in consumer
StanChart has historically had a more balanced mix of consumer and

wholesale revenues. A decisive shift towards wholesale took place over 200709 for which revenue grew 77% in two years (driven primarily by trading and
fee income) against a 3% decline in consumer revenue.
56%
Wholesale revenue
eclipsed that for
consumer in 2007-09
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Much of the growth

underperformance of
consumer banking is
attributable to its
Korean operations
5 June 2015
Much of the growth underperformance of consumer is attributable to the

Korean operations, with many geographies generating solid growth in
consumer over the past decade. It is undoubted, however, that StanChart has
grown consistently faster in wholesale banking over the period.
121

Asian banks
(%)
12.0
8.4
7.6
9.4
5.0
EU/Am.
16.4
16.2
16.1
Total (ex-Korea)
Africa
India
Other Asia Pac
(1.3)
MESA
All geographic regions

contributed strongly to
wholesale . . . except Korea
12.8
12.6
11.6
Korea
14
12
10
8
6
4
2
0
(2)
(4)
Hong Kong
The laggards were Korea a disastrous acquisition and Hong Kong,

StanCharts biggest and
most established
Consumer operation
Cagr of consumer revenue in 2003-13 by geography
Singapore
In consumer, most
geographies achieved
solid growth
Cagr of wholesale revenue 2003-13 by geography
25
20
(%)
21.6
18.4
15.9
17.6
17.2
15
10
4.5
Africa
EU/Americas
15.2
Africa
EU/Americas
Total (ex-Korea)
MESA
14.7
MESA
India
Other Asia Pac
Korea
14.9
Cagr of total revenue in 2003-13 by geography
14.2
13.8
India
15.8
Other Asia Pac
(%)
13.7
10.6
Total (ex-Korea)
Korea
0.3
Singapore
18
16
14
12
10
8
6
4
2
0
Hong Kong
Koreas
underperformance is
starkly obvious
Singapore
Hong Kong
Cagr only from 2006-13 (acquired in 2005). Note: MESA = Middle East and South Asia, or Middle East,
North Africa and Pakistan. Source: CLSA, company data
122
5 June 2015

Asian banks
What went wrong?
StanChart has endured a torrid few years since 2012, which marked the peak
in earnings after an 11-year stretch of annual profit growth.
Years in the doghouse
20
18
FY2012
result
()
FY2011
result
1H12
result
16
FY2012 preclose trading

update
1Q13
IMS
Investor
Day
Andy
Halford
appointed
GFD
FY2013 preclose trading

update
1H13
result
3Q12
IMS
FY2013
result
1H13
pre-close
trading
update
14
12
New York DFS

order,
investigation
10
8
Dec 11
Investor
trip
New York
DFS
settlement
Jun 12
1H14
result
CEO, board
changes
3Q13
IMS
1Q15
IMS
FY2014
result
Restructure,
Richard
Meddings
resigns as
GFD
Final
settlement
with US
authorities
Dec 12
1Q14
IMS
US$300m
settlement
with NYDFS
Jun 13
3Q14
IMS
1H14
pre-close
Investor trip
trading
update Extension of US
deferred prosecution
Dec 13
Jun 14
Dec 14
Source: CLSA, Bloomberg, Company
The decline in adjusted ROE from 12.6% to 7.4% over 2012-14 is wholly a
function of ROA compression, which declined from 0.84% in 2012 (almost
bang-on the 1992-12 average of 0.83%) to 0.47% in 2014.
The bulk of StanCharts
ROE deterioration is
driven by ROA
compression, not
reduced leverage
StanChart adjusted ROE and ROA
Adj ROE (%)
30
Assets/Equity (x)
(%)
Adj ROA (RHS)
1.4
1.2
25
1.0
20
0.8
15
0.6
10
0.4
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0.0
1994
1993
0.2
1992
There are two principal perspectives on this profit decline for StanChart:
analysis by geography and by business line.
5 June 2015
123

Asian banks
We illustrate below the reported geographic PBT and PBT adjusted for
exceptional items. The key differences are primarily the US$1bn and
US$726m goodwill writeoffs in relation to Korea in 2013 and 2014, though
2012 includes US$667m in fines/settlements on US sanctions violations and
2014 also includes the related US$300m US civil penalty.
After a long string of
successive records, with
PBT peaking in 2012,
2013 and 2014 dragged
the group lower, primarily
on Koreas goodwill
writedowns
PBT by geography
8,000
Europe & Americas
7,000
Africa
6,000
MESA
5,000
Other Asia
4,000
India
3,000
Korea
2,000
Singapore
1,000
Hong Kong
Group
(1,000)
(2,000)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Note: MESA = Middle East and South Asia, or Middle East, North Africa and Pakistan from 2014.
However, even after

stripping out
exceptionals, adjusted
PBT was dragged lower
by Korea, other Asia
(mostly Asean
ex-Singapore) and
the Americas and
Europe divisions
Adjusted PBT by geography
8,000
Europe & Americas
7,000
Africa
6,000
MESA
5,000
Other Asia
4,000
India
3,000
Korea
2,000
Singapore
1,000
Hong Kong
0
(1,000)
Group
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
124
Similar key geographic

detractors from
group-adjusted PBT
over 2012-14
As identified more clearly in the waterfall chart below, the key geographic
detractors from group-adjusted PBT over 2012-14 were Korea, other Asia
(principally Asean ex-Singapore) and the Americas and Europe divisions.
Korea plunged into

outright losses in 2013
and 2014
While Korea has long been an underperforming division for StanChart,

generating ROA significantly below the group average, it plunged into outright
losses (even before exceptional items) in 2013 and 2014 as it restructured
the division. This incurred not only a fall in revenue, but also elevated
expenses against a backdrop of higher credit impairments resulting from a
surge in personal bankruptcies in Korea due to regulatory changes.
5 June 2015

Asian banks
By geography, the largest

contributors to the
decline in adj PBT were
Korea, other Asia
(principally Asean) and
Europe and Americas
(principally Europe)
Adj PBT waterfall by geography, 2012-14
8,000
7,500
(US$m)
7,543
+59
-109
7,000
-659
6,500
-115
-536
6,000
-17
-98
5,559
5,500
5,000
-509
2012
Hong
Kong
Singapore Korea
India
Other
Asia
MESA
Africa
EU
& Am.
2014
In the other geographies, the principal cause of earnings decline was weak
trading income and higher credit costs, which brings us to the business-line
analysis.
The principal causes of outright earnings decline at the operating level were
the increase in credit costs and the decline in trading and investment income.
In US-dollar terms, the
biggest contributors to
operating profit decline
were credit costs and
trading income
Operating profit waterfall by P&L line in 2012-14
8,000
7,500
(US$m)
+222
+100
7,302
+356
7,000
6,500
-1,066
-498
6,000
5,500
5,000
5,264
-1,152
2012
Net
interest
Net
fees
Trading
& invt
Other
rev
Opex
Credit
costs
2014
Net interest income

declined relative to
average assets
5 June 2015
In terms of diagnosing ROA compression, it is important to review the key

drivers. We provide a full historical ROE decomposition later, but illustrate the
key drivers below. So, while net interest income grew over 2012-14, it is
more relevant to highlight that net interest income declined relative to
average assets. In fact, the NIM compression StanChart suffered (from
2.23% in 2012 to 1.94% in 2014) was more destructive to ROA over the
period than the increase in credit costs. StanChart is a liquidity-rich provider
of cash-management and transactional-banking services to corporations,
which means that the collapse in money-market yields has directly attacked
the liability spread earnings that has historically been core to the business
model.
125

Asian banks
Relative to its asset base,

the biggest drags on
StanCharts profitability
over 2012-14 were:
1) low trading income;
2) NIM compression;
and
3) higher credit costs
Key drivers of operating profitability as a percentage of average assets
1.3
(%)
1.2
1.18
1.1
1.0
-0.19%
0.9
+0.13%
-0.07%
0.8
+0.04%
-0.13%
0.7
0.6
0.74
-0.21%
2012
OP%
Net
interest
Net
fees
Trading
& Invt
Other
rev
Opex
Credit
costs
2014
OP%
Decline in trading and

investment income the
most destructive driver of
ROA compression
However, the most destructive driver of ROA compression was the decline in
trading and investment income, knocking 21bps off ROA. The decline in
trading & investment income - admittedly a volatile line item - was
substantial in historical terms, as 2014 marked the low point relative to
average assets over the past two decades.
Relative to StanCharts
asset base and historical
experience, 2014 trading
income was very low.
Credit costs have been
higher historically though only in defined
economic cycles (ie, early
1990s recession, Asian
crisis, Sars, GFC)
Trading & investment income and credit cost divided by average assets
1.0
(%)
Trading & invt (LHS)
(%)
Credit cost (inverted)
0.9
0.0
0.2
0.8
0.7
0.4
0.6
0.5
0.6
0.4
0.8
0.3
0.2
1.0
0.1
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1.2
1992
0.0
The good news is that both trading income and credit costs are volatile and/or
cyclical drivers subject to mean reversion. This gives us confidence that a
significant proportion of StanCharts earnings decline will be recovered on
normalisation of these ratios.
The recent compression of NIM, however, is largely driven by the monetary
environment, specifically ultra-low US-dollar yields, and thus highly
contingent on US Federal Reserve monetary policy.
126
5 June 2015

5 June 2015
ROE decomposition
(% of avg assets)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest
2.86
2.66
2.81
2.43
2.35
2.16
2.13
2.06
1.81
1.62
1.69
1.78
1.74
1.69
1.55
Net fees
0.94
0.90
0.91
0.95
0.98
0.75
0.75
0.87
0.72
0.72
0.84
0.71
0.66
0.62
0.59
Trading income
0.40
0.43
0.39
0.43
0.48
0.38
0.38
0.41
0.59
0.59
0.48
0.49
0.42
0.37
0.28
Invt income
0.02
0.02
0.02
0.06
0.13
0.08
0.09
0.17
0.12
0.17
0.10
0.04
0.10
0.05
0.02
Net insurance
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Other income
0.10
0.03
0.04
0.02
0.05
0.05
0.04
0.01
0.03
0.06
0.07
0.07
0.08
0.09
0.12
Non-int. income
1.46
1.38
1.35
1.46
1.64
1.26
1.27
1.47
1.46
1.55
1.50
1.30
1.26
1.13
1.01
Revenue
4.32
4.04
4.17
3.90
3.99
3.42
3.40
3.53
3.27
3.17
3.18
3.08
2.99
2.82
2.56
(2.87)
(2.37)
(2.35)
(2.18)
(2.10)
(1.90)
(1.92)
(2.04)
(1.87)
(1.69)
(1.80)
(1.73)
(1.59)
(1.51)
(1.46)
1.45
1.67
1.82
1.72
1.89
1.52
1.48
1.49
1.41
1.47
1.39
1.36
1.40
1.31
1.10
(0.50)
(0.67)
(0.66)
(0.45)
(0.16)
(0.18)
(0.26)
(0.27)
(0.44)
(0.45)
(0.19)
(0.18)
(0.22)
(0.26)
(0.36)
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.01
0.01
0.03
0.03
0.03
Adjusted PBT
0.96
1.00
1.16
1.27
1.73
1.34
1.22
1.22
0.97
1.03
1.21
1.19
1.21
1.08
0.77
Estimated tax
0.25
0.35
0.38
0.41
0.48
0.35
0.32
0.32
0.26
0.34
0.34
0.32
0.33
0.33
0.28
Adjusted NPAT
0.71
0.65
0.78
0.86
1.24
0.98
0.91
0.90
0.71
0.70
0.87
0.87
0.88
0.75
0.49
Minorities, prefs
0.06
0.07
0.13
0.07
0.05
0.03
0.04
0.06
0.05
0.04
0.04
0.03
0.03
0.03
0.03
Adjusted ROA
0.64
0.58
0.65
0.79
1.19
0.96
0.86
0.84
0.65
0.65
0.83
0.83
0.84
0.72
0.47
Exceptional, DVA etc.
0.41
0.00
(0.05)
(0.01)
(0.05)
0.00
0.04
0.08
0.11
0.04
0.01
0.00
(0.07)
(0.11)
(0.11)
Reported ROA
1.06
0.58
0.60
0.78
1.14
0.96
0.90
0.92
0.77
0.70
0.84
0.83
0.77
0.60
0.35
16.3
17.3
14.3
15.9
17.2
20.9
17.4
16.6
19.0
19.0
16.1
15.0
14.9
14.9
15.9
Adjusted ROE
10.5
10.0
9.3
12.6
20.5
20.0
15.1
14.0
12.4
12.4
13.4
12.5
12.6
10.7
7.4
Reported ROE
17.2
10.0
8.6
12.5
19.7
20.0
15.7
15.4
14.6
13.3
13.5
12.5
11.5
9.0
5.6
Op. expenses
Preprovision profit
Credit charge
2000
Asian banks
127

Asian banks
2015 a year of
dramatic change
Group CEO Peter Sands to

be replaced by
Bill Winters
The turnaround
As we flagged in our 29 January note, Standard Chartered - BUY (Crunch

time, 2015 is shaping up to be a year of dramatic change at the bank as its
material operational underperformance triggers management change and, we
expect, an overhaul of group strategy under new direction.
Since January 2015, we have already seen the bulk of the 2013 senior
executive team announced for turnover. This includes group CEO Peter Sands
- to be replaced by incoming CEO Bill Winters, the former global co-head of
investment banking at JPMorgan, in June this year.
StanCharts management team in 2013 and recent changes
Group CEO
Peter Sands
CEO,
Asia
CEO, Europe,
ME, Africa,
Americas
Group
Finance
Director
Jaspal Bindra
V. Shankar
Resignation
announced
Feb 15
Resignation
announced
Apr 15
Richard
Meddings
Group
Chief Risk
Officer
CIO, Group
Head, Tech
& Ops
Group
Head, HR
Richard
Goulding
Jan
Verplancke
Retirement
announced
Jan 15
Retired Jan 15,

replaced by
Michael Gorriz
Retired Jun 14,

replaced by
Andy Halford
Replaced Jun 2015 by Bill Winters
CEO,
Wholesale
CEO,
Consumer
Mike Rees
Steve
Bertamini
Now Deputy
Group CEO,
replaced
by Sean
Wallace as
Group Head,
C&I
Resigned
Mar 14,
replaced by
Karen Fawcett
as Group Head,
Retail
Tracy Clarke
As we argued previously, change in management is important both in terms

of accountability and restoration of investor confidence in group strategy.
In a strategic vacuum
until new CEO Bill Winters
starts in June 2015
128
However, the strategic plan and direction of StanChart are obviously on hold
until new CEO Winters takes the helm in June 2015. Given the timing, it
seems most likely to us that the presentation of the 1H15 interim result
(scheduled for 5 August) would represent an opportune moment for Winters
to outline at least the sketchwork of his plan for StanChart.
5 June 2015

Asian banks
We expect the operating priorities under Winters to be broadly similar to the

evolved quasi-restructure launched too late by Peter Sands at the end of
2014, and which gained added urgency in January-February as the depth of
investor disappointment with the banks inertia became apparent amid media
speculation on CEO replacement.
We expect the operating

priorities under Winters
to be broadly similar to
those at the end of 2014
Key operational issues
The key issues that management CAN address (eg, unlike the
monetary/interest-rate environment) in our view are the usual three Cs of
banking - costs, credit and capital - plus financial markets performance.
Key issues that

management can address
is cost, credit and capital
Cost efficiency - as we previously noted, cost efficiency at StanChart has

materially improved in recent years when measured on the appropriate
benchmark ie, costs/average assets. However, cost/income has not performed
as well, given the pressure on group revenue. This is an important key point
behind the underperformance of StanChart in preprovision profit growth:
StanChart has historically been managed for top-line growth and has not
managed down cost growth fast enough for the recent era of weaker revenue
growth, incurring the dreaded negative jaws - ie, cost growth outpacing
revenue growth.
Revenue growth versus cost growth
10
Cost/assets (RHS)
0.5
5
0
(5)
(10)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0.0
2000
10
2014
Cost/income
1.0
2013
20
15
2012
1.5
20
2011
30
25
2010
2.0
30
2009
40
Cost growth
2008
2.5
2007
50
Revenue growth
2006
3.0
(%)
35
2005
60
40
2004
3.5
2003
(%)
2002
(%)
70
2001
Cost/avg assets and cost/income ratios
2000
There are more gains

available on efficiency,
particularly in a lowgrowth environment
Note: Costs exclude significant items and UK bank levy. Source: CLSA, company data
More aggressive costreduction targets in 2015

are welcome
While StanCharts more aggressive cost-reduction targets in 2015 are thus

welcome, we expect this issue to be a key lever of controllable profit margin
improvement for StanCharts new executive team.
StanChart has lessons to

learn from the past few
years
Credit management - as highlighted earlier, the single-largest driver of

StanCharts earnings disappointment, particularly in 2014, relates to creditimpairment costs. StanCharts credit costs escalated substantially over 201214. This occurred in the absence of material cyclical stress in most countries
of operation and StanCharts experience was worse than observed peers.
While we are always sceptical on external speculation about different banks
credit underwriting standards, there is good evidence on these numbers to
argue that StanCharts credit underwriting standards over recent years were
lax enough to drive higher credit losses. While the damage has been done loan seasoning means that losses incurred today typically relate to loans
made two to three years ago - we expect tightening of standards to be a key
priority for new management, particularly in the context of . . .
5 June 2015
129

Asian banks
Credit costs/average
assets in 2014 did not
reach 2008-09 levels, but
are not too far off, despite
the absence of similar
widespread credit
stress conditions
This is highly suggestive
of StanChart-specific
problems in credit
underwriting and
management
StanChart credit costs/average assets and adjusted ROA
(%)
1.4
ROA (LHS)
(%)
Credit cost/avg assets (inverted)
1.2
0.0
0.2
GFC
1.0
??
0.8
0.4
0.6
0.6
0.8
"Tech wreck", Sars
0.4
1.0
Early 90s recession
0.2
Asia crisis
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2002
2003
2001
2000
1999
1998
1997
1996
1995
1994
1993
1.2
1992
0.0
Containment in the pace

of RWA growth
Capital discipline - StanChart has generally managed to contain the pace of

growth in risk-weighted assets (RWA) relative to assets and adjusted NPAT
over the past decade.
Regulatory capital
requirements are
materially higher
However, the unalterable fact about capital adequacy regulation post-GFC is

that regulatory capital requirements are materially higher, so StanCharts
CET1-capital has grown much faster, post-2008.
Higher capital intensity

raises the bar for
effective return on riskweighted capital
Relative growth of assets, RWA, CET-1 capital and adjusted NPAT (rebased to 100)
1,000
Assets
RWA
CET-1
NPAT
900
800
700
600
500
400
300
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
StanCharts RoRWA
has held up well
StanCharts RoRWA has held up well - boosted by the fall in average riskweights after Basel 2 was introduced in 2008 - in recent years (ie, 2010-12).
Yet RoRWA of ~1.8% in

2010-12 generated ROE
of only ~12.8% versus
the 20% in 2004-05
However, the increased capital intensity of banking, expressed in the higher

levels of common equity tier-1 capital for every dollar of RWA, means that
StanCharts RoRWA of about 1.8% in 2010-12 generated ROE of only around
12.8% versus the 20% achieved in 2004-05 for roughly the same RoRWA.
130
5 June 2015

Asian banks
Higher RoRWA needed

to generate the same
ROE with raised
capital requirements
RoRWA, RoCET1 and ROE
(%)
30
ROE
(%)
RoRWA (RHS)
RoCET1
2.5
25
2.0
20
1.5
15
1.0
10
0.5
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0.0
1992
Put another way, StanChart has to squeeze more profit per dollar of RWA to
generate the same quantity of ROE as in the past. This is a structural issue
facing all banks, but StanChart has been late to reassess its portfolio of
business in terms of sustainable return on risk-weighted capital.
StanChart needs a period
of consolidation to
reprioritise growth in
high RoRWA areas
This has important ramifications for overall balance-sheet growth ie, as flagged
by StanChart, the balance sheet is unlikely to grow much in 2015 as RWAs are
rationalised - but is also likely to drive an overall review of business lines and
geographies to identify unsustainably low-RoRWA businesses for exit.
Financial markets - if credit costs were the single largest driver of 2012-14
earnings underperformance, trading & investment income was the secondlargest. To put this in perspective, the drop in trading & investment income
during 2012-14 was 0.22% of average assets, relative to a 2014 adjusted
ROA of 0.47% - ie, it was a substantial blow to ROA.
Weak trading income has

been a major contributing
factor to earnings
disappointments
Trading & investment income/average assets and adj ROA
1.4
(%)
Trading & invt
ROA
1.2
1.0
0.8
0.6
0.4
0.2
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0.0
StanChart has attributed the weakness in its Financial Markets income to two
principal factors: market conditions, ie, reduced volatility and thinner
margins, and own-account performance - ie, the performance of StanCharts
own balance-sheet/treasury positions.
5 June 2015
131

Some known industry

factors, but StanChart
also needs to address its
own specific problems
Asian banks
We are sympathetic on the first issue, as weak FICC (fixed income, currencies
and commodities) trading revenue have been seen at other banks over 2014,
but we would argue that there were also StanChart-specific issues at play in
the underperformance of own-account income. That the head of the financial
markets business has been replaced is also highly suggestive that StanChart
took the same view.
Given that financial markets are a major business line for StanChart, we
would expect the division to attract particular scrutiny under new
management, not least given the background of Bill Winters in JPMorgans
financial markets division.
Bigger strategic decisions
We focus on operational issues above as these seem to us fairly obvious areas

of management focus and improvement. More ambiguous and hard to define
are the bigger strategic decisions that are likely to be on the agenda for new
CEO Bill Winters. In our view, the key strategic questions are:
Back on the agenda
thanks to HSBCs review
of its own domicile
Domicile
The appropriateness of StanCharts UK domicile has been a recurring question
for many years now due to the absurdity of StanChart paying the UK bank
levy (US$366m in 2014, expected to rise to US$540m in 2015, or more than
10% of NPAT) on its global liabilities despite having relatively little funding
from the UK, simply because it is domiciled in the UK. If it were a foreign
bank, it would only pay the levy on UK-related liabilities.
The issue has gained added prominence recently given HSBCs announcement
that it would formally review its domicile. As StanChart has proportionally far
more to gain than HSBC from redomiciling, we would be amazed if the issue
were not formally reviewed by the new CEO.
Expensive and risky, but

could stack up financially
given the rise in the
UK bank levy
Yes, redomiciling would incur sizeable one-off expenses and tax

consequences, but the alternative of continuing to pay an egregiously unfair
levy provides a powerful incentive to shift.
In our view, the critical hurdle is regulatory - would StanChart be able to
maintain and operate its far-flung network with as much regulatory ease if it
changed its regulatory passport to that of, say, Singapore or Hong Kong? This
is a huge unknown that cannot be analysed effectively from outside the bank
given the political sensitivities.
Major divestments
StanChart has a very broad footprint by geography and business line. Global
network bank peers HSBC and Citigroup have in the past few years tightened
their focus on core geographies and business lines, resulting in some material
pruning of their portfolios. We expect the new executive team at StanChart
under Bill Winters to conduct a similar thorough review.
Few large businesses that

are both structurally
impaired and material to
the overall group
That said, however, StanCharts very diversification makes it hard to identify

sizeable/material businesses that are obvious candidates for exit. It is also the case
that most geographies do not look structurally impaired. That is, there is scope for
remediation and/or cyclical improvement to lift returns in many geographies, with
few large operations that appear to be irredeemable value-destroyers.
Korea is the obvious

under-performer . . .
The obvious - and obviously problematic - candidate is StanCharts Korean

domestic banking operations, which have long underperformed the group.
These are big enough to make a material difference to group returns as total
Korean operations represent 7% of group assets and 10% of loans, with
domestic operations (retail and commercial banking) the bulk.
132
5 June 2015

Asian banks
. . . but difficult to
exit Korea at a
reasonable price
However, disposing of such a weak business at a reasonable price is a difficult

task in Korean banking. Not only is StanCharts division being restructured
aggressively, but in Korea even the relatively stronger banks trade on PB
ratios of only 0.6-0.7x. The default choice of StanChart has thus been to
organically restructure and shrink this business. While we believe it is possible
that a fresh perspective may lead to an accelerated exit, we would not count
on it, given the likely sizeable loss on exit.
We thus think the pruning will be of smaller scale operations, with few big
bang divestments on a scale with HSBCs programme.
A moveable feast
StanCharts share price in early 2015 had fallen to a significant discount to

book value, bottoming out at around 0.7x in late January. There have been
few occasions in the past 25 years where StanChart has been derated to
comparable levels: the GFC, the Asian financial crisis and the early 1990s
recession. Only in the early 1990s did StanChart trade consistently at such
low multiples for more than a few months.
StanCharts PB has
derated with ROE, but the
magnitude of the derating
is on a par with the
extreme regional/
global crises and looks
excessive to us
Forward price/book versus ROE since 1990
30
(%)
ROE
(x)
Fwd PB (RHS)
25
2.5
2.0
20
1.5
15
1.0
10
0.5
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0.0
1990
There has been a loose and unsurprising correlation between forward PB

and ROE.
Thus the ROE underperformance of StanChart in the past two years provides
a fundamental rationale for the PB derating of the stock, but we would
argue that:
We view the derating of
StanChart as excessive
and see room for recovery
1. the magnitude of that derating has been excessive; and

2. the potential for ROE recovery signals that the StanChart share price has
considerable ground to make up on that rebound in PB.
This is the core of our BUY thesis on StanChart, and it is instructive that the
February announcement of CEO Peter Sands resignation and replacement
with incoming CEO Bill Winters was a material catalyst for the stock.
As shown in the price multiple charts below, StanChart has experienced a
significant bounce since that announcement, despite a weak 2H14 result and
also soft 1Q15 interim management statement. The newfound resilience of
the stock suggests that the investor base is now looking forward, rather than
backwards, and has more confidence that returns will improve to justify a
share-price recovery.
5 June 2015
133

Asian banks
On a 10-year view, PB has

only been this low for a
few months during the
GFC
Forward price/book ratio
3.0
(x)
2.5
2.0
+1sd2.04x
1.5
avg1.57x
-1sd1.11x
1.0
0.5
Jun 05
Likewise, the PER is well
beneath -1 S.D.
Even relative to
preprovision profits
StanChart look very cheap
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Forward PE ratio
24
(x)
22
20
18
16
14
12
10
8
6
4
Jun 05
+1sd16.13x
avg12.98x
-1sd9.83x
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Forward price/preprovision profit ratio
(x)
+1sd7.6x
7
avg6.39x
-1sd5.18x
5
4
3
2
Jun 05
It may be that low
interest rates devalue a
deposit-gathering
franchise, but we doubt to
this extent
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Forward price/deposit ratio
0.20
(x)
0.18
+1sd0.18x
0.16
avg0.15x
0.14
0.12
-1sd0.12x
0.10
0.08
0.06
0.04
Jun 05
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Source: CLSA
134
5 June 2015

Asian banks
StanChart in a
state of flux
Setting a price target for StanChart at this time is difficult given the bank is in
a state of flux operationally and we have a few more months to wait before
the new CEO sets a new strategic agenda for the group.
In reality, we see StanChart as a multiyear turnaround as the stock stands to
benefit from recovery of ROE and thus recovery to a more appropriate PB
ratio. However, at CLSA we set price targets and recommendations on a 12month view, so our intermediate price target is set on the basis that we
consider 11.5% a realistic target for 16CL ROE, off which we base our forward
PB target of 1.15x 16CL book value per share, using the Gordon Growth
Model. Longer term, we view 12-13% as an appropriate ROE target given
normalised ROA of around 85-90bps, levered at 14-15x assets/equity.
Our price target of

HK$180 (~14.16) is
based on a 1.15x target
PB on 16CL BVPS
Gordon Growth Model valuation

GGM valuation assumptions
Risk-free rate, Rf (%)
5.0
Equity-risk premium, ERP (%)
5.5
Beta,
Target forward PB
(ROE - g)
(COE - g)
1.0
(11.5% - 4.0%)
Cost of equity, COE (%)
10.5
Sustainable ROE (%)
11.5
10-year avg ROE (%)
14.4
16CL BVPS (US$)
19.79
20-year avg ROE (%)
15.3
12M valuation (US$)
22.83
4.0
12M valuation (HK$)
Terminal-growth rate, g (%)

Sustainable dividend payout (%)
40
Implied terminal-growth rate (%)
6.9
(10.5% - 4.0%)
=
12M valuation ()
1.15
177
14.16
Source: CLSA
12m target PB is 1.15x,

but we can make a case
for the 2-4 year target to
be 1.3-1.4x
That the target PB multiple approximates one standard deviation beneath the
10-year average PB also suits our view, as this represents a realistic hurdle
for 12-month performance, while leaving the potential for StanChart to reach
towards 1.3x (the past five years average) or 1.4x (the 2009-13 average) in
the medium term range of two to four years.
Valuation details
We value StanChart using a target price/book multiple of 1.15x on forward

book value, that multiple derived using the Gordon Growth Model and
appropriate assumptions on sustainable ROE (11.5%), cost of equity (10.5%)
and terminal growth rate (4%).
Investment risks
StanChart is a bank with operations diversified across a wide range of

countries, principally Asia, the Middle-East and Africa. It is thus exposed to a
number of macro-economic risks which affects its P&L and balance sheet,
notably the economic/business cycle (and interaction with the credit cycle),
interest rates and currency risk. As a large international bank StanChart is
exposed to market risk, through its involvement in capital markets as both
agent and principal, and operational risk given the wide range of its financial
processing and intermediation activities.
5 June 2015
135

Asian banks
Financial summaries
StanChart financial summary - key ratios

Company
Standard Chartered plc
Short name
StanChart
B'berg code
2888 HK
Recommendation
BUY
Price target (HK$)
HK$180.00
DDM valuation (HK$)
HK$132.50
Share price (HK$)
HK$122.20
Share price (US$)
US$15.76
Upside/(downside) (%)
47.3%
No. of shares (m)
2,473
Implied fwd cash PE (x)
12.1x
Market cap (US$bn)
40
Implied fwd PB (x)
1.24x
Yr to 31 Dec
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
15CL
16CL
17CL
Reported NPAT (US$m)
1,946
2,278
2,841
3,241
3,380
4,332
4,849
4,887
4,090
2,613
4,687
5,686
7,123
Growth (%)
23.3
17.1
24.7
14.1
4.3
28.2
11.9
0.8
(16.3)
(36.1)
79.4
21.3
25.3
NPAT (U$m)
1,917
2,253
2,813
3,131
3,279
4,231
4,748
4,786
3,989
2,512
4,586
5,585
7,022
Cash NPAT (US$m)
1,918
2,162
2,567
2,665
3,074
4,181
4,760
5,247
5,001
3,692
4,808
5,825
7,284
Growth (%)
18.9
12.7
18.7
3.8
15.4
36.0
13.9
25.5
(4.7)
(26.2)
30.2
21.2
25.1
Reported EPS (US$)
1.26
1.37
1.55
1.63
1.54
1.95
2.03
2.21
2.12
1.56
1.98
2.34
2.86
EPS (US$)
1.24
1.41
1.68
1.84
1.59
1.93
1.98
1.98
1.63
1.02
1.83
2.18
2.69
Cash EPS (US$)
1.24
1.35
1.53
1.57
1.49
1.91
1.99
2.17
2.04
1.49
1.91
2.28
2.79
8.4
9.0
13.1
2.3
(4.7)
27.7
4.2
13.6
(5.7)
(27.0)
28.2
18.9
22.7
0.54
0.60
0.67
0.66
0.64
0.67
0.76
0.84
0.86
0.86
0.86
0.87
1.08
Price/earnings ratio (x)
14.1
14.7
13.2
4.0
13.3
13.1
12.8
13.8
13.0
14.8
8.6
7.2
5.9
Adj PE ratio (x)
14.1
15.3
14.5
4.7
14.1
13.3
12.7
12.5
10.4
10.1
8.2
6.9
5.6
8.9
8.9
8.2
2.2
6.3
8.0
7.8
7.6
6.0
4.8
4.6
4.1
3.5
2.30
2.02
1.78
0.66
1.62
1.70
1.54
1.50
1.15
0.83
0.84
0.79
0.74
Growth (%)
DPS (US$)
Pricing & valuation
Price/underlying profit (x)

Price/book ratio (x)
Dividend yield (%)
3.1
2.9
3.0
8.8
3.0
2.6
3.0
3.1
4.1
5.7
5.5
5.5
6.8
0.23
0.23
0.21
0.06
0.18
0.21
0.18
0.18
0.14
0.09
0.09
0.09
0.09
Spot asset growth (%)
46.2
23.7
24.0
31.9
0.4
18.3
16.0
6.3
5.9
7.6
1.5
4.6
7.4
Avg asset growth (%)
48.1
24.6
21.8
33.8
15.4
6.9
13.6
8.9
6.4
7.6
2.6
4.6
7.4
Gross lending growth (%)
53.9
24.7
10.3
12.9
14.1
20.9
9.7
7.7
2.5
(1.9)
1.8
4.7
7.3
Loans/deposit Ratio (%)
94.7
96.0
86.8
75.3
80.0
79.1
77.7
76.0
77.2
71.2
69.0
70.0
70.0
Net interest spread (%)
2.21
2.08
1.90
2.22
2.16
2.07
2.19
2.15
2.06
1.85
1.90
1.98
2.08
Free funds benefit (%)
0.33
0.44
0.58
0.25
0.16
0.14
0.11
0.08
0.08
0.09
0.07
0.07
0.06
2.54
2.52
2.49
2.47
2.32
2.21
2.30
2.23
2.14
1.94
1.97
2.05
2.15
Net interest growth (%)
36.2
22.9
17.6
17.9
3.2
11.1
19.9
6.2
3.5
(1.4)
3.0
8.9
12.6
Non-int rev growth (%)
13.6
25.5
41.1
33.0
22.1
3.7
(1.2)
4.9
(4.3)
(3.7)
8.2
8.7
9.2
Revenue/avg assets (%)
3.42
3.40
3.53
3.27
3.17
3.18
3.08
2.99
2.82
2.56
2.62
2.72
2.82
Non-int. rev/revenue (%)
36.8
37.3
41.6
44.6
48.8
47.0
42.3
42.0
40.1
39.5
40.7
40.6
39.9
Cost/avg assets (%)
1.90
1.92
2.04
1.87
1.69
1.80
1.73
1.59
1.51
1.46
1.45
1.43
1.40
Cost/income (%)
55.5
56.4
57.9
57.1
53.4
56.4
56.0
53.2
53.5
57.1
55.2
52.5
49.6
NPAs/RWAs (%)
2.18
2.04
1.17
1.42
1.88
1.89
1.85
2.12
2.28
2.57
2.40
2.21
1.83
Total provisions/NPAs (%)
64.0
71.1
83.7
74.1
71.2
57.9
54.5
50.3
48.2
46.4
51.9
56.0
62.9
Loan prov'ns/gross loans (%)
1.52
1.57
1.16
1.11
1.36
1.06
0.99
1.08
1.17
1.35
1.44
1.44
1.34
Credit charges/avg assets (%)
0.18
0.26
0.27
0.44
0.45
0.19
0.18
0.22
0.26
0.36
0.28
0.28
0.24
Underlying profitability (%)
1.52
1.48
1.49
1.41
1.47
1.39
1.36
1.40
1.31
1.10
1.17
1.29
1.42
Adj return on assets (%)
0.96
0.86
0.84
0.65
0.65
0.83
0.83
0.84
0.76
0.52
0.66
0.76
0.89
Return on equity (%)
20.0
15.7
15.4
14.6
13.3
13.5
12.5
11.5
9.0
5.6
9.9
11.3
13.1
Adj return on equity (%)
20.0
15.0
14.0
12.4
12.4
13.4
12.5
12.6
11.3
8.2
10.4
11.8
13.6
CET-1 ratio (%)
6.6
7.0
6.6
7.5
8.9
11.8
11.8
11.7
11.8
10.5
11.7
12.2
12.6
Tier-1 Ratio (%)
7.7
8.3
8.9
9.9
11.5
14.0
13.7
13.4
13.1
11.4
12.5
12.9
13.3
Capital adequacy ratio (%)
13.6
14.2
15.2
15.6
16.5
18.4
17.6
17.5
18.0
16.7
17.7
18.1
18.5
RWA/Assets (%)
58.5
57.7
56.2
43.4
49.0
47.4
45.2
47.4
47.8
47.1
48.0
48.0
48.0
Tax ratio (%)
26.5
25.9
25.9
26.8
32.5
27.9
27.2
27.2
30.7
36.1
26.0
25.0
25.0
Dividend payout (%)
43.6
42.5
39.9
35.6
39.9
34.5
38.3
42.5
52.8
84.7
47.1
39.9
40.0
Price/deposits ratio (x)

Key ratios
Growth
Margins
Revenue
Efficiency
Credit costs
Profitability
Capital adequacy
Other
Avg balance sheet (US$bn)

Avg int-earning assets
171
211
252
299
329
383
442
483
521
568
576
603
648
Avg assets
201
250
304
407
470
502
570
621
661
711
730
763
820
Avg int-bearing liabs
151
189
219
276
298
347
411
457
489
523
542
567
609
Avg liabilities
189
237
286
385
451
469
535
588
618
667
682
712
764
Avg equity
10
14
18
21
25
33
39
43
46
46
48
51
56
Avg ordinary equity
10
14
18
21
25
31
38
42
44
45
46
49
54
136
5 June 2015

Asian banks
StanChart financial summary - P&L and balance sheet

Interest revenue
Interest expense
Net interest
Net fee income
Trading income
Other income
Total income
Op. expenses
Preprovision Profit
Credit charges
Associates
Debt value adj. (DVA)
Exceptional items
Pretax profit
Taxation
Profit after tax
Minorities
Reported NPAT
Pref. dividends
NPAT attributable
LESS: DVA (after-tax)
LESS: Excep. items (net)
Adj NPAT
Drivers (%)
Asset yield
Cost of funding
Net interest spread
Free funds benefit
Net interest margin
Other revenue/AIEA
Revenue/AIEA
AIEA/avg assets
Revenue/avg assets
Cost/avg assets
Underlying profit
Credit chg/avg assets
Associates/avg assets
Pretax ROA
Adj tax expense
Post-tax ROA
Mins, prefs
Net adj ROA
Adj ROE
Balance sheet (US$bn)
Loans to banks
Loans to customers
B&DD provisions
Cash and Securities
Trading & FV assets
Financial Invts
Derivative assets
Associates/Investments
Property, Plant & Equ't
Goodwill
Other assets
Total assets
Deposits from banks
Deposits
Trading liabilities
Debt issues
Insurance liabilities
Derivative liabilities
Other liabilities
Total liabilities
Ordinary share capital
Pref/hybrid capital
Reserves
Retained earnings
Equity (excl mins)
Minorities
Equity (incl mins)
2005
8,750
4,415
4,335
1,495
769
262
6,861
3,811
3,050
367
0
0
(2)
2,681
710
1,971
25
1,946
29
1,917
0
(1)
1,918
2006
12,987
7,659
5,328
1,881
920
368
8,497
4,796
3,701
644
(2)
0
123
3,178
824
2,354
76
2,278
25
2,253
0
91
2,162
2007
16,176
9,911
6,265
2,661
1,261
548
10,735
6,215
4,520
818
1
0
332
4,035
1,046
2,989
148
2,841
28
2,813
0
246
2,567
2008
16,378
8,991
7,387
2,941
2,405
598
13,331
7,611
5,720
1,790
1
0
637
4,568
1,224
3,344
103
3,241
110
3,131
0
466
2,665
2009
12,926
5,303
7,623
3,370
2,890
997
14,880
7,952
6,928
2,102
21
0
304
5,151
1,674
3,477
97
3,380
101
3,279
0
205
3,074
2010
13,500
5,030
8,470
4,238
2,577
708
15,993
9,023
6,970
959
42
0
69
6,122
1,708
4,414
82
4,332
101
4,231
0
50
4,181
2011
16,584
6,431
10,153
4,046
2,645
741
17,585
9,848
7,737
1,019
74
0
(17)
6,775
1,842
4,933
84
4,849
101
4,748
0
(12)
4,760
2012
17,827
7,046
10,781
4,079
2,739
976
18,575
9,881
8,694
1,392
182
0
(633)
6,851
1,866
4,985
98
4,887
101
4,786
0
(461)
5,247
2013
17,593
6,437
11,156
4,101
2,408
953
18,618
9,958
8,660
1,746
226
106
(1,182)
6,064
1,864
4,200
110
4,090
101
3,989
73
(1,086)
5,001
2014
16,984
5,981
11,003
4,179
1,796
1,209
18,187
10,379
7,808
2,544
248
100
(1,377)
4,235
1,530
2,705
92
2,613
101
2,512
64
(1,244)
3,692
15CL
17,452
6,118
11,333
4,304
2,440
1,029
19,106
10,542
8,564
2,074
268
100
(400)
6,458
1,679
4,779
92
4,687
101
4,586
74
(296)
4,808
16CL
18,524
6,183
12,342
4,477
2,858
1,112
20,788
10,914
9,874
2,139
289
100
(420)
7,704
1,926
5,778
92
5,686
101
5,585
75
(315)
5,825
17CL
20,252
6,354
13,898
4,700
3,315
1,205
23,119
11,477
11,642
1,985
312
100
(450)
9,620
2,405
7,215
92
7,123
101
7,022
75
(338)
7,284
5.13
2.92
2.21
0.33
2.54
1.48
4.02
85.1
3.42
1.90
1.52
0.18
0.00
1.34
0.35
0.98
0.03
0.96
20.9
20.0
6.14
4.06
2.08
0.44
2.52
1.50
4.02
84.6
3.40
1.92
1.48
0.26
0.00
1.22
0.32
0.91
0.04
0.86
17.4
15.0
6.43
4.52
1.90
0.58
2.49
1.78
4.26
82.7
3.53
2.04
1.49
0.27
0.00
1.22
0.32
0.90
0.06
0.84
16.6
14.0
5.47
3.26
2.22
0.25
2.47
1.99
4.45
73.5
3.27
1.87
1.41
0.44
0.00
0.97
0.26
0.71
0.05
0.65
19.0
12.4
3.93
1.78
2.16
0.16
2.32
2.21
4.53
70.0
3.17
1.69
1.47
0.45
0.00
1.03
0.34
0.70
0.04
0.65
19.0
12.4
3.52
1.45
2.07
0.14
2.21
1.96
4.17
76.3
3.18
1.80
1.39
0.19
0.01
1.21
0.34
0.87
0.04
0.83
16.1
13.4
3.75
1.57
2.19
0.11
2.30
1.68
3.98
77.5
3.08
1.73
1.36
0.18
0.01
1.19
0.32
0.87
0.03
0.83
15.0
12.5
3.69
1.54
2.15
0.08
2.23
1.61
3.84
77.9
2.99
1.59
1.40
0.22
0.03
1.21
0.33
0.88
0.03
0.84
14.9
12.6
3.37
1.32
2.06
0.08
2.14
1.43
3.57
78.9
2.82
1.51
1.31
0.26
0.03
1.08
0.29
0.79
0.03
0.76
14.9
11.3
2.99
1.14
1.85
0.09
1.94
1.26
3.20
79.9
2.56
1.46
1.10
0.36
0.03
0.77
0.23
0.55
0.03
0.52
15.9
8.2
3.03
1.13
1.90
0.07
1.97
1.35
3.31
79.0
2.62
1.45
1.17
0.28
0.04
0.93
0.24
0.68
0.03
0.66
15.8
10.3
3.07
1.09
1.98
0.07
2.05
1.40
3.45
79.0
2.72
1.43
1.29
0.28
0.04
1.05
0.27
0.79
0.03
0.76
15.4
11.7
3.13
1.04
2.08
0.06
2.15
1.42
3.57
79.0
2.82
1.40
1.42
0.24
0.04
1.22
0.31
0.91
0.02
0.89
15.2
13.5
22
114
(2)
8
10
38
9
0
2
4
32
215
19
120
6
36
0
10
12
203
1
0
5
6
12
0
12
20
142
(2)
8
16
49
13
0
2
6
33
266
26
147
10
36
0
14
15
249
1
0
8
8
17
1
17
35
156
(2)
10
23
55
26
0
3
6
52
330
26
180
14
43
0
26
19
308
1
0
10
10
21
1
21
47
176
(2)
24
15
69
70
1
4
6
72
435
32
234
15
40
0
68
23
412
1
0
0
21
22
1
23
51
201
(3)
18
22
76
38
1
4
6
73
437
38
251
15
46
0
37
22
409
1
0
0
26
27
1
28
52
243
(3)
33
27
76
48
1
5
6
81
517
29
307
20
47
0
47
27
478
1
1
0
36
38
1
39
66
266
(3)
47
25
85
68
1
5
6
98
599
35
343
20
64
0
66
30
558
1
1
0
38
41
1
41
68
287
(3)
61
27
99
49
1
7
7
101
637
36
378
23
75
0
47
31
590
1
1
0
43
45
1
46
84
294
(3)
55
29
103
62
2
7
5
121
674
44
381
23
85
0
61
34
628
1
1
0
44
46
1
47
84
289
(4)
97
33
104
66
2
8
4
127
726
54
405
22
95
0
63
39
679
1
1
0
44
46
0
47
85
294
(4)
99
33
106
67
2
8
4
129
737
50
426
21
88
0
64
39
688
1
1
0
46
49
0
49
89
307
(4)
103
35
111
70
2
8
4
134
771
54
439
22
94
0
67
41
718
1
1
0
50
53
0
53
96
330
(4)
111
37
119
75
2
9
4
145
828
58
471
24
101
0
72
44
770
1
1
0
55
58
0
58
5 June 2015
137

Asian banks
Regional summaries - Asia (total)

StanChart All-Asia financial summary
Asia
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2,227
3,247
4,069
4,740
5,227
5,399
6,216
7,276
7,694
7,558
7,657
Net fee income
802
972
1,273
1,901
1,887
2,068
2,534
2,647
2,614
2,629
2,834
Net trading income
431
529
521
726
1,877
1,896
1,788
1,771
1,918
1,644
1,181

Net interest income
Other income
Revenue
Operating expenses
Preprovision profit
Credit charge
90
192
468
1,025
782
854
591
617
722
759
804
3,550
4,940
6,331
8,392
9,773
10,217
11,129
12,311
12,948
12,590
12,476
(1,844)
(2,593)
(3,310)
(4,327)
(5,016)
(5,271)
(6,140)
(6,740)
(7,007)
(6,732)
(6,961)
1,706
2,347
3,021
4,065
4,757
4,946
4,989
5,571
5,941
5,858
5,515
(219)
(350)
(597)
(606)
(1,156)
(1,012)
(542)
(637)
(989)
(1,397)
(2,056)
1,487
1,997
2,424
3,459
3,601
3,934
4,447
4,934
4,952
4,461
3,459
Associates
(4)
24
42
73
115
224
239
Net exceptionals
(1,000)
(667)
Pretax profit
1,489
1,998
2,420
3,461
3,604
3,958
4,489
5,007
5,067
3,685
3,031
Adj pretax profit
1,489
1,998
2,420
3,461
3,604
3,958
4,489
5,007
5,067
4,685
3,698
Operating profit
Gross loans
- growth (%)
Deposits
- growth (%)
LDR (%)
55,124
20.2
94,323 115,452 124,927 126,836 149,548 182,655 199,252 210,538 212,588 208,414
71.1
22.4
8.2
1.5
17.9
22.1
9.1
5.7
1.0
(2.0)
73,608 109,999 138,096 156,991 194,502 215,460 250,049 283,632 307,578 303,584 310,174
20.5
49.4
25.5
13.7
23.9
10.8
16.1
13.4
8.4
(1.3)
2.2
74.9
85.7
83.6
79.6
65.2
69.4
73.0
70.3
68.5
70.0
67.2
Assets
112,185 178,967 212,509 261,667 307,685 332,008 390,163 441,035 456,198 474,108 474,319
Avg assets
101,726 145,576 195,738 237,088 284,676 319,847 361,086 415,599 448,617 465,153 473,428
60,036
91,634 111,436 121,230 115,787 130,987 152,282 169,055 183,723 191,067 199,700
Loan mix (%)

Home loans
39
46
42
40
37
38
38
34
33
31
34
Other personal
14
13
12
12
13
12
13
14
15
15
17
Real estate
Other commercial
32
30
34
37
36
36
37
39
41
43
33
Financial & other
11
Total gross loans
100
100
100
100
100
100
100
100
100
100
100

Net interest
2.19
2.23
2.08
2.00
1.84
1.69
1.72
1.75
1.72
1.62
1.62
Net fees
0.79
0.67
0.65
0.80
0.66
0.65
0.70
0.64
0.58
0.57
0.60
Net trading
0.42
0.36
0.27
0.31
0.66
0.59
0.50
0.43
0.43
0.35
0.25
Other
0.09
0.13
0.24
0.43
0.27
0.27
0.16
0.15
0.16
0.16
0.17
Revenue
3.49
3.39
3.23
3.54
3.43
3.19
3.08
2.96
2.89
2.71
2.64
(1.81)
(1.78)
(1.69)
(1.83)
(1.76)
(1.65)
(1.70)
(1.62)
(1.56)
(1.45)
(1.47)
1.68
1.61
1.54
1.71
1.67
1.55
1.38
1.34
1.32
1.26
1.16
Opex
PPP%
Credit charge
(0.22)
(0.24)
(0.30)
(0.26)
(0.41)
(0.32)
(0.15)
(0.15)
(0.22)
(0.30)
(0.43)
1.46
1.37
1.24
1.46
1.26
1.23
1.23
1.19
1.10
0.96
0.73
Associates
0.00
0.00
0.00
0.00
0.00
0.01
0.01
0.02
0.03
0.05
0.05
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(0.21)
(0.14)
Pretax ROA
1.46
1.37
1.24
1.46
1.27
1.24
1.24
1.20
1.13
0.79
0.64
Adj pretax ROA
1.46
1.37
1.24
1.46
1.27
1.24
1.24
1.20
1.13
1.01
0.78
Adj pretax ROA - ex-KR
1.51
1.53
1.47
1.83
1.50
1.42
1.38
1.37
1.18
1.16
0.93
138
5 June 2015

Asian banks
Regional summaries - Hong Kong

StanChart Hong Kong financial summary
Hong Kong
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest income
927
956
1,101
1,207
1,297
1,322
1,234
1,602
1,675
1,800
1,906
Net fee income

323
352
406
539
507
542
700
752
830
910
1,040
Net trading income
99
101
74
180
357
456
521
559
653
722
609
Other income
57
75
34
142
94
50
45
136
190
293
397
1,406
1,484
1,615
2,068
2,255
2,370
2,500
3,049
3,348
3,725
3,952
(660)
(649)
(720)
(825)
(1,030)
(1,168)
(1,355)
(1,395)
(1,572)
(1,666)
(1,792)
Revenue
Operating expenses
Preprovision profit
Credit charge
Operating profit
746
835
895
1,243
1,225
1,202
1,145
1,654
1,776
2,059
2,160
(125)
(117)
(7)
(50)
(183)
(145)
(43)
(103)
(109)
(135)
(272)
621
718
888
1,193
1,042
1,057
1,102
1,551
1,667
1,924
1,888
(1)
(5)
Associates
Net exceptionals
93
Pretax profit
621
718
888
1,193
1,041
1,052
1,102
1,551
1,667
1,924
1,981
Adj. pretax profit
621
718
888
1,193
1,041
1,052
1,102
1,551
1,667
1,924
1,888
21,744
21,641
22,086
23,411
28,065
30,039
43,577
50,531
52,839
59,259
61,643
4.3
(0.5)
2.1
6.0
19.9
7.0
45.1
16.0
4.6
12.2
4.0
32,083
33,670
39,199
48,575
63,601
71,750
76,815
89,278
6.9
4.9
16.4
23.9
30.9
12.8
7.1
16.2
11.9
8.4
6.4
41.9
56.7
56.6
52.9
54.8
53.6
Gross loans
- growth (%)
Deposits
- growth (%)
LDR (%)
99,862 108,204 115,084
67.8
64.3
56.3
48.2
44.1
Assets
48,478
49,943
49,831
61,348
77,627
91,739 102,674 117,245 130,601 149,327 156,528
Avg assets
43,937
49,211
49,887
55,590
69,488
84,683
97,207 109,960 123,923 139,964 152,928
20,337
21,281
23,784
25,330
21,072
24,706
31,138
31,528
36,534
39,610
41,676
Home loans
56
56
51
51
46
49
42
37
41
39
na
Other personal
10
10
10
10
10
10
10
11
13
13
na
Loan mix (%)
Real estate
na
20
22
26
25
25
27
32
37
34
34
na
Financial & other
10
13
10
na
Total gross loans
100
100
100
100
100
100
100
100
100
100
na
Other commercial

Net interest
2.11
1.94
2.21
2.17
1.87
1.56
1.27
1.46
1.35
1.29
1.25
Net fees
0.74
0.72
0.81
0.97
0.73
0.64
0.72
0.68
0.67
0.65
0.68
Net trading
0.23
0.21
0.15
0.32
0.51
0.54
0.54
0.51
0.53
0.52
0.40
Other
0.13
0.15
0.07
0.26
0.14
0.06
0.05
0.12
0.15
0.21
0.26
Revenue
3.20
3.02
3.24
3.72
3.25
2.80
2.57
2.77
2.70
2.66
2.58
(1.50)
(1.32)
(1.44)
(1.48)
(1.48)
(1.38)
(1.39)
(1.27)
(1.27)
(1.19)
(1.17)
1.70
1.70
1.79
2.24
1.76
1.42
1.18
1.50
1.43
1.47
1.41
Opex
PPP%
Credit charge
(0.28)
(0.24)
(0.01)
(0.09)
(0.26)
(0.17)
(0.04)
(0.09)
(0.09)
(0.10)
(0.18)
1.41
1.46
1.78
2.15
1.50
1.25
1.13
1.41
1.35
1.37
1.23
Associates
0.00
0.00
0.00
0.00
0.00
(0.01)
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.06
Pretax ROA
1.41
1.46
1.78
2.15
1.50
1.24
1.13
1.41
1.35
1.37
1.30
Adj pretax ROA
1.41
1.46
1.78
2.15
1.50
1.24
1.13
1.41
1.35
1.37
1.23
5 June 2015
139

Asian banks
Regional summaries - Singapore

StanChart Singapore financial summary
Singapore
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest income
312
277
348
301
469
764
860
977
1,144
1,070
1,164
Net fee income
114
139
159
233
246
291
400
509
551
581
582
81
84
56
80
359
357
367
571
377
311
171
14
59
278
243
180
111
129
131
170
116
Net trading income

Other income
Revenue
Operating expenses
513
514
622
892
1,317
1,592
1,738
2,186
2,203
2,132
2,033
(228)
(246)
(294)
(430)
(664)
(801)
(986)
(1,105)
(1,169)
(1,129)
(1,093)
Preprovision profit
285
268
328
462
653
791
752
1,081
1,034
1,003
940
Credit charge
(33)
(43)
(39)
(16)
(15)
(37)
(33)
(48)
(66)
(88)
(80)
Operating profit
252
225
289
446
638
754
719
1,033
968
915
860
Associates
(1)
Net exceptionals
(6)
Pretax profit
252
225
289
446
638
754
719
1,033
968
915
853
Adj. pretax profit
252
225
289
446
638
754
719
1,033
968
915
859
11,765
12,567
14,654
17,212
20,396
31,444
39,380
47,576
55,888
62,213
55,830
Gross loans
- growth (%)
20.3
6.8
16.6
17.5
18.5
54.2
25.2
20.8
17.5
11.3
(10.3)
14,794
16,820
16,304
21,284
33,857
43,670
52,675
65,352
76,448
79,007
78,958
- growth (%)
27.1
13.7
(3.1)
30.5
59.1
29.0
20.6
24.1
17.0
3.3
(0.1)
LDR (%)
79.5
74.7
89.9
80.9
60.2
72.0
74.8
72.8
73.1
78.7
70.7
Assets
20,414
23,602
25,393
39,362
51,246
62,137
82,007
102,768
107,973
115,561
120,845
Avg assets
18,082
22,008
24,498
32,378
45,304
56,692
72,072
92,388
105,371
111,767
118,203
13,892
11,770
13,681
15,008
15,064
21,531
29,294
36,465
45,064
44,120
44,120
43
33
24
27
30
26
27
23
26
22
na
Other personal
17
16
16
19
18
18
na
Real estate
na
30
44
50
48
33
36
40
43
47
51
na
Deposits
Loan mix (%)

Home loans
Other commercial
Financial & other
15
14
13
13
15
10
na
Total gross loans
100
100
100
100
100
100
100
100
100
100
na

Net interest
1.73
1.26
1.42
0.93
1.04
1.35
1.19
1.06
1.09
0.96
0.98
Net fees
0.63
0.63
0.65
0.72
0.54
0.51
0.56
0.55
0.52
0.52
0.49
Net trading
0.45
0.38
0.23
0.25
0.79
0.63
0.51
0.62
0.36
0.28
0.14
Other
0.03
0.06
0.24
0.86
0.54
0.32
0.15
0.14
0.12
0.15
0.10
Revenue
Opex
PPP%
Credit charge
2.84
2.34
2.54
2.75
2.91
2.81
2.41
2.37
2.09
1.91
1.72
(1.26)
(1.12)
(1.20)
(1.33)
(1.47)
(1.41)
(1.37)
(1.20)
(1.11)
(1.01)
(0.92)
1.58
1.22
1.34
1.43
1.44
1.40
1.04
1.17
0.98
0.90
0.80
(0.18)
(0.20)
(0.16)
(0.05)
(0.03)
(0.07)
(0.05)
(0.05)
(0.06)
(0.08)
(0.07)
1.39
1.02
1.18
1.38
1.41
1.33
1.00
1.12
0.92
0.82
0.73
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(0.01)
Pretax ROA
1.39
1.02
1.18
1.38
1.41
1.33
1.00
1.12
0.92
0.82
0.72
Adj pretax ROA
1.39
1.02
1.18
1.38
1.41
1.33
1.00
1.12
0.92
0.82
0.73
140
5 June 2015

Asian banks
Regional summaries - India

StanChart India financial summary
India
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest income
287
330
428
631
736
919
1,116
985
1,049
1,114
966
Net fee income
111
151
204
353
450
546
464
423
304
269
225
67
72
101
145
298
259
267
275
157
165
173
40
84
179
210
89
181
122
75
148
88
Net trading income

Other income
Revenue
Operating expenses
466
593
817
1,308
1,694
1,813
2,028
1,805
1,585
1,696
1,452
(252)
(306)
(375)
(528)
(646)
(571)
(749)
(829)
(753)
(699)
(647)
Preprovision profit
214
287
442
780
1,048
1,242
1,279
976
832
997
805
Credit charge
(22)
(50)
(39)
(90)
(157)
(182)
(82)
(172)
(156)
(300)
(244)
Operating profit
192
237
403
690
891
1,060
1,197
804
676
697
561
Associates
Net exceptionals
Pretax profit
194
238
403
690
891
1,060
1,197
804
676
697
561
Adj pretax profit
194
238
403
690
891
1,060
1,197
804
676
697
561
4,692
5,050
6,275
7,712
7,929
8,954
11,347
10,930
12,017
11,853
19,718
51.1
7.6
24.3
22.9
2.8
12.9
26.7
(3.7)
9.9
(1.4)
66.4
5,639
6,392
7,852
9,486
9,839
11,222
14,026
12,932
13,931
13,185
12,164
11.6
13.4
22.8
20.8
3.7
14.1
25.0
(7.8)
7.7
(5.4)
(7.7)
Gross loans
- growth (%)
Deposits
- growth (%)
LDR
83.2
79.0
79.9
81.3
80.6
79.8
80.9
84.5
86.3
89.9
162.1
Assets
8,611
10,943
14,382
23,210
32,269
31,719
39,631
42,300
36,935
34,962
30,083
Avg assets
8,101
9,777
12,663
18,796
27,740
31,994
35,675
40,966
39,618
35,949
32,523
6,413
6,369
8,450
12,377
15,578
17,381
19,247
21,266
23,145
22,556
22,556
Home loans
25
29
24
21
18
19
19
16
19
18
na
Other personal
26
19
15
16
11
na
Loan mix (%)
Real estate
15
16
16
na
Other commercial
35
38
47
48
55
59
57
58
55
55
na
Financial & other
12
10
na
Total gross loans
100
100
100
100
100
100
100
100
100
100
na

Net interest
3.54
3.38
3.38
3.36
2.65
2.87
3.13
2.40
2.65
3.10
2.97
Net fees
1.37
1.54
1.61
1.88
1.62
1.71
1.30
1.03
0.77
0.75
0.69
Net trading
0.83
0.74
0.80
0.77
1.07
0.81
0.75
0.67
0.40
0.46
0.53
Other
0.01
0.41
0.66
0.95
0.76
0.28
0.51
0.30
0.19
0.41
0.27
Revenue
5.75
6.07
6.45
6.96
6.11
5.67
5.68
4.41
4.00
4.72
4.46
(3.11)
(3.13)
(2.96)
(2.81)
(2.33)
(1.78)
(2.10)
(2.02)
(1.90)
(1.94)
(1.99)
2.64
2.94
3.49
4.15
3.78
3.88
3.59
2.38
2.10
2.77
2.48
Opex
PPP%
Credit charge
(0.27)
(0.51)
(0.31)
(0.48)
(0.57)
(0.57)
(0.23)
(0.42)
(0.39)
(0.83)
(0.75)
Operating profit %
2.37
2.42
3.18
3.67
3.21
3.31
3.36
1.96
1.71
1.94
1.72
Associates
0.02
0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
2.39
2.43
3.18
3.67
3.21
3.31
3.36
1.96
1.71
1.94
1.72
Adj pretax ROA
2.39
2.43
3.18
3.67
3.21
3.31
3.36
1.96
1.71
1.94
1.72
5 June 2015
141

Asian banks
Regional summaries - Korea

StanChart Korea financial summary
Korea
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
28
825
1,147
1,231
1,125
846
1,109
1,364
1,336
1,198
1,109

Net interest income
Net fee income
Net trading income
Other income
Revenue
Operating expenses
Preprovision profit
Credit charge
Operating profit
Associates
Net exceptionals
45
152
227
183
187
233
197
210
237
219
33
63
64
(72)
162
322
293
77
147
73
(1)
24
159
178
77
199
63
80
159
56
52
70
957
1,522
1,564
1,547
1,554
1,698
1,718
1,852
1,564
1,379
(41)
(632)
(972)
(1,146)
(955)
(953)
(1,080)
(1,335)
(1,081)
(1,120)
(1,121)
29
325
550
418
592
601
618
383
771
444
258
(61)
(96)
(94)
(263)
(279)
(230)
(211)
(257)
(456)
(403)
32
264
454
324
329
322
388
172
514
(12)
(145)
(1,000)
(725)
Pretax profit
32
264
454
324
329
322
388
172
514 (1,012)
(870)
Adj pretax profit
32
264
454
324
329
322
388
172
514
(12)
(145)
794
36,105
40,115
40,309
31,852
36,916
40,185
38,192
36,297
29,866
28,600
na
4447.2
11.1
0.5
(21.0)
15.9
8.9
(5.0)
(5.0)
(17.7)
(4.2)
1,801
29,646
33,875
26,773
28,424
31,042
37,803
39,532
39,001
31,844
31,486
na
1546.1
14.3
(21.0)
6.2
9.2
21.8
4.6
(1.3)
(18.4)
(1.1)
Gross loans
- growth (%)
Deposits
- growth (%)
LDR
44.1
121.8
118.4
150.6
112.1
118.9
106.3
96.6
93.1
93.8
90.8
Assets
5,093
59,929
64,159
67,244
64,350
63,222
63,936
63,134
62,903
55,921
54,437
Avg assets
5,093
32,511
62,044
65,702
65,797
63,786
63,579
63,535
63,019
59,412
59,412
1,639
31,850
35,330
37,167
27,020
26,093
25,707
25,447
26,667
24,883
24,883
62
60
56
54
55
57
55
46
42
na
24
11
11
12
14
13
14
16
19
19
na
Loan mix (%)

Home loans
Other personal
Real estate
na
70
19
22
26
27
25
23
24
29
31
na
Financial & other
na
Total gross loans
100
100
100
100
100
100
100
100
100
100
na
Other commercial

Net interest
0.55
2.54
1.85
1.87
1.71
1.33
1.74
2.15
2.12
2.02
1.87
Net fees
0.14
0.14
0.24
0.35
0.28
0.29
0.37
0.31
0.33
0.40
0.37
Net trading
0.65
0.19
0.10
(0.11)
0.25
0.50
0.46
0.12
0.23
0.12
0.00
Other
0.04
0.07
0.26
0.27
0.12
0.31
0.10
0.13
0.25
0.09
0.09
Revenue
1.37
2.94
2.45
2.38
2.35
2.44
2.67
2.70
2.94
2.63
2.32
Opex
(0.81)
(1.94)
(1.57)
(1.74)
(1.45)
(1.49)
(1.70)
(2.10)
(1.72)
(1.89)
(1.89)
PPP%
0.57
1.00
0.89
0.64
0.90
0.94
0.97
0.60
1.22
0.75
0.43
Credit charge
0.06
(0.19)
(0.15)
(0.14)
(0.40)
(0.44)
(0.36)
(0.33)
(0.41)
(0.77)
(0.68)
Operating profit %
0.63
0.81
0.73
0.49
0.50
0.50
0.61
0.27
0.82
(0.02)
(0.24)
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(1.68)
(1.22)
Pretax ROA
0.63
0.81
0.73
0.49
0.50
0.50
0.61
0.27
0.82
(1.70)
(1.46)
Adj pretax ROA
0.63
0.81
0.73
0.49
0.50
0.50
0.61
0.27
0.82
(0.02)
(0.24)
142
5 June 2015

Asian banks
Regional summaries - Other Asia-Pacific

StanChart Other Asia-Pacific financial summary
Other Asia-Pac
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest income
673
859
1,045
1,370
1,600
1,548
1,897
2,348
2,490
2,376
2,512
Net fee income
247
285
352
549
501
502
737
766
719
632
768
Net trading income
151
209
226
393
701
502
340
289
584
373
229
24
39
132
248
158
336
191
150
167
92
151
1,095
1,392
1,755
2,560
2,960
2,888
3,165
3,553
3,960
3,473
3,660
(663)
(760)
(949)
(1,398)
(1,721)
(1,778)
(1,970)
(2,076)
(2,432)
(2,118)
(2,308)
Other income
Revenue
Operating expenses
Preprovision profit
432
632
806
1,162
1,239
1,110
1,195
1,477
1,528
1,355
1,352
Credit charge
(42)
(79)
(416)
(356)
(538)
(369)
(154)
(103)
(401)
(418)
(1,057)
Operating profit
390
553
390
806
701
741
1,041
1,374
1,127
937
295
(4)
29
42
73
115
224
240
Associates
Net exceptionals
(29)
Pretax profit
390
553
386
808
705
770
1,083
1,447
1,242
1,161
506
Adj. pretax profit
390
553
386
808
705
770
1,083
1,447
1,242
1,161
535
16,129
18,960
32,322
36,283
38,594
42,195
48,166
52,023
53,497
49,397
42,623
32.9
17.6
70.5
12.3
6.4
9.3
14.2
8.0
2.8
(7.7)
(13.7)
19,291
23,471
40,866
50,873
58,781
57,776
68,730
76,538
78,336
71,344
72,482
34.2
21.7
74.1
24.5
15.5
(1.7)
19.0
11.4
2.3
(8.9)
1.6
73.0
70.1
68.0
68.3
69.2
58.8
Gross loans
-growth (%)
Deposits
- growth (%)
LDR
83.6
80.8
79.1
71.3
65.7
Assets
29,589
34,550
58,744
70,503
82,193
83,191 101,915 115,588 117,786 118,337 112,426
Avg assets
26,513
32,070
46,647
64,624
76,348
82,692
92,553 108,752 116,687 118,062 110,363
17,755
20,364
30,191
31,348
37,053
41,276
46,896
54,349
52,313
59,898
66,465
Home loans
20
19
26
24
23
26
30
29
29
29
na
Other personal
22
20
16
14
14
12
13
12
13
11
na
Loan mix (%)
Real estate
na
Other commercial
45
49
45
50
50
48
46
46
45
46
na
Financial & other
11
11
na
Total gross loans
100
100
100
100
100
100
100
100
100
100
na

Net interest
2.54
2.68
2.24
2.12
2.10
1.87
2.05
2.16
2.13
2.01
2.28
Net fees
0.93
0.89
0.75
0.85
0.66
0.61
0.80
0.70
0.62
0.54
0.70
Net trading
0.57
0.65
0.48
0.61
0.92
0.61
0.37
0.27
0.50
0.32
0.21
Other
0.09
0.12
0.28
0.38
0.21
0.41
0.21
0.14
0.14
0.08
0.14
Revenue
4.13
4.34
3.76
3.96
3.88
3.49
3.42
3.27
3.39
2.94
3.32
(2.50)
(2.37)
(2.03)
(2.16)
(2.25)
(2.15)
(2.13)
(1.91)
(2.08)
(1.79)
(2.09)
1.63
1.97
1.73
1.80
1.62
1.34
1.29
1.36
1.31
1.15
1.23
Opex
PPP%
Credit charge
(0.16)
(0.25)
(0.89)
(0.55)
(0.70)
(0.45)
(0.17)
(0.09)
(0.34)
(0.35)
(0.96)
Operating profit %
1.47
1.72
0.84
1.25
0.92
0.90
1.12
1.26
0.97
0.79
0.27
Associates
0.00
0.00
(0.01)
0.00
0.01
0.04
0.05
0.07
0.10
0.19
0.22
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(0.03)
Pretax ROA
1.47
1.72
0.83
1.25
0.92
0.93
1.17
1.33
1.06
0.98
0.46
Adj pretax ROA
1.47
1.72
0.83
1.25
0.92
0.93
1.17
1.33
1.06
0.98
0.48
5 June 2015
143

Asian banks
Regional summaries - Africa

StanChart Africa financial summary
Africa
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest income
351
366
386
464
505
530
599
685
977
1,121
1,081
Net fee income
153
151
160
194
227
320
359
340
416
417
413
74
31
91
121
167
221
263
287
157
184
199
16
11
18
25
28
43
29
136
Net trading income

Other income
Revenue
Operating expenses
584
553
640
795
910
1,089
1,246
1,340
1,593
1,751
1,829
(360)
(399)
(413)
(468)
(564)
(553)
(653)
(703)
(784)
(862)
(990)
Preprovision profit
224
154
227
327
346
536
593
637
809
889
839
Credit charge
(12)
(90)
(35)
(29)
(33)
(54)
(34)
(41)
(38)
(270)
(176)
Operating profit
212
64
192
298
313
482
559
596
771
619
663
10
Associates
Net exceptionals
Pretax profit
212
64
192
298
313
482
559
596
771
619
673
Adj. pretax profit
212
64
192
298
313
482
559
596
771
619
673
2,013
2,261
2,546
3,348
3,673
4,084
4,915
6,113
8,037
8,160
8,408
15.8
12.3
12.6
31.5
9.7
11.2
20.3
24.4
31.5
1.5
3.0
4,022
3,960
4,949
6,384
6,073
7,500
8,681
9,367
10,253
12,086
11,704
22.7
(1.5)
25.0
29.0
(4.9)
23.5
15.7
7.9
9.5
17.9
(3.2)
Gross loans
- growth (%)
Deposits
- growth (%)
LDR
50.0
57.1
51.4
52.4
60.5
54.5
56.6
65.3
78.4
67.5
71.8
Assets
6,419
5,606
7,792
11,133
12,104
13,633
15,944
17,276
20,890
24,892
26,456
Avg assets
5,489
6,013
6,699
9,463
11,619
12,869
14,789
16,610
19,083
22,891
25,674
2,749
2,732
3,287
3,927
7,247
10,228
11,220
12,047
19,856
19,357
20,289
Loan mix (%)

Home loans
Other personal
Real estate
na
21
23
19
18
15
17
16
16
14
17
na
na
68
61
60
65
65
70
74
65
72
70
na
Financial & other
14
11
na
Total gross loans
100
100
100
100
100
100
100
100
100
100
na
Other commercial

Net interest
6.40
6.09
5.76
4.90
4.35
4.12
4.05
4.12
5.12
4.90
4.21
Net fees
2.79
2.51
2.39
2.05
1.95
2.49
2.43
2.05
2.18
1.82
1.61
Net trading
1.35
0.52
1.36
1.28
1.44
1.72
1.78
1.73
0.82
0.80
0.78
Other
0.11
0.08
0.04
0.17
0.09
0.14
0.17
0.17
0.23
0.13
0.53
Revenue
10.64
9.20
9.55
8.40
7.83
8.46
8.43
8.07
8.35
7.65
7.12
Opex
(6.56)
(6.64)
(6.17)
(4.95)
(4.85)
(4.30)
(4.42)
(4.23)
(4.11)
(3.77)
(3.86)
4.08
2.56
3.39
3.46
2.98
4.17
4.01
3.84
4.24
3.88
3.27
PPP%
Credit charge
(0.22)
(1.50)
(0.52)
(0.31)
(0.28)
(0.42)
(0.23)
(0.25)
(0.20)
(1.18)
(0.69)
Operating profit %
3.86
1.06
2.87
3.15
2.69
3.75
3.78
3.59
4.04
2.70
2.58
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.04
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
3.86
1.06
2.87
3.15
2.69
3.75
3.78
3.59
4.04
2.70
2.62
Adj pretax ROA
3.86
1.06
2.87
3.15
2.69
3.75
3.78
3.59
4.04
2.70
2.62
144
5 June 2015

Asian banks
Regional summaries - MESA/MENAP
StanChart Middle-East & South Asia (MESA) financial summary (MENAP from 2014)
Mesa/Menap
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest income
366
483
653
858
1,007
1,092
1,147
1,197
1,227
1,254
1,033
Net fee income
203
234
296
436
452
494
589
443
471
476
418
75
89
115
100
182
356
343
488
448
397
244
34
17
136
88
91
88
82
148
Net trading income

Other income
Revenue
Operating expenses
Preprovision profit
Credit charge
Operating profit
Associates
Net exceptionals
648
812
1,070
1,428
1,658
2,078
2,167
2,219
2,234
2,209
1,843
(270)
(339)
(514)
(694)
(821)
(891)
(995)
(1,085)
(1,100)
(1,084)
(984)
378
473
556
734
837
1,187
1,172
1,134
1,134
1,125
859
(2)
(53)
(143)
(185)
(821)
(331)
(300)
(348)
(67)
(90)
376
482
503
591
652
366
841
834
786
1,058
769
Pretax profit
376
482
503
591
652
366
841
834
786
1,058
769
Adj. pretax profit
376
482
503
591
652
366
841
834
786
1,058
769
6,972
7,377
10,574
12,727
17,560
18,777
18,156
18,572
20,090
20,727
18,385
24.6
5.8
43.3
20.4
38.0
6.9
(3.3)
2.3
8.2
3.2
(11.3)
9,537
10,945
14,108
16,037
19,095
21,158
22,414
24,003
26,204
27,864
24,854
20.5
14.8
28.9
13.7
19.1
10.8
5.9
7.1
9.2
6.3
(10.8)
Gross loans
- growth (%)
Deposits
- growth (%)
LDR (%)
73.1
67.4
75.0
79.4
92.0
88.7
81.0
77.4
76.7
74.4
74.0
Assets
12,867
12,902
18,109
28,616
34,364
44,275
48,028
56,223
46,219
47,166
44,225
Avg assets
11,648
12,885
15,506
23,363
31,490
39,320
46,152
52,126
51,221
46,693
43,328
8,761
9,304
13,572
16,104
22,070
28,727
32,952
33,477
33,119
32,815
29,775
Loan mix (%)
Home loans
Other personal
Real estate
na
14
27
25
22
16
13
14
13
14
16
na
11
12
na
Other commercial
58
48
53
51
51
51
51
52
54
54
na
Financial & other
23
20
15
18
21
23
19
19
12
na
Total gross loans
100
100
100
100
100
100
100
100
100
100
na

Net interest
3.14
3.75
4.21
3.67
3.20
2.78
2.49
2.30
2.40
2.69
2.38
Net fees
1.74
1.82
1.91
1.87
1.44
1.26
1.28
0.85
0.92
1.02
0.96
Net trading
0.64
0.69
0.74
0.43
0.58
0.91
0.74
0.94
0.87
0.85
0.56
Other
0.03
0.05
0.04
0.15
0.05
0.35
0.19
0.17
0.17
0.18
0.34
Revenue
5.56
6.30
6.90
6.11
5.27
5.28
4.70
4.26
4.36
4.73
4.25
(2.32)
(2.63)
(3.31)
(2.97)
(2.61)
(2.27)
(2.16)
(2.08)
(2.15)
(2.32)
(2.27)
3.25
3.67
3.59
3.14
2.66
3.02
2.54
2.18
2.21
2.41
1.98
Opex
PPP%
Credit charge
(0.02)
0.07
(0.34)
(0.61)
(0.59)
(2.09)
(0.72)
(0.58)
(0.68)
(0.14)
(0.21)
3.23
3.74
3.24
2.53
2.07
0.93
1.82
1.60
1.53
2.27
1.77
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
3.23
3.74
3.24
2.53
2.07
0.93
1.82
1.60
1.53
2.27
1.77
Adj pretax ROA
3.23
3.74
3.24
2.53
2.07
0.93
1.82
1.60
1.53
2.27
1.77
MENAP = Middle-East, North Africa and Pakistan from 2014. Source: CLSA, company data
5 June 2015
145

Asian banks
Regional summaries - Europe & Americas

StanChart Europe & Americas financial summary
Europe & Americas
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest income
266
239
220
203
648
602
508
995
1,112
1,223
1,232
Net fee income
181
138
152
130
375
488
756
616
620
579
514
Net trading income
104
120
193
314
179
417
183
99
225
289
172
Other income
119
59
14
(195)
425
293
73
57
339
136
168
Revenue
670
556
579
452
1,627
1,800
1,520
1,767
2,296
2,227
2,086
(416)
(480)
(559)
(726)
(1,210)
(1,237)
(1,235)
(1,389)
(1,338)
(1,515)
(1,444)
Preprovision profit
254
76
20
(274)
417
563
285
378
958
712
642
Credit charge
(48)
62
41
(40)
(334)
(185)
(52)
(10)
(31)
(18)
(222)
Operating profit
206
138
61
(314)
83
378
233
368
927
694
420
(1)
(2)
(3)
(1)
Operating expenses
Associates
Net exceptionals
233
(667)
(291)
Pretax profit
206
138
63
(315)
314
375
233
369
261
696
128
Adj. pretax profit
206
138
63
(315)
81
375
233
369
928
696
419
9,179
8,583
12,464
16,515
31,094
30,268
41,438
45,576
50,942
55,236
54,088
31.7
(6.5)
45.2
32.5
88.3
(2.7)
36.9
10.0
11.8
8.4
(2.1)
15,906
16,308
20,257
31,769
54,907
51,571
64,832
71,205
83,292
91,963
122,780
28.0
2.5
24.2
56.8
72.8
(6.1)
25.7
9.8
17.0
10.4
33.5
Gross loans
- growth (%)
Deposits
- growth (%)
LDR (%)
57.7
52.6
61.5
52.0
56.6
58.7
63.9
64.0
61.2
60.1
44.1
Assets
56,792
37,083
65,904
85,891
130,723
91,149
117,934
157,473
179,516
193,499
264,273
Avg assets
47,545
46,938
51,494
75,898
108,307
110,936
104,542
137,704
168,495
186,508
234,951
24,895
24,256
28,282
37,524
51,744
52,921
55,505
63,976
73,527
89,818
103,284
Home loans
na
Other personal
na
Loan mix (%)
Real estate
na
Other commercial
70
74
67
70
54
73
73
71
70
69
na
Financial & other
26
22
27
28
39
18
18
20
20
18
na
Total gross loans
100
100
100
100
100
100
100
100
100
100
na

Net interest
0.56
0.51
0.43
0.27
0.60
0.54
0.49
0.72
0.66
0.66
0.52
Net fees
0.38
0.29
0.30
0.17
0.35
0.44
0.72
0.45
0.37
0.31
0.22
Net trading
0.22
0.26
0.37
0.41
0.17
0.38
0.18
0.07
0.13
0.15
0.07
Other
0.25
0.13
0.03
(0.26)
0.39
0.26
0.07
0.04
0.20
0.07
0.07
Revenue
1.41
1.18
1.12
0.60
1.50
1.62
1.45
1.28
1.36
1.19
0.89
Opex
(0.87)
(1.02)
(1.09)
(0.96)
(1.12)
(1.12)
(1.18)
(1.01)
(0.79)
(0.81)
(0.61)
PPP%
0.53
0.16
0.04
(0.36)
0.39
0.51
0.27
0.27
0.57
0.38
0.27
Credit charge
(0.10)
0.13
0.08
(0.05)
(0.31)
(0.17)
(0.05)
(0.01)
(0.02)
(0.01)
(0.09)
0.43
0.29
0.12
(0.41)
0.08
0.34
0.22
0.27
0.55
0.37
0.18
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.22
0.00
0.00
0.00
(0.40)
0.00
(0.12)
Pretax ROA
0.43
0.29
0.12
(0.42)
0.29
0.34
0.22
0.27
0.15
0.37
0.05
Adj pretax ROA
0.43
0.29
0.12
(0.42)
0.07
0.34
0.22
0.27
0.55
0.37
0.18
146
5 June 2015

Bank of China
HK$5.18 - BUY
Bank on China
Patricia Cheng
Chinas leading international bank
Head of China
Financial Research
patricia.cheng@clsa.com
+852 2600 8683
The big Chinese banks are massive in their home market, but only
gradually emerging onto the global stage. The exception is BOC, which
has a multi-decade headstart over peers and is the most internationallyfocused Chinese bank. BOC already has a strong presence in Hong Kong
and Taiwan, and is growing quickly in Asia and the rest of the world.
However, outside of Greater China it needs more time and development
to grow its funding base to facilitate profitable organic growth. BUY.
Marco Yau
+852 2600 8555
Chinas most international bank

Since its carve-out from the PBOC in 1979, BOC has been the most
internationally-focused of Chinas Big 4 state-owned banks, with 19% of its
group revenue sourced from outside of mainland China in 2014. BOCs
relative specialisation in international and foreign-exchange banking has
given it a multi-decade lead over peers. Its ex-mainland assets are equivalent
to those of ICBC, CCB and ABC put together.
5 June 2015
China
Financial services
Reuters
Bloomberg
3988.HK
3988 HK

CSI 300 @ 14,114.9
12M hi/lo
Highly concentrated in Hong Kong and Taiwan

However, the bulk (60%) of its ex-mainland assets and more than two thirds
of its ex-mainland profit before tax come from Greater China, namely Hong
Kong, Taiwan and Macau. Its key listed and 66.1%-owned subsidiary, Bank of
China (HK), is responsible for the lions share of these assets and is the
second-largest banking group in Hong Kong after the HSBC/Hang Seng Bank.
HK$5.55/3.38
12M price target

% potential
HK$6.30
+22%
Shares in issue
Free float (est.)
288,731.1m
100.0%
Mcap (total)*
Mcap (A-shares)
Mcap (H-shares)
US$208,245m
US$152,684m
US$55,855m
(A) HK$6,389.3m (US$1,028.2m)

(H) HK$2,029.1m (US$261.7m)
Major shareholders
Central Huijin 65.5%

Absolute
Relative
Abs (US$)
6.0
5.5
5.0
1M
3M
12M
(2.8)
(10.3)
(2.9)
18.0
(19.5)
18.0
39.2
(41.8)
39.2
(HK$)
(%)
Bank of China
Rel to 300 (RHS)
120
115
110
105
4.5
100
4.0
95
3.5
90
85
3.0
80
2.5
2.0
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
75
Oct 13
70
Jun 15
Broader regional and global growth needs development

Outside of Greater China, BOC has a broad network of representation around
the world, but is spread much more thinly than in its home region. Its mass
of operations has grown and continues to grow quickly, but off a relatively
smaller base. A key headwind is its dearth of US-dollar-deposit funding, even
with a strong presence in Hong Kong, which impairs its relative profitability
and ability to grow organically. Developing a critical mass of scale regionally
and globally will thus take more time and resources.
Primus inter pares
While BOC is Chinas leading challenger to the Asian regional banks, it also
faces increasing competition from its domestic Chinese peers. The likes of
ICBC and CCB, in particular, have become more aggressive in expanding
internationally, following their corporate banking clients push offshore. This is
eroding BOCs legacy leadership as corporate Chinas window on the world.
Financials
Year to 31 December
Operating profit (Rmbm)
Net profit (Rmbm)
EPS (fen)
EPS growth (% YoY)
PE (x)
Adjusted EPS (fen)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
211,685
156,911
56.2
12.3
7.3
56.2
7.3
4.8
1.2
17.9
14A
230,159
169,595
60.6
7.8
6.8
60.6
6.8
4.6
1.1
17.0
15CL
234,811
168,234
59.2
99
(2.2)
6.9
59.2
6.9
4.8
1.0
14.9
16CL
241,577
173,471
62.1
96
4.9
6.6
62.1
6.6
5.0
0.9
14.0
17CL
258,530
186,065
66.7
95
7.3
6.2
66.7
6.2
5.2
0.8
13.6
Source: CLSA

Asian banks
Bank of China - BUY
200
3
81
91
183
186
21
50
141
100
304
270
38
31
222
73
73
72
19
17
15
14
14
15
79
80
82
83
82
81
50
43
51
109
150
38
17
60
48
40
369
51
337
250
26
2013
25
70
51
300
24
Other
2012
80
58
20
HK, Macau & Taiwan
2011
90
67
12
Mainland China
(%)
2010
14
400
350
100
2007
450
21
2006
Mainland China
HK, Macau & Taiwan
Other
(Rmbbn)
500
BOC revenue geographic mix
2005
BOC revenue by geography
78
81
30
20
10
Mainland China
Other
(%)
60
2014
2009
2004
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
YoY growth in revenue by geography
2008
Asset mix by geography
HK, Macau & Taiwan

Group
50
Other
11%
40
30
HK, Macau
& Taiwan
16%
20
10
0
Mainland
China
73%
(10)
(20)
2014
2013
2012
2011
2010
2009
(Rmbbn)
Other
18
80%
70%
1.5
HK, Macau & Taiwan
Other
90%
Group
2.0
Mainland China
100%
17
22
24
25
29
27
32
114
133
152
172
2013
HK, Macau & Taiwan
2012
2.5
PBT mix by geography

Mainland China
(%)
2011
Pretax ROA by geography
2010
2008
2007
2006
2005
(30)
38
25
60%
50%
1.0
61
40%
64
30%
0.5
20%
16
30
43
178
36
10%
2014
2009
2008
2007
2006
2005
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2004
0%
0.0
148
5 June 2015

Bank of China - BUY
Our Gordon-growthmodel-derived PB reflects

our long-term ROE and
COE expectations
Most exposure to US
interest-rate changes
Asian banks
Valuation details
We value Chinese banks at PB with a discount factor applied in the end. The
PB multiple, derived from Gordon Growth Model, reflects our long-term
expectations of ROE (driven by leverage and ROA) and COE. The discount
factor captures the near-term risks, driven largely by asset quality and
regulatory changes. The PB of 1.08x is based on sustainable ROE of 11.4%,
COE of 10.9% and 4% growth. The forecast is on 16CL estimates.
Investment risks
Banks operating environment is closely linked to the macro economy. With

the slowdown in economic growth, loan demand and quality could weaken.
NPL ratio of the industry has been rising since 2Q12. The need to strengthen
provision is a burden on the bottomline. Credit charge is the biggest swing
factor to profit growth. There's another major variable, NIM. It's set to decline
as competition for deposit intensifies and interest rates have been falling.
How BOC reacts to this changing competitive landscape will affect net interest
income growth. Its efforts in pushing for more fee business will also affect the
results. As BOC has the most assets overseas, it's also exposed to the
interest rate changes in the US.
Company outline
But strong overseas
network provides relief
from domestic pressures
The business
Competition & market franchise
Bank of China is the smallest of the

country's Big-4 commercial banks in terms
of assets, but it has the most extensive
international network - a legacy niche as it
was in charge of China's overseas lending
operations before restructuring. About a
quarter of its assets are offshore, led by
Hong Kong. BOC is especially strong in
international trade and foreign-exchange
business. The loan portfolio is similar to
other major competitors, with about 70%
to companies and 30% to individuals.
Manufacturing and transport take up almost
half of corporate lending. In terms of
funding, it has a higher contribution from
demand and corporate deposit.
The strong overseas network provides some

relief to BOC when domestic pressures such
as NIM contraction and asset quality mount.
The bank is the largest beneficiary to the
global-recovery theme, via expectations for
rising US interest rates. The near-term risks
are lower. Within China, it has been
enhancing its deposit base, so its NIM trend
has
been
more
favourable
despite
competition
from
wealth-management
products. The decision to exclude overseas
business from the LDR also gives it more
flexibility in liquidity management and loan
growth. On the flipside, BOC does lag its
larger peers in terms of IT management
and internal control.
Source: CLSA
5 June 2015
149

Asian banks
Bank of China - BUY
Summary financials
Net interest margins to be

managed better than
domestic peers given
offshore exposure
NPAT growth stalling on

higher credit costs
Deposit growth forecast

to lag loan growth,
pressuring the LDR
Rising NPL - and thus

credit costs - forecast to
drag on profit growth
Year to 31 December
13A
14A
Summary P&L forecast (Rmbm)
Interest income
518,995
602,680
Interest expense
(235,410)
(281,578)
Net interest income
283,585
321,102
Trading income
7,777
12,894
Fee income
82,092
91,240
Other operating income
34,055
31,092
Non-interest income
123,924
135,226
Total op income
407,509
456,328
Staff & related costs
Other operating expenses
(172,314)
(177,788)
Total operating expenses
(172,314) (177,788)
Preprovision OP
235,195
278,540
Loan-loss provisions
(23,510)
(48,381)
Other income/expenses
1,092
1,319
Profit before tax
212,777
231,478
Taxation
(49,036)
(54,280)
Profit for period
163,741
177,198
Minority interest
(6,830)
(7,603)
Preference dividends
0
Net profit
156,911
169,595
Summary balance sheet forecast (Rmbm)
Net loans & advances
7,439,742
8,294,744
Placements to other banks
1,297,541
1,291,851
Cash & equivalents
2,132,001
2,306,088
Other int-earning assets
2,571,680
2,898,906
Total int-earning assets
13,440,964 14,791,589
Fixed assets
179,239
190,850
Intangible assets
Other assets
254,096
268,943
Total assets
13,874,299 15,251,382
Customer deposits
10,097,786 10,885,223
Deposits from banks
1,973,101
2,082,184
Other int-bearing liabs
455,213
656,763
Total int-bearing liabs
12,526,100 13,624,170
Other non-int-bearing liabs
386,722
443,784
Total liabilities
12,912,822 14,067,954
Shareholder funds
923,916
1,069,114
Minorities/other equity
37,561
114,314
Total liabs & equity
13,874,299 15,251,382
Ratio analysis
Loan growth (%)
10.9
11.5
Loans/deposits (%)
63.0
65.4
Reported Loans/deposits (%)
73.7
76.2
2.2
2.2
Net int inc growth (%)
10.4
13.2
Fee income growth (%)
17.4
11.1
Fees & comms/op inc (x)
20.1
20.0
Operating exp growth (%)
7.9
3.2
Op expenses/assets (%)
1.3
1.2
Cost/income (%)
42.3
39.0
Loan provisions/loans (%)
2.3
2.3
Gross NPLs/total loans (%)
1.0
1.2
Loan loss reserve/NPLs (%)
229.4
187.6
Effective tax rate (%)
23.0
23.4
Net profit growth (% YoY)
12.4
8.1
Tier 1 CAR (%)
9.7
11.3
CAR (%)
12.5
13.9
ROA (%)
1.2
1.2
ROE (%)
17.9
17.0
15CL
16CL
17CL
655,086
(328,246)
326,840
8,780
102,848
31,714
143,342
470,182
(181,304)
(181,304)
288,879
(54,068)
234,811
(53,318)
175,493
(7,260)
(6,000)
168,234
695,768
(355,601)
340,168
8,780
115,278
32,348
156,406
496,574
(191,773)
(191,773)
304,801
(63,224)
0
241,577
(54,628)
180,949
(7,478)
(6,000)
173,471
742,986
(386,156)
356,830
8,780
126,423
32,995
168,199
525,029
(202,462)
(202,462)
322,566
(64,037)
258,530
(58,462)
194,068
(8,003)
(6,000)
186,065
9,222,676
1,552,863
2,388,073
2,554,200
15,717,813
190,850
245,734
16,154,397
11,601,075
2,040,749
736,763
14,378,586
450,870
14,829,457
1,182,489
142,451
16,154,397
10,132,452
1,552,863
2,528,296
2,541,174
16,754,785
190,850
204,525
17,150,160
12,429,241
2,040,749
776,763
15,246,753
458,099
15,704,852
1,300,442
144,865
17,150,160
11,044,215
1,552,863
2,673,272
2,568,279
17,838,629
190,850
155,756
18,185,235
13,286,536
2,040,749
816,763
16,144,048
465,474
16,609,521
1,429,262
146,451
18,185,235
11.2
69.2
79.5
2.1
1.8
12.7
21.9
2.0
1.2
38.6
2.4
1.5
163.4
22.7
(0.8)
11.9
14.5
1.2
14.9
9.9
71.9
81.5
2.1
4.1
12.1
23.2
5.8
1.2
38.6
2.7
1.7
158.9
22.6
3.1
12.1
14.7
1.1
14.0
9.0
74.2
83.1
2.1
4.9
9.7
24.1
5.6
1.1
38.6
3.0
1.8
162.2
22.6
7.3
12.4
15.0
1.1
13.6
Source: CLSA
150
5 June 2015

MUFG
914 - OUTPERFORM
J. Brian Waterhouse
brian.waterhouse@clsa.com
+81 3 4578 8031
The most mega bank

With 286tn in assets, MUFJ is one of the worlds largest banks, and also
Japans biggest. It is the result of two decades of mergers among many of the
countrys sizeable city banks. The ultimate merger took place in 2005, when
Mitsubishi-Tokyo and UFJ formed the MUFJ group.
Japan
Financial services
8306.T
8306 JP
The benefits of scale

In Japan, MUFG runs a universal bank model, but is has long maintained
substantial international operations around the world, primarily in wholesale
banking where its massive balance sheet has allowed it to muscle into
syndicated loan deals in many regions, as well as following its Japanese
corporate clients in their offshore expansion.

Topix @ 1,670.0
12M hi/lo
935/551
12M price target

% potential
990
+8%
Shares in issue
Free float (est.)
14,168.9m
80.6%
Market cap
US$104,337m
74,682.4m
(US$620.6m)
Major shareholders
Japan Trustee Services Bank 7.2%

Master Trust Bank of Japan 4.1%

Absolute
Relative
Abs (US$)
1,000
950
900
1M
3M
12M
8.6
3.1
5.1
20.3
10.0
16.4
53.6
13.0
26.7
()
(%)
MUFG (LHS)
Rel to Topix
850
750
90
650
600
85
550
www.clsa.com
105
95
700
500
Jun 13
Feb 14
Source: Bloomberg
110
100
800
Oct 14
Japans most mega bank is also the strongest in Asia

MUFG is Japans largest bank and also one of the worlds largest when
measured by assets. Created through multiple mergers of large Japanese
lenders, MUFG has inherited a sizeable global loan book accumulated
since the 1980s. This gives it an existing global spread of operations, but
in Asia it has grown much more quickly than other regions since 2007.
Though thinly-spread, MUFGs ex-Japan operations in Asia are by far the
largest of any Japanese bank. Maintain Outperform.
5 June 2015
Reuters
Bloomberg
Rising sun
80
Jun 15
Japans leading bank in Asia

Since 2007 MUFGs Asian operations (ex-Japan) have overtaken Europe, then
the USA, as its largest geographic region outside of Japan by revenue,
growing from 5% of group in FY07 to 13% in FY14. By assets, however, the
USA (16% of group) still dominates Asia ex-Japan (9%). MUFGs Asian exJapan revenue is larger than those of the combined Mizuho and SMFG, but is
spread relatively thinly across Asia. Its largest loan exposures are Hong Kong
(18%) and Australia (15%), but in these two markets MUFG is much smaller
than leading players, and it operates solely as a corporate/wholesale lender.
Thinly spread, but deepening
MUFGs operations are spread thinly across Asia, but the groups increasing
willingness to buy larger domestic banking operations - eg, second-tier Thai
lender Bank of Ayudhya in 2013 - show a willingness to commit more
resources into deeper penetration of Asian markets, particularly those - such
as Thailand, Indonesia and India - that are the recipients of substantial
Japanese corporate direct investment.
Financials
Year to 31 March
Operating income (m)
Net profit (m)
EPS ()
EPS growth (% YoY)
PE (x)
Adjusted EPS ()
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
14A
4,683,978
984,845
69.5
15.5
13.1
76.4
12.0
1.8
1.0
7.9
15A
5,013,657
1,033,759
73.0
4.9
12.5
77.4
11.8
2.0
0.8
7.3
16CL
5,552,600
1,130,500
79.8
105
9.3
11.5
84.1
10.9
2.0
0.8
7.1
17CL
5,989,400
1,230,700
86.9
110
8.9
10.5
91.0
10.0
2.2
0.7
7.2
18CL
6,505,200
1,383,000
97.6
112
12.4
9.4
101.5
9.0
2.4
0.7
7.6
Source: CLSA

Asian banks
MUFG - O-PF
MUFJ revenue by geography

(bn)
7,000
Japan
MUFJ revenue mix by geography

Europe
Americas
Asia x-JP
(%)
Other
Japan
Americas
Europe
Asia ex-Japan
Other
100
6,000
90
80
5,000
70
4,000
60
50
3,000
40
2,000
30
20
1,000
10
Profit before tax by geography

2,000
(bn)
Japan
Americas
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY04
FY05
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04

Europe
Asia ex-Japan
Other
1,500
(%)
Japan
Europe
Other
Americas
Asia ex-Japan
Total
1,000
2
500
0
(500)
(1,000)
(1)
(1,500)
(2)
(2,000)
60
(US$bn)
Thailand
10%
India
China
Taiwan
40
Hong Kong
India
8%
Australia
15%
Malaysia
Korea
10
China
14%
Indonesia
Thailand
Japanese clients
FY14
FY13
Malaysia
5%
Philippines
20
Indonesia
8%
Korea
4%
Singapore
30
FY12
FY11
Asia ex-Japan loans by geography, FY2014 (ex-BAY)
Australia
50
FY10
FY09
FY08
FY07
FY06
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
Asia ex-JP loans by geography (ex-Bank of Ayudhya)
FY05
(3)
(2,500)
Non-Japanese clients
Taiwan
3%
Singapore
13%
Hong Kong
18%
Philippines
2%
152
5 June 2015

MUFG - O-PF
Our 990.82 target price

uses a blended FY3/16-17
EPS forecast of 84.22
Asian banks
Valuation details
We calculate revised fair value for the stock as 990.82 (which we round
down to 990 for our target price), using a blended FY3/16-17 EPS forecast
of 84.22 to which we apply our required rate of return for the megabanks of
8.5%, but no discount to NAV [84.22EPS / 0.085RoE * 1.00NAV = Y990.82].
Previously we had applied a 10% discount to NAV in an attempt to take into
account the inherently higher credit risk at some of the operating subsidiaries
(such as consumer finance major Acom and credit-card company Jaccs), as
well as the potential for a change in the credit cycle for Japanese banks within
the next 2-3 years as a consequence of rising interest rates if Abenomics
succeeds in its ambitions. Given the clear determination of both the LDP
government and the Bank of Japan to keep interest rates low - despite all
rhetoric to the contrary - and to provide further stimulus measures for small
businesses until there are clear signs of an economic recovery, we feel a 10%
discount to NAV is no longer appropriate as domestic credit quality is unlikely
to deteriorate significantly in the short-term while interest rates continue at
ultra-low levels. Moreover, MUFG's policy of overseas acquisition has helped
to offset the absence of robust growth domestically. Overseas expansion,
however, raises the thorny question of Japanese banks' chequered history
when it comes to foreign bank acquisitions, suggesting investors might be
unwilling to pay full book value to own a Japanese megabank. We believe that
the success of Union Bank - MUFG's US West Coast commercial banking
franchise - speaks for itself, while its latest S.E. Asian acquisition, Bank of
Ayudhya of Thailand, is already a high-profile contributor to group earnings.
Investment risks
We believe there is a very

remote risk for Japans
short-term and long-term
interest rates to rise
abruptly and
simultaneously
5 June 2015
Banking is a risk business. Because banking is essentially about the handling

and distribution of money as well as the provision of credit, banks are subject
to a variety of inherent risks quite unlike manufacturing companies, including
(but not limited to) credit risk, currency risk, fraud and defalcation (both
internal and external), liquidity risk, funding risk, operational risk, sovereign
risk, settlement risk, delivery risk and reputation risk. Key short/mediumterm investment risks specifically in the case of MUFG and not modelled for in
our earnings estimates are: 1) the potential inability of the group to properly
match non-yen-denominated long-term assets with appropriate funding in
times of future global financial crises when a severe credit crunch might be
expected; 2) potential losses on the group's substantial Japanese government
bond holdings in the event of a sudden rise in domestic Japanese interest
rates; and 3) potentially severe credit costs triggered by a wave of
commercial bankruptcies in the wake of rising interest rates (as might
reasonably be expected to occur as the domestic economy recovers). At the
present time, given the current state of the global economy, and taking into
account various initiatives by the BoJ under Governor Haruhiko Kuroda, we
consider that the potential for both short-term and long-term interest rates in
Japan to rise both abruptly and simultaneously remains very remote.
153

Asian banks
MUFG - O-PF
Summary financials
Year to 31 March
We forecast modest
top-line growth
14A
15A
16CL
17CL
18CL
Gross revenue (m)
5,176,100
5,638,400
6,243,000
6,758,400
7,394,700
Fund-based income
2,370,649
2,806,238
3,123,000
3,408,400
3,814,700
Funding costs
(492,122)
(624,743)
(690,400)
(769,000)
(889,500)
Fee income
1,452,176
1,620,614
1,770,000
1,920,000
2,050,000
Other business income
829,509
760,618
800,000
830,000
850,000
Other recurring income
523,766
450,930
550,000
600,000
680,000
(3,481,281)
(3,925,399)
(4,350,600)
(4,712,400)
(5,112,500)
Summary P&L forecast (m)
Gross expenses (m)

Fee-based expense
(183,904)
(200,094)
(215,000)
(230,000)
(255,000)
(2,323,918)
(2,619,867)
(2,716,700)
(2,846,300)
(2,988,000)
(481,337)
(480,695)
(728,500)
(867,100)
(980,000)
Total credit costs
(11,881)
161,624
283,000
363,400
454,700
1,694,819
1,713,001
1,892,400
2,046,000
2,282,200
General admin expenses
Recurring profit
Net extraordinary income
Profit before tax
Net profit
Adjusted profit
MUFG is increasingly
growing outside of Japan
(98,244)
(98,000)
(92,500)
(87,000)
1,614,757
1,794,400
1,953,500
2,195,200
984,845
1,033,759
1,130,500
1,230,700
1,383,000
1,081,725
1,096,654
1,192,242
1,288,975
1,437,811
91,000,000
Summary balance sheet forecast (m)

Cash & equivalents
59,243,018
78,450,151
80,000,000
85,000,000
Investment securities
75,099,265
74,238,409
80,000,000
85,000,000
90,000,000
101,000,424
108,372,556
116,034,000
124,256,000
133,677,000
11,310,528
12,307,247
13,400,000
14,500,000
15,500,000
Leases & other misc assets

Normal risk assets
246,653,235 273,368,363 289,434,000 308,756,000 330,177,000
Premises & equipment
1,540,031
1,352,727
1,400,000
1,480,000
1,550,000
Other assets
9,938,680
11,428,678
12,500,000
13,500,000
15,100,000
Total assets
Deposits & negotiable CDs
Total funds:
Other misc. liabs
Total liabilities
Paid-in capital
Other equity capital
Total equity
Weak returns in
Japan still constrain
group profitability
(151,789)
1,543,030
258,131,946 286,149,768 303,334,000 323,736,000 346,827,000

160,308,464
169,431,260
179,597,000
190,373,000
202,747,000
66,440,376
77,387,227
85,000,000
94,300,000
105,600,000
226,748,840 246,818,487 264,597,000 284,673,000 308,347,000

16,270,211
22,043,748
20,259,477
19,382,114
17,571,184
243,019,051 268,862,235 284,856,477 304,055,114 325,918,184

2,140,488
2,141,513
2,141,513
2,141,513
2,141,513
12,972,407
15,146,020
16,336,010
17,539,373
18,767,303
15,112,895
17,287,533
18,477,523
19,680,886
20,908,816
258,131,946 286,149,768 303,334,000 323,736,000 346,827,000
Ratio analysis
Loan provisions/NPLs (%)
1.4
1.1
1.0
1.0
1.0
(0.8)
13.2
23.9
29.4
34.3
Provision exp/loans (%)
0.0
0.0
0.0
0.0
0.0
11.0
11.6
9.2
8.5
6.8
Operating inc growth (%)
10.4
7.0
10.7
7.9
8.6
Risk-wtd assets growth (%)
12.6
12.9
10.0
10.0
10.0
15.5
5.0
9.4
8.9
12.4
Cost/income (%)
63.8
65.8
65.9
65.8
64.9
Staff costs/op costs (%)
77.7
79.4
74.2
72.2
70.8
36.2
36.0
37.0
37.0
37.0
RWA/total assets (%)
38.4
39.1
40.6
41.8
42.9
5.9
6.0
6.1
6.1
6.0
12.5
12.6
12.0
11.5
11.0
Equity/total assets (%)

Tier 1 CAR (%)
Tier 2 CAR (%)
3.1
3.1
3.0
3.1
3.1
CAR (%)
15.5
15.7
15.0
14.5
14.0
Loans/deposits (%)
63.6
64.6
65.2
65.8
66.4
63.0
64.0
64.6
65.3
65.9
Source: CLSA
154
5 June 2015

ANZ Bank
A$31.92 - UNDERPERFORM
Parts of the sum
Brian Johnson
Australias challenger needs restructuring to succeed
brian.johnson@clsa.com
+61 2 8571 4252
ANZ is by far Australias leading challenger bank in Asia, with the most
exposure to the region and the strongest network. However, its regional
platform is fragmented across strategic investments that are not
integrated into the group and these attract increasingly punitive capitaladequacy treatment. ANZ needs to thoroughly restructure these to
position itself as a stronger competitor in Asia. Meanwhile, it is
deemphasising Asia in favour of ROE and capital discipline. Underperform.
Ed Henning
+61 2 8571 4257
Smallest of the big four . . .

ANZ is one of the big-four banks that dominate the industry in Australia and
New Zealand. By assets ANZ is the smallest of these in Australia but the
largest in New Zealand. It has historically had a relatively stronger skew to
corporate/wholesale but lags peers in retail banking, which is nonetheless its
dominant business line, as it is for its competitors.
5 June 2015
Australia
Financial services
Reuters
Bloomberg
ANZ.AX
ANZ AU
. . . but the most exposed to Asia

ANZs key point of differentiation from Australian peers is a relatively larger
skew to international operations, particularly Asia, where it has around 12%
of group NPAT and a historical exposure that reaches back several decades.
ANZ is by far the strongest Australian challenger in Asian regional banking.

ASX200 @ 5,583.6
A$37.19/30.47
12M hi/lo
12M price target

% potential
A$33.50
+5%
Shares in issue
Free float (est.)
2,766.0m
100.0%
Market cap
US$68,584m
An unwieldy melange
ANZs exposure to Asia has increased materially in the past decade, primarily
through it taking strategic stakes in partner banks, eg Panin Bank (Indonesia,
1999-2010), Shanghai Rural Commercial Bank (China, 2005), Bank of Tianjin
(China, 2006) and AMMB (Malaysia, 2006). Alongside these, ANZ also has a
small 100%-owned Asian network, concentrated in Hong Kong and Singapore,
and boosted by the 2010 acquisition of selected RBS operations.
A$243.4m
(US$189.2m)

Major shareholders
NA 5.0%

Absolute
Relative
Abs (US$)
40
35
1M
3M
12M
(6.5)
(2.7)
(7.5)
(10.5)
(4.9)
(10.5)
(5.3)
(7.1)
(20.4)
(A$)
(%)
ANZ Bank (LHS)
Rel to ASX200
130
125
120
115
30
110
25
105
100
20
15
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
95
Oct 13
90
Jun 15
Expect an overhaul: Underperform

While ANZs earnings from Asia are sizeable, it is not an integrated business,
and ANZ has failed in its attempts to stitch together a true regional platform.
Its strategic investments get punitive treatment under Basel 3, making them
increasingly capital inefficient. We expect ANZ to aggressively restructure its
Asian operations in the coming years (via disposals and/or acquisitions), both
to improve effectiveness and as the group deemphasises its recent fixation on
Asia. We use 12x forward PE (lowest in the peer group) for our A$$33.50
target and reiterate our Underperform rating.
Financials
Year to 30 September
Operating profit (A$m)
Net profit (A$m)
EPS (A)
EPS growth (% YoY)
PE (x)
Adjusted EPS (A)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
8,455
6,492
238.3
5.8
13.4
216.1
14.8
5.1
2.0
15.3
14A
9,312
7,117
260.3
9.2
12.3
253.2
12.6
5.6
1.8
15.3
15CL
9,527
7,357
268.3
101
3.1
11.9
256.9
12.4
5.8
1.7
14.4
16CL
9,817
7,566
273.1
99
1.8
11.7
267.8
11.9
5.9
1.6
13.6
17CL
10,356
7,929
283.1
99
3.7
11.3
281.8
11.3
6.1
1.4
13.1
Source: CLSA

Asian banks
ANZ Bank - U-PF
ANZ cash profit geographic mix
Asia represents 10-12%

of group profit. Australia
and New Zealand
continue to thoroughly
dominate ANZ
100
Australia
(%)
90
FY04
FY05
Asia
NZ
FY06
FY07
EU & Am
FY10
FY11
10
80
Pacific
10
10
12
FY12
FY13
FY14
70
60
50
40
30
20
10
0
FY08
FY09
ANZ Asia cash profit breakdown between associates and 100%-owned business
The bulk of Asia profit

comes from associate
income in ANZs portfolio
900
(US$m)
800
700
Bank of Tianjin (China)
Shanghai RCB (China)
AMMB (Malaysia)
Metrocard (Philippines)
Asia retail
Asia w/sale
600
Its directly-owned
operations are relatively
small and, in the
case of wholesale
operations, volatile
Panin Bank (Indonesia)
500
400
300
200
100
0
(100)
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
ANZ direct loans, deposits and LDR

70
(US$bn)
60
ANZ net loans geographic mix
Loans
Deposits
Loans/deposits ratio (RHS)
(%)
120
Pacific
1%
EU & Am
1%
100
50
Asia
13%
80
40
60
30
40
20
Australia
67%
20
10
0
New
Zealand
18%
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
156
5 June 2015

ANZ Bank - U-PF
Target PE of 12x
Exposed to Australia, New

Zealand and Asia
Asian banks
Valuation details
We use PE (one-year forward) as our primary valuation methodology across

our universe, given it better captures the companys growth profile and allows
investors to easily compare stocks across the banking/Australian universe. We
have a 12x target multiple for ANZ which is at the bottom of the comps group
(ANZ 12x, CBA 13.5x, NAB 13x, WBC 13x) given above-peer capital intensity
and sub-peer dividend growth, fading investor enthusiasm for the Asia
strategy and poor loan-loss historical performance.
Investment risks
ANZ faces a number of issues. It is overexposed to New Zealand, which is

over-earning, with adverse forward trends likely on housing NIM (swing back
from variable to fixed) and loan losses (collapsing dairy prices). ANZs Asiainvestment theme is a differentiator, but higher Asian regulatory capital
intensity and franking constraints are a concern. The sub-cycle loan losses
sees ANZ over-earning. Additionally ANZs poor loan-loss history and larger
exposure to resources is of some concern. Further, banks face increasing
capital requirements from global regulatory change.
Company outline
The smallest of the big
four Australian banks
The business
Australia and New Zealand Banking Group

Limited is an international bank with
activities in general banking, mortgage and
instalment lending, life insurance, leasing,
hire purchase and general finance. ANZ also
provides international and investment
banking,
investment
and
portfolio
management
and
advisory
services,
nominee
and
custodian
services,
stockbroking and executor and trustee
services.
The Australia and New Zealand Banking

Group Limited, commonly called ANZ, is the
third-largest bank in Australia, after
Commonwealth Bank, Westpac and National
Australia Bank. Australian operations make
up the largest part of ANZ's business, with
commercial and retail banking dominating.
ANZ is also the largest bank in New
Zealand, where the legal entity became
known as ANZ National Bank Limited in
2004 and where it operates two brands,
ANZ and the National Bank of New Zealand.
In addition to operations throughout
Australia and New Zealand, ANZ also
extends to 25 other nations. It is one of the
leading banks in the South Pacific and in
Asia. ANZ operates 812 branches across the
nation, employs about 35,000 people and
has about 2,300 ATMs.
Source: CLSA
5 June 2015
157

Asian banks
ANZ Bank - U-PF
Summary financials
We forecast mid-singledigit revenue increases as

credit growth falls to
around 6% in 16-17CL
Profit growth also likely

to fall into the mid-singledigit range with higher
credit costs off a low base
in 2014
The high skew to home

loans is a risk issue for
capital adequacy, given
the regulatory push to
increase capital intensity
ROE to stay in low/midteens range given rising

capital intensity
Year to 30 September
13A
Summary P&L forecast (A$m)
Interest income
28,641
Interest expense
(15,869)
Net interest income
12,772
Trading income
1,147
Fee income
2,459
1,531
Non-interest income
5,137
Total op income
17,909
(4,764)
(3,493)
(8,257)
Preprovision OP
9,652
(1,197)
0
Profit before tax
8,455
Taxation
(2,435)
Profit for period
6,020
Minority interest
472
Net profit
6,492
Summary balance sheet forecast (A$m)
483,264
25,755
Cash & equivalents
25,270
123,940
658,229
Fixed assets
2,164
Intangible assets
7,690
Other assets
34,912
Total assets
702,995
Customer deposits
466,915
Deposits from banks
83,180
550,095
107,297
Total liabilities
657,392
Shareholder funds
44,670
933
702,995
Ratio analysis
Loan growth (%)
13.0
Loans/deposits (%)
104.4
103.5
2.2
5.5
2.0
13.7
2.9
1.2
Cost/income (%)
46.1
0.9
0.8
116.1
28.8
8.0
Tier 1 CAR (%)
10.4
CAR (%)
12.2
ROA (%)
0.9
ROE (%)
15.3
14A
15CL
16CL
17CL
29,511
(15,714)
13,797
1,225
2,505
1,534
5,264
19,061
(5,088)
(3,672)
(8,760)
10,301
(989)
0
9,312
(2,700)
6,612
505
7,117
30,268
(15,821)
14,447
1,176
2,655
1,621
5,452
19,899
(5,482)
(3,794)
(9,275)
10,624
(1,097)
9,527
(2,778)
6,749
608
7,357
31,011
(15,911)
15,100
1,146
2,817
1,693
5,657
20,757
(5,706)
(3,918)
(9,624)
11,133
(1,315)
9,817
(2,847)
6,970
596
7,566
32,774
(16,973)
15,801
1,216
2,989
1,797
6,002
21,803
(5,949)
(4,036)
(9,985)
11,818
(1,463)
10,356
(3,003)
7,353
576
7,929
521,752
25,700
32,559
145,531
725,542
2,181
7,950
36,419
772,092
510,079
93,703
603,782
119,026
722,808
48,336
948
772,092
575,026
34,275
47,384
177,785
834,471
2,269
8,384
40,805
885,929
584,231
105,050
689,282
142,819
832,100
53,734
95
885,929
610,139
36,363
50,270
188,517
885,288
2,407
8,384
43,923
940,002
619,811
111,440
731,251
151,504
882,755
57,152
95
940,002
647,306
38,577
53,331
199,985
939,200
2,554
8,384
47,128
997,265
657,558
117,839
775,396
158,026
933,422
63,748
95
997,265
8.0
103.1
102.3
2.1
8.0
1.9
13.1
6.1
1.2
46.0
0.8
0.5
146.6
29.0
9.6
10.7
12.7
0.9
15.3
10.2
99.1
98.4
2.0
4.7
6.0
13.3
5.9
1.1
46.6
0.7
0.4
170.1
29.2
3.4
10.7
12.6
0.8
14.4
6.1
99.1
98.4
2.0
4.5
6.1
13.6
3.8
1.1
46.4
0.7
0.4
173.6
29.0
2.8
10.8
12.7
0.8
13.6
6.1
99.1
98.4
2.0
4.6
6.1
13.7
3.7
1.0
45.8
0.7
0.4
174.7
29.0
4.8
10.9
12.9
0.8
13.1
Source: CLSA
158
5 June 2015

DBS
S$20.11 - OUTPERFORM
Sleepless in Singapore
Asheefa Sarangi
Despite ambitions, regional breadth remains elusive
asheefa.sarangi@clsa.com
+65 6416 7847
Fourteen years after overpaying for Dao Heng, DBSs broader regional
ambitions remain largely unfulfilled. The groups ex-Singapore operations
remain concentrated in a second-tier Hong Kong brand with little
meaningful scale in its target countries of mainland China, India and
Indonesia. Although we see a lot more work ahead in building a leading
regional franchise, we are encouraged by the banks progress in its
wholesale and wealth businesses. We maintain our Outperform rating.
More appetite than achievement
Since the late 1990s DBS has attempted to create a leading Asian network,
primarily via acquisitions. For the most part, these acquisitions have been
expensive failures, leaving DBS with meaningful scale in only two banking
systems: Singapore and Hong Kong. DBS presence in its target markets of
China, India and Indonesia remain subscale due to regulatory constraints.
5 June 2015
Singapore
Financial services
Reuters
Bloomberg
DBSM.SI
DBS SP
Looking for more out of Greater China

DBS paid about 3.7x book value for the Dao Heng Group, Hong Kongs fifthlargest banking group over 2001-03. While expensive, the purchase gave DBS
critical mass in Hong Kong and provided the core of DBS Greater China
business. Poor execution resulted in an underperforming Hong Kong unit
which lost ground to competitors and lagged the growth of the broader group.
Although trends have improved in recent years, there is a still a long way to
go before this business provides a sustainable foundation to the lenders
North Asia ambitions.

STI @ 3,349.8
12M hi/lo
S$21.19/16.75
12M price target

% potential
S$22.70
+13%
Shares in issue
Free float (est.)
2,485.0m
72.1%
Market cap
US$37,402m
Red-dotting the I markets of India and Indonesia

Alongside Greater China, DBS has targeted the demographic growth markets
of India and Indonesia. It is the only foreign bank in India that intends to
convert its operations into a wholly-owned subsidiary (WOS) at this stage.
The lenders options in Indonesia are severely limited following its
unsuccessful attempt to acquire Bank Danamon in the country. Five years
after setting a target of 30% of group revenue, South and Southeast Asia has
declined from 7.6% of group revenue in 2009 to only 5.6% in 2014.
S$69.3m
(US$51.2m)

Major shareholders
Temasek 29.2%

Absolute
Relative
Abs (US$)
22
20
1M
3M
12M
(4.6)
(0.7)
(5.9)
4.4
6.7
5.7
18.4
16.6
10.4
(S$)
(%)
130
DBS (LHS)
125
Rel to STI
120
18
115
110
16
105
14
100
95
12
10
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
90
Oct 13
85
Jun 15
Rates and China

Although we do not view DBS as a regional powerhouse, we are encouraged
by the progress the bank is making in its wholesale and wealth businesses.
The risk over the medium term is principally around the implications (positive
and negative) of higher interest rates and the looming downturn in Chinas
credit cycle, which is already generating rising NPLs. Reiterate Outperform.
Financials
Year to 31 December
Operating profit (S$m)
Net profit (S$m)
EPS (S$)
EPS growth (% YoY)
PE (x)
Adjusted EPS (S$)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
4,239
3,663
1.42
2.0
14.1
1.42
14.1
2.9
1.5
11.3
14A
4,621
4,037
1.56
9.4
12.9
1.56
12.9
2.9
1.4
11.5
15CL
5,108
4,404
1.70
99
9.6
11.8
1.70
11.8
3.0
1.3
11.4
16CL
5,566
4,680
1.85
96
8.6
10.9
1.85
10.9
3.2
1.2
11.2
17CL
5,942
5,004
1.97
92
6.4
10.2
1.97
10.2
3.4
1.1
11.0
Source: CLSA

Asian banks
DBS - O-PF
DBS revenue by geography

Hong Kong
Other China
S&SE Asia
100
Rest of World
1.9
1.9
26
23
21
21
19
19
21
20
62
63
63
64
61
60
63
62
62
61
62
2011
2012
2013
2014
30
2010
5.4
2009
4.0
3.7
5.0
2008
3.9
4.7
4.4
6.0
20
10
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
28
50
Yoy growth in revenue by geography

100
29
40
3.4
2.7
31
70
2007
2.8
80
60
1.3
Other China
2006
1.4
1.5
1.4
1.4
1.5
1.5
1.5
1.6
Hong Kong
Rest of World
90
Singapore
S&SE Asia
(%)
2005
Singapore
2004
(S$bn)
10
DBS revenue geographic mix
(%)
Singapore
Hong Kong
Other China
S&SE Asia
Rest of World
Group
Rest of
World
3%
S&SE Asia
4%
80
Other China
10%
60
40
20
Hong Kong
17%
Singapore
66%
(20)
2014
2013
2012
2011
2010
2009
S&SE Asia
Rest of World
Group
(S$bn)
100%
4.0
90%
3.5
80%
0.7
0.6
Singapore
Hong Kong
S&SE Asia
Rest of World
0.8
0.8
70%
3.0
0.7
0.5
Other China
1.0
1.1
0.7
0.8
2.2
2.3
2.6
2.8
3.2
2014
Hong Kong
Other China
2013
4.5
Singapore
2012
(%)
5.0
2011
2010
2008
2007
2006
2005
(40)
0.6
60%
2.5
50%
2.0
1.9
2.2
1.8
2007
2008
1.5
2009
1.5
2006
2014
2013
2012
2011
2010
2009
2008
2007
0%
2006
10%
0.0
2005
20%
0.5
2004
1.0
1.7
2005
30%
2004
40%
1.5
160
5 June 2015

DBS - O-PF
Our target PB valuation is

broadly in line with the
company's five-year
trading average
Macro risks to our view

include continued
capital/liquidity/funding
regulatory changes
Asian banks
Valuation details
Our preferred valuation approach for the Singapore banks is the adapted
Gordon growth model. Our S$22.70 target price is based on target CY16CL
PB of 1.3x. Our GGM assumes sustainable ROE of 11.1%, cost of equity of
9.4% and long-term growth of 4%. Our target p/BV valuation is broadly inline with the company's five year trading average. For comparability
purposes, our target prices are based on calendar, rather than fiscal book
value estimates, given the varying fiscal years of companies under coverage.
Investment risks
Macro risks include continued capital/liquidity/funding regulatory changes, a

meaningful macroeconomic shock, subdued domestic and regional loan
growth, prolonged period of low interest rate, disorderly rise in interest rates,
competition. Micro risks include: unexpected and meaningful NPLs in the
bank's core markets (Singapore, Greater China) due to poor credit risk
management and value-dilutive transformational regional and/or domestic
M&A, pursuit of growth to hold or gain market share despite challenging
liquidity environment/lack of good quality loan demand, inability to realise
higher ROA generation from its wholesale banking investment and departure
of key personnel.
Company outline
Among Singapore banks,
DBS has been the most
active in expanding
outside the Lion City
The business
DBS is Singapore's largest bank by assets

and one of Asia's leading financial
institutions. It is active in corporate, smalland-medium-enterprise
(SME)
and
consumer
banking,
including
wealthmanagement, brokerage services and
investment banking. The group was
incorporated in 1968 to finance Singapore's
industrial sector. In 1998, DBS established
its retail-banking credentials with the
acquisition
of
the
government-owned
savings bank POSB. The group brands itself
as an Asian-centric bank, with operations in
Hong Kong, Taiwan, Asean, India and
China, along with Islamic-banking services
through the Islamic Bank of Asia.
Among Singapore banks, DBS has been the

most active in expanding outside the Lion
City. A key purchase was the 2001
acquisition of Dao Heng Bank in Hong Kong,
forming the core of the group's Greater
China business, which now also includes
subsidiaries in mainland China and Taiwan.
DBS' South and Southeast Asia business
includes subsidiaries in India and Indonesia,
which have been growing rapidly, albeit off
a small base. Domestically, DBS is the
dominant deposit-taking bank through its
own brand as well as POSB. It is also the
leading corporate lender, but relatively
underweight
in
small-and-mediumenterprise lending.
Source: CLSA
5 June 2015
161

Asian banks
DBS - O-PF
Summary financials
More moderate loan
growth, offset by some
recovery in NIM
A tougher outlook for

earnings and balance
sheet growth in the
coming years
ROA and ROE to be

relatively stable, as
higher credit costs offset
NIM expansion
Year to 31 December
13A
Summary P&L forecast (S$m)
Interest income
7,986
Interest expense
(2,417)
Net interest income
5,569
Trading income
1,095
Fee income
1,473
790
Non-interest income
3,358
Total op income
8,927
(2,065)
(1,853)
(3,918)
Preprovision OP
5,009
(770)
250
Profit before tax
4,489
Taxation
(615)
Profit for period
3,865
Minority interest
(202)
(9)
Net profit
3,663
Summary balance sheet forecast (S$m)
248,654
39,817
Cash & equivalents
18,726
65,736
372,933
Fixed assets
0
Intangible assets
4,802
Other assets
24,273
Total assets
402,008
Customer deposits
292,365
Deposits from banks
13,572
28,659
334,596
29,726
Total liabilities
364,322
Shareholder funds
33,430
4,256
402,008
Ratio analysis
Loan growth (%)
18.1
Loans/deposits (%)
82.4
85.0
1.6
5.4
15.2
16.5
8.4
1.0
Cost/income (%)
43.9
1.4
1.2
117.7
13.7
(13.8)
Tier 1 CAR (%)
13.7
CAR (%)
16.3
ROA (%)
1.0
ROE (%)
11.3
14A
15CL
16CL
17CL
8,948
(2,627)
6,321
901
1,520
876
3,297
9,618
(2,294)
(2,036)
(4,330)
5,288
(667)
277
4,898
(713)
4,176
(139)
(9)
4,037
9,929
(2,821)
7,108
946
1,637
929
3,511
10,619
(2,478)
(2,237)
(4,715)
5,904
(796)
186
5,294
(741)
4,544
(140)
(9)
4,404
11,153
(3,183)
7,971
993
1,900
934
3,827
11,798
(2,676)
(2,539)
(5,215)
6,583
(1,018)
50
5,616
(786)
4,820
(140)
(9)
4,680
12,237
(3,515)
8,722
1,013
2,103
979
4,095
12,817
(2,890)
(2,750)
(5,639)
7,177
(1,236)
50
5,992
(839)
5,144
(140)
(9)
5,004
275,588
42,263
20,527
72,018
410,396
0
5,117
25,153
440,666
317,173
16,176
28,659
362,008
38,452
400,460
36,905
3,301
440,666
298,354
46,154
21,861
77,429
443,799
0
5,117
20,394
469,309
341,437
16,985
28,659
387,081
38,737
425,817
40,157
3,335
469,309
318,186
49,864
23,282
83,538
474,870
0
5,117
19,827
499,814
362,947
17,834
28,659
409,440
43,517
452,957
43,522
3,335
499,814
339,834
53,900
24,679
89,234
507,647
0
5,117
17,039
529,803
385,813
18,726
28,659
433,198
46,189
479,387
47,082
3,335
529,803
10.8
83.7
86.9
1.7
13.5
3.2
15.8
10.5
1.0
45.0
1.3
0.9
141.9
14.6
10.2
13.1
15.3
0.9
11.5
8.3
84.5
87.4
1.7
12.4
7.7
15.4
8.9
1.0
44.4
1.5
1.1
132.2
14.0
9.1
13.4
15.4
1.0
11.4
6.6
85.1
87.7
1.8
12.1
16.1
16.1
10.6
1.1
44.2
1.9
1.7
111.7
14.0
6.3
13.7
15.5
1.0
11.2
6.8
85.7
88.1
1.9
9.4
10.7
16.4
8.1
1.1
44.0
2.0
2.1
98.7
14.0
6.9
14.1
15.8
1.0
11.0
Source: CLSA
162
5 June 2015

UOB
S$22.72 - OUTPERFORM
Asean aspiration
Asheefa Sarangi
Still searching for a winning formula in Southeast Asia
+65 6416 7847
Among Singaporean lenders, UOB is proportionally most focused on

traditional commercial banking in Southeast Asia, with a solid presence in
Malaysia and subscale operations in Thailand and Indonesia. Stitching this
together into a network will take time, but UOB is a steady performer.
Exposure to Greater China has increased but is comparably much smaller
than peers. UOB is our top Singapore bank pick. Reiterate Outperform.
Relative focus on Asean
Relative to its domestic bank peers, UOBs ex-Singapore operations are
relatively more exposed to Southeast Asia. UOB has a universal banking
presence in Malaysia, Thailand and Indonesia. Its Malaysian operations are a
historical legacy business dating back to the colonial era, whereas its Thailand
and Indonesian units are the result of acquisitions since 1999. UOB is
attempting, much like Maybank and CIMB, to create a solid trans-Asean
commercial banking network.
5 June 2015
Singapore
Financial services
Reuters
Bloomberg
UOBH.SI
UOB SP

STI @ 3,349.8
12M hi/lo
Tricky Thailand and Indonesia

The jewel in UOBs overseas portfolio is Malaysia. At the moment, this is the
only business to generate higher pretax ROA than its Singapore and group
performance. Thailand and Indonesia are relative underperformers and in
need of a strategic fix. Thailand represents 9% of revenue, but only 4% of
PBT due to relatively high operating costs. Indonesia is 5% of revenue but
only 2.5% of PBT due to funding challenges and impairments.
S$25.00/21.58
12M price target

% potential
S$26.05
+15%
Shares in issue
Free float (est.)
1,602.7m
76.0%
Market cap
US$27,002m
China exposure growing, but manageable

Like its Singapore bank peers, UOB has in recent years materially increased
its lending to Greater China, which for UOB includes a sizeable exposure to
Hong Kong. Proportionally, however, at 13% of loans and 11% of assets
Greater China is smaller for UOB than for DBS (27% of loans) and OCBC
(26% of loans). While this has dragged on UOBs relative balance-sheet
growth in recent years, it also means that UOB is materially less exposed to
deteriorating credit conditions in mainland China and Hong Kong.
S$58.1m
(US$42.9m)

Major shareholders
Wee family 17.7%

Lien Ying Chow Estate 5.2%

Absolute
Relative
Abs (US$)
26
24
1M
3M
12M
(7.2)
(3.4)
(8.5)
(1.9)
0.2
(0.7)
0.6
(1.0)
(6.2)
(S$)
(%)
UOB (LHS)
Rel to STI
110
105
22
100
20
95
18
90
16
85
14
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
Oct 13
80
Jun 15
Preferred pick in Singapore banks

UOB produced the best-quality 1Q15 result among the Singapore banks, with
a strong balance sheet. The stock is attractively priced relative to its return
profile with a solid dividend yield. We maintain our Outperform call, as it is
our top pick of the Singapore banks, ahead of DBS (O-PF) and OCBC (U-PF).
Financials
Year to 31 December
Net profit (S$m)
EPS (S)
EPS growth (% YoY)
PE (x)
Adjusted EPS (S)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
3,393
2,905
184.4
7.5
12.3
184.4
12.3
3.1
1.5
12.3
14A
3,676
3,157
197.4
7.0
11.5
197.4
11.5
3.1
1.3
12.2
15CL
3,830
3,222
201.0
98
1.8
11.3
201.0
11.3
3.5
1.2
11.3
16CL
3,958
3,341
208.5
94
3.7
10.9
208.5
10.9
3.6
1.2
11.0
17CL
4,157
3,519
219.6
89
5.3
10.3
219.6
10.3
3.8
1.1
10.8
Source: CLSA

Asian banks
UOB - O-PF
UOB revenue by geography

(S$bn)
8
7
UOB revenue geographic mix
Singapore
Malaysia
Thailand
Indonesia
Greater China
Other
(%)
100
Singapore
Malaysia
Thailand
Indonesia
Greater China
Other
70
1.0
0.9
0.7
0.6
1.0
0.8
40
2.5
2.3
3.2
2.9
3.5
3.5
11
13
14
14
59
58
14
14
56
58
50
0.6
3.4
10
12
60
0.4
0.4
0.5
10
3.8
3.3
3.8
72
30
4.3
68
66
60
64
65
2009
0.5
11
2008
11
2012
80
2011
90
63
20
10
Yoy growth in revenue by geography

100
80
2014
2013
2010
2007
2006
2005
Singapore
Thailand
Greater China
Group
(%)
2004
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
Malaysia
Indonesia
Other
Other
7%
60
Greater
China
11%
Indonesia
3%
40
Thailand
5%
20
Singapore
62%
Malaysia
12%
0
(20)
2014
2013
2012
2011
2010
2009
4.0
Malaysia
Indonesia
Other
(S$bn)
100%
Singapore
Indonesia
Malaysia
Greater China
Thailand
Other
90%
3.5
80%
3.0
70%
0.2
0.2
0.3
0.2
0.3
0.3
0.4
0.5
0.6
0.6
0.6
2.2
2.3
2014
(%)
4.5
Singapore
Thailand
Greater China
Group
2013
2008
2007
2006
2005
(40)
60%
2.5
20%
0.5
10%
1.8
2.4
1.9
1.9
1.6
2.1
1.8
2.3
2012
1.0
1.7
2011
30%
2010
40%
1.5
2009
50%
2.0
2008
2007
2006
2005
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2004
0%
0.0
164
5 June 2015

UOB - O-PF
We base our S$26.05

target price on 16CL PB
of 1.3x.
Micro risks to our view

include unexpected and
meaningful NPLs in the
bank's core markets
Asian banks
Valuation details
PB of 1.3x. Our GGM assumes sustainable ROE of 11.1%, cost of equity of
Investment risks

growth, disorderly rise in interest rates, competition. Micro risks include:
unexpected and meaningful NPLs in the bank's core markets (Singapore,
Asean) due to poor credit risk management, pursuit of growth to hold or gain
market share despite challenging liquidity environment/lack of good quality
loan demand, inability to realise higher ROA generation from its regional
wholesale banking investment or gather further strides in its affluent regional
consumer business.
Company outline
It has a strong franchise
among SME customer In
Singapore and is also a
key mortgage lender.
The business
Over the past 74 years, United Overseas

Bank (UOB) has grown through a series of
acquisitions, the most important of which
was the 2001 purchase of the Overseas
Union Bank in Singapore, giving the group
access to a strong corporate/SME franchise.
The group has significant operations in
Malaysia, Thailand and Indonesia (through
UOB Buana). It is ramping up operations in
mainland China through its stake in
Evergrowing Bank, as well as its newlyacquired local-currency banking licence.
UOB is the second-largest of the three local
Singapore lenders. Like its peers, it is a
universal bank engaging in commercial and
investment-banking activities.
The UOB group has more than 500 offices

in 18 countries spread across Asia, Western
Europe and North America. In Singapore, it
has a strong franchise among the SME
customer base and is also a key mortgage
lender. The group has a robust credit-card
operation with a total base of about 1.3m
cards. Along with the other two Singapore
banks, DBS and OCBC, UOB is building out
its local-currency business in mainland
China, offering consumer and corporate
facilities.
UOB
Thailand's
capitalrestructuring exercise in early 2008 and the
selldown of nonperforming loans (NPLs) in
recent quarters have strengthened its
operation.
Source: CLSA
5 June 2015
165

Asian banks
UOB - O-PF
Summary financials
Revenue growth slowing

with loan growth, albeit
offset by stabilising/
rising NIM
Rising credit costs

dampening profit growth
Slowing balance sheet

growth
Balance sheet stress

likely to rise with
rising NPLs
Year to 31 December
13A
Interest income
6,508
Interest expense
(2,388)
Net interest income
4,120
Trading income
47
Fee income
1,559
994
Non-interest income
2,600
Total op income
6,720
(1,712)
(1,186)
(2,898)
Preprovision OP
3,822
(429)
191
Profit before tax
3,584
Taxation
(559)
Profit for period
2,922
Minority interest
(17)
(103)
Net profit
2,905
178,857
31,412
Cash & equivalents
26,881
34,484
271,634
Fixed assets
0
Intangible assets
4,144
Other assets
8,451
Total assets
284,229
Customer deposits
214,548
Deposits from banks
13,706
20,016
248,270
9,382
Total liabilities
257,652
Shareholder funds
24,208
2,369
284,229
Ratio analysis
Loan growth (%)
17.0
Loans/deposits (%)
79.7
83.4
1.7
5.2
13.1
23.2
5.2
1.1
Cost/income (%)
43.1
1.7
1.3
134.9
15.6
7.6
Tier 1 CAR (%)
13.2
CAR (%)
16.6
ROA (%)
1.1
ROE (%)
12.3
14A
15CL
16CL
17CL
7,189
(2,632)
4,557
599
1,593
708
2,900
7,457
(1,825)
(1,321)
(3,146)
4,311
(635)
149
3,825
(561)
3,172
(15)
(92)
3,157
7,870
(2,912)
4,958
599
1,871
517
2,987
7,945
(1,825)
(1,568)
(3,393)
4,553
(723)
93
3,923
(588)
3,242
(20)
(92)
3,222
8,464
(3,143)
5,321
649
2,021
466
3,136
8,457
(1,825)
(1,811)
(3,636)
4,820
(863)
105
4,063
(609)
3,361
(20)
(92)
3,341
9,147
(3,390)
5,757
699
2,183
443
3,325
9,081
(1,825)
(2,080)
(3,905)
5,176
(1,020)
115
4,272
(641)
3,539
(20)
(92)
3,519
195,903
28,692
35,083
34,405
294,083
0
4,149
8,504
306,736
233,750
11,226
21,904
266,880
10,084
276,964
27,389
2,383
306,736
206,085
0
36,837
36,735
279,657
0
4,149
38,267
322,073
247,775
11,787
22,584
282,147
8,132
290,278
29,411
2,383
322,073
218,601
0
39,047
39,839
297,488
0
4,149
39,760
341,397
262,270
12,612
24,379
299,261
8,315
307,576
31,439
2,383
341,397
232,393
0
41,390
42,674
316,457
0
4,149
41,275
361,881
277,613
13,874
26,353
317,839
8,016
325,855
33,643
2,383
361,881
9.5
81.4
83.8
1.7
10.6
2.2
21.4
8.6
1.1
42.2
1.8
1.3
132.9
14.7
8.7
13.9
16.9
1.1
12.2
5.2
81.0
83.2
1.8
8.8
17.5
23.6
7.8
1.1
42.7
2.0
1.6
128.7
15.0
2.1
14.2
17.0
1.0
11.3
6.1
81.5
83.3
1.8
7.3
8.0
23.9
7.2
1.1
43.0
2.5
2.2
114.1
15.0
3.7
14.3
17.0
1.0
11.0
6.3
81.8
83.7
1.8
8.2
8.0
24.0
7.4
1.1
43.0
2.6
2.7
99.2
15.0
5.3
14.5
17.0
1.0
10.8
Source: CLSA
166
5 June 2015

OCBC
S$10.04 - UNDERPERFORM
China dreams
Asheefa Sarangi
Big bet on China at the wrong time. U-PF
+65 6416 7847
OCBCs ex-Singapore exposure has historically been focused on Malaysia

and Indonesia, including in life insurance via subsidiary Great Eastern.
The 2014 acquisition of Wing Hang Bank increased the groups exposure
to Greater China, primarily Hong Kong. Wing Hang improved OCBCs
competitive position in Hong Kong and mainland China, but in both
markets OCBC remains a marginal competitor. Moreover, OCBC has
increased exposure to China/HK at the wrong time of the cycle. U-PF.
Legacy position in Malaysia
OCBC has operated in Malaysia long before independence, which has left it
with a solid position in the country, historically OCBCs second major market.
Its Malaysian exposure is further strengthened by the market position of its
87.1%-owned life insurance subsidiary, Great Eastern, which is the largest life
insurer in Singapore and Malaysia.
5 June 2015
Singapore
Financial services
Reuters
Bloomberg
OCBC.SI
OCBC SP
Modest acquisitions . . .
Since the Asian Financial Crisis OCBC has been relatively selective in its
overseas acquisitions. Its largest purchases consist of NISP in Indonesia, a
strategic stake in Bank of Ningbo in China, domestic consolidation (Keppel)
and majority ownership of Great Eastern.

STI @ 3,349.8
12M hi/lo
S$10.90/9.12
12M price target

% potential
S$11.10
+11%
Shares in issue
Free float (est.)
3,983.9m
67.3%
Market cap
US$29,674m
. . . now a great leap forward

The purchase of Wing Hang Bank in 2014 for S$6.2bn at 1.8x reported book
value was a bold strategic decision to increase OCBCs exposure to Greater
China via the HK-based bank and its local funding base. Given OCBCs desire
to tap trade and financial flows between China and the region, improving
access via a HK-based platform makes strategic sense, but we question the
price paid and the underlying strength of the platform given Wing Hangs
marginal size in its home market of HK, and, more importantly, China itself.
S$43.2m
(US$32.0m)

Major shareholders
Lee and Tan 35.0%

Aberdeen AM 7.7%

Absolute
Relative
Abs (US$)
11.5
11.0
10.5
(S$)
1M
3M
12M
(6.0)
(2.1)
(7.3)
(3.9)
(1.9)
(2.7)
6.6
5.0
(0.6)
OCBC (LHS)
Rel to STI
10.0
(%)
115
110
105
9.5
9.0
100
8.5
8.0
95
7.5
7.0
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
Oct 13
90
Jun 15
Repent at leisure
Leaving aside the strategic merits and acquisition price of Wing Hang, OCBC
will face medium-term headwinds from the capital strain of the acquisition
and the material increase in its exposure to China, both directly and
indirectly. On the first, OCBC will need to hoard capital in coming years to
rebuild its CET1 ratio. On the second, time will tell how the mainland
economy fares, but slowing growth and rising NPLs do not bode well. We
expect these factors to drag on OCBCs relative growth profile.
Financials
Year to 31 December
Net profit (S$m)
EPS (S)
EPS growth (% YoY)
PE (x)
Adjusted EPS (S)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
3,513
2,686
78.2
(30.3)
12.8
78.2
12.8
3.4
1.5
11.5
14A
4,651
3,785
102.5
31.1
9.8
102.5
9.8
3.6
1.3
14.2
15CL
4,607
3,993
94.5
100
(7.9)
10.6
92.8
10.8
3.8
1.2
12.7
16CL
4,910
4,165
96.0
95
1.6
10.5
96.5
10.4
4.0
1.1
11.8
17CL
5,074
4,355
97.7
88
1.7
10.3
97.7
10.3
4.4
1.1
11.1
Source: CLSA

Asian banks
OCBC - U-PF
OCBC revenue by geography

(S$bn)
9
8
OCBC revenue geographic mix
Singapore
Malaysia
Other Asean
Greater China
Other Asia
Rest of world
Malaysia
Other Asia
Other Asean
Rest of world
90
19
80
6
1.4
1.3
1.2
0.5
0.7
1.9
1.9
1.4
40
0.9
4.2
2.7
2.7
3.4
2.9
3.4
4.1
4.8
23
22
73
68
30
65
65
63
23
60
63
Singapore
Greater China
Group
Malaysia
Other Asia
61
62
60
Greater
China
19%
Singapore
55%
Malaysia
16%
(50)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2.5
63
18
Rest of
world
5%
Other Asia
2%
Other Asean
Rest of world
Other Asean
3%
3.0
21
3.5
20
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
50
(100)
22
20
(%)
100
26
10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
150
23
70
50
1.2
0.7
2.1
23
60
1.2
1.0
100
Singapore
Greater China
(%)
(%)
Singapore
Other Asean
Other Asia
Group

Malaysia
Greater China
Rest of world
100%
Singapore
Greater China
(S$bn)
Malaysia
Other Asia
Other Asean
Rest of world
90%
80%
2.0
70%
1.5
60%
0.3
0.5
0.5
0.6
0.5
0.8
0.8
0.8
0.8
0.9
0.8
50%
1.0
40%
0.5
30%
0.0
20%
(0.5)
10%
(1.0)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0%
1.0
1.1
1.2
1.7
1.2
1.6
2.0
1.7
2.3
2.1
2.6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
168
5 June 2015

OCBC - U-PF
Target PB is 1.3x
Key geographic exposures

are Singapore, Malaysia
and Greater China
(HK & mainland)
Asian banks
Valuation details
PB of 1.3x. Our GGM assumes sustainable ROE of 11%, cost of equity of
Investment risks

growth, prolonged period of low interest rate, disorderly rise in interest rates,
competition. Micro risks include: unexpected and meaningful NPLs in the
bank's core markets (Singapore, Greater China) due to poor credit risk
management, inability to realise synergies from recent Wing Hang acquisition,
pursuit of growth to hold or gain market share despite challenging liquidity
environment/lack of good quality loan demand. inability to realise material
components of the capital generation plan/equity raising risk.
Company outline
A leading Asean bank and
life insurer
The business
Since its foundation in 1919, OCBC has

built out a network of 500 branches in 15
countries. Outside Singapore, the group has
a significant presence in Malaysia through
its retail and commercial-banking franchise,
as well as through OCBC Al-Amin Bank - its
Islamic banking subsidiary. In Indonesia, it
has an extensive network through OCBC
NISP, while in China the group is expanding
its local-currency operations after recent
regulatory approvals. OCBC is a universal
bank offering retail, commercial and
investment
banking.
Its
insurance
subsidiary, Great Eastern, is the largest
insurance group in Singapore and Malaysia.
OCBC is one of Singapore's three remaining

indigenous banks, with leading market
shares in retail and business banking.
Traditionally the smallest of the three,
OCBC has pursued a differentiated strategy,
targeting growth in wealth management
and in its chosen geographies of Malaysia,
Indonesia and China. Within Singapore,
OCBC has pursued tactical niches in retail
deposit-taking and SME lending and has
shifted its positioning to a younger, more
dynamic and customer-centric bank. Great
Eastern, through its longstanding strategic
relationship with OCBC, has a 46% market
share in the Singapore bancassurance
market.
Source: CLSA
5 June 2015
169

Asian banks
OCBC - U-PF
Summary financials
Loan growth is slowing,

but NIM stabilising to
improving
Earnings growth tougher

as credit growth slows
and credit costs rise
OCBC to hoard capital to

bolster cap ad after the
Wing Hang acquisition
ROE forecast to compress

with slower earnings
growth and higher capital
Year to 31 December
13A
Interest income
6,174
Interest expense
(2,291)
Net interest income
3,883
Trading income
262
Fee income
843
1,633
Non-interest income
2,738
Total op income
6,621
(1,715)
(1,127)
(2,842)
Preprovision OP
3,779
(266)
54
Profit before tax
3,567
Taxation
(597)
Profit for period
2,888
Minority interest
(202)
(82)
Net profit
2,686
167,879
39,573
Cash & equivalents
19,341
42,333
269,126
Fixed assets
0
Intangible assets
3,741
Other assets
65,581
Total assets
338,448
Customer deposits
195,974
Deposits from banks
21,549
26,870
244,393
65,976
Total liabilities
310,369
Shareholder funds
23,720
4,359
338,448
Ratio analysis
Loan growth (%)
17.9
Loans/deposits (%)
78.0
85.7
1.6
3.6
6.7
12.7
3.2
0.9
Cost/income (%)
42.9
1.0
0.8
133.5
16.7
(30.4)
Tier 1 CAR (%)
14.6
CAR (%)
16.3
ROA (%)
0.9
ROE (%)
11.5
14A
15CL
16CL
17CL
7,607
(2,871)
4,736
364
920
2,320
3,604
8,340
(2,003)
(1,329)
(3,332)
5,008
(357)
112
4,763
(687)
4,019
(234)
(57)
3,785
8,972
(3,527)
5,445
375
1,645
1,386
3,406
8,851
(2,203)
(1,629)
(3,833)
5,018
(411)
409
5,016
(732)
4,227
(234)
(57)
3,993
10,072
(3,837)
6,234
380
1,825
1,439
3,644
9,878
(2,424)
(1,894)
(4,318)
5,561
(650)
332
5,242
(786)
4,399
(234)
(57)
4,165
10,970
(4,192)
6,779
405
2,026
1,508
3,939
10,718
(2,666)
(2,012)
(4,678)
6,040
(966)
392
5,466
(820)
4,589
(234)
(57)
4,355
207,593
41,220
25,314
50,040
324,167
0
5,157
71,902
401,226
245,519
20,503
29,153
295,175
71,866
367,041
29,701
4,484
401,226
221,956
0
26,580
52,755
301,291
0
5,157
114,840
421,287
260,250
20,503
30,111
310,864
72,528
383,393
33,411
4,484
421,287
237,451
0
28,121
56,448
322,020
0
5,157
118,545
445,722
278,468
20,503
31,487
330,458
73,536
403,994
37,244
4,484
445,722
256,032
0
29,949
60,887
346,868
0
5,157
122,668
474,694
300,745
20,503
32,928
354,176
74,802
428,978
41,232
4,484
474,694
23.7
78.9
84.6
1.7
22.0
9.1
11.0
17.2
0.9
40.0
1.1
0.6
169.2
14.4
40.9
13.8
15.9
1.1
14.2
6.9
80.0
85.3
1.7
15.0
78.8
18.6
15.0
0.9
43.3
1.2
0.8
148.3
14.6
5.5
14.6
16.5
1.0
12.7
7.0
80.5
85.3
1.8
14.5
11.0
18.5
12.7
1.0
43.7
1.4
1.0
143.4
15.0
4.3
15.5
17.4
1.0
11.8
7.8
81.0
85.1
1.8
8.7
11.0
18.9
8.3
1.0
43.6
1.7
1.4
117.3
15.0
4.6
16.4
18.2
0.9
11.1
Source: CLSA
170
5 June 2015

SMFG
5,574 - SELL
J. Brian Waterhouse
+81 3 4578 8031
Third of the big three

The smallest of Japans three megabanks, SMFG is just behind Mizuho in
overall asset size. Like its peers, SMFG is the result of multiple city-bank
mergers, the critical one being that of the Sumitomo and Sakura Banks in
2001. Sakura was itself formed from the earlier merger of Mitsui Bank (the
M in SMFG) and Taiyo Kobe Bank.
Japan
Financial services
8316.T
8316 JP
More vanilla
SMFGs business strategy focuses on the core commercial-banking operations
of its key bank operating entity, Sumitomo Mitsui Banking Corporation, with
less diversification into broader financial services, though it does maintain
subsidiaries in securities/investment banking, leasing and consumer finance.

Topix @ 1,670.0
12M hi/lo
5,747/3,835
12M price target

% potential
4,800
-14%
Shares in issue
Free float (est.)
1,414.1m
78.2%
Market cap
US$63,523m
Rapid offshore growth

Relative to a moribund home market growth, SMFG has expanded its offshore
business rapidly. Since FY3/2011, SMFG has grown its offshore loan book by
83%, spread across Asia, the Americas and EME. Relative to an outright
decline in Japan loans over that period, the offshore share has risen from
16% to 26%. In revenues, the offshore component has risen from 10% to
22%. Asia ex-Japan now represents 7% of group revenue and 9% of loans.
44,953.9m
(US$373.5m)
Major shareholders

Blackrock 5.6%

Absolute
Relative
Abs (US$)
6,000
1M
3M
12M
7.9
2.5
4.5
17.7
7.6
13.9
31.3
(3.4)
8.3
()
SMFG (LHS) (%)

Rel to Topix
5,500
115
110
105
100
5,000
95
90
4,500
85
80
4,000
75
3,500
Jun 13
Feb 14
Source: Bloomberg
www.clsa.com
Oct 14
Buying strategic stakes may not be strategically smart

Like its megabank peers, SMFG has expanded aggressively offshore in
recent years. In addition to building its Asian corporate loan portfolio,
SMFG has been an enthusiastic acquirer of strategic stakes in partner
banks in target geographies. However, this strategy is an operationallyawkward and capital-intensive approach to expansion that we think is
suboptimal in forging an effective regional network. Maintain SELL.
5 June 2015
Reuters
Bloomberg
Accumulating associates
70
Jun 15
Patchwork of associates
Much like its peers, SMFGs Asian business is primarily a corporate loan book
spread thinly across Asia, which provides little depth in its regional
operations. This is changing, however. Like its peers, SMFG has ventured
more aggressively into selected markets. Its approach has been to acquire
strategic stakes: BTPN (40%) in Indonesia, Bank of East Asia (17.4%) in
Hong Kong, Kotak Mahindra (4.5%) in India and Exim Bank (15%) in
Vietnam. Accumulating associates in this way increases exposure, but these
are awkward, capital-intensive accretions to a regional network.
Financials
Year to 31 March
Net profit (m)
EPS ()
EPS growth (% YoY)
PE (x)
Adjusted EPS ()
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
14A
4,321,030
835,354
590.8
5.2
9.4
594.8
9.4
2.2
1.1
12.3
15A
4,307,597
596,762
422.0
(28.6)
13.2
426.3
13.1
2.5
0.9
7.3
16CL
4,577,100
765,700
541.5
100
28.3
10.3
545.5
10.2
2.7
0.8
8.2
17CL
4,828,000
817,700
578.3
101
6.8
9.6
582.3
9.6
2.2
0.8
8.3
18CL
5,112,600
837,600
592.3
100
2.4
9.4
596.4
9.3
2.2
0.7
8.1
Source: CLSA

Asian banks
SMFG - SELL
SMFG revenue by geography

(bn)
3,500
Japan
Americas
SMFG revenue geographic mix

Europe
Asia x-JP
Other
Japan
Americas
Europe
FY11
FY12
Asia x-JP
Other
90
3,000
80
2,500
70
60
2,000
50
1,500
40
30
1,000
20
500
10
0
FY09
FY10
FY11
FY12
FY13
FY10
FY13
FY14
Loans by geography
Japan
Europe
Total
(%)
FY09
FY14
Revenue (rebased to 100)

250
(%)
100
Americas
Asia x-JP
90
(tn)
Japan
Americas
Europe
Asia x-JP
Other
80
200
70
60
150
50
40
100
30
20
50
10
0
FY09
FY10
FY11
FY12
FY13
FY14
Loan growth YoY

35
(%)
30
Japan
Asia x-JP
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Geographic mix of Asian loans, FY3/2015

Americas
Other
Europe
Total
Korea
5%
Taiwan
4%
India
6%
25
20
Hong Kong
20%
15
Indonesia
9%
10
5
Thailand
10%
0
(5)
Singapore
15%
(10)
(15)
(20)
Australia
16%
FY09
FY10
FY11
FY12
FY13
China
15%
FY14
172
5 June 2015

SMFG - SELL
Asian banks
Valuation details
Blended valuation of
capitalised EPS and a
discount to NAV
We have a short-term target of 4,800, ie in line with the 50-day moving

average, as we feel the stock is vulnerable to a sharp selloff as investors
realise there is no share buyback planned and the dividend increase was
minimal. On a longer-term view, we calculate fair value for the stock at
6,130, using a blended FY3/16-17 EPS forecast of 579.04 to which we
apply our required rate of return for the megabanks of 8.5% and a 10%
discount to NAV (579.04 EPS 8.5% RRR x 0.90 NAV = 6,131.01). This
discount to NAV attempts to take into account the inherently higher credit
risk at some of the operating subsidiaries (such as consumer-finance leader
Promise - now renamed SMBC Consumer Finance - and credit card major
Cedyna Financial), as well as the potential for a change in the credit cycle
for Japanese banks if interest rates were to rise as deflation ends. Given the
clear determination of both the LDP government and the Bank of Japan to
keep interest rates low - despite all rhetoric to the contrary - and to provide
further stimulus measures for small businesses until there are clear signs of
an economic recovery, we feel a 10% discount to NAV is appropriate as
reported credit quality is unlikely to deteriorate significantly in the short
term while interest rates continue at ultralow levels.
Investment risks
Key risk of abrupt and
substantial shift in
interest rates
5 June 2015
The overriding upside risk to our negative stance is momentum driving bank
stocks higher, supported by sustained inflows of new funds from domestic
pension funds on the one hand and from global fund managers looking for
beta on the other; to an extent, fundamentals don't matter much in those
circumstances. That said, banking remains a risk business. Because it is
essentially about the handling and distribution of money as well as the
provision of credit, banks are subject to a variety of inherent risks quite
unlike manufacturing companies, including (but not limited to) credit risk,
currency risk, fraud and defalcation (both internal and external), as well as
risks surrounding liquidity, funding, operational, sovereign, settlement,
delivery and reputation. Key short/medium-term investment risks specifically
in the case of SMFG and not modelled for in our earnings estimates are: 1)
the potential inability of the group to properly match non-yen-denominated
long-term assets with appropriate funding in times of future global financial
crisis when a severe credit crunch might be expected; 2) potential losses on
the group's substantial Japanese government bond holdings in the event of a
sudden rise in domestic Japanese interest rates; and 3) potentially severe
credit costs triggered by a wave of commercial bankruptcies in the wake of
rising interest rates (as might reasonably be expected to occur as the
domestic economy recovers). At the present time, given the current state of
the global economy, and taking into account recent initiatives by the Bank of
Japan under its Governor, Haruhiko Kuroda, we consider that the potential for
short-term and long-term interest rates in Japan to simultaneously rise
abruptly remains very remote.
173

Asian banks
SMFG - SELL
Summary financials
Year to 31 March
We forecast modest
top-line growth
14A
15A
16CL
17CL
18CL
Gross revenue (m)
4,641,876
4,694,350
4,996,900
5,273,700
5,625,500
Fund-based income
1,805,015
1,891,932
2,021,900
2,168,700
2,425,500
Funding costs
(320,846)
(386,753)
(419,800)
(445,700)
(512,900)
Fee income
1,114,901
1,129,175
1,145,000
1,160,000
1,180,000
1,415,381
1,612,085
1,650,000
1,750,000
1,820,000
306,579
61,158
180,000
195,000
200,000
(3,209,547)
(3,530,043)
(3,711,200)
(3,901,400)
(4,220,000)
Gross expenses (m)

Fee-based expense
(127,840)
(129,609)
(132,000)
(135,000)
(139,000)
(1,569,945)
(1,659,341)
(1,739,400)
(1,820,700)
(1,948,100)
(1,190,916)
(1,354,340)
(1,420,000)
(1,500,000)
(1,620,000)
(49,073)
7,847
75,600
121,400
259,800
1,432,329
1,164,307
1,285,700
1,372,300
1,405,500
Total credit costs

Recurring profit
Profit before tax
Net profit
Adjusted profit
Balance sheet
increasingly from offshore
(11,778)
(9,500)
(9,500)
(9,500)
1,152,529
1,276,200
1,362,800
1,396,000
835,354
596,762
765,700
817,700
837,600
841,013
602,860
771,400
823,400
843,300

Cash & equivalents
49,052,545
60,069,711
63,000,000
60,000,000
62,000,000
27,175,901
29,640,754
30,000,000
36,000,000
40,000,000
67,480,152
72,396,992
77,533,000
83,056,000
88,812,000
7,919,101
9,972,901
10,200,000
10,600,000
11,200,000

Normal risk assets
151,627,699 172,080,358 180,733,000 189,656,000 202,012,000
2,346,788
2,770,853
2,800,000
2,820,000
2,900,000
Other assets
7,559,900
8,591,374
9,200,000
9,900,000
10,915,000
Total assets
Total funds:
Other misc. liabs
Total liabilities
161,534,387 183,442,585 192,733,000 202,376,000 215,827,000

108,045,464
114,873,816
121,766,000
129,072,000
136,816,000
32,263,787
41,804,295
44,500,000
47,500,000
53,000,000
140,309,251 156,678,111 166,266,000 176,572,000 189,816,000

12,220,117
16,068,203
15,168,677
14,086,043
13,753,509
152,529,368 172,746,314 181,434,677 190,658,043 203,569,509
Paid-in capital
2,337,895
2,337,895
2,337,895
2,337,895
6,667,124
8,358,376
8,960,428
9,380,062
9,919,596
9,005,019
10,696,271
11,298,323
11,717,957
12,257,491
Total equity
ROE to remain
stable at 7-8%
(9,638)
1,422,691
2,337,895
161,534,387 183,442,585 192,733,000 202,376,000 215,827,000
Ratio analysis
2.0
1.6
1.5
1.4
1.4
(3.6)
0.7
6.7
10.5
20.2
0.0
0.0
0.0
0.0
0.0
7.0
1.3
1.4
1.3
1.7
7.7
(0.3)
6.3
5.5
5.9
(1.3)
7.3
7.4
7.0
7.9
5.2
(28.6)
28.3
6.8
2.4
Cost/income (%)
66.9
73.0
71.9
71.6
72.5
54.3
52.8
52.8
52.7
52.6
41.3
48.2
40.0
40.0
40.0
38.1
36.1
36.8
37.6
38.0
5.6
5.8
5.9
5.8
5.7
12.2
12.9
13.4
13.7
13.7


Tier 1 CAR (%)
Tier 2 CAR (%)
3.3
5.0
4.5
4.2
4.0
CAR (%)
15.5
17.9
17.9
17.9
17.7
Loans/deposits (%)
63.1
63.6
64.2
64.8
65.4
62.5
63.0
63.7
64.3
64.9
Source: CLSA
174
5 June 2015

Mizuho Financial
267 - UNDER REVIEW
J. Brian Waterhouse
+81 3 4578 8031
Legacy megabank
Mizuho is Japans second-largest lender and, like its megabank peers, is the
culmination of multiple mergers of big city players, notably the 2000 merger
of Dai-ichi Kangyo Bank, Fuji Bank and Industrial Bank of Japan. In Japan,
Mizuho operates as a universal bank, competing across retail, corporate and
securities.
Japan
Financial services
8411.T
8411 JP
Global business, concentrated in the USA

One of Mizuhos predecessors, Dai-ichi Kangyo Bank, was once the worlds
largest bank. Similar to its larger domestic peers, Mizuho has inherited large
global loan portfolios accumulated by its predecessors through the Japanese
banks global lending surge of the 1980s and 1990s. Over the past decade,
Mizuhos foreign lending has grown materially in absolute size and also
relative to more modest growth in Japan.

Topix @ 1,670.0
12M hi/lo
280/178
12M price target

% potential
235
-12%
Shares in issue
Free float (est.)
24,621.9m
79.5%
Market cap
US$52,954m
Relatively less exposed to Asia

Since 2007, Asia (ex-Japan) has been Mizuhos fastest-growing region, but it
still contributes only 7% of group assets and 9% of revenue. It is thus
overshadowed by the USA/Americas (14% of revenue, 16% of assets), but
has overtaken Europe (6% of revenue and assets) in the past two years. By
overall revenue, Mizuho ranks third in Asia among Japanese banks, behind
MUFG and SMFG.
48,817.3m
(US$405.6m)
Major shareholders

Master Trust Bank of Japan 3.8%

Absolute
Relative
Abs (US$)
290
270
()
1M
3M
12M
18.1
12.2
14.4
22.5
12.0
18.6
30.2
(4.2)
7.4
Mizuho Financial (%)

Rel to Topix (RHS)
230
110
210
190
100
170
90
150
130
80
110
90
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
130
120
250
Oct 13
The weakest of Japans megabanks in Asia

Mizuho, while one of Japans large megabanks is a middling player in
regional banking. Its overall Asian business is large enough in absolute
size, but is spread thinly across Asia, not very profitable and offers little
functionality above vanilla corporate/wholesale lending. Geographically,
Mizuho is more focused on its US/American operations, despite Asias
stronger growth in recent years. Among the three Japanese megabanks,
Mizuho is the weakest in Asia. We place our rating Under Review.
5 June 2015
Reuters
Bloomberg
Mizzling
70
Jun 15
Asian operations lack heft and depth

While Mizuhos Asian operations are reasonably large in absolute size, at
12.8tn in assets and 219bn in revenue, these are corporate lending
businesses spread thinly across Asia with little concentration in any country.
Hong Kong, at 23%, represents the largest concentration of loans, but in that
market Mizuho is very small relative to peers. Moreover, the profitability of
these operations, as measured in pretax ROA, also seems to be low.
Financials
Year to 31 March
Net profit (m)
EPS ()
EPS growth (% YoY)
PE (x)
Adjusted EPS ()
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
14A
2,618,492
688,418
28.4
22.3
9.4
28.5
9.4
2.4
1.0
11.1
15A
2,840,679
611,935
25.0
(11.9)
10.7
25.5
10.5
2.8
0.8
8.4
16CL
2,977,100
600,400
24.4
101
(2.6)
10.9
24.7
10.8
2.8
0.8
7.2
17CL
3,163,600
620,400
25.2
102
3.3
10.6
25.5
10.5
2.8
0.7
7.2
18CL
3,339,100
640,250
26.0
102
3.2
10.3
26.3
10.1
2.8
0.7
7.1
Source: CLSA

Asian banks
Mizuho Financial - U-PF
Mizuho revenue by geography

(bn)
4,500
Japan
Americas
Mizuho revenue geographic mix

Europe
Asia ex-Japan
4,000
80
3,000
70
2,500
60
Asia ex-Japan
Other
40
1,500
30
1,000
20
500
10
0
FY06
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Assets by geography
(bn)
Japan
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Pretax profit by geography

Americas
Europe
Asia ex-Japan
(bn)
1,600
Japan
Americas
Europe
Asia ex-Japan
1,400
160
1,200
140
1,000
120
800
100
600
400
80
200
60
40
(200)
20
(400)

3
Europe
50
2,000
Americas
90
3,500
180
Japan
(%)
100
Asian (ex-Japan) loans geographic mix (FY14)
Japan
Europe
Total
(%)
(600)
Americas
Asia ex-Japan
Australia
10%
Others
5%
China
10%
Indonesia
4%
1
0
Taiwan
8%
(1)
(2)
India
6%
(3)
(4)
FY05
Hong Kong
23%
Thailand
10%
S. Korea
12%
Singapore
12%
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
176
5 June 2015

We derive our revised

target price of 235 from
a fair value for the stock
that we calculate as 233
Asian banks
Valuation details
We derive our revised target price of 235 from a fair value for the stock that
we calculate as 233. We calculate fair value using a required rate of return
for the megabanks of 8.5% to which we apply a 20% discount to NAV against
a revised blended FY3/16-17 EPS forecast of 24.80 [0.80 / 8.5% x 24.80 =
233.41]. The discount to NAV attempts to take into account the inherently
higher credit risk apparent at some of the operating subsidiaries (such as
credit card affiliates Orico and Credit Saison), as well as the potential for a
change in the credit cycle for Japanese banks as a consequence of rising
interest rates under a scenario of an improving economy. There is clear
publicly-expressed determination by both the LDP government and the Bank
of Japan to beat deflation; yet their current actions only serve to keep
interest rates low. We expect policy to lean towards continuing to provide
further stimulus measures for small businesses until there are clear signs of
an economic recovery. We also note the absence of robust growth
domestically at Mizuho, with declines being offset by strong overseas lending
growth, yet credit costs have started to rise. We feel a 20% discount to NAV
is appropriate to reflect the potential impact on revenues as the Mizuho
Financial Group continues to adjust not only to the changed realities created
by the July 2013 merger of Mizuho Corporate Bank with Mizuho Bank, but
also to the continuing general anaemic demand for credit at home.
'Normalisation' of interest rates is likely to lead to 'normalisation' of credit
costs; FY3/14 may well have been a peak for reported earnings.
Investment risks
Risks include potential
losses on the group's
substantial Japanese
government bond
holdings
5 June 2015
Banking is a risk business. Because banking is essentially about the handling

and distribution of money as well as the provision of credit, banks are subject
to a variety of inherent risks quite unlike manufacturing companies, including
(but not limited to) credit risk, currency risk, fraud and defalcation (both
internal and external), liquidity risk, funding risk, operational risk, sovereign
risk, settlement risk, delivery risk and reputation risk. Key short/mediumterm investment risks specifically in the case of Mizuho Financial Group and
not modelled for in our earnings estimates are 1) the potential inability of the
group to properly match non-Yen-denominated long-term assets with
appropriate funding in times of future global financial crisis when a severe
credit crunch might be expected; 2) potential losses on the group's
substantial Japanese government bond holdings in the event of a sudden rise
in domestic Japanese interest rates; and 3) potentially severe credit costs
triggered by a wave of commercial bankruptcies in the wake of rising interest
rates (as might reasonably be expected to occur as the domestic economy
recovers). At the present time, given the current state of the global economy,
and taking into account recent initiatives by the Bank of Japan under its
Governor, Haruhiko Kuroda, we consider that the potential for short-term and
long-term interest rates in Japan to rise both abruptly and simultaneously
remains very remote.
177

Asian banks
Summary financials
Year to 31 March
We forecast modest
top-line growth
14A
15A
16CL
17CL
18CL
Gross revenue (m)
2,927,758
3,180,222
3,316,600
3,520,800
3,773,800
Fund-based income
1,417,569
1,468,976
1,491,600
1,595,800
1,733,800
Funding costs
(309,266)
(339,543)
(339,500)
(357,200)
(434,700)
Fee income
734,414
781,982
835,000
885,000
940,000
444,442
628,227
650,000
680,000
710,000
331,333
301,037
340,000
360,000
390,000
(1,940,169)
(2,169,355)
(2,302,000)
(2,472,700)
(2,692,600)
Gross expenses (m)

Fee-based expense
Total credit costs
Recurring profit
(142,000)
(155,000)
(165,000)
(1,395,500)
(1,440,500)
(1,502,900)
(590,000)
(251,045)
(342,220)
(425,000)
(520,000)
(112,879)
4,699
75,400
159,200
209,900
987,589
1,010,867
1,014,600
1,048,100
1,081,200
(2,220)
(20,235)
(14,000)
(14,100)
(14,150)
985,369
990,632
1,000,600
1,034,000
1,067,050
Net profit
688,418
611,935
600,400
620,400
640,250
689,969
624,435
608,801
628,860
648,740

Cash & equivalents
49,171,170
56,203,426
58,000,000
60,000,000
63,000,000
44,165,859
43,436,463
45,000,000
47,000,000
50,000,000
68,685,098
72,889,684
76,908,000
81,163,000
85,627,000
7,650,428
9,234,403
9,500,000
9,800,000
10,200,000

Normal risk assets
Other assets
Total assets
Total funds:
Other misc. liabs
Total liabilities
169,672,555 181,763,976 189,408,000 197,963,000 208,827,000

925,266
1,078,051
1,150,000
1,120,000
1,100,000
5,225,064
6,842,722
7,200,000
7,400,000
7,780,000
175,822,885 189,684,749 197,758,000 206,483,000 217,707,000

101,811,281
113,452,451
119,125,000
125,081,000
131,335,000
53,907,385
52,037,737
54,900,000
58,100,000
63,500,000
155,718,666 165,490,188 174,025,000 183,181,000 194,835,000

11,799,670
14,394,023
13,615,159
12,848,248
12,162,438
167,518,336 179,884,211 187,640,159 196,029,248 206,997,438
Paid-in capital
2,254,972
2,255,404
2,255,404
2,255,404
6,049,577
7,545,134
7,862,438
8,198,348
8,454,159
8,304,549
9,800,538
10,117,842
10,453,752
10,709,563
Total equity
Weak profitability in
its home market means
we forecast little
improvement in ROA
or ROE
(135,981)
(1,351,611)
Profit before tax

Adjusted profit
Balance sheet growth

is increasingly outside
of Japan
(121,631)
(1,258,227)
2,255,404
175,822,885 189,684,749 197,758,000 206,483,000 217,707,000
Ratio analysis
1.6
1.5
1.4
1.5
1.5
(10.5)
0.4
6.8
13.3
16.1
0.0
0.0
0.0
0.0
0.0
10.2
6.5
6.8
6.0
6.2
2.0
8.5
4.8
6.3
5.5
2.5
8.1
5.8
5.8
6.8
22.8
(11.1)
(1.9)
3.3
3.2
Cost/income (%)
62.3
64.4
65.9
66.9
67.6
77.1
73.9
71.1
68.1
66.6
30.1
38.2
40.0
40.0
40.0
34.3
34.4
34.9
35.4
35.8
4.7
5.2
5.1
5.1
4.9
11.4
11.5
11.5
11.5
11.3

Tier 1 CAR (%)
Tier 2 CAR (%)
3.0
3.1
2.9
2.7
2.6
CAR (%)
14.4
14.6
14.4
14.2
13.9
Loans/deposits (%)
68.1
64.7
65.0
65.3
65.6
67.5
64.2
64.6
64.9
65.2
Source: CLSA
178
5 June 2015

CIMB
RM5.32 - SELL
Anand Pathmakanthan
Head of Malaysia Research
anand.pathmakanthan@clsa.com
+60 3 2056 7873
Malaysia
Financial services
CIMB.KL
CIMB MK

KLSE Comp @ 1,749.2
12M hi/lo
12M price target

% potential
RM4.70
-12%
Shares in issue
Free float (est.)
8,423.7m
46.1%
Market cap
US$12,217m
(US$12.2m)

Major shareholders
KHAZANAH NASIONAL BHD 29.3%

Employees Prov Fund 15.1%

Absolute
Relative
Abs (US$)
9.5
1M
3M
12M
(9.8)
(6.3)
(13.2)
(10.4)
(6.7)
(12.1)
(26.5)
(21.3)
(35.9)
(RM)
9.0
CIMB (LHS) (%)

Rel to Comp
8.5
120
110
100
8.0
7.5
90
7.0
80
6.5
70
6.0
60
5.5
5.0
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
Oct 13
CIMB is the product of many mergers and acquisitions over the past two
decades. Like its Malaysian peer and rival, Maybank, CIMBs foreign
operations are concentrated in Asean. The largest geographies are
Indonesia, Thailand and Singapore, around which CIMB targets the
creation of a regional network, notably in investment banking.
Unfortunately, profitability has declined recently, particularly in Indonesia
and Malaysia, and we expect a delayed recovery. We reiterate our SELL.
Asean aspirations
CIMBs foreign operations are material proportionately: around 36% of assets
are outside Malaysia. The largest foreign operation is Indonesia, via 97.9%owned CIMB Niaga. CIMBs antecedent, Bumiputra-Commerce Bank, acquired
a controlling stake in Niaga in 2002. CIMB subsequently increased its stake
and merged Bank Lippo into CIMB Niaga in 2008. Also in 2008, CIMB added
operations in Thailand with the acquisition of Bank Thai Public, now CIMB
Thailand. CIMB also has a small Singapore operation, grown organically.
RM7.40/5.18
RM44.3m
Regional ambitions hindered by faltering ROE
Patchwork of acquisitions
CIMB is the second-largest Malaysian bank by assets, but third-largest by
domestic banking assets. It is the product of post-Asia crisis consolidation in
Malaysian banking, primarily the 2006 merger of CIMB with Bumiputra
Commerce Bank and Southern Bank to form a universal bank with a strong
presence in Malaysian investment banking. Like its peer, Maybank, CIMB is
government-controlled, but by investment institutions Khazanah and EPF.
5 June 2015
Reuters
Bloomberg
Growing pains
50
Jun 15
CIMB Niaga and Indonesia

Due to its proportionate share of assets and relatively high profitability, CIMB
Niaga dominates CIMBs foreign PBT, but growth and earnings have faltered in
recent years as Indonesias economy has slowed and rising corporate NPLs
and credit costs have hurt CIMB Niagas profit base.
Delayed recovery, maintain SELL
Asset-quality pressure on CIMB Niaga is a key headwind for CIMBs earnings
growth, but the group has also disappointed at the preprovision line. We are
generally less optimistic than consensus over a recovery of earnings and our
forecasts are more conservative than guidance. We expect ROE to recover
only to 10.9% in 2017 but we base our GGM-driven RM4.70 target on an
11.3% sustainable ROE, with a COE of 11.4%. We reiterate our SELL call.
Financials
Year to 31 December
Operating profit (RMm)
Net profit (RMm)
EPS (sen)
EPS growth (% YoY)
PE (x)
Adjusted EPS (sen)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
5,163
4,540
59.9
3.5
8.9
56.5
9.4
4.5
1.4
15.5
14A
4,183
3,107
37.5
(37.5)
14.2
37.7
14.1
2.8
1.2
9.2
15CL
5,064
3,758
44.7
96
19.2
11.9
47.6
11.2
3.4
1.1
9.6
16CL
5,514
4,361
50.7
97
13.5
10.5
50.7
10.5
3.9
1.0
10.2
17CL
6,504
5,133
58.2
101
14.8
9.1
58.2
9.1
4.3
1.0
10.9
Source: CLSA

Asian banks
CIMB - SELL
CIMB adjusted PBT by geography

(RMbn)
Malaysia
Indonesia
CIMB adjusted PBT geographic mix
Thailand
Singapore
Others
(%)
120
100
Malaysia
4
0.8
0.9
3.6
3.4
3.3
2.9
2.4
32
30
59
62
2012
2013
60
89
40
0.3
3.1
2.4
Others
21
28
35
1.6
Singapore
20
1.8
1.8
1.5
Thailand
11
80
Indonesia
76
64
52
20
72
0
(1)
2008
2009
2011
2010
2012
2013
2014
(20)
08CL
2009
2010
2011
2014
Source: CLSA, Company
Note: Pre-2009 breakdown not available. Source: CLSA, Company
Assets by geography
Asset mix by geography, 2014
450
(RMbn)
Malaysia
Indonesia
Thailand
Other
400
300
66.3
63.4
250
58.7
200
52.3
49.4
39.1
33.6
150
Indonesia
16%
18.2
100
Malaysia
64%
264.7
172.2
176.0
186.1
08CL
2009
2010
204.2
224.8
223.6
2012
2013
137.1
50
0
Other
13%
Thailand
7%
350
07CL
2011
2014
Note: Pre-2009 breakdown not available. Source: CLSA, Company
Loan mix by geography
4.0
(%)
Malaysia
Indonesia
Others
Group
Thailand
(RMbn)
Malaysia
Indonesia
Thailand
Singapore
Other
100%
3.5
90%
3.0
80%
31.8
37.4
70%
2.5
46.0
48.3
44.7
53.8
60%
2.0
50%
1.5
40%
30%
1.0
111.1
118.9
125.7
140.9
152.3
2011
2012
2013
2014
20%
0.5
0.0
2008
103.0
10%
2009
2010
2011
2012
2013
2014
0%
2009
2010
180
5 June 2015

CIMB - SELL
Target PB of 1x
Malaysia and Indonesia

macro risk
Asian banks
Valuation details
Our preferred valuation approach for the Malaysian banks is the adapted
Gordon growth model. We base our RM4.70 target price on 1x 15CL PB, using
a Gordon growth model that assumes an 11.3% sustainable ROE, 11.4% cost
of equity and 5.4% long-term growth. (Note that for comparability purposes,
we base our target prices on calendar, rather than fiscal book-value,
estimates, given the varying fiscal years of companies under coverage.)
Investment risks
Macro risks include continued capital/liquidity/funding regulatory changes; a

deterioration in Malaysia's fiscal position/lack of meaningful progress on fiscal
consolidation, which could result in rating agencies downgrading Malaysia's
credit risk/putting the country on negative watch; subdued domestic and
regional loan growth; and competition. Micro risks include: positive/negative
surprises re T18 progress; unexpected and meaningful NPLs in the bank's
core markets (Malaysia, Indonesia) due to poor credit risk management;
value dilutive M&A; and insufficient equity (equity risk overhang). Upside
risks to our target include Indonesia being able to harness new political
leadership and lower oil prices to push through economic stimulus and
reforms. This would significantly improve the growth prospects for Indonesian
banks, including CIMBs Indonesian franchise, which is its single biggest nonMalaysian earnings generator. A further upside risk is that capital-market
conditions improve across Asean: CIMB, with its strong pan-Asean
investment-banking platform, would be the first to leverage into this and
benefit.
Company outline
Malaysias third largest
bank, but regionally
diversified in Asean
The business
After the acquisition of Bank Lippo and

Bank Thai, CIMB has expanded its regional
exposure. Once focused on corporate
banking, its strategy has been to reposition
the loan book towards a more stable
commercial-banking business after the
Asian financial crisis, leveraging off the
group's enlarged branch network. The main
non-interest-income
generator
is
the
investment-banking arm, CIMB Investment
Bank. However, transactional-based feeincome streams and cross-selling are also
picking up, leveraging on the group's
universal
banking
platform
including
commercial
and
investment
banking,
stockbroking,
insurance
and
assetmanagement operations.
Of
the
banks
with
the
pan-Asean
aspirations, CIMB has the largest branch
network in the bloc, comprising 1,150
branches and is focusing on integrating its
regional platform to support cross-border
transactions. The reinvigorated bank is
pushing hard in the Islamic banking space
and
aims
to
maximise
cross-selling
opportunities to its existing customer base.
CIMB's strategy to grow its regional
universal-banking operations will pitch the
group head-to-head with the likes of HSBC,
Standard Chartered, Maybank, DBS, OCBC
and UOB. CIMB's advantage is its extensive
branch network in Asean countries and its
strong investment-banking expertise.
Source: CLSA
5 June 2015
181

Asian banks
CIMB - SELL
Summary financials
We forecast loan
growth of 7.5-8.2%, with
NIM to remain under
incremental pressure
Credit costs to moderate

from the 2014 surge,
but to stay high
Rising capital-adequacy
intensity will also pose
a headwind to
ROE recovery
We forecast ROE
will not recover to
11% before 2017
Year to 31 December
13A
Summary P&L forecast (RMm)
Interest income
16,270
Interest expense
(6,723)
Net interest income
9,547
Trading income
879
Fee income
1,852
1,869
Non-interest income
4,600
Total op income
14,147
(4,876)
(3,382)
(8,258)
Preprovision OP
5,889
(726)
687
Profit before tax
5,849
Taxation
(1,240)
Profit for period
4,609
Minority interest
(68)
Net profit
4,540
Summary balance sheet forecast (RMm)
228,432
3,789
Cash & equivalents
10,821
108,186
351,228
Fixed assets
0
Intangible assets
9,638
Other assets
10,047
Total assets
370,913
Customer deposits
263,004
Deposits from banks
20,728
34,100
317,832
21,852
Total liabilities
339,684
Shareholder funds
30,271
957
370,913
Ratio analysis
Loan growth (%)
13.0
Loans/deposits (%)
82.7
86.9
2.9
5.1
7.1
13.1
8.5
2.3
Cost/income (%)
58.4
2.7
3.2
84.8
21.2
5.5
Tier 1 CAR (%)
9.1
CAR (%)
13.1
ROA (%)
1.1
ROE (%)
15.5
14A
15CL
16CL
17CL
17,520
(7,403)
10,117
930
1,903
1,098
3,931
14,048
(4,610)
(3,682)
(8,292)
5,756
(1,573)
93
4,276
(1,102)
3,175
(68)
3,107
18,975
(8,552)
10,422
657
1,979
1,381
4,017
14,439
(4,748)
(3,338)
(8,086)
6,353
(1,289)
(167)
4,897
(1,077)
3,820
(62)
3,758
20,403
(9,234)
11,170
657
2,098
1,503
4,258
15,427
(4,985)
(3,500)
(8,485)
6,942
(1,428)
160
5,674
(1,248)
4,426
(65)
4,361
22,318
(10,055)
12,263
657
2,245
1,654
4,556
16,818
(5,284)
(3,797)
(9,082)
7,736
(1,233)
160
6,664
(1,466)
5,198
(65)
5,133
258,015
4,239
18,262
111,661
392,177
0
9,762
12,218
414,156
282,069
32,150
36,045
350,264
25,501
375,765
37,360
1,031
414,156
274,552
4,239
18,627
124,172
421,590
0
9,762
13,867
445,218
301,814
35,365
37,232
374,411
28,940
403,351
40,837
1,031
445,218
295,028
4,239
18,999
132,834
451,101
0
9,762
15,521
476,383
325,959
38,901
38,502
403,362
27,271
430,634
44,719
1,031
476,383
319,210
4,239
19,379
139,850
482,678
0
9,762
17,290
509,730
352,035
42,791
39,861
434,688
24,699
459,388
49,312
1,031
509,730
13.0
84.3
91.5
2.8
6.0
2.8
13.5
0.4
2.1
59.0
2.6
3.2
82.7
25.8
(31.6)
11.0
14.6
0.8
9.2
6.4
84.4
91.0
2.7
3.0
4.0
13.7
(2.5)
1.9
56.0
3.7
4.3
85.3
22.0
21.0
11.7
15.1
0.9
9.6
7.5
84.4
90.5
2.7
7.2
6.0
13.6
4.9
1.8
55.0
4.4
5.3
82.4
22.0
16.0
12.3
15.5
0.9
10.2
8.2
84.4
90.7
2.7
9.8
7.0
13.3
7.0
1.8
54.0
4.4
5.3
82.4
22.0
17.7
13.1
16.1
1.0
10.9
Source: CLSA
182
5 June 2015

Maybank
RM9.16 - OUTPERFORM
Anand Pathmakanthan
Head of Malaysia Research
+60 3 2056 7873
Malaysias largest bank

Maybank is Malaysias largest bank by assets and a diversified universal bank,
offering retail banking, commercial and wholesale banking as well as
insurance products and Islamic banking and insurance products. Formed in
1960, Maybank came under the control of the Malaysian government in the
late 1960s. The government has controlling stakes in Maybank via state
investment institutions PNB and EPF.
Malaysia
Financial services
MBBM.KL
MAY MK
Asean focus - Singapore and Indonesia

Maybanks foreign operations historically were concentrated in Singapore,
which has grown organically into a sizeable retail and commercial bank. It
now provides 15-21% of group revenue, assets and profit, albeit at lower
pretax ROA than Maybanks Malaysian banking business. The second-largest
foreign geography is Indonesia, via the 2008 purchase of Bank Internasional
Indonesia (BII), in which Maybank has a 98.3% effective interest.

KLSE Comp @ 1,749.2
12M hi/lo
RM10.16/8.29
12M price target

% potential
RM10.00
+9%
Shares in issue
Free float (est.)
9,319.4m
36.2%
Market cap
US$23,622m
BII stumbling with Indonesia

BIIs growth and profitability have stalled in recent years, lagging the growth
and profitability of larger Indonesian banking peers. Profitability has suffered
from an increase in NPLs, and thus credit charges (concentrated in corporate
lending), but pre-provision profit growth also stalled in 2014 on NIM
compression and slower asset growth in a deteriorating Indonesian economy.
RM84.1m
(US$23.1m)

Major shareholders
Permodalan Nasional Bhd 44.4%

Employees Provident Fund 13.7%

Absolute
Relative
Abs (US$)
11.0
1M
3M
12M
(0.5)
3.4
(4.2)
(2.0)
2.0
(3.8)
(7.2)
(0.6)
(19.0)
(RM)
(%)
10.5
100
9.5
9.0
95
8.5
90
8.0
7.5
7.0
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
110
105
10.0
Maybank (LHS)
Rel to Comp
Oct 13
National leader focuses on Asean network

Maybank is the universal banking leader in its home market, but has only
achieved material growth offshore in the past decade: organically through
the expansion of its Singapore retail & commercial banking operations
and via the 2008 acquisition of BII in Indonesia. While BII has suffered a
correction in its profitability recently, Maybank has the beginnings of a
solid Asean regional network, but is not material ex-Asean. Outperform.
5 June 2015
Reuters
Bloomberg
Malaysian champion
85
80
Jun 15
Preferred pick in Malaysian banks

Maybank remains our top pick among the Malaysian large-cap banks. The
bank had a difficult 2014. 2015 will not be easy but we do anticipate YoY
profit growth and the banks dividend policy provides support for the shares.
A small recovery in domestic loan demand, recovery in Indonesia and a new
strategy in Singapore should allow for better performance from 2H15
onwards. Maintain Outperform.
Financials
Year to 31 December
Operating profit (RMm)
Net profit (RMm)
NP forecast change (%)
EPS (sen)
EPS growth (% YoY)
PE (x)
Adjusted EPS (sen)
Adjusted PE (x)
Dividend yield (%)
PB (x)
13A
8,730
6,552
75.8
4.2
12.1
75.8
12.1
5.8
1.8
14A
8,948
6,716
74.2
(2.2)
12.4
74.2
12.4
6.2
1.6
15CL
8,832
6,742
(2.5)
70.2
96
(5.4)
13.1
70.2
13.1
6.1
1.5
16CL
9,681
7,369
(1.1)
73.8
95
5.2
12.4
73.8
12.4
6.4
1.5
17CL
10,548
8,016
(0.3)
77.5
94
5.1
11.8
77.5
11.8
6.8
1.4
Source: CLSA

Asian banks
Maybank - O-PF
Maybank revenue by geography

20
18
16
(RMbn)
10
8
1.1
Malaysia
Singapore
Indonesia
Others
1.2
2.7
3.1
1.4
10.9
12.2
11.8
9.0
11
80
13
Singapore
Others
15
16
15
14
12
12
15
15
17
70
67
65
66
64
2010
2011
2012
2013
2014
11
70
Indonesia
73
30
20
2
0
90
40
8.6
Malaysia
(%)
50
1.4
7.7
100
60
1.6
6
4
2.2
2.5
2.1
1.9
2.5
2.5
0.5
0.3
1.4
0.9
0.6
14
12
Maybank revenue geographic mix
10
2009
2010
2011
2012
2013
2014
2009
Note: Pre-2009 breakdown na. Source: CLSA, company data

70
(%)
60
Malaysia
Singapore
Others
Group
Asset mix by geography, 2014

Indonesia
Others
8%
Indonesia
6%
50
40
30
20
Singapore
21%
10
Malaysia
65%
0
(10)
(20)
2010
2011
2012
2013
2014
Note: Pre-2009 breakdown na. Source: CLSA, company data
3.0
(%)
Malaysia
Singapore
Indonesia
Others
Group
2.5
(RMbn)
100%
0.2
0.3
0.4
Singapore
0.5
Indonesia
0.8
80%
2.0
Others
0.9
1.1
1.3
1.3
5.5
6.2
6.5
0.6
60%
1.5
3.1
1.0
40%
0.5
3.2
3.4
3.7
3.4
4.2
4.8
1.3
20%
0.0
0%
(0.5)
(1.0)
2004
0.1
Malaysia
2006
2008
2010
2012
2014
(20%)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
184
5 June 2015

Maybank - O-PF
Target PB is 1.6x
Asian banks
Valuation details
Our preferred valuation approach for Malaysian banks is an adapted Gordon

growth model. Our RM10.00 target price is based on target CY16CL PB of
1.6x. Our GGM assumes sustainable ROE of 12.5%, cost of equity of 9.8%
and long-term growth of 5%. For comparability purposes, our target prices
for all Malaysian banks are based on calendar-year, rather than fiscal-year,
book-value estimates.
Investment risks
Key macro risks in
Malaysia and, to a lesser
extent, Indonesia
and Singapore
Macro risks include continued capital/liquidity/funding regulatory changes; a

deterioration in Malaysia's fiscal position/lack of meaningful progress on fiscal
consolidation, which results in rating agencies downgrading Malaysia's credit
risk/putting it on negative watch; subdued domestic and regional loan
growth; and competition. Micro risks include: unexpected and meaningful
NPLs in the bank's core markets (Malaysia, Indonesia, Singapore) due to poor
credit risk management and value-dilutive transformational regional and/or
domestic M&A; and pursuit of growth to hold or gain market share despite
challenging liquidity environment/lack of good-quality loan demand.
Company outline
Malaysias largest bank,
diversified across a broad
range of financial services
The business
The largest banking group in Malaysia

offers a comprehensive range of financial
services:
investment
commercial
and
Islamic banking as well as stockbroking and
insurance. It has operations focusing on
Asia and branches in New York, London and
Bahrain. It owns 97% of Bank Internasional
Indonesia, 100% of Kim Eng, 20% of
Vietnam's An Binh Bank and 20% of
Pakistan's MCB Bank. Due to its strong
domestic network (392 branches) and
government links it has been able to
harness both corporate and retail deposits
and
a
significant
share
of
cheap
government deposits. It owns the largest
Islamic bank and one of the top three
composite insurers in Malaysia.
The bank's strength lies in its size. Its

extensive branch network enables it to tap
a diverse deposit base that is not only
stable but also gives it a competitive edge
with low funding costs. Its strength in
transaction banking and trade financing
contributes to its high fee income and lowcost deposit base. The Kim Eng deal
completes its wholesale-banking product
offering. It is Malaysia's largest lender
accounting for 18% of total loans.
Recognising that competition is growing its
Leap 30 initiative is starting to show
results. This will enable it to focus on value
creation with its existing client base and at
the same time leverage its strong brand
name to capture new business.
Source: CLSA
5 June 2015
185

Asian banks
Maybank - O-PF
Summary financials
Solid balance sheet

growth and margins
support revenue
A material increase in
credit costs is the key
earnings headwind
Rising NPLs and

increasing cap ad
requirements are the key
balance sheet stressors
ROE forecast to stay

in the 12-12.5% range
over 15-17CL
Year to 31 December
13A
Summary P&L forecast (RMm)
Interest income
19,117
Interest expense
(6,721)
Net interest income
12,395
Trading income
1,731
Fee income
3,544
868
Non-interest income
6,143
Total op income
18,538
(4,944)
(3,984)
(8,928)
Preprovision OP
9,610
(880)
139
Profit before tax
8,870
Taxation
(2,098)
Profit for period
6,771
Minority interest
(219)
Net profit
6,552
Summary balance sheet forecast (RMm)
355,518
7,157
Cash & equivalents
5,668
164,391
532,734
Fixed assets
0
Intangible assets
6,041
Other assets
21,668
Total assets
560,443
Customer deposits
395,611
Deposits from banks
42,139
37,465
475,214
37,486
Total liabilities
512,701
Shareholder funds
45,997
1,745
560,443
Ratio analysis
Loan growth (%)
14.0
Loans/deposits (%)
82.5
89.9
2.5
7.9
11.7
19.1
8.4
1.7
Cost/income (%)
48.2
1.6
1.5
107.5
23.7
14.0
Tier 1 CAR (%)
13.1
CAR (%)
15.7
ROA (%)
1.3
ROE (%)
14.9
14A
15CL
16CL
17CL
21,123
(8,148)
12,975
588
3,711
1,258
5,556
18,531
(5,019)
(4,092)
(9,111)
9,419
(471)
163
9,112
(2,201)
6,911
(195)
6,716
23,235
(9,262)
13,973
600
3,970
1,319
5,890
19,863
(5,371)
(4,461)
(9,832)
10,031
(1,199)
171
9,003
(2,161)
6,842
(100)
6,742
25,366
(10,062)
15,304
600
4,288
1,415
6,302
21,606
(5,800)
(4,679)
(10,479)
11,127
(1,447)
180
9,860
(2,366)
7,494
(125)
7,369
27,945
(10,995)
16,950
600
4,717
1,490
6,807
23,757
(6,264)
(5,139)
(11,404)
12,354
(1,806)
189
10,737
(2,577)
8,160
(144)
8,016
403,513
16,106
9,575
179,448
608,642
0
6,261
25,396
640,300
439,569
42,139
44,290
525,998
59,561
585,559
52,975
1,767
640,300
437,621
16,106
9,766
194,449
657,942
0
6,261
27,961
692,164
474,735
44,246
45,216
564,197
68,345
632,541
57,856
1,767
692,164
479,763
16,106
9,961
211,327
717,157
0
6,261
31,041
754,459
512,714
46,458
46,188
605,360
84,014
689,375
63,318
1,767
754,459
521,550
16,106
10,161
227,430
775,247
0
6,261
34,062
815,570
553,731
48,781
47,209
649,721
94,902
744,623
69,180
1,767
815,570
13.5
85.0
91.8
2.3
4.7
4.7
20.0
2.1
1.5
49.2
1.5
1.5
95.6
24.2
2.5
13.5
16.2
1.1
13.6
8.5
86.0
92.2
2.3
7.7
7.0
20.0
7.9
1.5
49.5
2.0
2.0
97.5
24.0
0.4
13.8
16.3
1.0
12.2
9.6
87.8
93.6
2.3
9.5
8.0
19.8
6.6
1.4
48.5
2.3
2.5
93.1
24.0
9.3
14.0
16.3
1.0
12.2
8.7
88.8
94.2
2.4
10.8
10.0
19.9
8.8
1.5
48.0
2.6
2.9
89.1
24.0
8.8
14.3
16.5
1.0
12.1
Source: CLSA
186
5 June 2015

5 June 2015
Appendix: Asian bank comps

Asia regional bank comparatives
Stock
Price
(lcl)
Mkt cap
ADTV
(US$m) (US$m)
CLSA
PE (x)
Rec Target Upside (%)
ROAE (%)
ROAA (%)
FY1
FY2
EPS gwth (%)

FY1
FY2
FY1
PB (x)
FY2
Div yld (%)

FY1
FY2
FY1
FY2
FY1
FY2
1m
Abs Perf (%)

3m
12m
74.15
125.30
186,651
41,146
532
159
O-PF
BUY
76.00
180.00
2.5
43.7
11.8
9.0
10.7
7.5
18.3
76.6
10.1
19.7
1.0
0.9
1.0
0.8
5.3
5.3
6.0
5.4
8.7
9.8
9.3
11.2
0.6
0.6
0.7
0.7
(3.6)
(2.1)
ANZ AU
BOQ AU
BEN AU
CBA AU
NAB AU
WBC AU
33.19
13.25
12.29
85.09
34.32
33.56
70,137
3,753
4,287
105,808
68,562
80,001
187
19
16
216
169
203
U-PF
U-PF
U-PF
SELL
BUY
O-PF
33.50
13.45
12.30
78.50
38.50
34.50
0.9
1.5
0.1
(7.7)
12.2
2.8
12.4
14.2
12.7
15.2
12.4
13.4
12.2
13.3
12.5
15.0
12.0
12.9
3.1
7.2
5.4
4.7
27.4
1.8
1.8
6.6
2.4
1.3
3.7
4.4
1.7
1.5
1.1
2.8
1.7
2.0
1.6
1.4
1.1
2.7
1.6
1.9
5.5
5.6
5.5
4.9
5.8
5.6
5.7
5.8
5.9
5.0
6.0
5.7
14.4
11.2
9.0
18.4
14.2
15.4
13.6
11.3
9.0
17.7
13.8
15.3
0.8
0.7
0.6
1.1
0.8
1.0
0.8
0.8
0.6
1.0
0.8
1.0
(2.8) (6.1)
(1.7) (5.1)
(0.7) (4.1)
(4.3) (7.4)
(5.6) (8.3)
(8.6) (11.7)
1288 HK
601169 CH
3988 HK
3328 HK
601009 CH
002142 CH
998 HK
939 HK
601818 CH
3968 HK
1988 HK
3618 HK
600015 CH
1398 HK
601166 CH
000001 CH
600000 CH
4.21
12.73
5.15
7.38
18.98
18.89
6.56
7.79
5.17
23.60
10.68
6.30
15.02
6.75
17.99
15.32
17.04
188,931
21,632
202,402
76,403
9,068
9,879
50,533
251,399
37,479
73,959
53,565
7,557
21,522
295,528
55,154
35,274
51,148
113
525
263
43
287
301
73
358
596
81
68
12
366
289
1,326
561
924
U-PF
N-R
BUY
U-PF
N-R
N-R
N-R
BUY
N-R
SELL
SELL
N-R
N-R
BUY
N-R
N-R
N-R
4.70
na
6.30
8.30
na
na
na
10.00
na
22.30
10.10
na
na
8.70
na
na
na
11.6
na
22.3
12.5
na
na
na
28.4
na
(5.5)
(5.4)
na
na
28.9
na
na
na
6.1
8.1
6.9
6.6
9.5
9.4
5.9
6.8
7.9
8.4
6.5
6.3
6.9
6.9
6.6
8.8
6.4
5.8
7.3
6.6
6.8
8.1
8.4
5.5
6.4
7.4
7.9
6.2
5.6
6.5
6.4
5.9
8.1
5.8
(0.6)
3.0
(2.2)
(0.7)
(0.4)
3.7
2.1
(0.3)
5.3
(0.2)
(1.0)
9.1
4.9
(1.0)
7.0
17.1
3.9
5.3
11.9
4.9
(2.3)
16.6
12.8
7.4
6.3
6.4
7.3
5.7
11.8
6.2
7.6
10.8
9.4
10.4
1.0
1.3
1.0
0.8
1.5
1.6
0.8
1.1
1.2
1.3
1.0
1.0
1.1
1.1
1.2
1.3
1.1
0.9
1.1
0.9
0.8
1.3
1.4
0.7
1.0
1.1
1.2
0.9
0.9
1.0
1.0
1.0
1.1
1.0
5.4
2.9
4.9
4.5
3.0
2.5
4.8
4.9
3.7
3.6
1.5
4.3
3.4
4.8
3.2
1.3
4.6
5.7
3.2
5.0
4.4
3.4
2.9
5.3
5.2
3.9
3.8
1.6
4.8
3.7
5.2
3.5
1.3
5.2
17.0
16.0
14.9
13.2
17.8
17.6
14.8
17.2
15.7
16.7
17.1
16.8
17.8
17.3
18.9
16.0
18.6
16.0
16.4
14.0
11.9
18.5
17.3
14.1
16.3
15.1
16.0
15.6
16.7
17.2
16.6
17.8
15.3
17.8
1.1
1.1
1.2
1.0
1.0
1.1
1.0
1.3
1.1
1.1
1.1
1.1
1.0
1.3
1.1
1.0
1.1
1.1
1.1
1.1
1.0
1.0
1.0
0.9
1.3
1.0
1.1
1.1
1.1
1.0
1.3
1.1
1.0
1.1
(3.9)
(2.0)
(3.4)
(7.4)
8.1
(2.7)
(7.0)
3.2
(6.8)
0.6
(6.2)
(9.2)
(7.3)
0.1
(7.3)
(8.3)
(5.7)
35.00
31.90
18.36
155.60
11,806
43,502
3,319
38,370
13
52
5
26
U-PF
BUY
N-R
SELL
33.00
34.00
na
131.00
(5.7)
6.6
na
(15.8)
13.6
12.3
12.0
14.9
14.5
11.3
11.0
15.7
(5.4)
11.4
2.4
32.0
(6.2)
9.5
9.2
(4.9)
1.1
1.8
1.2
2.1
1.1
1.6
1.1
2.0
3.2
3.9
2.1
3.7
3.2
4.3
2.3
3.7
8.5
14.9
10.3
14.6
7.6
15.1
10.7
13.1
0.8
1.2
1.1
1.3
0.7
1.3
1.1
1.3
3.9
5.8
8.6
2.8
9.7
16.6
39.9
10.0
10.9
36.6
41.9
21.6
585
163
197
343
57
1,051
317
874
108
1,400
215
153
278
173
883
21,788
5,636
2,054
2,772
747
41,348
28,868
7,259
822
20,026
1,008
4,460
32,997
1,729
5,785
69
18
11
13
0
33
70
16
2
2
8
16
78
11
51
BUY
BUY
O-PF
SELL
SELL
BUY
BUY
BUY
O-PF
N-R
SELL
O-PF
BUY
SELL
O-PF
640
200
212
310
62
1,250
440
1,080
115
na
200
165
360
140
910
9.4
23.0
7.6
(9.7)
9.1
18.9
38.7
23.6
6.4
na
(6.8)
7.6
29.4
(19.3)
3.1
15.6
7.9
5.3
5.3
4.5
20.4
14.1
20.3
7.4
28.3
5.0
7.6
10.2
5.1
15.0
12.8
6.3
3.9
4.6
3.9
16.4
12.0
15.9
5.8
22.4
4.1
6.1
8.1
4.3
12.1
20.7
33.5
39.8
11.3
80.4
26.1
17.0
26.7
39.0
25.2
160.2
21.0
20.1
19.8
14.1
22.3
25.4
34.5
15.4
15.8
24.7
17.7
27.2
28.1
26.1
20.8
24.0
26.2
20.4
23.2
2.7
0.8
0.4
0.5
0.4
3.7
2.0
3.7
0.8
4.0
0.4
0.7
1.2
0.5
2.7
2.3
0.8
0.4
0.5
0.4
3.1
1.8
3.1
0.7
3.5
0.4
0.6
1.0
0.5
2.3
1.0
2.5
2.8
3.4
2.4
1.0
1.7
0.7
2.7
0.1
4.0
3.0
1.4
3.9
1.5
1.2
3.2
3.1
3.7
2.4
1.2
1.9
0.9
3.5
0.2
4.9
3.8
1.7
4.7
1.8
18.4
10.9
7.6
9.4
9.7
19.2
15.3
19.6
11.1
15.4
9.1
9.3
12.1
10.5
19.5
19.2
12.5
9.6
10.3
10.3
20.6
16.1
20.9
12.9
16.5
10.2
10.7
13.6
11.7
20.5
1.7
0.6
0.4
0.5
0.4
2.0
1.9
1.9
0.9
2.2
0.5
0.6
0.8
0.5
1.6
1.8
0.7
0.5
0.6
0.4
2.1
1.9
1.9
1.0
2.3
0.6
0.6
0.9
0.6
1.6
3.1
(3.8)
(9.1)
(9.3)
0.2
6.3
(4.2)
6.1
12.2
5.0
5.2
(3.9)
3.0
20.6
5.1
(4.6)
(12.2)
(15.9)
(17.4)
(9.4)
(1.6)
(8.2)
(4.6)
(4.8)
0.2
(10.5)
(7.3)
(7.8)
1.3
2.3
59.4
(3.6)
(36.2)
(17.3)
(19.9)
32.4
11.9
63.7
(28.0)
61.4
(36.7)
(18.8)
9.4
(15.8)
55.0
14,125
4,420
10,775
6,875
11,775
1,205
3,860
26,351
3,206
19,024
9,701
21,979
964
1,706
18
1
20
12
24
3
0
SELL
U-PF
U-PF
U-PF
BUY
BUY
O-PF
12,000
4,625
11,000
7,100
15,000
1,500
4,450
(15.0)
4.6
2.1
3.3
27.4
24.5
15.3
19.4
13.5
12.1
11.2
11.0
7.5
9.6
17.6
11.6
10.4
10.0
9.5
6.4
7.9
8.7
20.2
4.7
5.9
9.2
52.9
24.7
10.2
16.3
16.1
11.9
15.9
15.9
21.1
3.8
1.2
2.1
1.9
2.4
0.9
1.6
3.3
1.1
1.8
1.7
2.0
0.8
1.3
1.3
2.1
1.6
2.1
1.7
1.8
0.0
1.4
2.5
1.7
2.2
2.7
2.7
0.0
21.2
9.2
18.7
18.0
24.4
13.2
18.0
20.0
10.0
18.7
17.7
23.5
13.6
18.2
3.1
1.8
2.4
2.6
3.0
1.1
2.9
3.1
1.9
2.5
2.7
3.1
1.1
3.1
4.8
0.2
11.3 (7.9)
0.2 (10.2)
7.0
0.0
1.3 (8.5)
8.1
12.6
(2.3) (8.2)
31.1
6.3
5.9
44.0
15.4
10.6
(5.6)
23 HK
2388 HK
2356 HK
11 HK
AXSB IB
BOB IB
BOI IB
CBK IB
CRPBK IB
HDFCB IB
ICICIBC IB
IIB IS
JKBK IB
KMB IB
OBC IB
PNB IB
SBIN IB
UNBK IB
YES IB
BBCA IJ
BDMN IJ
BMRI IJ
BBNI IJ
BBRI IJ
BBTN IJ
BTPN IJ

6.2 (9.3)
8.0 (28.2)
(0.9)
10.4
4.8
4.3
3.7
(2.5)
9.4
21.7
21.9
94.6
15.5
39.6
10.3
42.2
45.6 139.6
28.5 108.5
11.6
45.5
20.8
36.9
25.8 109.3
33.3
65.3
14.0
61.0
30.4
76.0
25.0
81.8
19.3
33.9
26.3
83.0
31.4
91.8
17.3
78.1
Asian banks
187
5 HK
2888 HK
Appendix
Global
HSBC
StanChart
Australia Banks
ANZ
BOQ
BEN
CBA
NAB
Westpac
China Banks
ABC
Bank of Beijing
BOC
Bocom
Bank Of Nanjing
Bank of Ningbo
CNCB
CCB
Everbright Bank
CMB
Minsheng
Chongqing Rural
Huaxia Bank
ICBC
Industrial Bank
Ping An Bank
SPDB
HK Banks
BEA
BOC (HK)
Dah Sing
Hang Seng
India Banks
Axis Bank
Bank of Baroda
Bank of India
Canara Bank
Corp Bank
HDFC Bank
ICICI Bank
IndusInd
J&K Bank
Kotak Mahindra
OBC
PNB
SBI
Union Bank
Yes Bank
Indonesia Banks
BCA
Bank Danamon
Bank Mandiri
BNI
BRI
BTN
BTPN
Code
188
Asia regional bank comparatives (continued)

Stock
Code
Mkt cap
ADTV
(US$m) (US$m)
696
479
519
981
669
733
921
275
448
713
5,670
2,649
2,148
6,366
1,393
6,917
4,632
3,691
105,117
54,463
1,275
13,342
64,570
5,507
6
39
3
25
23
8
616
373
2
76
370
18
U-PF
N-R
U-PF
BUY
BUY
O-PF
O-PF
U-PF
O-PF
N-R
SELL
BUY
675
na
500
1,210
810
790
990
235
480
na
4,800
3,300
15,700
13,150
29,700
14,550
40,250
41,900
10,500
3,299
1,993
7,881
7,257
13,940
17,811
6,365
10
6
32
24
36
48
31
O-PF
O-PF
BUY
O-PF
O-PF
BUY
SELL
4.51
6.30
5.67
13.66
15.46
9.03
18.50
7.70
1,911
5,197
13,174
6,725
4,454
23,560
19,551
5,455
2
6
12
3
1
23
25
2
98.00
108.00
89.50
62.00
41.00
156.00
8,644
8,682
6,390
1,739
1,288
2,111
20.30
10.20
23.14
CLSA
PE (x)
ROAA (%)
FY2
FY1
FY2
FY1
FY2
FY1
FY2
FY1
FY2
FY1
FY2
1m
3m
12m
(3.0)
na
(3.7)
23.3
21.1
7.8
7.5
(14.4)
7.1
na
(15.3)
24.6
17.5
13.3
10.2
15.7
15.4
17.0
11.5
11.3
15.9
9.3
10.5
18.9
17.0
13.0
9.7
15.3
14.6
15.5
10.6
10.9
14.9
9.2
9.8
17.9
(10.6)
(0.7)
2.0
(4.0)
2.2
1.5
9.3
(2.6)
(12.5)
(16.3)
28.3
10.2
3.1
2.5
5.5
2.6
5.3
9.6
8.9
3.3
6.5
1.1
6.8
5.6
0.6
1.4
0.7
0.9
0.7
1.0
0.8
0.8
0.6
1.0
0.8
2.2
0.5
1.3
0.6
0.9
0.7
0.9
0.7
0.8
0.5
0.9
0.8
1.9
1.3
3.4
1.7
1.4
1.8
1.2
2.0
2.7
1.6
2.4
2.6
0.8
1.3
3.5
1.7
1.4
1.8
1.4
2.2
2.7
1.6
2.6
2.1
0.8
3.2
9.1
6.7
6.1
4.8
6.0
7.1
7.2
3.6
10.1
8.2
12.0
3.2
9.6
6.6
5.9
4.8
6.2
7.2
7.2
3.7
9.6
8.3
11.2
0.2
0.9
0.3
0.4
0.2
0.3
0.4
0.3
0.2
0.4
0.4
0.8
0.2
0.9
0.3
0.4
0.2
0.4
0.4
0.3
0.2
0.4
0.4
0.8
1.3
7.9
4.0
(0.5)
(3.0)
5.2
9.4
21.3
12.8
11.4
9.8
(0.3)
(4.4)
11.1
2.2
8.9
4.4
11.6
18.5
24.5
7.4
6.1
19.1
5.4
42.6
53.5
34.5
48.4
51.7
60.4
60.8
38.7
64.1
34.0
38.1
51.3
17,200
12,500
37,500
15,000
48,000
53,000
9,000
9.6
(4.9)
26.3
3.1
19.3
26.5
(14.3)
8.2
7.7
9.8
9.3
9.1
9.7
11.5
8.6
8.9
10.2
8.7
11.8
10.0
18.7
(48.9)
(0.0)
(6.5)
3.3
21.9
1.3
(54.0)
(4.8)
(14.1)
(3.6)
6.6
(22.8)
(3.3)
(38.6)
0.8
0.6
0.4
0.6
0.5
0.7
0.4
0.7
0.6
0.4
0.6
0.5
0.7
0.4
1.6
2.6
1.7
3.5
2.1
2.5
2.4
1.6
2.7
1.9
4.1
2.5
2.9
2.4
9.5
8.7
4.2
6.7
6.1
7.2
3.9
8.7
6.9
3.9
6.9
4.5
6.6
2.4
0.6
0.7
0.3
0.5
0.5
0.6
0.2
0.5
0.5
0.2
0.5
0.4
0.6
0.1
(2.2)
8.2
(6.3)
(1.7)
(1.7)
(5.2)
(2.3)
5.4
1.0
13.4 (12.6)
(1.3) (19.8)
7.8
3.9
3.2
15.8
(4.1) (5.5)
10.8
na
U-PF
U-PF
SELL
U-PF
N-R
O-PF
U-PF
SELL
4.50
6.42
4.70
14.40
na
9.50
19.90
7.50
(0.2)
1.9
(17.2)
5.4
na
5.2
7.6
(2.6)
12.4
11.4
12.7
11.3
9.6
12.5
15.6
10.2
11.5
10.8
11.2
10.8
9.0
12.0
15.1
9.6
4.5
(13.7)
19.2
1.1
3.3
(3.0)
(4.4)
(4.9)
8.3
6.1
13.5
4.8
7.2
4.2
3.7
6.8
1.4
1.2
1.2
1.5
1.3
1.5
2.3
1.0
1.3
1.2
1.1
1.4
1.2
1.4
2.1
0.9
3.5
3.8
3.2
3.0
2.1
6.4
2.9
2.4
4.0
4.1
3.7
3.2
2.3
6.5
3.0
2.6
11.9
11.1
9.6
14.0
14.1
12.5
15.5
10.0
12.1
11.1
10.2
13.4
13.5
12.4
14.8
10.0
1.0
1.3
0.9
1.0
1.0
1.0
1.3
0.9
1.0
1.3
0.9
1.0
1.0
1.0
1.2
0.9
(4.9)
(2.9)
(3.9)
(3.0)
(4.6)
(2.0)
(5.0)
(2.5)
(6.4) (5.7)
(1.4) (14.2)
(4.7) (22.8)
(4.9) (1.6)
(8.1)
0.4
(1.8) (8.6)
1.0 (11.6)
(3.3) (8.3)
5
9
10
0
0
3
O-PF
BUY
BUY
O-PF
O-PF
O-PF
108.00
121.00
119.00
82.40
52.50
194.36
10.2
12.0
33.0
32.9
28.0
24.6
19.6
14.7
13.3
11.6
12.3
14.9
16.6
12.2
11.4
10.3
10.7
12.5
3.8
17.3
(8.0)
11.5
6.7
(11.9)
17.7
20.4
16.0
12.7
14.8
19.5
2.5
2.0
1.4
0.7
1.0
1.8
2.2
1.8
1.3
0.6
0.9
1.6
1.8
1.9
1.1
0.0
2.4
1.3
1.8
1.9
1.1
0.0
2.4
1.3
13.1
14.4
11.9
6.0
8.3
12.8
14.1
15.5
12.3
6.4
8.5
13.7
1.3
1.3
1.3
0.9
1.0
1.5
1.3 (3.3)
1.6
16.0
1.3 (0.9) (2.7)
23.4
1.4 (3.8) (0.3)
10.5
0.9 (19.9) (25.7) (32.2)
1.0 (10.3) (11.1) (26.0)
1.6 (6.8) (2.2)
26.9
37,765
30,145
27,499
49
30
41
O-PF
U-PF
O-PF
22.70
11.10
26.05
11.8
8.8
12.6
11.9
10.8
11.5
11.0
10.6
11.1
9.6
(7.9)
1.8
8.6
1.6
3.7
1.3
1.3
1.3
1.2
1.2
1.2
3.0
3.7
3.5
3.2
3.9
3.5
11.4
12.7
11.3
11.2
11.8
11.0
1.0
1.0
1.0
1.0
1.0
1.0
(3.7)
(4.5)
(5.5)
3.7
(2.7)
0.5
20.1
7.6
2.7
17.95
23.30
20.90
18.90
18.45
27.50
14.15
13.30
16.35
4,602
11,530
4,781
5,676
5,582
11,104
4,347
4,133
5,592
6
32
14
9
5
21
10
10
8
N-R
BUY
BUY
U-PF
N-R
O-PF
O-PF
N-R
N-R
na
24.11
24.14
18.51
na
28.05
15.51
na
na
na
3.5
15.5
(2.1)
na
2.0
9.6
na
na
13.0
12.0
10.3
12.4
12.5
11.9
9.9
8.1
14.3
12.5
10.4
3.0
(33.2)
18.3
6.1
0.5
8.5
9.5
3163.6
(0.4)
3.7
16.1
1.1
1.3
9.1
10.1
11.4
10.0
12.1
0.6
1.1
0.8
0.6
0.6
0.8
0.8
0.9
0.7
1.2
2.8
3.5
5.1
0.0
3.3
8.2
11.7
12.7
8.7
9.6
10.9
9.8
13.2
8.3
12.6
1.0
1.1
1.2
0.9
0.9
3.2
3.7
2.6
2.8
3.1
4.6
2.5
2.9
3.6
3.9
10.2
7.5
9.6
9.6
3.8
1.1
1.4
1.2
1.0
1.1
1.3
0.9
1.0
(4.3)
(2.5)
(0.5)
(2.1)
(2.1)
0.7
1.8
(5.3)
(1.2)
(2.7)
11.5
6.6
1.9
2.5
10.2
10.1
(1.1)
1.2
0.6
26.5
15.0
8.7
3.6
9.8
16.0
(1.9)
5.6
182.00
36.00
195.00
36.00
18.10
158.50
34.25
45.00
2.54
10,297
7,848
13,832
902
7,498
15,946
1,187
1,068
3,294
31
5
44
1
40
31
3
2
13
BUY
SELL
U-PF
O-PF
BUY
BUY
U-PF
BUY
SELL
230.00
29.00
250.00
48.00
25.00
220.00
36.00
57.00
2.60
26.4
(19.4)
28.2
33.3
38.1
38.8
5.1
26.7
2.4
9.1
13.2
9.3
7.6
7.8
9.4
8.3
7.2
11.3
8.2
10.9
8.3
6.5
6.5
8.7
7.1
6.5
10.5
5.4
17.1
8.3
21.1
(2.8)
7.1
10.6
17.5
3.0
10.2
20.6
12.0
16.8
19.2
8.6
17.2
11.0
7.6
1.0
1.6
1.6
0.8
1.0
1.7
0.8
1.2
1.4
0.9
1.4
1.4
0.7
0.9
1.5
0.8
1.1
1.3
3.8
3.1
2.3
6.9
5.0
4.1
4.4
5.0
3.0
4.1
3.6
3.1
7.5
5.5
4.4
5.0
6.1
3.3
11.4
12.4
18.0
10.7
13.5
18.8
10.1
18.3
13.4
11.6
13.7
17.5
11.8
14.6
18.2
11.0
18.1
13.1
1.4
1.3
2.2
1.5
1.2
2.1
0.9
1.6
1.2
1.4 (1.6) (0.5) (1.6)

1.5 (10.6) (41.9) (6.5)
2.3 (7.1) (10.1)
4.0
1.6 (2.7) (8.3) (15.8)
1.3 (9.5) (20.6) (4.2)
2.2 (0.3) (6.5) (0.3)
1.0
0.7 (2.1)
0.7
1.7 (0.6) (4.3)
14.6
1.2 (2.3) (15.9)
10.4
Target Upside (%)
11.2
11.6
10.8
9.1
7.8
EPS gwth (%)
PB (x)
Div yld (%)

0.6
0.7
0.9
0.9
0.8
Abs perf (%)
Asian banks
5 June 2015
ROAE (%)
FY1
Rec
Appendix
Japan Banks
77 Bank
8341 JP
Aozora
8304 JP
Ashikaga HD
7167 JP
Chiba Bank
8331 JP
Fukuoka Fin
8354 JP
Hiroshima Bank
8379 JP
MUFG
8306 JP
Mizuho Fin
8411 JP
Ogaki Kyoritsu
8361 JP
Resona
8308 JP
SMFG
8316 JP
Suruga Bank
8358 JP
Korea Banks
BS Financial
138930 KS
DGB Fin
139130 KS
Hana Fin
086790 KS
IBK
024110 KS
KB Financial
105560 KS
Shinhan
055550 KS
Woori Fin
000030 KS
Malaysia Banks
Alliance Fin
AFG MK
AMMB
AMM MK
CIMB
CIMB MK
Hong Leong
HLBK MK
HLFG
HLFG MK
Maybank
MAY MK
Public Bank
PBK MK
RHB Capital
RHBC MK
Philippines Banks
BPI
BPI PM
BDO
BDO PM
Metrobank
MBT PM
Philippine NB
PNB PM
Rizal CB
RCB PM
Security Bank
SECB PM
Singapore Banks
DBS
DBS SP
OCBC
OCBC SP
UOB
UOB SP
Taiwan Banks
Chang Hwa
2801 TT
Chinatrust
2891 TT
E.Sun
2884 TT
First Fin
2892 TT
Hua Nan
2880 TT
Mega Fin
2886 TT
SinoPac
2890 TT
Taishin Fin
2887 TT
Taiwan Coop
5880 TT
Thailand Banks
Bangkok Bank
BBL TB
Bank of Ayudhya
BAY TB
Kasikornbank
KBANK TB
Kiatnakin
KKP TB
Krung Thai
KTB TB
SCB
SCB TB
Thanachart
TCAP TB
Tisco
TISCO TB
TMB Bank
TMB TB
Price
(lcl)
Asian banks
Notes
5 June 2015
189

Asian banks
Notes
190
5 June 2015

Asian banks
Important disclosures
Companies mentioned
77 Bank (8341 JP - 696 - U-PF)

Agricultural Bank (1288 HK - HK$4.23 - U-PF)
AIA (1299 HK - HK$50.85 - BUY)
AIG (N-R)
Alliance Fin (AFG MK - RM4.49 - U-PF)
AMMB (AMM MK - RM6.32 - U-PF)
ANZ Bank (ANZ AU - A$31.92 - U-PF)
Aozora Bank (N-R)
Ashikaga HD (7167 JP - 500 - U-PF)
Axis Bank (AXSB IB - RS550.6 - BUY)
Bangkok Bank (BBL TB - BT181.5 - O-PF)
Bank Danamon (BDMN IJ - RP4,200 - U-PF)
Bank Mandiri (BMRI IJ - RP10,550 - U-PF)
Bank of America (N-R)
Bank of Baroda (BOB IB - RS161.2 - BUY)
Bank of Beijing (N-R)
Bank of China (3988 HK - HK$5.18 - BUY)
Bank of China (HK) (2388 HK - HK$31.90 - BUY)
Bank of India (BOI IB - RS189.9 - O-PF)
Bank of Nanjing (N-R)
Bank of Ningbo (N-R)
BCA (BBCA IJ - RP13,600 - SELL)
BDO (BDO PM - P108.00 - BUY)
BEA (23 HK - HK$35.00 - U-PF)
BEN (BEN AU - A$11.96 - U-PF)
BNI (BBNI IJ - RP6,375 - U-PF)
BNK Financial (138930 KS - 15,450 WON - O-PF)
Bocom (3328 HK - HK$7.63 - U-PF)
BOQ (BOQ AU - A$12.74 - U-PF)
BPI (BPI PM - P101.40 - O-PF)
BRI (BBRI IJ - RP11,250 - BUY)
BTN (BBTN IJ - RP1,140 - BUY)
BTPN (BTPN IJ - RP3,855 - O-PF)
Canara Bank (CBK IB - RS323.7 - SELL)
Cathay FHC (N-R)
CBA (CBA AU - A$81.57 - SELL)
CCB (939 HK - HK$7.79 - BUY)
Chang Hwa Bank (N-R)
Chiba Bank (8331 JP - 958 - BUY)
China Everbright Bank (N-R)
CIMB (CIMB MK - RM5.32 - SELL)
Citic Bank (N-R)
Citigroup (C US - US$55.63 - BUY)
CMB (3968 HK - HK$24.90 - SELL)
Corporation Bank (CRPBK IB - RS54.1 - SELL)
CQRC Bank (N-R)
Credit Suisse (N-R)
CTBC FHC (2891 TT - NT$23.1 - BUY)
DahSing Bank (N-R)
DBS (DBS SP - S$20.11 - O-PF)
DGB Financial (139130 KS - 13,100 WON - O-PF)
E.Sun FHC (N-R)
FFG (8354 JP - 657 - BUY)
First Financial (N-R)
Goldman Sachs (GS US - US$208.29 - O-PF)
Hana Financial (086790 KS - 29,600 WON - BUY)
Covered by CLSA; Covered by CLSA Americas
5 June 2015
Hang Seng Bank (11 HK - HK$155.80 - SELL)

HDFC Bank (HDFCB IB - RS1,004.6 - BUY)
Hiroshima Bank (8379 JP - 721 - O-PF)
Hong Leong Bank (HLBK MK - RM13.66 - U-PF)
Hong Leong Fin (N-R)
HSBC (5 HK - HK$73.90 - O-PF)
Hua Nan FHC (N-R)
Hua Xia Bank (N-R)
IBK (024110 KS - 14,250 WON - O-PF)
ICBC (1398 HK - HK$6.72 - BUY)
ICICI Bank (ICICIBC IB - RS296.0 - BUY)
IndusInd Bank (IIB IS - RS842.6 - BUY)
Industrial Bank (N-R)
J&K Bank (JKBK IB - RS111.8 - O-PF)
JPMorgan Chase (JPM US - US$66.70 - O-PF)
Kasikornbank (KBANK TB - BT195.0 - U-PF)
KB Financial (105560 KS - 39,750 WON - O-PF)
Kiatnakin Bank (KKP TB - BT36.0 - O-PF)
Krung Thai Bank (KTB TB - BT18.0 - BUY)
Maybank (MAY MK - RM9.16 - O-PF)
Mega Financial (N-R)
Metrobank (MBT PM - P89.85 - BUY)
Minsheng (1988 HK - HK$10.66 - SELL)
Mizuho Financial (8411 JP - 267 - U-PF)
Morgan Stanley (MS US - US$39.01 - BUY)
MUFG (8306 JP - 914 - O-PF)
NAB (NAB AU - A$33.00 - BUY)
Nomura (N-R)
OBC (OBC IB - RS197.9 - SELL)
OCBC (OCBC SP - S$10.04 - U-PF)
OK Bank (8361 JP - 440 - O-PF)
PNB (PNB IB - RS150.8 - O-PF)
PNB (PNB PM - P70.20 - O-PF)
Public Bank (PBK MK - RM18.56 - U-PF)
RCBC (RCB PM - P41.90 - O-PF)
Resona (N-R)
RHB Capital (RHBC MK - RM7.50 - SELL)
SBI (SBIN IB - RS257.6 - BUY)
SCB (SCB TB - BT156.0 - O-PF)
Security Bank (SECB PM - P155.00 - O-PF)
Shenzhen Dev Bk (N-R)
Shinhan (055550 KS - 41,150 WON - BUY)
SinoPac FHC (N-R)
SMFG (8316 JP - 5,574 - SELL)
SPD Bank (N-R)
Standard Chartered (2888 HK - HK$122.20 - BUY)
Suruga Bank (8358 JP - 2,624 - BUY)
Taishin FHC (N-R)
TCF (N-R)
Thanachart (TCAP TB - BT34.0 - U-PF)
UBS (N-R)
Union Bank (UNBK IB - RS161.9 - SELL)
UOB (UOB SP - S$22.72 - O-PF)
Westpac (WBC AU - A$31.88 - O-PF)
Woori Financial (000030 KS - 10,350 WON - SELL)
Yes Bank (YES IB - RS829.3 - O-PF)
191

Asian banks
Analyst certification
The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect
my/our own personal views about the securities and/or the issuers and that no part of my/our compensation
was, is, or will be directly or indirectly related to the specific recommendation or views contained in this
research report.
The policy of CLSA (which for the purpose of this

disclosure includes subsidiaries of CLSA B.V. and CLSA
Americas, LLC ("CLSA Americas")), and Credit Agricole
Securities (Taiwan) Company Limited (CA Taiwan) is to
only publish research that is impartial, independent,
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compensation from the companies they cover.
Regulations
or
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To maintain the independence and integrity of CLSAs
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This means that CLSAs Research department is not part
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CLSA has put in place a number of internal controls
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that interactions that may occur among CLSAs Research
192
personnel, Corporate Finance and Sales and Trading

personnel, CLSAs financial product issuers and CLSAs
research analysts do not compromise the integrity and
independence of CLSAs research.
Neither
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members/associates/may have a financial interest in, or
be an officer, director or advisory board member of
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herein. In circumstances where an analyst has a preexisting holding in any securities under coverage, those
holdings are grandfathered and the analyst is prohibited
from trading such securities.
Unless specified otherwise, CLSA/CLSA Americas/CA
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manage/co-manage a public offering for, the listed
company during the past 12 months, and it does not
expect to receive investment banking compensation from
the listed company within the coming three months.
Unless mentioned otherwise, CLSA/CLSA Americas/CA
Taiwan does not own a material discloseable position,
and does not make a market, in the securities.
As analyst(s) of this report, I/we hereby certify that
the views expressed in this research report accurately
reflect my/our own personal views about the securities
and/or the issuers and that no part of my/our
compensation was, is, or will be directly or indirectly
related to the specific recommendation or views
contained in this report or to any investment banking
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addition, the analysts included herein attest that they
were not in possession of any material, nonpublic
information regarding the subject company at the time of
publication of the report. Save from the disclosure below
(if any), the analyst(s) is/are not aware of any material
conflict of interest.
5 June 2015

Asian banks
Key to CLSA/CLSA Americas/CA Taiwan investment

rankings: BUY: Total stock return (including dividends)
expected to exceed 20%; O-PF: Total expected return
below 20% but exceeding market return; U-PF: Total
expected return positive but below market return; SELL:
Total return expected to be negative. For relative
performance, we benchmark the 12-month total forecast
return (including dividends) for the stock against the 12month forecast return (including dividends) for the
market on which the stock trades.
In the case of US stocks, the recommendation is
relative to the expected return for the S&P500 of 10%.
Exceptions may be made depending upon prevailing
market conditions. We define as Double Baggers stocks
we expect to yield 100% or more (including dividends)
within three years at the time the stocks are introduced
to our Double Bagger list. "High Conviction" Ideas are
not necessarily stocks with the most upside/downside,
but those where the Research Head/Strategist believes
there is the highest likelihood of positive/negative
returns. The list for each market is monitored weekly.
Overall rating distribution: Buy / Outperform - CLSA:

61.70%; CLSA Americas: 59.76%; CA Taiwan: 67.53%,
Underperform / Sell - CLSA: 38.20%; CLSA Americas:
40.24%; CA Taiwan: 32.47%, Restricted - CLSA: 0%;
CLSA Americas: 0%; CA Taiwan: 0%. Data as of 31
March 2015.
Investment banking clients as a % of rating category:
Buy
/
Outperform
CLSA:
0.74%;
CLSA
Americas:0.13%; CA Taiwan: 0.19%, Underperform /
Sell - CLSA: 0.01%; CLSA Americas: 0.02%; CA Taiwan:
0%, Restricted - CLSA: 0%; CLSA Americas: 0%; CA
Taiwan: 0%. Data for 12-month period ending 31 March
2015. There are no numbers for Hold/Neutral as
CLSA/CLSA Americas/CA Taiwan do not have such
investment rankings.
For a history of the recommendations and price
targets for companies mentioned in this report, as well as
company specific disclosures, please write to: (a) CLSA
Americas, Compliance Department, 1301 Avenue of the
Americas, 15th Floor, New York, New York 10019-6022;
(b) CLSA, Group Compliance, 18/F, One Pacific Place, 88
Queensway, Hong Kong and/or; (c) CA Taiwan
Compliance (27/F, 95, Section 2 Dun Hua South Road,
Taipei 10682, Taiwan, telephone (886) 2 2326 8188).
2015 CLSA Limited, CLSA Americas, and/or CA Taiwan.
5 June 2015
2015 CLSA Limited, CLSA Americas, LLC (CLSA

Americas) and/or Credit Agricole Securities Taiwan Co.,
Ltd. (CA Taiwan)
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193

Asian banks
needs of individual recipients. Before acting on any

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194
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5 June 2015

Asian banks
recipient of this research in the United States wishing to

effect a transaction in any security mentioned herein
should do so by contacting CLSA Americas.
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Services license holder to deal in securities and an
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35 and 36 of the Financial Advisers (Amendment)
Regulations 2005 of the Financial Advisers Act (Cap 110)
5 June 2015
with regards to an accredited investor, institutional

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not apply to CLSA Singapore Pte Ltd. Please contact CLSA
Singapore Pte Ltd (telephone No.: +65 6416 7888) in
connection with queries on the report. [MCI (P) 094 112014]
The
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Securities Company Limited which is different from the
entity that distributes the publication/communication in
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Morgan Stanley Capital International Inc (MSCI). Without
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reproduced, redisseminated or used to create any
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disclaim all warranties of originality, accuracy,
completeness, merchantability or fitness for a particular
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of its affiliates or any third party involved in, or related to
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for any damages of any kind. MSCI, Morgan Stanley
Capital International and the MSCI indexes are service
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GICS is a service mark of MSCI and S&P and has been
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and tables stands for CLSA/CLSA Americas estimates and
CT stands for CA Taiwan estimates.
195

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The Usual Suspects (Asias Leading Regional Banks) 20150605

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The Usual Suspects (Asias Leading Regional Banks) 20150605

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USUAL SUSPECTS

Asias leading regional banks

Marcus Liu, CFA

OCBC ...................................... 167

MUFG ..................................... 151

SMFG ...................................... 171

ANZ Bank ................................ 155

Mizuho Financial ....................... 175

DBS ........................................ 159

CIMB ...................................... 179

UOB ....................................... 163

Maybank ................................. 183

Appendix: Asian bank comps .......................................................... 187

Bank research reserves

For important disclosures please refer to page 192.

The Usual Suspects

Asias population, economic growth and financial development point to its

Asia has 60% of worlds

GDP per capita (US$)

Source: CLSA, World Bank, IMF, central banks

Many players in Asian

Global assets (US$bn)

Asian cross-border rev as % grp

Source: CLSA, company data

Its commonly asserted

There are few regional

Source: CLSA, company data

Many challengers have

Perhaps just as important, the oft-cited regional challengers are themselves

China and Japan are likely

We believe that the Chinese and Japanese banks - exemplified by their

Despite their ambitions,

Asian cross-border banking franchise scale, strength and ambition

No large challenger with

= US$2bn in Asia cross-border revenue

Source: CLSA, company data

Citigroup, StanChart and

Among the banks we have analysed we have three BUY recommendations:

SMFG and CIMB

Recommendations and comps

Price Mkt cap

The Usual Suspects

Section 1: Dawn of a new order

Dawn of a new order

Asia overtook N America

Asia offers growth;

GDP in current US$

Source: CLSA, World Bank

Section 1: Dawn of a new order

Banking and financial

Weight of world finance is

Private sector credit in current US$

Source: CLSA, World Bank

Chinas rise is the most

Relative growth rates in private sector credit by region/country

Source: CLSA, World Bank

Growth trends point to

Its always dangerous to over-extrapolate from recent growth trends but we

Section 1: Dawn of a new order

But Asian financial

As noted, stages of economic development and financialisation - ie, the

Asia contains both

Economic development, credit penetration and credit

Private sector credit/GDP (%)