Bi-monthly ISSUE 38

Display until 28 February, 2003

Excellence in Retail
Banking Awards 2002
Standard Chartered Singapore takes the laurels
with ICICI and DBS in hot pursuit
New category: the best retail banker in the region

The on-line revolution in

trade finance takes shape

INTERVIEW:
Zakir
Zakir Mahmood
Mahmood restructures
restructures
Habib
Habib Bank
Bank in
in Pakistans
Pakistans
evolving,
evolving, but
but still
still
challenging,
challenging, environment
environment

Look us up on www.theasianbanker.comThe Asian Banker Journal 1

2 The Asian Banker Journal
The Asian Banker Journal is published six times a year by

Trendwatch 6
The unfair share of the customers business.
TAB INTERNATIONAL PTE LTD
Incorporated in Singapore

Noteworthy 8
A selection of comments made by protagonists in the industry in the thick
of battle in the last two months.

Current Account 10 - 14
Rationalising the payments value chain.
Should Asian banks reel from the effects of the Bali bomb?
Taiwanese credit card issuance to hit a new high.
Capital ties to life insurers endanger Japanese banks.
New Islamic banking standards board sets guidelines.
Credit card competition hots up.

Founder and Editor-In-Chief

Emmanuel Daniel l edaniel@asianbanker.com.sg
General Editor Banknotes 16 - 20
Matthew Taylor l mtaylor@asianbanker.com.sg News and analysis of financial institutions around the region.
Online Editor
Diane Jorolan l djorolan@asianbanker.com.sg
Associate Sub Editor
Lai Ee Na l subeditor@asianbanker.com.sg
Manager, Research Personal Account 22 - 23
Anne Giulianotti l agiulianotti@asianbanker.com.sg S Dhanabalan, chairman of DBS bank and Temasek
Senior Researchers, Research Holdings, draws from his experiences on corporate
Fahim Uz Zaman l fzaman@asianbanker.com.sg governance.
Titien Ahmad l atitien@asianbanker.com.sg
Li-May Chew l lmchew@asianbanker.com.sg
Wong Ee Eu l euwong@asianbanker.com.sg
Chen Yih Lin l ylchen@asianbanker.com.sg
Yeo Kwee Chuan l kcyeo@asianbanker.com.sg

Director
Mei Fong, Chin Tel: (65) 6236 6502
mfchin@asianbanker.com.sg
Director, Global Client Services
Cyrus Daruwala Tel: (65) 6236 6522
cdaruwala@asianbanker.com.sg
Business Development
Industry Watch 24
Shiv Taneja of Cerulli Associates on Taiwanese-led growth in
Robin Seng Tel: (65) 6236 6521 (Publication)
assets under management in Asia.
rseng@asianbanker.com.sg
Forum Services
Jodine Phua Tel: (65) 6236 6503
jphua@asianbanker.com.sg
Subscription Sales
Jenny Kwong Tel: (65) 6236 6500
Technology 26 - 27
subs@asianbanker.com.sg
Three roads to quantifying investment decisions.
Circulation & Database
Ivy Tan Tel: (65) 6236 6505
dbase@asianbanker.com.sg
Graphics & Layout
Valen Siew Tel: (65) 6236 6506
Balance Sheet 28 - 32
art@asianbanker.com.sg Malaysian banks face a second round of mergers.
Production
Janet Chan Tel: (65) 6236 6508
jchan@asianbanker.com.sg

Advertising Representatives
Benchmark 77 - 80
Hong Kong: Godfrey Wu (MHI) Stricter rules deal Thailands card industry a hard hand
Tel: (852) 2591 1077 Fax: (852) 2572 5158 Major Korean players cap household lending growth
mhi@hk.gin.net Gross NPAs of Indian banks jump 11 percent
USA: John Barrios (World Publication Services) Philippine banks report weak core earnings
Tel: 1 (201) 531 0760 Fax: 1 (201) 531 0827
WPS202@erols.com
Printed in Singapore by
Xpress Print Pte Ltd

MITA (P) 078/10/2002 (Singapore)

Regular
People 70
KDN PPS 1301/10/2003 (Malaysia)
Partners 74
ISSN 02189615
Ratings Update 81
Copyright Protected. Reproduction in Data File 82
any form prohibited except with permission.
For reprints, please call (Singapore) (65) 6236 6508

Head Office: Representative Office:

10 Hoe Chiang Road, #14-06 Keppel Tower, Singapore 089315 No. 53-9, The Boulevard, Mid Valley City,
Tel: (65) 6236 6501/10/12/13/14/15/16/17/18 (Editorial); (65) 6236 6521/22 (Sales/Marketing); Lingkaran Syed Putra 59200 Kuala Lumpur, Malaysia.
(65) 6236 6500 (Subscriptions); Fax: (65) 6236 6530 Tel: (603) 2284 7110 Fax: (603) 2284 5300
www.theasianbanker.com www.theasianbanker.com

The Asian Banker Journal 3

 Special Report:
The Asian Banker 2002 Excellence
in Retail Banking Awards.
The Best Retail Banks in Asia.
Some beacons of light penetrate the
gloom of another difficult year.
33 SUBSCRIPTION FORM
I would like (Please tick the appropriate box):
One-year subscription to THE ASIAN BANKER 300PLUS at
US$620 which includes:
CD ROM (Excel format) and online access to database of
Asias top 300 banks balance sheets
One year subscription to Asian Banker Journal
(worth US$240)
Interactive access to Asian Banker Journal online edition for
up to five executives (worth US$490)
One-year subscription to THE ASIAN BANKER JOURNAL only
at US$240 which includes:
Six issues of Asian Banker Journal (bi-monthly)
Interactive access to online editions (subscribed issues) for
up to five executives (worth US$490)

Name:
Designation:
Organisation:
Address:

Postal Code: City/Country:

Tel: Fax:
Interview 64 E-mail:
Zakir Mahmood,
president and CEO of
Habib Bank in Pakistan
discusses his progress in I WISH TO PAY
restructuring his bank, in (PLEASE COMPLETE THIS SECTION)
an understandably still
challenging climate. MasterCard Visa American Express Diners Club
Zakir Mahmood,
president and CEO,
Habib Bank Card No.: Expiry Date:

By a non-negotiable cheque made payable to:

TAB International Pte Ltd
WHO WE ARE
Please invoice us
The Asian Banker is a research and intelligence company dedicated
to providing complete and up-to-date information on strategic
developments in the financial services industry in the Asia-Pacific Amount: Cheque No.:
region. The company offers a unique combination of the skills of
researchers and journalists to develop a keen perspective on strategic (add 4% GST for Singapore subscribers)
issues and the drivers in the industry.

Asian Banker Journal was incorporated as TAB International Pte Ltd Issuing Bank:
in Singapore in September 1996. The flagship Asian Banker Journal
is a regional publication covering best practices in the industry. The
publication has become the definitive commentator on developments Signature: Date:
in the Asia Pacifics financial services industry. (As in credit card, if applicable.)
Asian Banker Research offers a wide range of intelligence-based
reports and research products for the banking and financial services
community. They are designed to provide senior management of
organisations with critical information to secure leadership roles in Cancellation Policy:
the industry. No refunds will be given for cancellation of The Asian Banker subscriptions.
Send in your subscription:
Asian Banker Forum centres around forums and roundtables for By Fax: (65) 6236 6530, Telephone: (65) 6236 6500, E-mail: subs@asianbanker.com.sg or
senior executives on key areas of development in the industry. Many By post to: T.A.B. International Pte Ltd
of these forums are conducted by invitation only and held behind 10 Hoe Chiang Road, #14-06 Keppel Tower, Singapore 089315
closed doors. The Companys flagship forum event is the Asian Banker
SUMMIT, inaugurated in 2000 and attended by over 150 delegates
from around the region. To receive our E-Newsletters, sign up at www.theasianbanker.com

4 The Asian Banker Journal

The Asian Banker Journal 5
TRENDWATCH

The unfair share of the

customers business
Where is the money in financial services today? Margins are down. Share of customer wallets is frag-
mented. In wealth management, brokerage and insurance customers are distracted by the decimation
of their asset base. Entire economies are down.
The temptation is to create churn. To take the retail paradigm, make customers spend money on
something they would not otherwise. It makes sense for credit cards find the revenue in encourag-
ing customers to spend. It makes sense for online retail brokerage entice customers to trade. It may
make sense in transactional solutions such as cash management encourage customers to use ones
solution instead of a competitors for something that they were going to do anyway.
But for deposits, loans, insurance, bancassurance or wealth management? These are fiduciary re-
lationships. Inasmuch as the internet brokerages were a huge threat during the dotcom era, we may
be wrong to have absent-mindedly followed that model to this day.
We see for example, banks and insurance companies introducing retail based loyalty programs
complete with discount cards and mileage
With stock trading in key markets in deep decline, where will points for trading in mutual funds. How
financial services players churn their next source of income? contradictory can the message be? Mutual
funds are meant to be long term risk based
South Korea - Value ($ billion) products, not tradable commodities.
Value of stock market transactions ($ billions)

A few American banks appear to be learn-

Hong Kong - Value ($ billion)
900 ing to make the shift. One senior executive
Singapore - Value ($ billion) 1) for wealth management at Wachovia, Anne
800
Doss, was recently reported as saying What
700 were trying to do is have a broad and deep
600 product array that keeps our customers
regardless of the cycle. You have to have the
500
right balance of having that deep relationship
400 with the client that allows you to anticipate
300 needs, and the solution set, or product set, to
meet those needs.
200 Despite this insight, there is a certain sense
100 of desperation creeping into the industry.
0
Banks have done pretty much all that can be
1997 1998 1999 2000 2001 done from consolidating into financial holding
companies to revamping core banking systems
to be more customer centric and increasing
1) For the FY ended June (e.g 2001 refers to FY to June 2002)
Source: Asian Banker Research
sales and support levels. But the sales have
not followed, at least not for many.
For many banks the focus has become , to
borrow a phrase from Jim Scurlock, a Cap Gemini Ernst & Young consultant and author of a recent
report on wealth management, getting the unfair share of the customers wallet.
The idea is far from flimsy. We saw that with a strong treasury capability and a customer centric
infrastructure, a bank like Standard Chartered in Singapore was able to design mortgage and wealth
management products to steal that unfair share of customers wallets and be profitable in a very dif-
ficult marketplace against incredible competition (no wonder they won the excellence in retail banking
award for the region this year, but that is another story elsewhere in this issue).
Over the past two years banks have become more appealing because the bear market has made
people appreciate the idea of capital preservation versus capital appreciation. This is a good time as
any to gain lost ground, and re-establish the fiduciary relationship that this business was all about
in the first place.

6 The Asian Banker Journal

 CALENDAR LETTERS TO THE EDITOR

3G Mobile World Forum, 2003
14 - 17 January, Tokyo, Marcus Evans
3rd Asia Pacific Mobile Payment System & Security
20 - 21 January, Singapore, IBC Asia
Regional Credit Risk Summit
18 - 19 January, Kuala Lumpur, IQPC
We notice that you have recently published an article about
Mr. Jin Yun in CEO Interview column. However, we are
sorry to see that in the newsletter you have wrongly put
Mr. Jin Yuns title as CEO and Vice President of the bank.
As a matter of fact, his title should be Vice Chairman and
President of the Bank. We would appreciate it very much if
you could correct it in a way that you think appropriate.

Risk & Rewards in Chinas Capital Market Gao Xia

19 - 20 February, Macau, Marcus Evans Shanghai Pudong Development Bank

Database & Direct Marketing Conference EDITORIAL RESPONSE:

20 - 21 February, Singapore, Pacific Conference
Retail Finance Asia-Pacific
12 - 14 March, Singapore, BAI/Lafferty
7799 Goes Global China Summit
20 - 21 March, Shanghai, EL Oscar Event
Asia Bancassurance 2003
27 - 28 March, Hong Kong, Asian Business Forum
The Asian Banker Summit 2003
2 - 4 April, Hong Kong. The Asian Banker
It appears that the error occurred because of a miscommu-
nication in the translation and spelling of Chinese names
and titles, despite the fact that we had checked to confirm.
It would appear that the position of vice chairman is
commonly trans-literated as vice president.
While some readers would have received the version with
the wrong spelling, we have since recalled and reprinted
the issue with Mr Juns name and position correctly stated.
None too early, as the news of Citibank buying into the
bank broke soon after.

Visit www.theasianbanker.com
L ETTERS TO THE EDITOR:
Fax to 65-6236 6530 or
for the latest Calendar Updates. e-mail: editor@asianbanker.com.sg

E-Newsletters
Join more than 12,000 people who receive news alerts and
specialist newsletters on Asias banking and financial services
industry every day directly by e-mail.

Subscribe to our wide range of e-newsletters by visiting www.

theasianbanker.com

4 Simple Steps to manage this complimentary service and choose to unsub-

scribe or subscribe to the E-Newsletters of your interest. To begin, simply
1. Visit www.theasianbanker.com
2. Click on the icon Sign up for our Mailing List
3. Select your area of interest by clicking on the box
4. After selection and filling the necessary details, click Submit

Wealth Management Customer Relationship Management

Payment Systems Operations & Technology Retail Distribution

More articles on the Specialist Segment are available on the corresponding

Resource Page on The Asian Banker Website: www.theasianbanker.com
If you need further assistance, please do not hesitate to call Ivy Tan
at tel: 65-6236 6505 or email: dbase@asianbanker.com.sg
The Asian Banker Journal 7
NOTEWORTHY

A selection of comments made by protagonists in

the industry in the thick of battle in the past two months.

The major deterrence in tackling a CRM or protability project is, for me, a question of eort
rather than dollars. The concept of being able to leap through a unied enterprise-wide data model
is very appealing, but many banks fail at that.

- Ramon Sales, senior vice president of Information Systems at Bank of the Philippine Islands.

I have mentioned on a number of occasions that we cant force

[Hong Kongs] healthy banks to merge, but we can ask them to
think about what their options are... if you are going to stay as a
standalone bank, then clearly you are going to have to think about
how you are going to generate a prot.

- David Carse, deputy chief executive of the Hong Kong Monetary Authority who is
reported to be moving on in March.

The local banks understand very well that...the only [competi-

tive] dierence they can oer is level of service. I can see that a
number of banks are improving their service and inducing a kind
of sales culture which couldnt be seen before.

- Stanley Wong, Standard Chartereds chief executive for China, on the outlook for local
banks in China once the market opens to overseas competition in 2006 .

What this all boils down to is that the branch is well and truly back.

- Westpac chief executive David Morgan, arming that banks need to bring customers back to the
branches, years after Australian banks systematically pared down branch networks.

Things are evolving. If the opportunity indeed existed, if the shareholders are willing to sell their
stake, we would be interested.

- Victor Kung, chief nancial ocer of Fubon Financial Holding, on reports that it was interested in acquiring International Investment
Trust Co., one of Taiwans leading fund management houses.

8 The Asian Banker Journal

The Asian Banker Journal 9
CURRENT ACCOUNT
Rationalising the payments value chain
The threat to banks is receding as online payment players seek to survive
by becoming partners instead of competitors.
While innovators such as PayPal, The
US based internet payment company,
initially rocked the banks payment sys-
tem business, they are now under pres-
sure as traditional players such as Bank
of America have started to re-enter the
relationship end of the value chain.
Todd Pearson, senior vice president
for financial services at PayPal, says it
has repositioned itself as a partner to
banks to facilitate payments for small
online merchants that would otherwise
not be feasible. Speaking at a recent North
American banking conference organised
by BAI, Pearson says this was not un-
like independent service organisations
that extend acquiring banks reach into
smaller merchants and new industries.
This re-invention is a stark contrast to
PayPals predatory aspirations when it
entered the previously bank-dominated
payments business.
Despite its stong presence in online
auctions, less than 10 percent of PayPals
volume is related to true person-to-
person transfers, fear of which brought
banks into a burst of defensive product
launches when PayPal first appeared.
Should Asian banks reel from
Bali bombing?
Cost pressures hamper banks plans to boost security arrangements.
Since 11 September last year, operational
risks associated with terrorist attacks
have received increased attention for
banks around the world. Recent revela-
tions from the ongoing investigation into
the Bali bombing incident suggest that
Asian banks should still be considering
their physical security, although the
recent terrorist attacks in Kenya show
that this is by no means exclusively an
Asian problem.
10 The Asian Banker Journal
According to research firm Celent
Communications, there has only been
43 percent growth for bill payments and
19 percent growth for credit cards which
are typically bank revenue drivers, while
e-checks and PayPal has grown annually
at 96 percent and 90 percent, respectively.
Celent believes these alternative mecha-
nisms pressure financial institutions to
implement account-to-account (A2A)
services for casual payments, bill pay-
ments, account opening and funding and
e-commerce. However, once banks get
their act together in A2A, propositions
such as PayPal could collapse.
Innovations such as smart cards, ac-
count aggregation, person-to-person
(P2P), electronic billing presentation
and payment (EBPP), online banking,
automated clearing houses and elec-
tronic funds transfer networks have been
among the forces rocking the banks pay-
ment systems business.
There has not been any radical trans-
formation, with banks being shut out
of the payments business, but instead,
the space is starting to disaggregate, as
banks figure out how to position them-
A spokesman for the Bali bombing
investigation has revealed, following the
arrest of 13 further suspects in connec-
tion with the bombing, that explosives
left over from the earlier attack were in-
tended for an attack on the Bank Central
Asia in the town of Serang in Indonesias
West Java province. Bank Central Asia is
a local Indonesian bank without signifi-
cant ties to the US.
Banks in the US have been on high
selves along the payments value chain.
In Asia, the markets fragmented state
has staved off any formidable threat that
regulators or dominant players could not
have squelched through legislation or
alternative offerings. Banks are develop-
ing proprietary payment solutions and
investing large sums that will inevitably
be written off.
Innovative payment systems that took
off in markets such as South Korea and
Japan were driven by a large-enough
domestic market made up of eager
adopters. Markets such as Singapore,
Australia and Hong Kong, which are
expected to be innovators, are domi-
nated by comfortable cartels, hence, the
online payments arena is restricted to
traditional payment mechanisms such
as credit cards and cheques.
Initiatives by Visa and MasterCard
have largely addressed online fraud
and targeted large-scale merchants. This
leaves the market open to third party
companies with network capabilities to
muscle in and fill the gaps to address the
customers need for efficient cross-border
online payment solution.
alert for some time, following re-
ports earlier this year in the US and
a year ago in Singapore that Islamic
militant terrorists were targeting US
financial institutions.
The planned attack on Bank Central
Asia is the first clear sign that locally-
owned banks are also threatened. Neither
should Asian banks catering to predomi-
nantly Muslim communities feel safe. In
Bangladesh, in early December, bombs
 CURRENT ACCOUNT
exploded in four Dhaka movie theaters
packed with Muslims celebrating the end
of Ramadan, killing at least 17 people and
wounding 200.
Earlier in the year, the FBI warned,
Unspecified terrorists are considering
physical attacks against the US financial
institutions in the Northeast, particularly
banks, as part of their campaign against
US financial interests. FBI Director, Rob-
ert Mueller, said at that time that people
should be suspicious of individuals enter-
ing banks who normally dont come into
banks and of trucks parked alongside
the buildingBanks should not close, but
should be on heightened alert.
What can banks in Asia do? The
answer is not much beyond remaining
vigilant, but as banks around the region
are facing pressure to cut staff costs,
hiring of significant additional security
to protect their branch networks seems
unlikely. Indonesia has had plenty of
experience in recent years in maintaining
a heightened degree of bank security.
During the political unrest in 1998, for ex-
ample, Bank Danamon had 5,000 security
staff on its payroll, but these functions
have since been heavily rationalised and
outsourced.
In some parts of the region, procuring
and retaining the services of overseas
employees and consultants may prove
increasingly difficult, as the expatriate
communities in places like Jakarta are
dwindling fast.
The United States, Australia and Brit-
ain have not significantly modified the
warnings they issued after the terrorist
attack. In Manila, the Canadian and
Australian embassies have shut down
and, in Jakarta, international schools have
temporarily closed their doors. How-
ever, Japan, Singapore and other Asian
countries do not have travel warnings
on Indonesia. Local talent and a plentiful
supply of consultants from elsewhere in
the region should fill the gap.
Some foreign companies are also
likely to retrench their investment in
what are perceived as the high risk
areas for terrorism. Sony, for example,
recently announced that it will be clos-
ing its mini-stereo manufacturing plant
in Indonesia with the loss of 1,000 local
jobs. Indonesias loss will be Malaysias
gain, where the plant is expected to be
relocated. In the first nine months of the
Indonesian government approved $6.5
billion of foreign investment unchanged
from the same period the previous year.
In October, it approved $578 million of
new projects, including investments in
the countrys trade and electronics indus-
tries. However, if this foreign investment
were to dry up, it would be bad news as
domestic investment has been very weak, .......The best boutique search
falling 60 per cent to 20.9 trillion rupiah firm on Boat Quay
($2.3 billion) from 52 trillion rupiah a
year earlier.
Banks in Indonesia could feel a new
bout of pain. Although retail banking
operations are largely unaffected, local
corporations are reported to be finding it
difficult to meet debt service and restruc-
turing targets. Particularly at risk will
be those corporates whose restructuring
plans involved asset sales as foreign buy-
ers in the present environment will be
few and far between. The tourist industry Mancano And Associates is an established recruitment
is obviously hurting too. firm specializing in the financial service and
Another side effect could be a slower telecommunications industry. We are consistently retained
by Fortune 500 institutions throughout South East Asia
pace of bank consolidation and bad loan
for our industry expertise. Mancano And Associates
clearance if overseas investor appetite discreetly researches and recommends Asian experienced
diminishes. However, deals are still be- senior management professionals with extraordinary
ing done. For example, Shinhan Finan- qualifications.
cial Group of South Korea announced,
shortly after the Kenya attacks, that it Our consultants have executed assignments in:
has received backing from New York
Burma Australia
private-equity firm Warburg Pincus
LLC and BNP Paribas SA of France, to Cambodia Philippines
compete with a consortium led by US Hong Kong Singapore
investment fund Cerberus Partners LP India Sri Lanka
to acquire a controlling stake in Cho- Indonesia Thailand
hung Bank. Malaysia Vietnam
For banks elsewhere in the region,
it should mainly be business as usual. Assignments undertaken:
Citigroup stood up to the terrorist
threat recently when it sponsored a Banking & Financial
recent Asian tour by the New York Investment Banking
Philharmonic Orchestra, conducted by Corporate Finance
the prominent Jewish maestro Lorin Direct Investment
Maazel, to celebrate the centenary of Corporate Banking
Citigroups presence in the region. The Private Banking
tour included a concert at Singapores Banking Operations
new temple to secular western culture, Equities
the Esplanade. Security was tight, but Fund Management
the visit was hailed as a rousing success IT Banking System
and attracted capacity audiences, despite
the confluence of associations that might Telecommunications
have attracted militant attention.
Wireless Local Loop
Threatened and actual bomb attacks
Private Telephone &
by Irish republicans did not stop Lon-
Telegraph
don from remaining a global centre for Paging
financial services in the 1990s. There is Cellular / Satellite
therefore little reason to suggest that Network Management System (NMS)
the industry in Asia will be significantly Radio Network Planning
impacted by the need to maintain a high Installation Planning
level of alertness against potential terror- Radio Base Station/Transmission Engineers
ist threats.
Mancano And Associates
45A Boat Quay Singapore 049834 Tel: 6533 8128 Fax: 6533 0079
e-mail: mancano@iname.com
Website: www.mancano.com
The Asian Banker Journal 11
CURRENT ACCOUNT
Taiwanese credit card issuance to hit new
high early this year
Credit cards in circulation in Taiwan could hit 30 million by early 2003.
Banks are trying to build market share in the overbanked, fragmented market.
On average, total credit cards in circula-
tion in Taiwan has been growing at 30
percent per annum. With 22.5 million
credit cards by the end of October 2001,
Asian Banker Research estimates the
number of cards hitting a fresh high
of 30 million by early 2003. Chinatrust
Commercial Bank boosted growth from
three million in 2001 to 4.7 million in 2002
and cards issued by Fubon Bank grew by
more than 50 percent to hit a new record
of 1.9 million.
Cards growth explains the steady climb
in cash borrowings by holders at NT$12.5
billion ($358.2 million) in September 2002.
Reports say that hitting NT$13 billion
could exacerbate defaults in credit card
payment and worsen the non-performing
loan (NPL) situation. On average, credit
card cash advances per month in the past
tended to hover above NT$10 billion. As
this translates to only about 15 percent
of total transactions; in cash advances,
compared to 20 percent in the US and 60
percent in South Korea, such anxieties
seem misdirected. In any case, card issu-
ers are not overly concerned at this stage
as there are no obvious indications that
default payments are led by excessive
transactions on the card.
If at all, card spending in Taiwan is
fairly conservative, averaging in Oc-
tober 2002 at NT$2,616 spend per card
monthly. In fact, spending per card had
been decreasing since the late 1990s, pos-
sibly due to general belt-tightening in a
dampened economy.
That said, the rise in total credit card
cash advance may be explained also by
higher spending per card by a select class
of cardholders in the marketplace. What
is driving the battle for card supremacy
in Taiwan is the move to increase card
transaction and spend per card by qual-
ity customers.
Typically, a Taiwanese cardholder
holds about three credit cards. Chi-
natrust has been taking the lead with
an monthly average benchmark of
12 The Asian Banker Journal
Improving the
quality of borro-
wers will certainly
help to gain more
brownie points
than blindly pedd-
ling cards in the
marketplace.
NT$4,000. However, Fubon Bank said its
average spend per card in October 2002
at NT$3,729 had overtaken Chinatrusts,
whose spend per card appeared to have
dipped below its average to NT$3,376.
Other domestic issuers followed closely
behind with Taishin International
Bank, the second largest domestic card
issuer, averaging NT$2,568, Cathay
United Bank at NT$2,553 and United
World Chinese Commercial Bank at
NT$2,388.
The increase in spend per card issued
by Fubon Bank up to now was boosted
by the launch of its Platinum Cards six
months ago. Since then, take-up rates
have overshot original targets twice to
some 300,000 customers. Majority of the
Fubon Bank Platinum cardholders are
newly acquired rather than upgraded
from the existing pool. They are largely
responsible for a 58-percent jump in
transaction volumes at the Taiwan Na-
tional Credit Card Centre a remarkable
rise from 4.7 million to 7.1 million.
Launching the Platinum Cards at
Fubon Bank was a deliberate move.
An internal committee was formed to
think about improving the proportion
of quality cardholders in its customer
base that is, older customers with
better income streams. Since then, results
showed that spending per platinum card
averages more than three times the ordi-
nary card spent and so far, default rates
have been visibly lower than classic or
gold cardholders.
At present, the slowdown of the
Taiwanese economy had made govern-
ment efforts to reduce general NPL
ratio, officially at eight percent, onerous.
Recent headlines on credit cooperatives
restructuring attempts leading up to the
resignation of a Taiwanese finance min-
ister worsened the views of an already
admonishing public over the efficacy of
policies to bring about changes to the
banking sector.
Operating in such an overbanked,
intensely competitive and fragmented
market, Taiwan banks such as Fubon
Bank need a clear positioning strategy
to build market share. Improving the
quality of borrowers will certainly help
to gain more brownie points than blindly
peddling cards in the marketplace.
Others like Chinatrust, with its strong
brand and marketing savvy, are push-
ing a wider, comprehensive range of
cards to the marketplace. The Platinum
Card was launched a few years ago to
upgrade customers. Today, its focus is
on building partnerships and develop-
ing co-branded and specialty cards
(including smart cards) with popular
retailers and petroleum stations, among
others, for the mass market to increase
daily transactions.
But certainly in the long run, what will
tip the balance in the competitive card
scene will be consolidation among credit
card players. A serious move in this direc-
tion may just be a more efficient option
for banks to gain the needed critical mass
and scale to lower cost per card customer.
There will also be larger scope for banks
to further segment customer base and
optimise resource allocations to increase
value to customers.

Capital ties to life insurers endanger
Japanese banks
Cross share holdings with troubled life insurers are the latest cause of
concern for Japans banking industry.
Cancelled policies and low returns on
assets continue to haunt Japans major
life insurers, threatening to put the al-
ready-teetering financial services sector
over the edge. The sluggish performance
of Japans financial sector is highlighted
once more as the countrys life insurance
companies feel the crunch of cancelled
policies and low returns on assets in the
six weeks to September 2002.
The poor performance of Japans life
insurance sector does not bode well
for the banking sector in general, as
the intricate cross-capital relationship
between the two has been in existence
for the past several years. The current
strain on the relationship could prove to
be their undoing.
David Threadgold, head of research
at ING Securities (Japan), says, Life
insurance and banks are closely knit in
Japan as life insurers are big holders of
bank shares, and banks have contributed
capital to insurers funds.
Life insurers have been bringing
down their huge holdings of Japanese
stocks to reduce exposure to the volatile
market. Unfortunately, the pressure has
New Islamic banking standards board
sets guidelines
The secretary general of the newly formed Islamic Financial Services Board
says compliance to its standards stays in the hands of national regulators.
The Kuala Lumpur-based Islamic
Financial Services Board (IFSB), set
up in December, to establish uni-
versally acceptable guidelines for
regulators governing Islamic banking
and finance. The IFSB is interested in
entering discussions with regulators
been put on stock prices. Bank shares
have seen a sharp decline that appears
to have wiped out the paper profits
on stockholdings at Japans 10 leading
life insurers. These insurance companies
reported yesterday the sum of 230 billion
yen ($1.9 billion) in such profits as at
September 30 this year.
These 10 life insurance companies had
a combined 8.2 trillion yen in subordi-
nated loans to banks and bank shares as
at September 30. Banks had a total of 1.81
trillion yen in contributions to the funds
of the life insurers.
Furthermore, Japans life insurers are
seeing falling solvency margin ratios,
which measure the life insurers ability
to pay out policy obligations equating
capital and reserves to potential risks.
The countrys largest life insurer, Nip-
pon Life Insurance, had announced that
its solvency margin fell to 632 percent at
the end of September from 714.4 percent
in March. Asahi Mutual Life Insurance, on
the other hand, is nearer the 400 percent
mark. Sumitomo Life Insurances solvency
margin fell to 452.2 percent from 534.5
percent, while Dai-ichi Mutual Life, the
of countries where Islamic financial
services are available.
The IFSB was established by the central
banks of Bahrain, Saudi Arabia, Indone-
sia, Malaysia, Pakistan, Kuwait, Iran and
Sudan. Qatar has also been admitted as
a new member of the board.
CURRENT ACCOUNT
second largest life insurer in the country,
had a solvency margin of 569.2 percent.
Government intervention has not been
enough to shore up the insurance and
banking sectors in the country. Last Oc-
tober, Japan gave the green light for life
insurers to sell products through banks
in order to give insurers a wider distri-
bution channel and to provide banks a
fee business apart from the traditional
lending business. Although the added
business is expected to provide a revenue
stream for banks when the interest rates
are historically low, Threadgold believes
that the tie-in carries no bearing to the
near-crisis at hand.
Those that fall under the 200-percent
solvency margin ratio can expect to see
corrective action from Japanese finan-
cial authorities.
At the worst, authorities can halt parts
of an insurers operations if the ratio
dissolves to zero. But this is a totally dif-
ferent story that could bring a new bout
of headaches to the government. It has
yet to recover from an earlier headache
posed by a near-collapse of the countrys
banking system.
Islamic banking complies with the
shariah (Islamic law), which eliminates
interest (riba) from financial transac-
tions. This niche market, which was a
negligible market a few decades ago,
has been experiencing a growth rate of
10 percent to 15 percent per annum for
The Asian Banker Journal 13
CURRENT ACCOUNT
the past few years. According to some
estimates, it currently handles more than
$200 billion in assets.
IFSB secretary general Rifaat Ahmed
Abdel Karim thinks that bridging the
gap between different regulatory re-
gimes for Islamic banking and finance
would require bringing the relevant bod-
ies together and accommodating varied
experiences and related interests.
We would like to focus on regulatory
and supervisory issues that will help rel-
evant bodies supervise Islamic financial
services, Rifaat says.
The Middle East has about $800 billion
worth of funds searching for investments
in shariah-compliant products.
Outside the Middle East, Malaysia has
emerged as the major centre for Islamic
Credit card competition hots up
Visa remains the leader globally by volume, but Mastercard now has more
cards in issue in the US.
Visa continues to claim the top spot for
global card payment systems with more
than one billion cards in circulation
worldwide. Visa International reported
last October that its global sales volume
has surpassed $2.3 trillion for the year
ending 30 June 2002, an increase of 17
per cent on the previous year. Retail
sales using a Visa card now account for
7 percent of global personal consumer
expenditure, a figure that the payment
organisation expects to increase to at least
12 percent by 2010.
It is very encouraging that, despite the
downturn in the global economy over the
past year, we continue to see strong dou-
ble-digit growth, which reflects the value
and convenience of electronic payments,
said Malcolm Williamson, president
and CEO of Visa International. We are
confident that we can obtain a 12 percent
share of personal consumer expenditure
by the end of the decade.
Regionally, strongest growth con-
tinues to be in emerging markets. Visa
Asia Pacific saw a 42 per cent increase
in overall sales volume while in Central
14 The Asian Banker Journal
finance and banking where it currently
constitutes about nine percent of the
total domestic market. The Malaysian
government targets 20 percent (out of the
domestic banking industrys total market
share) for Islamic banking.
But there are concerns over different
interpretations and varying compliance
levels to shariah standards in different
markets. Issues such as tradeability of
debt and preference shares still need to
be ironed out.
Rifaat believes these requires attention,
and says they have been on the boards
agenda: As agreed at the time the board
was established, the council would have
to decide which shariah board IFSB has
to refer to so as compliance with the sha-
riah rules and principles is ensured.
and Eastern Europe, Middle East and
Africa, Visa saw a 37 per cent increase.
Worldwide, there are over 1.2 billion Visa
payment cards accepted at more than
29 million physical locations including
800,000 ATMs.
However, while Visa has been growing
internationally, MasterCard International
has been increasing its presence in the US.
Mastercard is now the fastest growing
network in the US and for the first time
in the industrys history it has more credit
cards in issue in the US than Visa, accord-
ing to CardWeb.com, an independent
card-research site.
MasterCard with Citibank entered
the smart card market during the fall.
The Citi Smart Card is available to the
general public with instant online ap-
proval, a 9-month 0% APR for balance
transfers, free smart card reader and a
free electronic wallet.
During November, Citi also launched a
pilot of customised smart card called the
citi.you card, by invitation only, offering
a rewards programme and annual fees as
high as $85.
However, Rifaat says the adoption of
standards is up to the national regula-
tor. We would establish prudential
and supervisory standards, but the
respective countries would decide what
to adopt.
Rifaat, who used to be secretary
general of the Accounting and Audit-
ing Organisation for Islamic Financial
Institutions (AAOIFI) since 1995, says his
experience in that organisation would be
instrumental in handling such issues.
AAOFI deals with governance, ac-
counting, auditing, and fiduciary stand-
ards, Rifaat adds. Any framework of
regulatory standards would have to
depend on a set of financial reporting
standards. We see them complementing
each other.
Without a doubt, 2002 has been a
defining year for MasterCard in the US.
The milestone reported by CardWeb.
com is the result of the payment card
strategy we implemented several years
ago, said Ruth Ann Marshall, president
of MasterCard North America.
As of the end of last September, Mas-
terCard had 264.2 million credit cards
in force in the US, which CardWeb.com
compares to Visas 259.0 million credit
cards. The number of MasterCard credit
cards in the US grew by more than 15
percent compared to the end of Sep-
tember 2001. CardWeb.com describes
Visas credit card base growth to be at
1.5 percent annually.
Interestingly however, Mastercards
higher number of cards has not allowed
it to close the gap on Visa significantly
in terms of volume. Share of credit
card volume (based on purchase + cash
advance $ volume) was 42.9 percent for
Visa in the Q3 2002 compared to 34.2
percent for Mastercard. Including debit
cards, the shares were 51.5 percent and
31.7 percent respectively.
HITACHI ADS (FILM)

The Asian Banker Journal 15

BANKNOTES
Asset Management
China Huarong Asset
Management allowed to
sell larger stakes
The Chinese government is to allow foreign firms to take
controlling stakes in joint ventures established to resolve
non-performing loans.
China Huarong Asset Management
(Huarong) has gained approval to sell
more bad loans to a foreign led joint-ven-
ture. Huarong was established in 1999 as
the main asset management company for
Chinas largest bank, the Industrial and
Commercial Bank of China.
Following a relaxation of the rules gov-
erning ownership of such joint ventures,
a Morgan Stanley consortium will take
over Huarongs distressed assets worth
about 10.8 billion yuan ($1.3 billion). A
second joint venture with Goldman Sachs
will take over bad assets with a book
value of about two billion yuan.
Mergers and Acquisitions
CAHBs Indonesian
investment bad move?
Commerce Asset Holding of Malaysia has bought Bank Niaga
in Indonesia, despite the Indonesian Bank Restructuring
Agencys insistence on keeping Bank Niaga under the
government blanket scheme.
The long and drawn-out process of
divesting Bank Niaga finally came to
a close last December when Malaysias
Commerce Asset Holding (CAHB)
finally signed a sale and purchase agree-
ment for the Indonesian governments
51-percent stake in the bank. The deal
was sealed to the tune of 1,057.35 billion
rupiah ($120 million).
16 The Asian Banker Journal
The Chinese authorities have recently
taken action, which may help to speed up
the process of sorting out bad loans from
Chinas asset management companies.
The establishment of joint ventures to
help clear such bad loans has become
popular in China but until now it has
been impossible for non-Chinese entities
to take a controlling stake in such ven-
tures. Officials announced recently that
the government will henceforth allow
majority foreign-owned joint ventures
to buy Chinese bad loans from the asset
management companies.
Wang Wenjie, head of Huarongs in-
Although most observers believe
CAHB is going into the wrong mar-
ket at the wrong time, the Malaysian
banking group is sticking to its guns
it has, after all, taken pains to edge
out ANZ Panin Bank (majority-owned
by Australias ANZ), Bank Victoria
International and Batavia Investment
Fund. But CAHB, which has its own
ternational business told journalists that
Huarong started to sell non-performing
loans (NPLs) to Morgan Stanley and
Goldman Sachs in tranches last year. Both
banks are now raising their holdings so
that Morgan Stanley will take a 65 per
cent stake in one joint venture and Gold-
man Sachs will take a 70 per cent stake in
another. Huarong will hold the balance
in the ventures.
Huarong gained approval for the ven-
tures from the Ministry of Foreign Trade
and Economic Cooperation at the end of
November a year after the Morgan
Stanley-led consortium was initially
formed to buy the loans.
Consortium partners are said to include
Lehman Brothers, Salomon Smith Barney
and Hong Kong-based investment firm
KTH Capital Management. Approval had
enabled the partners to start preparations
to launch the joint-venture operations,
Mr Wang said.
The foreign investors will make
an initial cash downpayment and
will then share the revenues from
the disposal of NPLs with Huarong.
Huarong has said it hopes that 20 per
cent of the face value of the debt in
the deal with the Morgan Stanley-led
group can be recovered.
integration issues to iron out with
the former Bank Bumiputra Malaysia
(now Bumiputra-Commerce Bank), is
believed to have paid too much for the
bank. In a volatile Indonesian market,
industry pundits say the stress could
show on CAHBs balance sheet. Would
Bank Niaga be worth it?
The Indonesian Bank Restructuring
Agency said CAHBs price was 1.48
times Bank Niagas book value. It would
appear that CAHB did pay too much, if
we are to contrast the deal against Bank
Central Asia (BCA), which was sold
at a price 1.1 times its book value. But
BCA was Indonesias crown jewel and
continues to be classified as a private
national bank even after Farallon Capital
has bought the governments 51-percent
stake in March this year.
In addition, BCA is primarily almost
five times bigger than Bank Niaga. BCAs
assets stood at stood at 111,524 billion

rupiah ($12.18 billion) as at September
30 this year, compared with Bank Niagas
$2.7 billion as at June 30 last year.
But CAHB refuses to be distracted by
market nervousness. The acquisition of
the Niaga franchise is an attractive propo-
sition for CAHB from both a strategic and
financial perspective. CAHBs invest-
ment in Niaga represents 5.4 percent of
CAHBs market capitalisation and 6.9
percent of CAHBs total equity as of June
30, 2002. Nevertheless, Niaga is expected
to have a positive financial impact on
CAHB, the bank insists.
Bank Niaga has 144 branches, which
Mergers and Acquisitions
HSBC grows its US presence
through Household
International acquisition
HSBCs decision to acquire Household will broaden its
international exposure, without a significant overlap with its
existing businesses.
Moving from enmity to friendship, HSBC
Holdings plc (HSBC) and Household
International, Inc. (Household) have
reached agreement for HSBC to acquire
Household. The total consideration for
the current outstanding Household com-
mon stock is approximately $14,242 mil-
lion. HSBC says its shares to be issued in
exchange for Household common shares
will result in an increase in the issued
share capital of HSBC of 13.38%.
Not long ago, the two firms were em-
broiled in litigation against each other
relating to the branding of HSBCs US
consumer lending subsidiaries that
was alleged to be confusingly similar
to Households subsidiary. Research
and initial meetings to settle the legal
dispute instead have led to a realisa-
tion that the assets and liabilities in the
balance sheets of the two organisations
could be complementary, given that
there is hardly any overlap between
Household and HSBCs existing busi-
CAHB hopes to use to realise significant
enhancements and cross-selling op-
portunities. However, the Indonesian
government, which originally held 96
percent in the countrys ninth-largest
bank, is not to let go of its possession
that easily. Before the sale was officially
made, IBRA said CAHB would have to
abide by the deposit guarantee scheme,
which would require the government to
cover bank liabilities to retail depositors
should a massive run on the bank occur.
But despite CAHBs objections, the deal
pushed through.
On a happier note, the sale to CAHB
nesses. This led to the conclusion that
some alliance could be mutually benefi-
cial, which has ultimately resulted in the
proposed full acquisition.
The agreement is subject to a number
of conditions including the approval of
the shareholders of HSBC and House-
hold, as well as regulatory, other con-
sents and approvals in the USA, Canada,
the UK and other relevant jurisdictions.
The acquisition is expected to be com-
pleted during the first quarter of this
year. Upon completion, Household will
become a wholly-owned subsidiary of
the HSBC Group.
According to HSBC, the acquisition
meets its stated objective of growing
consumer assets, adding a business with
total owned assets as at 30 September
2002 of $101 billion.
Household will bring over 50 million
customers in North America and provide
coverage throughout the USA, says Sir
John Bond, HSBC group chairman. We
BANKNOTES
could be what Indonesian bankers have
long been asking for: that their banks
be managed by fellow-banks with ex-
perience in restructuring. Most of them
disclosed their apprehension over the
earlier and equally long and drawn-out
stake sale of Bank Central Asia to Faral-
lon, a US-based investment fund with
the reputation of picking up bad assets of
spoiled companies, and which reportedly
had no experience with the banking sec-
tor. Hopes are high that CAHBs presence
will help Bank Niaga get back on its feet,
provided that CAHB does not stumble
by itself.
also welcome into the Group a talented
management team which has created one
of the best-in-class technology and mar-
keting platforms in financial services.
The acquisition will also make HSBC
a more geographically diverse bank,
significantly increasing the earnings
contribution from North America.
Through the Household acquisition,
HSBC will obtain national coverage in
the US for consumer lending, credit
cards and credit insurance with 1,400
offices in 46 states. As a result HSBC
claims that it will become a top 10 credit
card player globally.
HSBC hopes to extend Households
business model into countries and ter-
ritories currently served by the former,
which should have the effect of broaden-
ing the product range available to the
enlarged customer base.
The combination of businesses is
expected to produce cost savings in the
areas of information technology, admin-
istrative support and the consolidating
of card processing, providing the op-
portunity for significant funding, cost
and revenue synergies. The acquisition
is expected to be accretive to earnings
per share this year.
This is a great opportunity for us to
strengthen both HSBC and Households
businesses in a way that benefits both
sets of shareholders and is consistent
with HSBCs strategic objectives. said
Bond. This deal brings together one
of the worlds most successful deposit
gatherers with one of the worlds largest
generators of assets. It is an extremely
good match.
The Asian Banker Journal 17
BANKNOTES
Operations
DBS Bank outsources IT
services in Singapore and
Hong Kong
The bank expects cost savings of 20 percent from outsourcing
and other initiatives.
The nominal value of the contract is
estimated at about 1.2 billion Singapore
dollars ($679 million) for Singapore and
Hong Kong over 10 years. DBS can expect
cost savings of about 20 percent over this
period as a result of this outsourcing initia-
tive and its other cost saving measures.
DBS data centres in Singapore and
Hong Kong will be outsourced to provide
an integrated 24/7 customer helpdesk
support, managing many of DBS cur-
rent applications, and providing systems
management across the bank.
DBS IT group will continue to be re-
sponsible for IT services not included in the
Residential property lending
Citibank in Hong Kong
eases out of local
mortgage business
The bearish mortgages market in Hong Kong is redirecting
Citibanks efforts towards wealth management.
The mortgage market in Hong Kong
has proven to be a tough adversary to
Citibank, which recently announced that
it would no longer offer mortgage loans
in Hong Kong priced below the prime
lending rate.
The bank, which sees itself as a small
player in the territorys tough mortgage
market, says it has no immediate plan to
sell its mortgage portfolio, but reports say
that Hong Kong Mortgage Corp is being
eyed as a buyer.
Although Citibank insists it would
not exit the mortgage business, its latest
move is an indicator of how badly most
18 The Asian Banker Journal
outsourcing, namely, IT strategy and archi-
tecture, IT security and strategic projects.
The building of new IT computing
facilities in Singapore and Hong Kong
aims to improve the processing power,
security and back up capability of DBS
IT operations. The new facilities are ex-
pected to help DBS integrate many of its
applications and technology platforms
into a single, cost-effective and highly
secured computing environment.
DBS hopes this integrated technology
platform will better leverage IT to max-
imise the returns of its recent acquisitions
and regional expansion program.
lenders need to deal with shrinking
margins and rising default risks. Industry
observers note that this move is telling
the industry that this is as low as mort-
gage rates can go.
A spokesperson for Citibank said
it would not offer any new home
loans but would continue to manage
its existing portfolio, whose size it
declined to divulge. The bank said
it would remain in the business by
offering loans at the prime lending
rate of five percent. At that price,
which is twice the rate charged by
most banks in Hong Kong for new
DBS continuously reviews its IT
services and options to look for better
ways of delivering products and serv-
ices to its customers. We are confident
that {through outsourcing we} will meet,
and exceed, our current high levels of
service. This relationship will allow DBS
to focus on our core competencies and
strategic imperatives while leveraging
the power of technology in a paced and
sustainable manner. We are expecting
to reap cost savings of about 50 million
Singapore dollars over the fi rst three
years of the agreement. These savings
will appear gradually after the first
year, says Steve Ingram, chief informa-
tion officer, DBS Bank.
DBSs outsourcing partner has agreed
to provide a comparable package in role
and compensation for the 500 DBS staff
in-scope of the transfer in Hong Kong
and Singapore.
Mr. Ingram adds, Joining an IT
service provider will broaden the career
development and opportunities for our
IT staff. For those remaining, they will
be playing an important role in shaping
our future in supporting DBS future
business direction.
mortgage loans, Citibank is unlikely
to attract any new business.
Most of the banks in Hong Kong have
slashed interest rates to below prime
rate in order to lure mortgage borrow-
ers as corporate lending remained in
the doldrums. Mortgage lending takes
up about 40 percent of banks loans, but
officials say sales of residential and non-
residential units fell almost 15 percent in
November from the previous month and
40 percent from a year earlier.
Figures from the Hong Kong Monetary
Authority show that as at October, more
than 40 percent of new mortgages were
priced at 2.5 percent below the prime
rate, and that almost 80 percent of new
mortgages were priced at 2.25 percent
below the prime rate or more.
Citibank said it plans to sink its teeth
into the wealth management business,
for which it sees better growth potential,
compared with the mortgage business
in which it admits it is a relatively small
player. About 70 percent of Hong Kongs
mortgage business are reportedly reined
in by HSBC, Bank of China (HK), Hang
Seng Bank, Standard Chartered, and
Bank of East Asia.

Securities Clearing
Will Credit Suisses woes
ease with Pershing sale?
After posting an enormous quarterly loss of $1.4 billion last
week, Credit Suisse Group is said to be selling its US securities
clearing unit.
It was not exactly the greatest of honors
to be touted Europes worst-perform-
ing banking stock of the year [2002],
and Credit Suisse Group, (Credit Suisse)
Switzerlands second-largest financial
group, is taking steps to shake the
title off.
Credit Suisse First Boston (CSFB), the
investment banking arm of Credit Suisse
Group, has finalised the sale of its Persh-
ing financial services unit to Bank of New
York. The deal was worth a hefty $2 bil-
lion, with Bank of New York repaying a
loan of $480 million granted to Pershing,
and paying $50 million to CSFB if the
company performs well.
John Mack, CSFBs chief executive offic-
er and co-chief executive of Credit Suisse,
said, [The sale of Pershing] will allow
CSFB to improve the resources available
for our core services to clients.
Industry observers say the sale could
stem a steady revenue source with a high
return on equity, and furthermore, could
raise CSFBs back-office costs.
The sale of Pershing, however, is not
likely to boost CSFBs own back-office
costs as Pershing only processes trades
BANKNOTES
for its relatively small private-client
brokerage business. Pershing had cleared
an average of 121,000 trades per day,
down from the average of 126,000 for the
second quarter and 135,000 for the third
quarter of 2001.
Despite its restructuring initia-
tives, CSFB still needs to spread itself
thinly as its own 2002 third-quarter
net loss perched on the $425 million
mark, and Credit Suisse Groups 2001
figures showed that CSFB had eaten
significantly into its profits despite its
lucrative income.
The frantic shedding of non-core assets
is not exclusive to Credit Suisse. Deut-
sche Bank, Germanys largest bank, had
confirmed it was in talks to sell venture
capital investments worth three billion
euros ($3 billion).
The stabilisation of CSFB is being pur-
sued in parralel with breathing life into
the ailing Credit Suisses Winterthur
insurance unit, into which the parent
had thrown a $1.3 billion lifeline. It seems
unlikely that the shedding of non-core
assets is over yet.
The Asian Banker Journal 19
BANKNOTES
Holding Companies
Sumitomo joins holding
company bandwagon
Sumitomo Mitsui Financial group allows the SMBC greater
access to reserves to pay dividends or boost capital reserves.
Japans Sumitomo Mitsui Banking
Corp (SMBC) has adopted a holding
company structure with the forma-
tion of Sumitomo Mitsui Financial
Group (SMFG). The move by Japans
second-largest bank makes it the last
of Japans big four to join the holding
company club.
Ideally, the formation of the company
should strengthen the groups financial
structure through the lumping of its
profitable units under the same umbrella
as the banking unit. Will this be its way
out of dire financial pressure given the
stressful banking environment in Japan
these days?
Payment Systems
Sri Lanka Central Banks new
payments system cuts risks
Secure inter-bank payments and real-time trading increases the
banks competitiveness.
The Central Bank of Sri Lanka (CBSL) is
set to launch a Real Time Gross Settle-
ment System and a Scripless Securities
Settlement (SSS) System. The overall
system is intended to enable banks and
financial institutions to make secure,
high-value, inter-bank payments instan-
taneously across the country, and to deal
in real-time trading and settlement of
government securities.
The CBSL has embarked on a mod-
ernisation programme, funded through
a World Bank loan, which aims to reduce
risks and increase efficiency within the
national payments system. Ultimately,
20 The Asian Banker Journal
Prior to being the last of Japans big
four to set up a holding company struc-
ture the others being Mitsubishi Tokyo
Financial Group, Mizuho Holdings, and
UFJ Holdings most analysts had sug-
gested that SMBC could see future risks
to its capital from stockholding losses
and the costs of wiping out its bad loans.
At present, SMBC still faces cumbersome
bad loan problems.
The new SMFG will allow the bank-
ing unit greater access to reserves to pay
dividends or boost capital reserves. The
holding company brings together Sumi-
tomo Mitsui Card Co, SMBC Leasing
and Japan Research Institute and SMBC
this will enable CBSL to become more
competitive in the global market, im-
prove financial services and attract more
international investments. All commer-
cial banks in Sri Lanka will be direct par-
ticipants in the Logica-developed RTGS
system, thereby streamlining the process
for customers and primary dealers.
With this RTGS initiative, CBSL plans
to implement a world-class national
payments infrastructure for Sri Lanka.
The bank will use a central accounting
system to settle interbank high-value
payments ensuring irrevocabilit y
and finality.
under its umbrella. SMFG says it plans to
more than double the three companies
(excluding SMBCs) group net profit
within three years.
Economy and financial services min-
ister Heizo Takenaka has already raised
the battlecry for tougher assessment of
Japanese banks bad loans by setting
deadlines. In response, SMBC has created
a new division to stir into action its viable
borrowers, apart from giving the age-old
promise to clean up its bad debts.
However, one thing that SMFG would
definitely benefit from the late-bloomers
development is the possibility of prim-
ing its management to efficiency, thus
improving shareholder value.
SMBCs figures for the first six months
of this year were seen as the most prof-
itable among the big banks. The bank
reported a 61-percent rise in interim
profits last November to 55.1 billion
yen ($442.7 million). SMBC said it still
expected to swing back to profitability
in the year to March 2003, and forecast
more than 1 trillion yen ($8 billion) in
operating profit, the largest among the
big four.
A central securities system will en-
able recording of government securities
transfers among primary dealers and
secondary market investors.
Both the RTGS and the SSS systems
will use SWIFT message formats and
will be connected through a delivery
versus payment link. Full disaster
recovery capabilities will also be built
into the system.
These reforms come at a timely mo-
ment for the banking sector in Sri Lanka
which is benefitting from renewed
growth in the economy following the
outbreak of peace. Recent numbers show
that the third quarter 2000 GDP perform-
ance with a 5.3 per cent growth indicates
a strong recovery in economic activities in
the country, albeit over a low base.
According to the CBSL, against this
background, future growth prospects
will depend on the speed and depth of
the proposed urgent structural reforms,
efforts to enhance investment, efficiency
and productivity in all segments of the
economy and the speed at which these
are achieved.

Customer Centric Universal Banking
End-to-end integration
End-to - end integration of business
information technology functions is
increasingly being seen as an essential
strategic goal for the banking industry.
In order to provide enhanced customer
centricity and efficient processing, the
core-banking system and front offi ce
processing and must be seemlessly
integrated with the increasingly diverse
range of customer interfaces and
delivery channels.
SYMBOLS version 8.0
Built from ground up, SYMBOLS
utilises open standards methodology and
technologies to enable ease of intra- and
inter-enterprise application interoperability.
SYMBOLS is constructed on a robust and
reliable technology platform using the best
of breed products and technologies.
All of the SYMBOLS solutions are
based on three integrated Application
layers. Framework driven architecture
provides design reusability, simplified
programming paradigm and thus enables
rapid development, ease of maintenance
and upgrade potential. The backbone
services layer serves as a common
infrastructure for all the applications across
the framework, to provide seamless end-
to-end integration.
Enterprise Operations Centre
The Enterprise Operations Centre (EOC)
consists of a set of powerful transactions
processing engines that performs efficient
back office processing for the banks core-
banking system. This stores and integrates
information relating to current and saving
accounts, deposits, loans, trade finance,
treasury, securities and a whole gamut of
other core banking businesses. SYMBOLS
allows integration and transformation of
this raw data into rich customer information
for banks marketing and sales operations
to effect pro-active, go-to-market, value-
added services. The EOC communicates
with the multi-channel eCRM and eFinance
platform which includes the customer-
centric eApplication Framework.
Multi-channel eCRM
The Customer Relationship Management
applications (eCRM) inter-operates with
the core-banking functions and front-end
delivery channels. This gives the financial
institution a complete 360 - degree
intelligent view of its customers and
facilitates on-line sales and marketing
collaboration. From a centrally stored
customer profile, users can perform a
broad range of tasks, including target
marketing, alerts and notifications,
contact management and customer
intelligence functions.
The Java/J2EE Application Server based
eApplication framework provides the
necessary technology infrastructure to
host the business logic components and
the application packages, and provides
a run time environment to execute the
application components in a distributed
transactional environment.
Personalised eFinance Solution
The eFinance Applications (eFinance)
support the personalised delivery of
the banks products and services on a
one-to-one basis with their customers
SPONSORED STATEMENT
in a secure and consistent manner
through multiple delivery channels and
devices, including personal computer
browsers, WAP-enabled mobile phones
and PDAs, as well as the more
traditional channels such as call
centres, kiosks,ATMs and card-based
payment systems. This interaction is
achieved using XML technology.
Straight-through processing
The end-to-end integration allows the bank
to achieve full straight-through-processing
on a variety of external channels. Straight-
through-processing of all transactions
through to settlement and accounting
protects the customer from the risks
associated with manual intervention and
enhance the cost efficiency for the bank.
About System Access
System Access provides universal
banking solutions for top financial
institutions around the world. SYMBOLS,
the companys flagship product, is a
culmination of over 800 man-years in
product engineering. It offers over 30
different modules that effectively bring
together all the functionality of a banking
institution and present it as integrated
services to customers.
The SYMBOLS modules support all
banking functions of a universal bank.
The solutions enable a complete 360-
degree intelligent view of the customer
through an eCRM eFinance platform. The
result is a highly personalised, one-to-one
service that utilises all of an institutionss
knowledge of the customer.
For more information or a copy
of the Customer Centric Universal
Banking white paper, please contact
System Access:
Phone: 65 6333-4533
Email: contact_us@sg.systemaccess.com
The
TheAsian
AsianBanker
BankerJournal
Journal 2121
PERSONAL ACCOUNT
We should pause before
falling into the notion that the
American way is the best
S Dhanabalan, chairman of DBS Bank and Temasek Holdings, a Singapore government
investment holding company, on how large shareholders should play a role in
improving corporate governance, and some considerations for privatising state-owned
entities in the region.
At first glance, there is no question
that aligning the interests of management
and shareholders is the right thing to do.
But it is increasingly clear that very few
investors are interested in the medium
and long-term growth of the companies
that they invest in or in good dividend
yields. They look to share price appre-
ciation for their main returns which is
entirely proper if they have a medium
or long-term view. But there is increasing
evidence that many investors including
institutional investors and pension funds
manage their investments according to
stock price movements in the short term.
There is clear evidence that institutional
investors are decreasing their holding
periods. With individuals, one study
showed that the average holding period
in 2001 was 11 months compared with 8
years in 1960. Another study showed that
average holding period by shareholders
of a blue chip US company is less than one
month. With management also having an
increasing part of its fortunes tied to the
stock price, the obsession with short-term
price movements is compounded. The
temptation to dress up results to ensure
that the stock continues to perform is
almost irresistible.
Because of this short-term horizon,
many investors demand information and
systems that feed this requirement. One
such requirement is quarterly reporting.
I am dismayed that we in Singapore have
decided to impose this practice on listed
companies. We seem to have tilted in
favour of traders in stocks rather than
investors in stocks. I am not in favour of
quarterly reporting not because of the
cost. Any good company must have at
22 The Asian Banker Journal
and management accountable? What are
S Dhanabalan, chairman of DBS Bank and
Temasek Holdings
least monthly figures of its performance.
But having a system that encourages the
market to set quarterly targets and that
beats the stock up or down according to
penny variations from the target does not
seem to me to encourage investment.
A worst case collateral consequence of
short-term measures is that it has con-
tributed to executives adopting a short-
term approach to managing corporate
performance, to play the earnings game
by managing market expectations. When
taken to extreme proportions, manage-
ment will succumb to temptations to
engage in creative accounting or simply,
fraudulent practices as the examples in
the Enrons, Tycos and WorldComs of
today show.
Governance issues are often seen as
arising from clear separation of owner-
ship from management. Several pertinent
issues that immediately come to our mind
are: To whom are the board of directors
the appropriate levels of shareholder in-
volvement? What safeguards can share-
holders rely on to ensure the protection
of their interest?
But governance is more than a share-
holder relationship issue. It is a great
determinant of the actual business per-
formance of a company.
Although corporate governance prac-
tices have been around for a long time,
the term was hardly used until the 1980s.
The subject has gained more visibility in
the 1990s in Asia with the financial crisis
in 1997. Such visibility has been almost
exclusively focused on bringing corpo-
rate governance in Asian companies to be
in line with that in the US. US corporate
governance was held up as the paragon
of such systems.
For us in Asia it would be wise to take
note of the following:
Most of the causes for the current
corporate scandals in USA are not due
to poor corporate governance principles
or systems.
Not all the practices and requirements
of the US system are relevant to our
needs. We should pause before once
again falling into the notion that the
American way is the best way.
With fragmented ownership, rules
can only provide so much protection to
shareholders. The character of the man-
agement and other service partners such
as auditors and legal advisors become
even more important.
High governance standards are impor-
tant for all investors. It attests to the qual-
ity of the financial and other information
on which investors make their decisions.

Though there is some fragmentary evi-
dence that institutional investors are pre-
pared to pay a premium for companies
which have good corporate governance,
in my view the more important reason
for good corporate governance is that it
enables a company to produce better and
more reliable results in its business. The
effort to instill good governance practices
should not be aimed only at better stock
market performance. Stock performance
should be only an incidental concern of a
company. Its focus should be on tools that
help its core business perform better.
We all recognise that there is no one
standard approach to corporate govern-
ance. The approaches must be influenced
by a number of factors such as the
ownership structure, the stage of the
development of a company and the legal
protection afforded to shareholders.
The corporate governance crisis in cor-
porate America shows us that although
its corporate governance system gener-
ally functions well, it is not foolproof.
In fact, no amount of legislation or
imposition of rules can prevent wilful
fraud or impropriety. It also shows that
the imbalance of power and influence
between shareholders and the board of
directors and management, can give rise
to the opportunity for wrongdoing.
To help prevent similar occurrences
in the future, one way, though I must
stress that it is by no means the only
way, is for shareholders, particularly
the major shareholder if there is one, to
proactively monitor the companies in
which it is invested.
Unlike in the US, the ownership struc-
tures of listed companies in some Asian
countries for example Hong Kong, Ma-
laysia and Singapore, are more concen-
trated than dispersed. Major sharehold-
ers are typically families. A public-listed
company with one major or controlling
shareholder has its own set of problems
and dangers. Minority shareholders
in many family-owned companies
have discovered this to their cost. The
governance systems and procedures
must ensure that the major shareholder
influences and drives management in
the interest of all shareholders. Here the
character issue as it relates to the major
or controlling shareholder is a key issue.
An unscrupulous, dishonest controlling
shareholder of a publicly listed company
can be worse than unscrupulous, dishon-
est management.
In Singapore, Temasek is a major share-
holder in a number of Temasek-Linked
Companies (or TLCs). Formed in 1974,
Temasek is a Singapore Government in-
vestment holding company. Temasek has
substantial shareholdings in a number
of listed companies such as Singapore
Airlines, Singapore Telecommunications,
SMRT Corporation, Neptune Orient
Lines, Keppel Corp and SembCorp In-
dustries as well as non-listed companies
such as PSA Corporation and Singapore
Power. These companies are involved in
a wide range of industries ranging from
transportation and logistics to finance,
telecommunications, engineering, utili-
ties and property.
As a major shareholder in the TLCs,
Temasek firmly believes that ownership
comes with the usual rights as well as
a moral responsibility. The character
of Temasek derives from the character
of the political leadership in Singapore
with the qualities of honesty, probity,
meritocracy, focus on the right rather
than the popular decision and transpar-
ency being the main features.
Temasek has defined for itself a proac-
tive stewardship role. Being an involved,
interested and informed owner, and
with enough clout, it can help prevent
the types of excesses seen in the US.
Over the years, it has exercised its due
influence as a major shareholder over its
companies in a number of different ar-
eas, namely: the nomination of suitable
persons for appointment as directors
onto the TLC boards; the establishment
of employee compensation schemes
(including stock options), and succes-
sion and development plans. Listed
companies in Singapore require share-
holders approval for stock option plans;
the scrutiny of material transactions for
example mergers and acquisitions that
require shareholders approval; and the
institutionalising of corporate govern-
ance and disclosure practices.
There is no divergence between Te-
maseks interests and those of other
shareholders since its aim is to ensure
that TLCs are well managed and create
value for the benefit of all shareholders.
Furthermore, it also continuously strives
to institutionalise good corporate govern-
ance practices in TLCs to enhance their
transparency and accountability.
In terms of its companies corpo-
rate gover na nce sta ndards, t h i rd
parties studies and awards, listed-
PERSONAL ACCOUNT
TLCs generally have been shown to
have good to outstanding corporate
governance standings.
Temaseks strategies are to leverage on
the brands and market positions to glo-
balise existing businesses, and from time
to time, to also very selectively invest in
new businesses in order to nurture new
industry clusters in Singapore. As for
those businesses that are no longer stra-
tegic and have no international potential,
it will divest them.
The character, values and competence
of the people who lead the company at
Board and management level are the
most important requirements for the
success of a company. Temasek puts
paramount emphasis on this.
In carrying out its new mission, it will
work closely with the TLCs to focus on
the following five areas:
Values: It will promote and maintain
a strong culture of integrity, meritocracy,
excellence and innovation;
Focus: It will require its companies to
focus on core competence, value creation,
customer fulfillment and shareholder
return so as to maximise the long-term
shareholder value;
Human capital: As the quality of the
human capital is an important asset
towards achieving the new mission, it
will work with TLCs to nurture a group
of internationally competitive cadre of
board and management as well as out-
standing employees;
Sustainable growth: To achieve this,
it will support and institutionalise high
standards of business leadership, finan-
cial discipline, operational excellence and
corporate governance; and
Strategic developments: To build re-
gional or international businesses, it will
assist the TLCs to shape their strategic de-
velopments that include consolidations,
mergers, acquisitions, rationalisation or
collaborations as appropriate.
The role played by Temasek is one of
a strategic catalyst. It does not micro-
manage or control the TLCs. The day-
to-day management of the businesses is
left to the respective companies manage-
ment and supervised by their boards.
I would like to conclude that there are
benefits in having a major shareholder ,
like Temasek, to drive the governance of
its investee companies.
This personal account was extracted from
a speech presented by S Dhanabalan in
October 2002
The Asian Banker Journal 23
INDUSTRY WATCH
The market for mutual funds
will expand
Shiv Taneja of Cerulli Associates tells Asian Banker Research that he expects retail
assets under management in Asia to grow by 15 percent in the next four years, with
Taiwan taking centre stage.
Senior analyst Shiv Taneja of Cerulli As-
sociates estimates that in Asia (excluding
Japan), retail assets under management
(AUM) stood at $252 billion at the end
of 2001. This figure makes up just two to
three percent of the overall world market
and pales into insignificance against the
US and even Europe, which are 26 and
14 times larger, respectively.
However, Taneja forecasts AUM in Asia
to reach $495 billion by 2006, equating to a
compound annual growth rate of 14 per-
cent to 15 percent. In contrast, growth in
the US is predicted to be in single digits.
Understandably, because of the dispa-
rate development of countries in Asia,
growth will correspondingly vary. Ac-
cording to Taneja, the country with the
greatest potential is Taiwan. He believes
the receptivity to the product is highest in
that market place, but there is also a high
degree of affluence in Taiwan. Addition-
ally a significant offshore market already
exists. While Taiwan may see the highest
growth, studies conducted by Taneja
indicate that Korea will be the largest
market by 2006. There is a significant
component of institutional ownership
within Korea, and preliminary analysis
indicates only about 30 percent of the
total will be pure retail.
Looking at the region, there are a variety
of reasons for the anticipated rapid expan-
sion. Firstly, the reorganisation of pension
funds is likely to fuel growth. This is based
on expectations that most Asian govern-
ments are now, or will be, engineering
solutions based on individual retirement
saving vehicles, many of which will
reside in collective investment schemes.
In addition, a sizeable rebalancing of
household wealth is needed to bring Asia
in line with the US and Europe. Currently,
between one percent and eight percent of
household wealth in Asia is held in mutual
24 The Asian Banker Journal
Shiv Taneja, senior analyst, Cerulli Associates
funds, compared with approximately a
fifth in the US and 10 percent to 15 percent
in Europe.
Finally, Taneja sees wealth manage-
ment programmes, targeted at the mass
affluent, developing further in Asia. He
specifically anticipates more customisa-
tion. This means advisors will need to
find additional ways to invest in more
portfolios, for more customers in less
time, and Taneja anticipates mutual
funds will provide part of that solution.
Over the last seven to 10 years, banks
have come to dominate the distribution of
the mutual funds market place. One ques-
tion Taneja set out to resolve is the extent
to which they dominate the industry and
whether this is true across all markets. The
results show there is little uniformity in
the depth and the extent to which banks
control distribution across the region.
For example, banks dominate of AUM
distribution in Singapore and Hong Kong,
while in Korea, the brokerage industry
controls the majority of the market. How-
ever, in Hong Kong, Singapore, Taiwan
and Korea, it is anticipated in aggregate,
that banks will increase their domination
of the market from 39 percent at the end
of 2001 to 52 percent by 2006. In absolute
terms this equates to $130 billion.
In the course of his research, Taneja notes
that banks tend to have one of two strate-
gies. The first is seen as more focused, with
banks pre-selecting the sort of products
they want on that platform; one example
of a bank offering this type of product is
Citibank. At the other extreme there are
banks that welcome all customers, giving
them complete choice in terms of product
range. Interestingly, Taneja feels the more
focused approach appears to be the win-
ning one. Investors have gone from want-
ing maximum choice to wanting choice
based on a some pre-selection.
This is where the wealth management
strategy will be key. Taneja believes the
next big wave of product development in
Asia is likely to be in the area of alterna-
tive investments for the affluent sector.
He feels growth is likely to be in the
area of structured products, as part of a
package of products. These products are
otherwise known as managed account
programmes and typically include single
asset-based fees, on-going monitoring
of the programme in the case of mutual
fund programs, consolidated reporting
and single point access to clients.
Taneja noted that Salomon Smith
Barney developed a managed account
product for Asia even before they devel-
oped one for Europe, while Citibank is
looking to develop a product of this type
for its mass affluent market place. How-
ever, to succeed in this market, Taneja
feels that a bank would have to develop
a sophisticated sales capability. The real
value may be from $50,000, and extensive
staff training will be integral to successful
product marketing.
PEOPLE SOFT ADS (FILM)

The Asian Banker Journal 25

TECHNOLOGY
Three roads to quantifying IT
investment decisions
We highlight three ways in which US banks and investors appear to be thinking about
cost justification on IT spending today.
For all the talk of IT as a strategic driver
for survival today, very often IT spend-
ing does not automatically translate
into increased profits or shareholder
value. So how are banks quantifying
the return on investments?
IT investments are now more than ever
experiencing greater scrutiny in their
justifications, having to demonstrate
a clear value proposition to the bank
26 The Asian Banker Journal
before any approval for implementation
can be granted.
C. Webb Edwards, Executive Vice
President of Technology and Operations
Group at Wells Fargo & Co. divides his
technology budget into three categories.
The first is infrastructure, which includes
data centre networks, LAN desktops
and security. The second is application
maintenance, which he classifies as
fixing problems, regulatory, legal, and
obtaining releases of software. And
finally, investment spending, which is
classified as new developments, new
vendor packages and other categories of
new technology spend.
Each of these categories is evaluated
differently to determine quantifiable
benefit. The infrastructure bucket is unit
price-based, and the objective is to man-
age changes to that price. In other words,
Edwards real goal is to keep unit prices
flat down and he achieves this by look-
ing at ratios in the different areas. For
example in the infrastructure, hardware,
software and maintenance grouping,
Edwards looks for a two-times multiple.
What this means is that for every dollar
spent, a two-fold increase in capacity is
expected. Another example will be in
networks, where he seeks a minimum
of 15 percent reduction in anything spent
in that area.
In the application maintenance area,
a 4 percent productivity improvement is
expected overall each year. This is made
possible by the fact that 89 percent of the
banks contractors are on metrics, which
means that they are all measured accord-
ing to their productivity.
As for the investment spend bucket, it
is divided into three categories: revenue
generation, expense efficiency and serv-
ice quality.
Revenue and efficiency have to achieve
an internal hurdle rate of 13 percent,
with the exception of risk-based projects,

which can go as high as 25 percent, de-
pending on that risk. In addition, when
developing a project internally, Edwards
looks for a positive return in 18 months.
The third aspect, service quality, is meas-
ured by reduction in account attrition.
For example last year, for every dollar
spent that area, a 3.5 percent reduction
in attrition is expected in the banks
customer base.
At Fifth Third Bancorp, James J.
Hudepohl, who is an executive vice
president and chief information officer,
evaluates his investments is a different
light. In fact, Hudepohl admits that
his view on return on investments
borders on the very elusive category
of calculation.
Fifth Third Bank has inculcated a
process of simply applying common
sense and execution, in essence de-
veloping a culture where if it makes
sense, do it. There is no formal funding
process for projects. The banks method
is simple. Fifth Third determines what
projects it wants to work on after
meeting with the business units and
discussing with them the projects that
are going to grow revenues or make the
bank more efficient.
Hudepohl strongly believes that such
a system best positions the bank to react
to market conditions and allows it to
change in a heartbeat, based on acqui-
sitions or any other event. However,
he also admits that the process works
only if there is mutual trust between
TECHNOLOGY
the different business lines and IT. This
is something that the bank works hard
in building.
John MacIntosh a partner of private
equity firm, Warburg Pincus, whose
primary resposnibility is information
technology for financial services firms, Information techno-
likens IT investments to venture capital-
ism. By evaluating the models used in the
private equity business, he highlights
logy investments are
those that may be appropriate for manag-
ers responsible for making IT decisions.
now, more than ever,
One such model is the option theory.
This model seeks out to address several experiencing greater
questions: What options do I have today?
What options will I create or close off if I scrutiny in their ju-
pursue the project? How will this change
if I delay my decision? stifications, having to
In his assessment, MacIntosh high-
lighted the fact that IT investments are
complicated to model given the varied
demonstrate a clear
nature of each system. Given the increas-
ing average life span of an implemented
value proposition to
IT project, the level of uncertainty over
a five-to 10- year planning horizon is the bank before any
probably greater now, given continued
developments in underlying technology approval for imple-
and business structures.
Therefore, choosing investments with mentation can
embedded options gives the banks flex-
ibility to respond to a changing and be granted.
unpredictable business environment.
MacIntosh points out that while this
model is widely used in venture capital-
ism, it should be just as applicable to an
IT manager facing the decisions to invest
in an IT system.
The Asian Banker Journal 27
BALANCE SHEET
Malaysian banks face
crunch time for second
round of mergers
With the next banking consolidation phase in the offing, which of the 10 anchor banks
will be left standing?
Malaysia has made significant progress in
financial sector reforms, with the success-
ful consolidation and integration of the
10 anchor groups. The sector has a firmer
footing, leaving the entities better capital-
ised. However, this does not hail the end
of the banking consolidation phase.
True to a study claiming that a bank in
Southeast Asia must command at least
20 percent share of its domestic market
to survive in the long term, Bank Negara
Malaysia is now pushing for a second-
phase merger.
The Financial Sector Master Plan
outlines that ideally, Malaysia needs
three to four large banks to provide
Anchor banks: Share of asset and shareholders funds
Source: Asian Banker Research
28 The Asian Banker Journal
a full range of financial products and
services competing on equal footing
with foreign banks. Foreign players such
as Citibank NA, HSBC and Standard
Chartered Bank already have a quarter
of Malaysian banking assets. Another
three to four medium-sized banks are to
offer more specialised services possibly
in retail banking or small and medium
enterprises financing.
Round two will take place in three
to four years, with the Central Bank
to take a light-handed approach in the
merger process, leaving it to the more
competitive environment to determine
the number of anchor banks.
banks from holding finance company
Banks left standing are only still di-
gesting the first round of consolidation
where 54 entities were merged into 10
groupings, and are unlikely to embark
on another round of consolidation soon.
In the immediate horizon, the sector faces
other more pressing issues including
the need to confront their remaining
non-performing loans, continue internal
restructuring to reap merger synergies
and improve their risk management
strategies without the support of the
Corporate Debt Restructuring Committee
which was disbanded last August.
Focus will also be diverted to fur-
ther intra-bank mergers following the
Central Banks loosening of a rule that
had previously barred local commercial
licences. This has already resulted in the
amalgamation of Public Bank and Public
Finance in a move that will bolster its
chances of surviving impending industry
consolidation.
In the last round of consolidation in
2000, Bank Negara imposed conditions
that banks had to fulfil a RM2 billion
($0.5 billion) capitalisation and RM25
billion ($6.6 billion) asset requirement. In
the following hubbub, the Prime Minister
had to step in and allow for 10 anchor
banks instead of the original six. The jar-
ring fact is that bank mergers are political
booby-traps and with the government
likely to call for general elections in 2003,
the Central Bank is understandably not
pushing for round two.
Albeit mergers can be ruled out in the
next two years, banks should start look-
ing at their positioning tactics given that
the market is opening up to incumbent
foreign banks by 2004 and full liberalisa-
tion of the sector happens with the entry
of new entrants in 2007/08.
The Asian Banker Journal 29
BALANCE SHEET

Report Card of Anchor Bank Financials in Malaysia

Anchor Banks: Malayan Banking Bhd Bumiputra Commerce Bank1) Public Bank RHB Bank2) AMMB Holdings
As at: FY6/2002 FY12/2001 FY12/2001 FY6/2002 FY3/2002
RM millions
Asset size 149,664 63,228 53,242 52,130 51,065
Net profits 1,685 177 937 174 293
Shareholders' funds 12,024 4,128 7,386 4,750 3,215

Ratios (%)
Return on Average Equity (ROAE) 15.1 4.4 14.4 3.7 9.6
Return on Average Assets (ROAA) 1.2 0.3 1.9 0.3 0.6
Cost-to-Income ratio 37.3 50.0 38.7 41.3 51.4
Tier-One capital ratio 10.4 na 22.1 11.4 6.3

Major shareholders Permodalan Nasional Bhd (22.44%) Shareholders of CAHB: Tan Sri Teh Hong Piow (26.78%) Shareholders of RHB Capital: Tan Sri Azman Hashim (founder)
Employees Provident Fund (8.13%) Ministry of Finance (16%) Employees Provident Fund (10.86%)
Khazanah Nasional Bhd (5.09%) Khazanah Nasional Bhd (14%) Permodalan Nasional Bhd (1.79%)
Employees Provident Fund (9%) Khazanah Nasional Bhd (0.16%)

Notes:
1) 100% owned by Commerce
Asset Holdings Bhd (CAHB)
2) 70% owned by RHB Capital Bhd

3) 4)
Anchor Banks: Hong Leong Bank EON Bank Southern Bank Affin Bank Alliance Bank
As at: FY6/2002 FY12/2001 FY12/2001 FY12/2001 FY3/2002
RM millions
Asset size 42,942 24,721 24,688 19,916 18,984
Net profits 503 201 234 -747 117
Shareholders' funds 3,390 2,075 2,341 1,039 1,376

Ratios (%)
Return on Average Equity (ROAE) 16.0 10.4 10.4 -62.9 10.4
Return on Average Assets (ROAA) 1.2 0.9 1.0 -4.2 0.6
Cost-to-Income ratio 33.0 44.3 42.1 88.7 41.3
Tier-One capital ratio na na 9.6 5.0 7.8

Major shareholders Shareholders of Hong Leong Credit: Edaran Otomobil Nasional Bhd Killinghall (M) Bhd (21.4%) Shareholder of Affin Holdings: Malaysian Plantation Bhd
Tan Sri Quek Leng Chan (50.86%) Killinghall is inturned controlled Armed Forces Superannuation
by the Sultan of Selangor and Datuk Fund (LTAT)
Syed Yusof Nasir via Ramuda

Notes:
3) 71% owned by Hong Leong
Credit Bhd
4) 100% owned by Affin Holdings

Source: Asian Banker Research

Asian Banker Research believes that
the domestic players have to hold their
ground size-wise, and for that, another
round of mergers is imperative. Given
that it typically takes one year to short-
list potential partners and garner the
necessary approvals, and another one
or two years to integrate or rationalise
operations at the new organisation, it is
not too early to commence planning.
The 10 anchor banks presently oper-
ate in three tiers. Malayan Banking Bhd
stands in the top tier with asset size 2.4
times and shareholders funds 2.9 times
its nearest rival (Bumiputra Commerce).
It has over six million depositors, and ac-
counts for a quarter of the bank branches
in Malaysia.
The second tier consists of Bumiputra
Commerce Bank (BCB), Public Bank,
RHB Bank, Arab-Malaysian Merchant
Bank (AMMB) Holdings and Hong
Leong Bank. BCB and RHB groups are
predominantly owned by institutions,
mostly linked to the government while the
three others are controlled by individu-
als. The remaining players EON Bank,
Southern Bank, Affin Bank and Alliance
Bank are relatively smaller competitors
with asset sizes 13-16 percent of May-
banks and market shares of circa five per-
cent in the loans and deposit segments.
Which of the 10 then, would be left
standing? Given their relatively smaller
sizes, the immediate assumption is that
the smaller second- and third-tier incum-
bents are the easiest acquisition targets.
The first to succumb would be those who
are slow in shaping themselves up as
niche players. So far, Hong Leong Bank
is gunning as the lender to the small and
medium industries, the AMMB Group
is carving itself as an investment bank,
whilst EON Bank with links to Proton
- is seen as a strong player in the vehicle
hire-purchase market.
But with difficulties in even carving
out specialisations for these smaller com-
petitors, it is really anyones game. For
instance, with the merger of commercial
banks with their finance company arms,
even the vehicle hire-purchase market
becomes ultra-competitive.
With government-linked agencies
boasting ownership of almost half the
10 anchor banks, like it or not, the direc-
tion of any consolidation could still be
indirectly steered by the government.
It holds substantial stakes in the top
three players, accounting for more than
half the aggregated anchor bank assets
Maybank (via Permodalan Nasional
Bhd), Commerce Asset Holdings Bhd
(CAHB, holding company of Bumiputra
Commerce) and RHB Bank through
Khazanah Nasional Bhd and the Employ-
ees Provident Fund. In both CAHB and
RHB, other government agencies such as
Kumpulan Wang Amanah Pencen and
PNB also hold stakes. The other govern-
ment-linked organisation is Affin, bank
controlled by the Armed Forces Superan-
nuation Fund. The government might
merge entities that it controls, driving the
second consolidation wave.

30 The Asian Banker Journal

 Asian Banker Research

Quantitative and statistical information, forecasts and analysis is essential

for making the right assessments, decisions and recommendations in todays
fast-changing environment.
Independently Collated Statistics
The Benchmark Exchange Data Centre provides reliable, comprehensive, and
current statistical data on a bank, country and socio-economic level in key focal
areas, including:
Credit Cards Technology Spending By Banks
Retail Distribution Wealth Management
Retail Payments Infrastructure E-banking Benchmarks
Deposit Intermediation
Top 300 Asian Bank Rankings
We rank the Top 300 Asian Banks from Asia, Australia and New Zealand annually.
Half-yearly Tracking
We provide you with a half-yearly tracking of financial results, loans growth, and analyst
performance expectation indices.
Unique Perspective
Our team of research analysts help get you behind the numbers with their unique on
the ground perspectives. Interact with them via e-mail, phone or even face-to-face.
Who Benefits
The Benchmark Exchange Data Centre provides investment bankers, research houses,
management consultants, regulators, academics and senior executives of leading
commercial banks the raw, hard data and critical analysis for decision-making.

We provide an independent, third-party reality check for your strategic planning and
information gathering processes.

Contact
For more information on a corporate subscription to this service, please contact
Ms. Mei F. Chin, Director at
TEL: (65) 6236 6502, FAX: (65) 6236 6530 or E-Mail: mfchin@asianbanker.com.sg
Visit The Asian Banker website at www.theasianbanker.com

The Asian Banker Journal 31

BALANCE SHEET
Balance Sheet
Briefs
Australia
BANK OF QUEENSLAND has launched
its A$125 million ($70.08 million) float-
ing rate Transferable Deposit. The
deposits are marketed at a margin of
44-46 basis points over a three-month
BBSW. UBS Warburg and Westpac In-
stitutional Bank are joint lead managers
on the transaction.
China
CHINA DEVELOPMENT BANK sold 10
billion yuan ($1.2 billion) of three-year
discount bonds to yield around 2.91 per-
cent. The state-owned policy bank and its
bonds are considered quasi-sovereign by
the market.
EXPORT-IMPORT BANK has auctioned
9.5 billion yuan ($1.15 billion) in one-year
bonds with a coupon of 2.5 percent. The
bonds will trade on Chinas interbank
market. Earlier in November, Ex-Im
Bank also auctioned 5.5 billion yuan
($665.285 million) in 10-year floating rate
bonds with a coupon of 2.73 percent.
Hong Kong
CITI KA WAH BANK signed a HK$800
million ($102.586 million) three-year
floating rate certificate of deposit issue
under its HK$15 billion ($1.923 bilion)
certificate of deposit issuance facility.
The issue which matures in the year 2005
will bear a coupon rate of 24 basis points
per annum above the three-month Hong
Kong Interbank-offered rate. The issu-
ance would enable the bank to spread
out the maturity profile in the longer
term and move towards a more optimal
liability structure. The funds raised will
be used to meet the Banks general fund-
ing needs.
DAH SING BANK launched its tenth
issue of HKD retail certificate of deposit
(CD) and fourth issue of USD retail CD.
The 10 tranche of HKD retail CD will be
issued at HK$100 million ($12.823 mil-
lion) for a deposit period of five years.
The coupon rate for the first 2 years is at
3.7 percent p.a. and 3.9 percent p.a. for
the subsequent 3 years if the call option
is not exercised. The fourth tranche of
32 The Asian Banker Journal
Dah Sing USD retail CD will be issued
at $10 million for a deposit of five years.
The coupon rate is fixed at 3.5 percent p.a.
for the whole period.
India
CANARA BANK said its initial public
offering of 11 crore equity shares of Rs
10 each for cash at a premium of Rs 25
per share, aggregating Rs 385 crore. The
bank will use IPO proceedings to aug-
ment long-term resources in line with es-
timated growth in assets and maintain a
comfortable capital adequacy ratio in line
with its estimated growth in assets.
ICICI BANK plans to mop up Rs 5,000
crore ($103.666 million) through bond
issues in the coming months.
Indonesia
BANK MANDIRI is likely to delay its
initial public offering to early 2003 from
December 2002 following the recent Bali
bombing. The bank had wanted to list
BANK MANDIRI in May but shelved the
plan as legal uncertainties turned foreign
investors cautious.
BANK NIAGA is set to raise the amount
of credits in 2003 by 20 percent to Rp
12 trillion ($1.345 billion) from a year
earlier. The new owner Commerce As-
set Holding had yet to decide whether
or not it would increase its stake in
Bank Niaga. Neither did Commerce
have a plan to merge Bank Niaga with
a number of banks controlled by the
former in Malaysia.
BANK RAKYAT INDONESIA is consid-
ering selling around $100 billion worth
of subordinated debt in 2003 to improve
its capital base. The bank is looking at
issuing subordinated debt to maintain
its capital adequacy ratio at 12 percent.
The bank has a total of 4,514 branches
across the country.
Japan
UFJ BANK said it would raise up to 500
billion yen ($4.056 billion) in funds to
strengthen its dwindling capital base.
It plans to issue that sum of preferred
shares and has already asked Toyota
Motor Corp to buy them.
Korea
INDUSTRIAL BANK OF KOREA plans
to raise f unds from international
capital markets to replace short-term
foreign currency debts later in year
2002. However the lender has not
determined any details, including the
structure of the possible debt, size,
maturity or lead manager.
KOREA DEVELOPMENT BANK has
raised $1.05 billion in foreign capital
through global bond issues and the Euro
MTM program. The proceeds from the
bond issues will be used in repaying
maturing debts with high interest rates
and extending loans to local companies.
Barclays Capital, Credit Suisse First
Boston and JP Morgan have acted co-lead
manager for the deal. ABN Amro and
Deutsche Bank served as co-arrangers.
KOREA FIRST BANK is offering up
to 100 billion won ($82.522 million) of
65-month subordinated bonds to lo-
cal retail investors. The subordinated
bonds carry an annual coupon of 8.48
percent. The interest will be paid
monthly. The bonds were issued to
help improve its capital adequacy ratio
which stood at 12.39 percent at the end
of September 2002.
Malaysia
AFFIN Holding has signed a deal for
one billion ringgit ($263.2 million) of
collateralised loan obligations. The bonds
comprised 900 million ringgit ($236.842
million) of five-year senior notes and 100
million ringgit ($26.350 million) of five-
year junior notes.
Philippines
LAND BANK is planning to issue 4 bil-
lion ($75.008 million) to 5 billion pesos
($93.760 million) in investment bonds to
strengthen its finances and allow it to
compete better with the bigger banks.
The bank is in talks with three foreign
investors to raise tier-2 capital bonds
or loan papers that give the holder an
option to convert these into equity over
a period.
METROPOLITAN BANK AND TRUST
Co (Metrobank) said it raised $125 mil-
lion in new capital from the foreign capi-
tal market. It registered 10-year bonds
in Singapore will pay a semi-annual
coupon of 8.5 percent. UBS Warburg
has acted as the banks sole bookrunner.
The issue was to raise the banks capital
adequacy ratio.
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING

Protecting the franchise in a

year of great uncertainties
Excellence in 2002 was about tactical genius and 2003 will be a year of consolidating
relationships. We base our evaluation on the submissions received, interviews we
conducted, and a peer survey of more than 100 respondents from the region.

The Asian Banker

Excellence in Retail
Banking Award 2002

The Asian Banker Journal 33

SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
THE WINNERS
The best retail bank in Asia
Standard Chartered Bank, Singapore
The best retail banks in Asia by country
SINGAPORE INDONESIA
Standard Chartered Bank, Lippo Bank
Singapore
HONG KONG
CHINA HSBC
ICBC
KOREA
INDIA Kookmin Bank
ICICI
MALAYSIA
Citibank, Malaysia
Honourable mention for products and services excellence
DBS, Singapore Citibank, India
Cashline Citibank MTV Credit Card
Bank of East Asia, Hong Kong RHB Bank, Malaysia
My CyberWorld Customer care centre
Individual award for excellence in retail banking
Chen Xiaoyan, General Manager (Head of Retail Banking) for ICBC
The message does not seem to be permeat-
ing through. Retail banks in Asia are not
focusing enough on creating sustainable,
long-term franchises. Most of the submis-
sions we received in 2002 for the Excellence
in Retail Banking programme focused on
specific initiatives that said nothing about
overall strategy or long-term profitability.
Rapid deregulation, the continuing
impact of the Internet, declining margins
and keen competition from traditional
and non-traditional quarters created
enormous challenges for the industry.
Most important of all, poor economic
conditions in most countries with the
notable exceptions of China, India and
Korea made it near impossible to grow
the revenue base.
34 The Asian Banker Journal
PHILIPPINES
Bank of Philippines Islands
TAIWAN
China Trust Commercial
Bank
THAILAND
Bangkok Bank
Standard Chartered
Indonesia
Loans application
process
Against this backdrop, Standard Char-
tered Bank Singapore this year follows its
standing in 2002 as the Best Retail Bank in
Asia because it continues to communicate
to us the coherence in its overall franchise
while responding to the competition
and market conditions admirably. More
than most of the other submissions we
received, this bank was able to articulate
its value proposition to us in the most
transparent manner.
But the gap is closing as DBS Bank
and HSBC started making very credible
submissions. What DBS Bank is still not
able to achieve on the enterprise front,
it has already achieved at the product
level. Its origination and execution of
its CreditLine product was the best we
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING

From the survey, it was clear that many industry
players put their finger on sales and marketing
as critical success factors in winning in the retail
banking war today. This is followed by client
relationships.
have seen in the two years of this excel-
lence programme.
The Excellence in Retail Banking
Survey is a comprehensive programme
designed not just to identify winners for
an award, but also to capture emerging
best practices as banks respond creatively
to new trends and challenges. It is also
an opportunity for us to ask the industry
what the relevant issues and opportuni-
ties for banks will be in 2003.
The programme is very thorough in
its process, involving submissions from
the banks themselves, interviews with
the shortlisted banks and with analysts
and independent industry observers, as
well as an industry wide survey of 100
senior practitioners.
From the survey, it was clear that
many industry players put their finger
on sales and marketing as critical success
factors in winning in the retail banking
war today. This is followed by client
relationships. Logically, although it may
be surprising, market share and pricing
were not the generally valued criteria of
a winning strategy.
Bankers in the Philippines thought
technology was a key factor in defining
a winning strategy. Bankers in Thailand
gave emphasis to product innovation,
and except for Bangkok Bank, most of
the entries from Thailand did not rise
above telling us about their product
initiatives. Malaysian and Indian bank-
ers were pre-occupied by distribution
strategies. It was difficult to see why
this was the case in Malaysia, although
in India there has been a huge expansion
Banks in Hong Kong and China are
focused on client relationships likely
both from different perspectives.
Marketing and sales skills are seen
as the defining factors in Australia
and Singapore.
We are thrilled by this acknowledge-
ment in the industry. Too many banks
with strong distribution bases are ren-
The Evaluation Criteria
and Objectives
The Excellence in Retail Financial Services
was instituted to define and encourage
retail banks to focus on building business
franchises that are sustainable, com-
petitive and profitable over a period of
time. The program was instituted on the
premise that an outstanding player in the
retail financial services industry should
demonstrate the following attributes:
A well-defined and differentiated Leadership in the defined market-
value proposition to the chosen
marketplace;
Outstanding business and opera- An ability to respond to constantly
tional processes;
changing external circumstances in
Business acumen on both the rev- the marketplace;
dered ineffective because of an inability
to mobilise their staff to generate rev-
enue. Overall, market share for its own
sake was perceived as irrelevant.
Pricing is the least likely differentiator
in China and Australia but for different
reasons. In China pricing is still con-
trolled and therefore standardised. In
Australia pricing is so commoditised that
banks have been scrambling to wrap a
value proposition around their products
just to keep customers.
Elsewhere, bankers say they sim-
ply hate price wars, but cannot help
walking straight into them at every
opportunity. Managing costs comes
up strongly in Hong Kong, given the
knife-edge margins banks are operat-
ing under, and finally we are seeing
greater emphasis on tactical initiatives
to keep customers, such as through
loyalty programmes.
Consistency between strategy, proc-
esses and execution;
Strong risk management capabili-
ties;
A commitment to all stakeholders:
employees, customers and share-
holders;
place through either innovation or
differentiation;

of ATM networks.
enue and cost fronts;
Transparency and accountability of
The Malaysian respondents told us that
they were trying to push customers away
Clear execution skills at product business model.
level(s);
from the branch towards kiosk banking Winners are never chosen for their popu-
and ATMs. But Citibank came from
under their noses to steal considerable
Sustainable as a franchise over a larity or marketing specific initiatives,
and as such our selection have differed
long period, and across economic
market share with just three branches cycles; considerably from popularly held per-
throughout the country.

The Asian Banker Journal 35

SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
The evaluation process is
based on several sources
of information:
A total of 26 submissions were re-
ceived from all the major banks across
the region;
A regional survey was completed by
112 peers and senior practitioners
in the industry, also from across the
region;
Interviews with analysts and related
independent industry observers con-
ducted by Asian Banker Research;
Interviews with the banks them-
selves conducted by Asian Banker
Research.
The final evaluation is conducted by
senior analysts in Asian Banker Research,
who provide a service called Benchmark
Interestingly, technology-driven
initiatives did not feature very much
in last years submissions, perhaps
because there was less spending across
the board. There is however a greater
recognition of the relevance of risk
management as well as a strong focus
on client relationships and customer
relationship management, especially in
the cost-sensitive markets.
Most Hong Kong and Thai banks still
do not see consolidation as having a high
relevance to their business. They place
low importance to market share but high
importance on customer relationships.
Responses from the more developed
markets suggest that portfolio man-
agement is seen as the most desirable
opportunity to develop this year. In
almost every country, building a small
business banking capability was seen
as very important and desirable, but
we saw not a single entry that tried to
demonstrate a strategy in the direction
of small businesses.
Auto financing and alternative invest-
ment including hedge funds are not as
hot as many of us would imagine in
most countries, although Taiwan, Korea,
Hong Kong and Singapore appear to be
36 The Asian Banker Journal
Exchange to retail banks in the region.
The findings are disseminated through
several channels, including The Asian
Banker Journal, in-house and country
level briefings to the participating banks,
as well as through our research notes and
related reports.
The thoroughness of the programme
makes it a repository of evolving best
practices in the industry from which
players can benchmark their own prod-
ucts and processes over the long term.
The real value of this programme is as an
exercise in surveying practitioners in the
industry on key issues they face and the
institutions they admire in the context of
the challenges faced today.
moving ahead in the area of retailising
hedge funds.
Some readers asked us about Citibank
as it is often held up as the paragon of
excellence in retail banking by most un-
trained observers. Yet we have to explain
why it does not feature very strongly in
our list of winners. One reason in assess-
ing Citibank for these awards has been its
surprising lack of participation. We had
to conclude that Citibank does like the
idea of receiving awards, but its public
relations people generally get touchy
when we seek closer evaluation some-
thing that we hope will be addressed in
future years.
But where we have had opportunity for
scrutiny, several technical factors emerge.
On the face of the facts, Citibank is not
structured operationally in a way that can
be compared fairly with its competition
in many countries. For example, it ben-
efits from huge global scale for transac-
tion processing that no other bank in Asia
can match. Such a capability naturally
keeps its capital and cost bases very low
and profitability consequently very high.
If franchise building is simply a matter of
profitability, Citibank should win hands
down in a number of countries.
But at a closer look, this bank suf-
fers from a relative inability to build a
long-term sustainable franchise in a few
countries. This has made it possible for
domestic players to erode its competitive
advantage, especially in India and Tai-
wan where savvy domestic players with a
fraction of Citibanks operational capabil-
ity have been able to steal considerable
market share from this global giant.
This year, only in Malaysia did we
see the reverse the kind of tactical
prowess that we wanted players such as
Citibank to demonstrate that pipped
its competitors to win best retail bank in
that country. In other countries, Citibank
may be an undoubtedly major player in
areas such as credit cards and mutual
funds, but more in the top five, down
from the top three as may have been in
the past. However, Citibank did score a
fillip in India at the product level with its
MTV credit card, which won an award
this year.
All said, we believe that the great
themes for success in the industry today
are distribution, process and a sales cul-
ture. We also note from analyst reports
that retail banking will not be the darling
of the industry for too long.
The cost of funds advantage is dis-
appearing as global deflationary fears
rise. The rationale for a consumer credit
culture is being questioned even in
America. Governments are, once again,
turning their attention to empowering
businesses. It is for these reasons that
we have always emphasised building
sustainable long-term franchises in this
excellence programme.
Arrangements are being made to present
the results of the Excellence in Retail
Banking Program through a series of
briefings to retail banks in specific cities
in the region from January to March
2003.
For details on participating at these brief-
ings, please contact Ms Jodine Phua at
tel 65-62366503, fax: 65-62366530 or
e-mail: jphua@asianbanker.com.sg or
visit us on www.theasianbanker.com
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING

The Asian Banker 2002

Excellence in Retail Banking Awards

The best retail

bank in Asia
Following its win in 2002, Standard Chartered Singapore triumphs again as the
recipient of the best Retail Bank in Asia award, amid tighter competition in the region.
Their calling card was consistency of processes and execution, supported by superior
multi-channel sales and service capability. But, ICICI and DBS are not far behind.

REGIONAL/ SINGAPORE

Standard Chartered, Singapore

Source: Asian Banker Research
Standard Chartered Bank Singapore is
again the Best Retail Bank in Asia this
year. It remains the one bank that con-
tinues to demonstrate coherence in its
overall franchise while responding to the
competition and market conditions in a
sustainable and profitable fashion.
At the domestic level, the major theme
in Singapores domestic banking sector in
2002 was protecting turf. The number of
domestic banking groups in Singapore
was reduced from five to three in 2001
and the challenge has been to manage
the post-merger process and achieve
economies of scale.
Reduced profit margins and an en-
hancement of the Qualifying Full Bank
(QFB) privileges offered by the Singapore
government to foreign banks made the
operating environment even more com-
petitive. Even tiny players such as ABN
AMRO were able to make formidable
impact in terms of pricing and customer
acquisition strategies.
Amid uncertain economic conditions,
the banking sector in Singapore should
continue to be challenged. There was a
price war on the home mortgage front.
Falling margins and the lack of real
growth in consumer demand for loans
gave banks scarce opportunity for intro-
ducing a profitable value proposition that
customers would appreciate.
Yet in this environment, Standard
Chartered Bank Singapore saw real
growth in revenue and profitability
by pump-priming its distribution and
customer base. By identifying and fo-
cusing on the middle- to upper-income
segments, Standard Chartered grew
its customer base by 9.5 percent and
claims that it achieved double-digit
revenue growth.
We assessed that Standard Chartered
handled the challenging environment
in Singapore last year skillfully, demon-
strating a systematic approach to service
delivery with a strong customer orienta-
tion, all in a profitable manner.

The Asian Banker Journal 37

SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
Consistent processes, coherent products and aggressive sales capabilities at the branch won the award for Standard Chartered Singapore
We should add that the star of DBS
Bank, Singapores largest bank and the
most formidable competitor to all foreign
banks, is rising again in its home turf.
This bank made a very credible submis-
sion and we read its submission as a
road map to building a strong delivery
capability over the next few years. But
we saw that DBS is still a step or two
behind the foreign banks in executing
a customer-centric capability that can
enable it to deliver high value products
and services such as bancassurance and
wealth management. The quality that
makes DBS worth taking notice is the
manner in which it executed its CashLine
product, which is discussed in the Prod-
uct category below.
The challenges that DBS is having in its
home turf is an object lesson to the largest
banks in all other countries in the region:
having the largest distribution networks
and customer bases in the country offers
no real protection from competition. So
ICBC in China, Bangkok Bank, Maybank
in Malaysia and the State Bank of India
can indeed lose their turf, if they do not
keep up their customer focus in their
originating countries.
Our survey findings confirm to us that
building a bank-wide sales culture is
the most formidable item on the agenda
for many banks in the region. Standard
Chartered Singapore is perhaps one of
38 The Asian Banker Journal
Asias best examples of an institution
that has primed its entire branch and
distribution network into a formidable
sales machine.
The bank reaped considerable divi-
dends in 2002 by its decision to expand
its sales-force capacity by 20 percent.
This combined with a strong sales culture
appears to have positively impacted
the bottom line Standard Chartered
reported an improvement of over 30
percent in new sales revenue per full
time employee.
The sales effort was also helped by
optimising its distribution base by re-
locating branches and integrating with
direct and automated channels, as well
as increasing sales training for staff (up
39 percent on an hourly basis). In ad-
dition, the bank claimed that Internet
transactions increased by 700 percent in
the last year.
Standard Chartered also took judicious
advantage of the greater privileges under
the Singapore governments industry
liberalisation scheme, by increasing its
ATM location three-fold to 54 locations
in the island republic.
The bank told us that its independently
commissioned survey revealed customer
satisfaction increased 15 percent year-
on-year. Most importantly, we were
impressed by the banks maintenance of
its cost-to-income ratio at 30 percent.
In terms of new product develop-
ment, a key focus has been bancassur-
ance. In a number of maturing markets,
our survey respondents told us that
wealth management was becoming the
holy grail which involves keeping and
nurturing profitable customers through
product and service innovation. Stand-
ard Chartered, together with Citibank,
has had a longer history of mastering
the soft skills and the infrastructure re-
quired to provide wealth management
successfully. Standard Chartered claims
to have cornered almost one-third of the
market to become the largest player in
Singapore, which is most likely. Indeed,
the banks wealth management strategy
appears to be comprehensive and well
thought out, covering planning, pro-
tection, preservation and the creation
of wealth.
In all these, we feel it is the strong
coherence in its business processes that
sets Standard Chartered Singapore
apart from its competitors and will help
to sustain its growth. Singapore is the
playground of some of the worlds most
successful retail banks particularly
Citibank and HSBC which have almost
full access to the domestic marketplace.
So while the distinction of being the best
in the region is well deserved, it will be
tough to keep up the challenge in the
long term.
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
CHINA
ICBC
Source: Asian Banker Research
Chinas domestic banks have been evolv-
ing as quickly as the government can
liberalise the industry. With just four more
years to go before the opening of Chinas
banking industry to foreign competition,
local banks have been very ambitious.
They have been focusing on new business
areas, revamping their networks and look-
ing to boost service levels to a standard
that meets customers demands.
The choice of the best retail bank in
China was a very tough one. Competi-
tion in this huge country can be assessed
in many ways, given the rudimentary
nature of the industry today and the
seemingly infinite number of opportuni-
ties pursued by the players in various re-
gions. In addition, the state-owned banks
are fundamentally different, although by
no means any less vigorous, from com-
mercial sector banks.
We were gratified that there was a
strong sense of transparency (surprising
as it may seem to the foreign observer),
adherence to international best practices
and even posturing between banks for
the award of best retail bank.
At the outset, respondents to our sur-
vey said the key issues in China today are
risk management and customer service
levels. The general perception is that
there is little leeway on product or price
innovation until the regulators further
free up the market.
Our survey respondents generally
shared our view that as Chinas largest
retail bank, ICBC has the best goodwill
and positioning in the marketplace. All
it needs to do is to protect that franchise,
ensure good basic products such as pay-
ments to ward off competition.
During our interviews with the banks
chairman and CEO, Mr Jiang Jianqing,
and its head of retail, we were impressed
by ICBCs commitment to go beyond
protecting the franchise. Its ability to slice
and dice the worlds largest customer
database of 100 million names allows
it to service a wide mix of profitable
customers effectively, giving it an edge
over competitors.
In 2001, ICBC launched a personal fi-
nance sub-system, which helped connect
over 23,000 retail outlets, making inter-re-
gional, real-time payment and settlement a
reality. In addition, ICBC has consolidated
its 40 data centres into two connected cen-
tres backed-up to each other.
This integrated technology infrastruc-
ture has enabled ICBC to set up a robust
enterprise-wide credit risk management
system. That is critical to the banks
progress because non-performing loans
are seen as one of the biggest obstacles in
Chinas banking reforms.
In light of Chinas entry into the WTO,
Chinese banks need to innovate and
expand product areas such as credit and
debit cards, mortgages and consumer
loans. ICBC has improved in these areas.
The bank has a base of almost 80 million
cards of which over six million are credit
cards. It has diversified into car loans,
which are now worth 19 billion yuan
($2.30 billion), almost twice the amount
in 2001. Mortgages have risen sharply to
81.3 billion yuan in 2001, or 7.22 percent
of total loans.
However, we will need to scrutinise
management of this new asset profile
over the long term, given the rising do-
mestic credit and concerns over property
bubbles in major cities.
ICBC has extended its online banking
service to 80 percent of its branches in 292
cities across China, with volumes up at
5.95 trillion yuan from 3.62 trillion yuan
in 2001. However, we are not sure what
this means in a country where nation-
wide payments, let alone e-payments,
are still rudimentary.
ICBC is setting up private wealth
management centres in 1,000 branches
targeted at high net worth customers.
Presumably, this is a rudimentary form of
wealth management if compared to say,
Standard Chartered Bank in Singapore.
ICBC will need to focus on intensive
training for its frontline staff to compete
effectively with foreign players.
Meanwhile, ICBC has to continue
building consistent processes to establish
a truly nationwide enterprise. We are
truly sympathetic to the enormity of this
task. It will be worth watching how this
bank will deploy product consistency
across its enterprise when its technology
and systems are in place.
At the end of 2001, ICBC managed to
increase total profits by nearly 16 percent
year-on-year. More impressively, gross
profits rose 47.4 percent during the first
nine months of 2002.
These results reflect ICBCs commit-
ment to maintain healthy and stable
growth in the face of growing competi-
tion. It was this quality, coming through
especially in our interviews with Mr Jiang
and other senior executives, that made us
believe that ICBC will make the most of its
incredible franchise in the future.
The Asian Banker Journal 39
SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
HONG KONG
HSBC
Source: Asian Banker Research
Lower margins, higher bad debt provi-
sion and weak loan demand have dealt
a blow to Hong Kong banks in 2002. To
boost profits, the banks have turned to
select higher margin products, includ-
ing credit cards. However, surging
unemployment has more than doubled
personal bankruptcy filings.
In this scenario, innovation is critical.
Bank of East Asia, which won the best
retail bank award last year, has continued
to impress with its efforts to capitalise on
customer loyalty through enhancing its
Internet capabilities. Our survey respond-
ents generally agreed that Bank of East
Asia had a very strong Internet banking
and technology-centric offering.
However, this year, its hard to ignore
HSBCs dominance in Hong Kong due to
its steady profitability and its low non-
performing loan ratio. Also, according to
a recent AC Neilsen survey, HSBC now
dominates the electronic banking market
in Hong Kong, with over 60 percent of
market share. This shows that the strength
of the franchise plays a key role in the
success of technology-driven initiatives.
In choosing HSBC as the winner in Hong
Kong, we recognise that the banks long-
term strategy has paid off in a tough en-
vironment characterised by falling profit
margins and mounting competition.
HSBC managed to strengthen its serv-
ices capability in its efforts to counter
40 The Asian Banker Journal
low demand for borrowing and to offer
options for personal customers looking
for higher returns in the low interest
rate environment. A particular focus has
been on wealth management products,
with a very good range of investment
products such as unit trusts, guaranteed
funds and capital protected investment
deposits. Although its branch-level sales
capability cannot be compared with that
of Standard Chartered Singapore, HSBC
Hong Kongs operations have achieved
commendable results.
Net interest margins have improved
to 2.5 percent, and net margins have
been relatively resilient. HSBC achieved
a three-fold increase in unit trust sales
and doubled its insurance sales. Securi-
ties and investment account openings
have also increased significantly, up
70 percent. Agregrate income from the
sale of wealth management products
has increased by over 40 percent. With a
comprehensive product range and a sig-
nificant market share, HSBC is now in a
much better position to increase revenue
through fee-based products.
There has also been an increase in
the number of credit cards issued, up
by 338,500 to 1.82 million. More signifi-
cantly, HSBC has managed to achieve
this increase without significantly
impacting the charge-off rate, which
has been maintained below the market
average. Thats despite the poor qual-
ity of the credit card portfolio in Hong
Kong, which has been adversely affected
by economic conditions.
HSBC has also focused on innovation
in its mortgage offers in Hong Kong. The
number of dedicated staff at mortgage
advice centers has more than tripled
over the past two years to 160. Market
share of loans, including residential
mortgages, is up by about two percent.
Although property prices fallen by 50
percent since the 1997/98 crisis, they
have been relatively stable in the past
two years. More importantly, HSBCs
negative equity portfolio has remained
stable. HSBC has also maintained rela-
tively conservative lending practices with
residential mortgages characterised by
low loan-to-value ratios.
Traditionally, HSBC was perceived
to be slow in rolling out Internet-based
initiatives while other banks rushed onto
the technology bandwagon. However, the
bank has made channel migration a key
objective. On top of reducing costs through
migrating day-to-day banking to electronic
channels, HSBC is also aiming to free up
staff to offer value-added services.
Meanwhile, HSBC is actively encour-
aging customers to use electronic chan-
nels by waiving account service fees for
some counter transactions. Promotions
and discounts are also available for share
trading (70 percent of trades are now
online) and travel insurance.
We were surprised that our survey
respondents made little reference to the
Chinese banks in Hong Kong despite
their growing aggressiveness. One re-
spondent, however, stated that the con-
solidation and re-branding of the sister
banks of Bank of China was a significant
achievement last year.
Overall, HSBC seems to be success-
fully weathering the gloomy economic
environment in Hong Kong. Although
profitability may be held back as long as
the economy remains subdued, HSBCs
strategy should help to ensure longer-
term success by deepening its franchise
with a service-driven approach to meet
customers needs.
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
INDIA
ICICI
Source: Asian Banker Research
Competition in Indias banking indus-
try is characterised by innovation at
the product level. On a regional level,
the country can be counted as one of
the few countries where banks are still
spending heavily on technology and
innovation. In the survey of industry
practitioners conducted for this excel-
lence program, many respondents
cited many new products as worth
considering. After much research,
we believe that there are too many
fragmented products with no sight of
customer-level profitability. Against
this backdrop, we focused on banks that
attempted some level of coherence and
customer-centricity.
Citibanks innovative product develop-
ment, particularly the launch of its youth-
orientated MTV credit card won our vote
on sensible product innovation.
From a franchise-wide perspective,
ICICI Bank wins this years best retail
bank in India for its product innovation
as well as customer-centricity. We were
impressed by the banks ability to ef-
fectively implement its multi-product,
multi-channel retail strategy and expand
its customer base, while successfully
managing its recent acquisition and con-
solidation activities.
ICICI Bank is looking to improve its
marketing efforts and has invested in the
Siebel customer relationship management
(CRM) system. This is being implemented
across ICICI Banks retail business, and it
should help ICICI Bank manage customer
relationships and increase the value of
each customer through cross-selling.
The new system may ultimately help the
bank to significantly increase fee-based
income growth.
Meanwhile, ICICI Bank claimed that
the number of online customers has more
than doubled in the 12-month period to
March 2002, to over 1.2 million custom-
ers. Although this is only a proportion
of ICICI Banks customer base, it does
suggest increased success in the chan-
nel migration strategy. Usage has been
enhanced by ICICIs ability to offer the
largest number of on-line bill payment
tie-ups in the country.
So far, the figures look fairly good.
ICICI Bank today services more than
five million customer accounts, up from
3.2 million accounts in March 2001. It
has over 400 branches and extension
counters, and the largest single bank
ATM network with over 1,000 ma-
chines. Its non-performing loans (NPLs)
ratio, at 4.7 percent, is notably better
than the other top 10 banks in India.
According to ICICI Bank, its share in
incremental deposits has continued to
rise, up from 4.23 percent following the
acquisition of Bank of Madura, to 11.39
percent. Retail assets grew 166 percent
during the financial year 2002, while
deposits increased 73 percent during
the same period.
When the State Bank of India (SBI), the
countrys largest state-owned institution
started making impressive investments
into technology, competition in the
industry took on a new meaning. Many
of our survey respondents made strong
associations or comparisons between
SBI and ICICI, signifying that the in-
dustry has taken notice of the brewing
distribution war between the two giants
one in the traditional sense of branch
distribution and the other in the new
multi-channel world.
ICICI Bank is the largest private
sector bank in India and the countrys
second largest bank after SBI. ICICI
Bank acquired the Bank of Madura
two years ago and more recently in-
tegrated its different businesses into a
holding company. The Bank of Madura
acquisition presented numerous op-
erational and technological challenges.
For example, a rapid growth in branch
transactions led to overcrowding in
branches, service inconsistencies and
increased turnaround time. However,
we were assured that the transition was
eventually resolved in a pragmatic and
thoughtful fashion.
Earlier this year, ICICI Bank bought
and absorbed its parent company ICICI
Ltd. The consolidated group was able
to obtain access to funds for lending,
and to increase its appeal to investors
so it could raise capital to write off
bad loans. In turn, that could help the
combined entity to increase market
share. More recently, ICICI Bank also
committed to using the proceeds of the
sale of ICICI Ltd.s 16 percent stake to
foreign investors towards provision-
ing. Analyst estimates suggest the
bank should have about a 101 percent
coverage level on reported NPLs. Re-
cent reports suggest ICICI Bank has
substituted almost 110 billion rupees
of its high-cost borrowings through
deposits, implying that ICICI is on track
to achieve the required restructuring of
its funding base.
The Asian Banker Journal 41
SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
INDONESIA
Lippo Bank
Source: Asian Banker Research
Indonesias banking system, although
still high risk, has shown improvements
in recapitalisation and continued re-
structuring. With the larger players such
as Bank Mandiri and Bank Central Asia
still mired in restructuring and owner-
ship issues, Lippo Banks unwavering
efforts in building its balance sheet from
its deposit base are significant.
Survival in Indonesias banking in-
dustry is unique because the focus is
on liabilities instead of assets. Since the
Asian crisis, lending opportunities in
Indonesia are limited and fraught with
risks. Last year, we recognised NISP
Bank as the best retail bank in Indonesia
for its ability to take a conservative view
of the business and retain its customer
franchise. This year, Lippo Bank won
our approval with its liabilities-enhanc-
ing strategy that offers an evolving best
practice to help banks differentiate from
the competition.
In 2002, Lippo has sustained its focus
on building its deposit franchise by add-
ing functionalities to its debit cards and
increasing ATM access. By June 2002,
the bank had issued 2.22 million cards,
up by 42 percent from the same period
a year ago. The deposit-based product
initiative was targeted at Indonesian
depositors where the national savings
level is around 17 percent of gross do-
mestic product. The bank has only three
42 The Asian Banker Journal
million depositors, compared with the
countrys largest private bank, Bank
Central Asias eight million depositors.
Yet, Lippo was able to increase its sav-
ings account base by 22 percent between
Dec 2001 and Dec 2002 without having
to enter a price war with the rest of the
industry. Lippo has woven intangible
benefits into its savings accounts, which
are tailored to each type ranging from
junior, generic, mass affluent and prior-
ity accounts.
The segmentation approach was
also evident in its marketing promo-
tions. With lottery prizes such as cars
almost mandatory among Indonesian
banks attempting to attract cash-laden
depositors, Lippo offered a bigger and
more expensive marque to differentiate
its offer to its target audience. Harry
Sasongko, Lippos head of retail bank-
ing, said his bank targets cross-selling
at accounts with only one product with
the bank (that are more likely to defect),
rather than looking to increase the over-
all cross-sell ratio as its competitors are
wont to do.
This corroborates with its initial
strategy focusing on acquiring deposit
customers with a no-fee strategy. Only
after having built a sufficient customer
base and deepening account usage
did Lippo impose monthly fees. In
2001, 69 percent of Lippos deposit
base was made up of demand and
savings deposits one of the highest
percentage composition among the
Indonesian banks. Comparatively,
nearly 67 percent of one of its larger
competitors deposit base is made up
of time deposits.
This resulting low cost of funds and
minimal pressure on its net interest
margin (the industrys highest at 6.1
percent) is advantageous, with falling
rates for the Bank Indonesia Certifi-
cates and Money Market Instrument
propping up most of the Indonesian
banks. Lippos cost of funds at 6.5
percent is impressive. Thats not only
because its the lowest in the industry,
but also because the bank has reduced
it from 19.7 percent in 1999 to 7.4 percent
in 2000 by manipulating its mix of de-
posit product base alone. At 70 percent,
Lippo still has a high cost-to-income
ratio among its peers with an industry
average of 50 percent. But there has
been on a decline as Lippo has sought
to grow its income (35 percent increase
in fees y-o-y) faster than its costs (17
percent increase y-o-y), rather than
through cost-cutting measures.
In seeking international best practice,
Lippo has a technical assistance contract
with ING Barings, under which a senior
ING appointee, Ian Clyne provided
much of the leadership as its CEO in
its rehabilitative phase. It also has a
partnership with Citibank to train its
staff and with GE Capital in building
the back office and risk management
for its credit card business. All of these
are part of its franchise enhancement
process that will make Lippo Bank one
of the most attractive as an acquisition,
if not investment, when the Indonesian
economy returns.
Lippo Bank would have been lauded
simply for its unique revenue proposi-
tion in a debt-beleaguered market ear-
lier. But it has since moved on, having
built on that initial liabilities focus into a
sustainable business, bringing the bank
back into profitability and that might
characterise the banks focus even when
the good times return.
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
KOREA
Kookmin Bank
Source: Asian Banker Research
Kookmin Bank, Koreas largest bank, has
been more nimble and pro-active than
the other Korean players in restructur-
ing its balance sheet and loan book. In
part, Kookmins success has been due to
the governments drive to build a bank
beholden to neither government nor busi-
ness. After a tumultuous merger with
Housing and Commercial Bank (H&CB)
in 2001, Kookmin (or nations people in deposits. According to The Asian Banker
Korean) soon took up its intended role to
drive change in a banking industry that
has previously been a docile follower of
government policies.
Korea has seen continued improve-
ments in the credit profiles of individual
banks. Most Korean banks turned prof-
itable in 2001 after posting losses for
about four years. However, critical issues
that should be addressed include the
continued exposure of banks to weak
corporate conglomerates and the rising
household debt.
Post-merger Kookmin Bank, fresh out
of its merger with Housing and Commer-
cial Bank (H&CB), managed a relatively
smooth integration of its operations, and
its clear retail focus has minimised its
exposure to huge corporate risks in the
past year. Well-placed to take advantage
of market opportunities, Kookmin has
been building its retail franchise and
leads the market not just operationally
but also in market share.
With 204.8 trillion won in assets and
1,187 branches, Kookmins customer base
covers more than half of South Koreas 49
million citizens 40 percent of which
is concentrated in Seoul. The bank holds
roughly 50 percent of the countrys mort-
gages thanks to H&CB, almost 20 percent
of the credit card market, 22 percent of
small business lending and 25 percent of
technology incorporating credit and
300 ranking, the countrys second larg-
est bank, Woori makes less than half of
Kookmins profits and has less than half
its assets.
The re-engineering of Kookmin from
a staid state-owned bank to a progres-
sive one can be largely attributed to its
chief executive officer, Kim Jung Tae. He
pushed through daring initiatives such
as refusing to renew credit lines, selling
off others, and writing off its Hynix ex-
posure ahead of other creditors to push
down the non-performing loans level
from $5.1 billion to around $3.8 billion
since the merger.
The old Kookmin systems and proce-
dures were less current than H&CB and
Kim held extensive staff meetings to
keep everyone updated on the merger
proceedings. Kims appointment was
controversial as he was previously CEO
of the much smaller H&CB.
The board structure has since been
overhauled from 25 members at
the time of the merger to 12 including
non-executive directors. 17 subsidiaries
have also been scaled down to 12. Back
office operations have been centralised
with a hub and spoke system based
on those used by H&CB, and 10 to 15
percent of existing branches will be
weeded out for lack of profitability and
overlapping locations.
Kookmin, however, is as guilty as
the other Korean banks approving
loans and credit card applications with
little regard to the creditworthiness
in the frenzy to bulk up its consumer
lending portfolio. As consumer debts
reached $331 billion in June 2002, the
government ordered banks to put aside
more reserves provisioning for possible
defaults, causing a 15.5 percent drop in
third-quarter net income for Kookmins
credit card subsidiary. The bank has
since reduced limits on cash advances,
cut the size of credit lines for dubious
customers, screened applicants more
rigorously and made greater efforts
on collection.
Kookmin seems to believe that the
answer to this is additional advanced
behaviour scoring. However, the bank
would need to bear in mind that it is
only part of the solution and would
need to temper its appetite for a larger
market share with prudence in go-to-
market strategies.
Kookmin has set a goal of improving
its return to assets to 1.5 percent from
0.8 percent in the previous year and
its return on equity to 25 percent from
16.7 percent. As Kookmin integrates
its computer systems with H&CB, the
other Korean banks have rushed to
bulk up their assets, with Hana acquir-
ing Seoul Bank and Shinhan Financial
Group bidding for Chohung Bank. In-
dustry observers have also commented
that the local banks tend to take their
cue from Kookmin. While this may be
the governments intentions, Kookmin
may face greater pressures, as it fig-
ures out integration of the business
structure, such as the various credit
card operations.
The Asian Banker Journal 43
SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
MALAYSIA
Citibank
Source: Asian Banker Research
If there was one overwhelming theme in
Malaysia in 2002, it was market share. This
included protecting what was acquired dur-
ing the spate of mergers when the domestic
institutions were reduced to 10 anchor
banks, but also in acquiring new custom-
ers to stay ahead of the fray. The bank that
protected and built on its market share with
distinction was Citibank Malaysia.
The Malaysian banking scene is a war
of market share with the battleground be-
ing the credit and mortgage markets. On
all counts, the bank that won this hands
down this year is Citibank Malaysia. It
has led the market in spite of having only
one branch in each of the three states that
it is operating in Kuala Lumpur, Penang
and Johor. With over 100,000 customers
in the northern island of Penang, effec-
tively one in 10 Penangites is a Citibank
customer serviced by one office.
While most local banks have scarcely
demonstrated any credible customer
acquisition capabilities, Citibank has
focused on using its top-of-line sales
and marketing capability honed in more
competitive markets such as the US and
Singapore. It set up a 24-hour phone
banking centre six years ahead of local
banks. About 400 salespeople are housed
in its Kuala Lumpur office making cold
calls and house calls.
From the reports that we assessed
for this award, we understand that the
44 The Asian Banker Journal
bank spent around RM10-15 million
($2.63- $3.95 million), more than most
banks according to industry estimates,
on TV and print advertising. It is also
one of the top advertisers over the radio
to promote innovative products such as
daily interest housing loan, online bank-
ing and bill payment services. Being the
first to hire direct-sales people to go on
roadshows promoting its cards, Citibank
currently boasts a card base of 800,000.
It leads the credit card market with a
29 percent market share overall and 40
percent market share in the youth credit
card category.
Overcoming its limited physical pres-
ence, the bank provided a free online
payment service for all Malaysian credit
cardholders. Among Citibanks credit
cardholders, 10 percent of them have
registered and are paying their bills
online. Meanwhile, 17,000 holders of
credit cards issued by other banks also
use the service. According to the bank,
about five percent of these users have
become Citibank credit card holders after
having used the online payment service.
We thought this was a simple yet mean-
ingful innovation that had considerable
impact on customer acquisition. Latest
available figures indicate that Citibank
Malaysia (which by law is required to be
incorporated in the country) registered
a 5.4 percent increase in pre-tax profits
from RM464.02 million in 2000 million
to RM489.21 million in 2001. Its NPLs
improved to 2.35 percent from 2.5 percent
for the same period.
Standard Chartered Bank Malaysia
with 29 branches registered substantially
lower profits at RM26 million in 2001,
compared with RM456 million in 2000
due to extensive provisioning. Citibanks
consumer loans and revolvings make up
67 percent of its balance sheet as com-
pared to over 30 percent for Maybank
and around 50 percent for Standard Char-
tered, according to analyst reports.
What causes Citibank Malaysia to
stand out is its consistent and focused
approach in building its retail franchise
and nowhere else has this strategy played
out so well than in Malaysia.
We would caution the domestic banks
in Malaysia that they are lagging way
behind on the customer acquisition
and retention front. Citibank has dem-
onstrated how to achieve this through
priming of the sales focus of the banks
staff, consistent execution and specific
top-of-line marketing spend. We had
warned last year that Malaysian banks
were not spending enough time in build-
ing their sales and marketing capabili-
ties. We had given the best retail bank
award to Public Bank, because in the
absence of credible franchise building
strategies, Public Banks asset liability
management skills gave it the edge in
the marketplace.
This year however, many of our survey
respondents highlighted Maybanks
Maybank2u as the technology-based
customer-focused initiative that gave
it a tremendous advantage in the mar-
ketplace. Maybank, by far the countrys
largest bank, has seen encouraging
profits and has successfully increased
its focus on fee-based products. But our
survey respondents cited service quality
as a significant weak point for this bank.
In the absence of credible information to
assess their suitability for an award, we
concluded that Maybank has not gained
any significant advantage in its customer
acquisition strategies despite the May-
bank2u program.
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
THE PHILIPPINES
Bank of Philippine Islands
Source: Asian Banker Research
Against the background of poor asset
quality, weak profitability and low
capitalisation, the scenario painted
by our survey respondents was that
in the Philippines, the foreign banks,
namely Citibank and HSBC, have
already skimmed off the profitable
upper end of the customer base and
introduced wealth management prod-
ucts to them.
In technology terms, perception
was divided between Union Bank (last
years winner) as an innovative bank,
and Bank for the Philippine Island
(BPI) as the player that had greater
product depth. The 151-year-old BPI
got the overall vote this year for hav-
ing a good product base and a coherent
consumer banking strategy in a highly
fragmented market. At 1,082 ATMs,
BPI has the largest such network in the
Philippines, holding a 24 percent mar-
ket share. This is complemented by 709
branches, 7,532 point-of-sale terminals,
a call centre processing 8.1 million calls
from Jan to Aug 2002, and an Internet
banking service that provides transac-
tion history viewing, credit card and
loan details, prepaid phone reloading,
among others.
Wh ile being t he second largest
bank in the Philippines allows BPI
to command superlatives in its dis-
tribution network, what we liked
was the integration of its channels.
For example, upon account open-
ing, a depositor is enrolled in the
check-free facility for payment to
merchants accessible via the ATM,
phone and the Internet.
The countrys oldest bank posted
an impressive 72 percent increase in
net income from higher interest (7
percent) and commission income (23
percent) as per The Asian Banker 300
assessment of top banks in the region.
It also carries bragging rights for a
commendable 10.9 percent return on
equity (ROE) as compared to its near-
est competitors, Metrobank posted
ROE of 3.8 percent and Equitable PCI,
0.3 percent.
BPIs consumer loans increased by
13 percent on a year-to-date basis
despite the contraction of the local
consumer loan market. The consumer
banking division contributed a fourth
of earnings in the banking arm of the
Ayala-owned conglomerate this year
and provided a cushion in the weak
corporate banking environment.
While BPI stood out in terms of the
basic loan and deposit offerings to
its customers, it still has some way
to go in building alternative revenue
streams such as small business lend-
ing, wealth management and credit
cards. It was BPIs implementation of
customer relationship management
(CRM) that gave it the lead against
any other technology innovators in
this marketplace this year. The bank
recently rolled out its CRM system to
10 pilot branches. BPIs CRM initiative
is significant for two reasons. Firstly,
it will enable the bank to identify
and win back profitable customers
lost to foreign banks. Secondly, it has
certainly proved to be another layer
in priming the branch network to be
more sales focused.
The banks senior executives told us
that branch referrals of the 10 CRM
branches focusing on preferred bank-
ing clients were higher than the 40
regular branches nearest to them by
106 percent for auto loans, 51 percent
for mortgages and 50 percent in credit
cards. Account-to-customer ratio of
existing preferred clients increased by
27 percent.
While BPI is building a bancassurance
capability through alliances and acquisi-
tions, the wealth management proposi-
tions of the foreign competitors are still
more developed. In credit cards it has a
10 percent market share as compared to
Citibanks 19 percent. BPIs cost-income
ratio of 87.65 percent is fairly high con-
sidering that the industry average is
77.49 percent.
In looking at its overall retail strategy,
we believe that BPI is making the right
move in looking to expand through ac-
quisitions rather than attempting organic
growth in a highly fragmented consumer
banking market.
Earlier, it had catapulted into the
second largest Philippine bank status
with its acquisition of major competi-
tor Far East and Trust bank during
the crisis.
Its capital adequacy level of close to
20 percent, higher than the industry
average of 14 percent to 15 percent,
wrapped up the sustainability concern
that we had in assessing submissions
from the Philippines, given the highly
fragmented marketplace.
The Asian Banker Journal 45
SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
TAIWAN
Chinatrust Commercial Bank
Source: Asian Banker Research
In Taiwan, once again, we see that hav-
ing the most extensive branch network
or the largest customer base is not nec-
essarily the determinant of success. In
terms of asset size and branch network,
Chinatrust is ninth among Taiwanese
banks and has only 49 full service
branches. But in terms of perform-
ance, it was the second most profitable
bank in Taiwan for 2001, after Bank
of Taiwan. This is despite the difficult
operating conditions in the banking
sector which have seen the majority of
banks failing to produce profits over the
past few years.
The bank has a strong retail focus with
nearly half of the bank lending activity
(48 percent) made up of consumer loans.
In a market characterised by a weakened
corporate sector this was definitely a
preferred market positioning.
The consumer loan book is dominated
by mortgages, but credit cards are also a
critical area (11 percent). According to the
banks head of retail banking, Charles Lo,
the bank issues over four million credit
cards, significantly more than the closest
competitors, with Taishin at 2.5 million
and Citibank with 1.5 million.
What is notable about Chinatrusts
credit card profile is that according to
Lo, while market share is approximately
17 percent, its share of transactional
volume at 22 percent is about 5 percent
46 The Asian Banker Journal
higher than its nearest competitors.
An indication of heavy usage, a critical
factor in profitability, and a result of
historically being the only bank in Tai-
wan to have charged a credit card fee.
This combined with robust net interest
margins (4.47 percent) saw this busi-
ness contribute 23 percent to operating
income in 2001.
Taiwan is an aggressive market with
pressure on high yield products. In a
market such as this, it is essential to
maximise responsiveness. Chinatrust
has demonstrated a consistent ability
to be first-to-market with product and
service initiatives. Recently it announced
it would cut interest rates on credit
cards revolving funds, to reflect the
overall lower rate environment. Under
the scheme, the bank is to charge varied
credit-background card holders with
different rates based on the amount of
their revolving funds.
As Chinatrust has only a limited
branch network, the effective utilisation
of alternative distribution channels has
been key to its strategy. The bank has
invested significantly in the development
of online banking and it was the first
domestic bank in Taiwan to offer this
service. Chinatrusts distribution capa-
bility is being enhanced further through
its plans to place ATMs in 7-Eleven stores.
Further investment is also planned with
1,250 ATMs to be installed in the coming
2-3 years.
The investment in technology to
suppor t t he bra nc h net work ha s
resulted in a relatively high cost-to-
income ratio of almost 45 percent, but
positively this has been reduced from
over 50 percent in 2000. This reduc-
tion is due primarily to an increase in
operating income.
Recognition of the importance of max-
imising individual customer profitability
is also a priority in the marketing plan.
With the local property market still
mired in bad debt, 2001 saw banks work-
ing hard to rid themselves of bad debt.
Published data indicate Taiwan banks
non-performing loans (NPLs) ratio to
average around 8 percent. However,
Chinatrusts relatively high profitability
has enabled the bank to be aggressive
in dealing with its NPLs. Its ratio of just
under 3 percent is way below the indus-
try average.
While Chinatrust stands out in terms
of its solid track record, particularly in
the credit card and consumer lending
arena, the bank is going to have to look
to alternative business areas if it is to con-
tinue to grow. And taking advantage of
cross-selling opportunities will be key. In
light of uncertain economic conditions,
the Taiwan banking sector will continue
to face challenges.
Price wars, falling margins and a negli-
gible growth in loan demand are likely to
continue. And there is little hope that the
local property market will recover in the
near future. But there is still potential for
the bank to develop further alternative
products such as wealth management
and small business lending.
We believe that Chinatrust will be
challenged in the coming years as
its competitors begin to reap benefits
from their financial holding company
models. Taking an integrated view of
the customer is crucial for long term
survival. Chinatrust has proven that it is
a formidable player on specific product
initiatives, but wealth-based customer
relationship management may well be a
new ball game.
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
THAILAND
Bangkok Bank
Performance on key criteria
Risk management
Consistency in
building operations
Reach into local market
Alternative revenue streams
Sustainable marketing strategy
Source: Asian Banker Research
Thailand has a relatively high-risk profile,
with a regulatory environment that is still
developing. However, the economy is
growing and the authorities have shown
a preparedness to support the system
through periods of stress. Bangkok Bank
has retained its award from the previous
year as it has focused on building on its
strengths and continued its restructuring
efforts in organisational restructuring
amid an uncertain environment.
Bangkok Bank is a repeat winner for
Thailands Best Retail Bank award for its
ability to retain the tremendous franchise
advantage it enjoys in this country. When
the largest bank in the country drives
to improve its competitive positioning
through restructuring, strengthening
management and upgrading its prod-
ucts, services and distribution channels,
the impact on its competitiveness is
unmatched by any other player in the
marketplace. Our survey respondents
indicated to us that there were many
technology-driven initiatives underway
among Thai banks today. But our own
investigations showed that these have
not resulted in any significant shifts in
competitive advantages, for any bank
both domestic and foreign. We assessed
that as the largest bank in the country,
Bangkok Bank only needed to re-invest
in its own franchise to keep the distance
with its competitors, which it has done
Average
admirably. While the bank has been
heavily exposed on the corporate side
from government-directed lending activi-
ties, it has reported its first net profit since
the Asian crisis at 6.5 billion baht ($152.7
million) in 2001.
Our survey respondents identified risk
and fraud management as being issues for
concern in Thailand. With the centralisa-
tion of back office from 160 branches into
10 centres, in our assessment, Bangkok
Bank has been leading the way in building
stronger in-house prudential capabilities
while at the same time, increasing serv-
ice quality. Processing time for business
revolving loans is down from three days
to less than three hours, with an aim to
reduce it further in 2003.
The foreign-owned banks such as
Standard Chartered Nakornthon still
lead in terms of customer service and
branch innovation. Bangkok Banks big
advantage, though, is its extensive branch
network of over 500 branches and strong
deposit franchise, which provides it with
a stable and low-cost funding base.
With the protective regulatory climate
giving deposit guarantees and creditor
rights, and regulatory pressure to keep
deposit rates high thereby propping up
weaker banks, other government-owned
banks have also launched into an aggres-
sive lending strategy. We believe that
there will be a price war in 2003, thus
affecting the profitability of better-run
banks like Bangkok Bank.
With foreign banks holding the field in
credit cards, local banks are joining the
foray through price promotions such as
lower interest rate and joining-fee waiv-
ers. While card usage in Thailand is not
particularly high, banks have been jump-
ing into the market desperate for lending
opportunities and courting customers
earning as little as 7,500 baht a month.
Bangkok Bank charges an average rate of
17.5 percent for its credit cards, which is
around the norm for the local banks.
On the other side of the coin, Bangkok
Bank has a considerably broader cus-
tomer proposition than any foreign bank.
Its deposits, credit cards and mortgage
lending is broad-based, extending to the
lower-middle and mass markets. It has
also expanded its small business and
agricultural credit capabilities, while its
local banking competitors such as Thai
Farmers Bank and the smaller but nimble
Bank of Asia are fast building on alterna-
tive revenue streams.
Bangkok Banks cost-to-income ratio
has improved to 66 percent in 2001 from
over 100 percent mid-crisis, although it
picked up with organisational restruc-
turing and investment. However, with
a capital adequacy ratio at 11.3 percent
in 2001, Bangkok Banks significant
exposure in the manufacturing and com-
mercial sectors (accounting for over 61
percent of its lending), leaves it vulner-
able to adverse external conditions. Lat-
est figures indicate that Bangkok Banks
non-performing loans accounted for 15.2
per cent of its outstanding credit.
What stands out is Bangkok Banks
consistency in transforming its opera-
tions and moving away from simply rely-
ing on an extensive distribution network
to maintain pole position. The organi-
sational restructuring project, Bualang
Transformation, which began in 2000,
has not lost its steam and is increasingly
evident from its customer-fronting activi-
ties and back-end process re-engineering.
Bangkok Bank wins the award this year
for concerted reinvestment in its domi-
nant franchise.
The Asian Banker Journal 47
SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
Individual award for excellence in retail banking in Asia
Chen Xiaoyan, head of retail
banking, ICBC
Chens work in standardising product and service quality in the worlds
largest retail bank with more than 50,000 branches and 100 million customers
earns her the inaugural individual award for excellence this year.
Chen Xiaoyan, General Manager (Head of Retail Banking) for ICBC
This year we introduced a new award
for individual excellence. Readers will
not be surprised with our choice of Ms
Chen Xiaoyan, general manager and
head of retail banking for ICBC in China,
as the recipient.
Chen played an integral role in ICBCs
recently completed task of networking
over 23,000 branches and amalgamating
the data centres. With more than 100
million customers with over 400 million
accounts, this achievement allows the
head office far greater control over the
day-to-day running of the network.
48 The Asian Banker Journal
In an interview with The Asian Banker,
Chen acknowledged the difficulty of
managing a bank of ICBCs scale with a
reporting system that was scattered and
hierarchical, saying, The bank could
not continue to operate in its old multi-
layered, scattered inefficient structure.
Her focus now is on overcoming these
legacy barriers to present a comprehen-
sive product offering to the customers
and to strengthen the capability of the
bank to respond to change.
This focus is becoming more pressing
as the industry is entering a period of
innovation. With the economy surging,
markets are transforming and cor-
respondingly customer demands are
changing. Although the banks customer
base is extensive, critically most of the
customers are not highly profitable. The
controls imposed by the Peoples Bank
of China on pricing further limits the
potential to improve earnings. Chen ac-
knowledges that in the past products and
services were not customised and there
was simply not much of a strategy.
Brand development is an important
component of Chens strategic vision.
While in the past, emphasis has been
placed on promoting the whole bank, the
bank is now focused on also promoting
the branding of specific products and
business areas. This could be dangerous
territory if ICBC does not retain strict con-
trol over the branding approach. It will
be imperative for Chen and her team to
supervise developments closely, to avoid
ICBCs brand and product image becom-
ing regionalised and inconsistent.
The bank is increasing its focus on high
net worth customers, and developing a
product base to address the needs of this
customer segment. Chen stresses that it
is critical to develop a skilled workforce
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING

that is up-to-date on product develop-

ments and understands the needs of the
The bank could not Also fundamental to ICBCs progress
are improvements to control and super-
organisation and its customers. In the vision. According to Chen, processes are
past year, 210,000 staff have undergone continue to operate in being standardised and reporting, statis-
training. However, a change in mindset tics and accounting systems have been
is not something that can be achieved its old multi-layered, put in place. Head office staff can now
overnight. Introducing a sales and monitor and evaluate what is happening
service culture, entailing a fundamental scattered inefficient at branch level more easily. In addition, a
shift towards customer-centricity is a risk control system has been developed,
formidable task. structure. allowing transactions to be registered and
Success will lie in Chens relationship monitored. Although the transformation
with her staff. She appears to have strong is not complete, the extent of the change,
views regarding communication and her from the previously fragmented, piece-
hectic travel schedule around the cities of effectively. A thousand branches have meal system is extensive.
China is a reflection of her hands-on man- been revamped over the last year and Chen is clear about her current priorities
agement approach. However, branches another thousand are to be updated in the to strengthen the competitiveness of the
that fail to comply with procedures or coming year. One of the objectives is to bank, improve product quality and raise the
meet pre-determined criteria are quickly give priority customers their own service level of customer support and relationship
penalised. We view her combination of area, including an area for the newly management. Although it is apparent that
authority and open communication as trained financial planning managers. In many banks in China are adopting a similar
key to facilitating change in a bank such this regard, we were impressed by Chens strategy, we feel Chen has set out a particu-
as ICBC. ability to seek and execute a number of larly balanced and coherent approach for
While being the largest bank in China ideas, sometimes from outside China, but ICBC that will support the worlds largest
presents some advantages, in terms of the with a strong sense of what would work retail bank in the long term an achievement
extensive customer base and market pres- in the country. that few can boast about.
ence, a fundamental problem is speed of
response, a common problem for the big
four Chinese banks, but which can be
a competitive advantage for smaller or
second-tier Chinese banks.
Another issue that occupies Chens
mind is in migrating customers to more
cost-effective channels and rationalising
the branch network further, without al-
ienating the mid- to lower-tier customers
from ICBCs extensive and costly branch
network. This is particularly challenging
in China where the infrastructure to al-
low use of alternative channels, particu-
larly outside the main cities, is still under
development.
However, with over 10,000 ATMs, a
similar number of self-service payment
facilities and a Giro system that is now
nationwide, the infrastructure is begin-
ning to look less patchy.
In Chens view, which we support, her
greatest achievement is the development
of a coherent strategy for retail banking,
although she describes the bank as still
being in a transitionary period. When
she took on her role there was little
product development and the concept of
customer segmentation was ill-defined.
Most effort simply went into catering to
the mass market. The closed counters in
the branches were evidence of this.
The branches are being re-modeled
based on an open counter system so staff
are able to interface with customers more

The Asian Banker Journal 49

SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
Product and service excellence
While our choice of best retail banks focused on overall franchise value, there
were products and processes that demonstrated excellence inexecution and
delivery skills. We shortlisted five that we think deserve recognition..
Asian Banker Retail Product
Excellence Award
DBS Bank Cashline
Cashline is a very professionally marketed personal
revolving credit facility, with multiple tied promotions
with partners including Motorola, Palm and SCV
to provide incentives. The application process is
particularly streamlined as DBS has managed to reduce
processing time by 40 percent and offers almost instant
access to credit within 20 minutes of application as a
unique differentiator.
DBS Bank Singapore has been expanding in recent years,
upgrading its technology, augmenting its product range and
improving its delivery channels. It is likely that for DBS to
fully realise the gains in its recent mergers and acquisitions,
there should be a period of consolidation and focus on its
product front.
However, the bank deserves recognition for its outstanding
launch, execution and marketing of Cashline. This is a personal
revolving credit line facility, introduced into what was then a
saturated and competitive marketplace in a difficult economic
environment for personal unsecured credit.
Customer response was positive and take-up far exceeded
internal targets. Just eight months after launch, a record of
90,000 accounts were opened. Although its major competitors
had twice that number, theirs was built over a considerably
longer period of time.
The execution of the launch helped focus the organisation on
its core skills in credit, marketing, processing and risk manage-
ment. It also demonstrated the specialised skill sets that ensured
near flawless execution.
The marketing approach was particularly innovative as DBS
created successful tie-ups with partners including Motorola,
Palm and SCV to provide incentives. The initiative was also
notable because it was one of the first DBS programmes that
the bank effectively cross-sold to the newly acquired, POSBank
customer base.
In order to better its competitors, DBS considerably reduced
processing time by 40 percent and offered instant access to credit
within 20 minutes of application as a unique differentiator.
There are concerns about the long-term usage and quality
50 The Asian Banker Journal
of personal credit products, particularly in todays challenged
economy in Singapore. But we believe that DBS entered this
market with strong risk management capabilities in place and
has the financial strength to sustain the long-term competition.
We expect to see unique pricing and value propositions being
built over this product in the future. For now, the launch of the
product is a much needed vehicle for DBS to buildthe retail
banking franchise into its next phase of growth.
Asian Banker Retail Product
Excellence Award
Bank of East Asia My CyberWorld
With a single Cyberbanking account number, Customers
can access up to 12 related accounts to perform a wide
range of banking services, including account enquiry,
funds transfer and many more, through various
electronic channels.
Bank of East Asia deserves credit for its efforts to capitalise on
customer loyalty with the enhancement of its Internet banking
service. However we particularly commend the bank for provid-
ing customers with real convenience the bank maximises its
accessibility alongside the functionality of the offer.
A number of our survey respondents recognised the innova-
tions of Bank of East Asia relative to its competitors, particularly
in Internet banking. In addition to the basic retail banking func-
tions, customers are able to transfer funds to other local banks
without first having to register or pay bills online. They can
also receive instant online approval for mortgages and personal
loans, as well as instant approval for insurance services.
Although Bank of East Asias 180,000 Internet banking cus-
tomer base may appear under siege especially in the light of
HSBCs larger initiative, it has clearly succeeded in retaining
customer loyalty in the face of fierce competition.
Also of note is the first of its kind tie-up between a bank and
an Internet media company in Hong Kong. Bank of East Asia
and Yahoo! have developed a web site that enables customers
to access a wide variety of information according to their needs
and preferences on a single page.
Bank of East Asia has also maintained its investment in e-
 SPECIAL REPORT EXCELLENCE IN RETAIL BANKING
banking despite the recessionary environment. A strategy that
should pay dividends in the longer term through enhanced cost
control as a result of channel migration.
Asian Banker Retail Product
Excellence Award
Citibank India MTV Credit Card
The MTV Citibank card offers all the features of Citibanks
Silver International card and additionally offers specific
youth-targeted benefits. Over 100 outlets that include
computer education, books, music and garment stores,
restaurants, health clubs and salons, discotheques, bowling
alleys, pool rooms and other youth focused venues will
offer discounts, free entries and free gifts to MTV Citibank
cardmembers. They will also get preferential entry to
exclusive MTV events.
Citibank created an ingenious concept in India with MTVs first
co-brand with any financial institution the MTV credit card.
The targeting of the credit card was focused; it was the first
credit card to address the lifestyle needs of the youth market.
To add to its appeal. it was the first credit card to have year-
round offers at over 300 youth-orientated outlets. The card was
subsequently launched as a clear card, Indias only translucent
credit card.
We feel that the card initiative demonstrates strong synergy
with Citibanks broader positioning, to be the most innovative
financial institution in terms of products and services. Success-
fully accessing the youth market is also a strategy that should
pay dividends in the longer term.
Asian Banker Retail Service Excellence
Award
RHB Bank Customer Care Center
An effectively implemented centralised customer care
centre, its 85 personnel, comprising customer service
agents, support staff and technical support team field an
average of 4,500 calls for 16 hours each, daily.
In the past year, Malaysian banks have either re-structured or
re-launched their call centres in preparation for the liberalisa-
tion of the banking sector. We laud RHB Bank of Malaysia for
process excellence built around its customer care centre.
After our awards last year, we looked for a demonstration
of domestic Malaysian banks seriously building muscles
around their processes to effectively go-to-market, regard-
less of products.
Despite strong distribution capabilities and customer bases,
most Malaysian banks are technically incapable of maximising
their revenue generating potential because their networks are
not primed for sales and service.
It was in this light that we identified RHB Banks Customer
Care Center as one of the first most systematic approaches to
building a sales and service capability around its traditional
distribution capability.
The call centre is not treated as a separate unit of the bank
but as part of the existing product and service package. Efforts
have been made to integrate the disparate systems at the branch
and head-office level.
Development of human capital and processes flow are being
developed along with the capacity to handle scale and maintain
customer service standards, as opposed to a commonly technical
approach to building a call centre.
We believe that the centre will assist the bank in increasing
revenue from its above-the-line marketing initiatives and at the
same time provide support to its traditional distribution base.
We would like to see the bank extend the domain knowledge
on sales and service developed through this centre to the rest of
its channels, and empower the bank for the long term.
Asian Banker Retail Process
Excellence Award
Standard Chartered Indonesia
Loans application process
The banks traditional structure with a sales, marketing and
credit function has been updated to integrate with the loan
application processes: from initial application to customer
service, payment point and collection.
Standard Chartered Indonesias re-engineering of its loans
application process is commendable in the consistent and
pervasive manner that it was done.
The banks traditional structure with a sales, marketing
and credit function was re-vamped to tie up with the core
components of the loan application processes : including
the initial application, customer service, payment point
and collection. After identifying these core processes, the
application turnaround time was re-defined, recognising
the time the customer fills the application to when he/she
receives the money.
Within each process, the sub-processes were then re-engi-
neered. For example, apportioning out each step of the new
application review through a manufacturing conveyor belt
approach has enabled the bank to cut down the time taken from
three-day to a same-day approval.
This coupled with an aggressive marketing and sales strategy
has enabled Standard Chartered Indonesia to maintain market
leadership in personal loans, contributing to half of its retail
lending income. According to the bank, its unsecured lending
product has a market share of 60 percent and an unaided aware-
ness level of over 50 percent.
The Asian Banker Journal 51
52 The Asian Banker Journal

Should rating agencies be regulated
The wake of the current corporate scandals has not spared anybody, not even the rating
agencies, as the recent hearings before the US Senate Committee seem to suggest.
The US Senate Committee on Govern-
mental Affairs current examination of
credit rating agencies may well redefine
their role in the securities markets.
The focus has been on informa-
tion flow in the credit rating proc-
ess; concerns regarding credit rat-
ing agencies ( potential conflicts-of-
interest or abusive practices); and
the regulatory treatment of credit
rating agencies (including concerns
regarding potential barriers to entry).
Most acknowledge that the agencies
play an important role in financial mar-
kets. In his testimony to the US Senate
Committee, Jack V. Malvey, managing di-
rector and the chief global fixed-income
strategist at Lehman Brothers the rating
agencies have been an indispensable
contributor to the tremendous growth
of the global fixed-income market over
the past century. Based primarily on the
agencies credit-quality classifications,
trillions of dollars of capital have been
successfully channelled to economically
worthy purposes.
Malvey also observed: There are
no mortals or institutions with perfect
clairvoyance. ... forecasting the future can
be difficult. Likewise, ratings cannot be
perfect predictors of ultimate credit risk
for every single issuer.
In the wake of the corporate scandals
that have plagued the US securities
industry, concerns have started to grow
that the industry is not regulated. The
deterioration in corporate credit quality
in recent years has been unprecented.
In 2002, the number of credit rating
downgrades increased by just one per-
cent annually but the debt affected rose
by 34 percent year on year. Upgrades
fell to a 10-year low and the number of
issuer falling into junk status doubled.
The volume of defaulted debt rose by
67 percent year on year.
According to the independent research
firm CreditSights: 2002 will likely prove
to be the watershed of this economic
cycle in terms of credit quality and the
turning point can come none too soon
for bond investors who have seen their
portfolio returns decimated amid a gen-
eral the rising tide of ratings downgrade
and corporate defaults.
It is an environment that has in-
creased public scrutiny on the agencies.
There are also worries that the perceived
duopoly of Moodys Investor Service
(Moodys) and Standard & Poors (S&P)
is anti-competitive.
The agencies have all now presented
their testimony to the Committee. By
and large, the agencies are opposed to
regulation and hope to maintain their
independence, which they see as crucial
to their ability to carry out their analysis
both effectively and objectively.
The agencies are
opposed to regulation
and hope to maintain
their independence.
According to Isaac C. Hunt, Jr., com-
missioner for the US Securities & Ex-
change Commission, the importance of
rating agency opinions to investors and
other market participants ... has increased
significantly, particularly with the
increase in the number of issuers and
the advent of new and complex financial
products, such as asset-backed securities
and credit derivatives.
Hunt also observed that the glo-
balization of the financial markets also
has served to expand the role of credit
ratings to jurisdictions other than the
US, where the reliance on credit ratings
largely was confined for the first half of
the twentieth century.
Today, Hunt believes credit ratings
affect securities markets in multipe ways,
including issuers access to and cost of
capital, the structure of transactions,
and the ability of fiduciaries and others to
invest in particular investments.
RISK MANAGEMENT
Leo C. ONeill, the president of S&P
sees the market as the best judge of a
credit rating agencys quality, objectivity
and independence. He said, there is no
demonstrated abuse or market failure
that warrants abandoning the regula-
tory approach that has served investors
and the markets interests so well for so
many years.
Raymond W. McDaniel, the president
of Moodys was more sanguine. Over
the past two years we have witnessed
several high profile corporate scandals
and bankruptcies that have reduced
confidence in the US capital market,
he said. In hindsight, failures can
be observed at multiple levels. Some
market participants initiated market
destabilizing acts, some were complicit
in allowing them to occur, and some
notably market watchdogs, including
rating agencies either did not identify
or did not judge the severity of certain
actions in ways that would have max-
imised investor protection.
However, McDaniel believes that
Moodys long history demonstrates the
validity of the methodology it employs.
Testimony from Stephen W. Joynt,
president and chief executive officer of
Fitch, unsurprisingly highlighted some
of the competitive concerns. Joynt be-
lieves that Moodys and S&P are a dual
monopoly, each possessing separate
monopoly power in a market that has
grown to demand two ratings.
Joynt sees difficulties for new entrants,
citing difficulties his own organisation
has felt. Despite a decade of effort, he
said multiple mergers and millions of
dollars of expense devoted to our effort to
become fully competitive with Moodys
and S&P, Fitch may still be marginalised
in formerly competitive markets because
of the monopoly power Moodys and
S&P wield.
The Committee also heard testimony
from independent analysts, consultants,
asset managers and lawyers. Its fi nd-
ings will be anticipated eagerly, by the
financial services community.
The Asian Banker Journal 53
SPONSORED STATEMENT

Asian banks in 2002

better than expected
Like many other commentators, Fitch expected the global
economic slowdown of 2001 and the shock of the terrorist at-
tacks in the US to pose a setback for Asias economic growth
that would in turn have adverse effects on bank asset qual-
ity. We expected the sharp decline in GDP growth in some
countries to not only slow but to reverse the improving trend
in asset quality.

The economic outcome has in fact been better than ex-

pected, with forecast growth rates for 2002 being generally
upgraded from the pessimistic predictions of October 2001.

debt problem because of changes in definition and the sale

The Latest forecasts shown are December 2002 Asia Pacific
Consensus Forecasts. Previous forecasts were made by Fitch
in October 2002.
The most positive adjustment has been to Koreas growth
rate, which has been pushed up by growing consumer
demand. Consumer confidence has been boosted by low
unemployment and a buoyant stock market while financing
for increased consumption has been provided by a surge in
credit card usage and other forms of personal lending.
of so many NPLs to KAMCO). All these systems have reported
debilitating losses arising from selling or writing off NPLs. By
contrast, Taiwan and the Philippines have followed a divergent
path: a less severe impact from the Asia crisis followed by a
steady deterioration in asset quality thereafter. As a result, by
our key measure of asset quality Non-performing loans net
of loan loss reserves/equity these systems are facing serious
losses. We assess the scale of potential losses by calculating
the ratio of Net NPLs (i.e. net of loan loss reserves)/Equity.

The other significant upgrades to growth forecasts are in

Singapore Taiwan, Thailand and Philippines.

The more benign economic environment has resulted in a

more-favourable-than-expected trend in asset quality, with
improvements seen in Korea, Hong Kong, Singapore and a
stabilization in Malaysia. Of course, end-2001 figures may not
reflect the full impact of the downturn given the time-lag in
loans becoming overdue for 90 (or in some cases 180) days.
But available data for the first quarter of 2002 shows a stabiliza-
tion, rather than any material deterioration.

As highlighted in the chart (which excludes Thailand and Indo-

nesia as their numbers would distort the scale), there has been
a marked divergence in asset quality trends since the Asia
crisis. The crisishit countries (Korea, Malaysia, Thailand, Indone-
sia) saw NPLs rise sharply, then decline the pace depending
on rates of economic recovery and on government-sponsored
programs to remove NPLs of varying scale and effectiveness.
(The NPL numbers for Korea understate the extent of the bank

54 The Asian Banker Journal

 SPONSORED STATEMENT

The Thai banks appear most vulnerable by this measure, be-
cause while NPLs have come down from the >50% peak level
they remain high, at close to 20%. The surviving banks are still
fragile, but they have taken large hits and made considerable
progress towards being adequately reserved. In Taiwan, by
contrast, banks are only just emerging from the denial phase,
insisting that their NPLs are manageable and reserve coverage
of 10-20% is quite adequate given the collateral they hold.
There are some encouraging signs of banks being willing to
sell NPLs at realistic prices and thus recognising losses not of
10-20% but of as much as 70-80%. The more proactive banks
are taking large net losses and seeking to replenish their capital
with (domestically issued) subordinated debt their capital
having consisted mainly of Tier 1 hitherto. While these moves
are to be welcomed, there are still Taiwanese banks sitting
on large potential losses that have not been recognized,
usually because banks do not have the capital to absorb the
losses. Until 2002 the reluctance of the banks to recognise
losses resulted in a logjam that has finally been broken with
the governments plan to force through a clean-up of the
banking sector by 2005. This should force weak players to exit
the market through mergers, acquisitions and in some cases
temporary nationalisation.
The Philippine banks face a similar challenge in recognizing
that recovery rates on NPLs and ROPOA (foreclosed real
estate collateral) are going to be lower than past
expectations, giving rise to some erosion of their capital. Hence
moves by Philippine banks to issue domestic subordinated
debt to boost Tier 2 capital.
In Indonesia, NPLs declined sharply over 2000 due to write-
offs and restructurings. In 2001 there was a further decline
(from 17% of loans to 12%) although this was mainly due to
loans growth. Restructuring these remaining core NPLs has
become increasingly difficult. Furthermore, there is a concern
as to the sustainability of the earlier restructurings given that, in
the main, they simply involved maturity extensions. That said,
the banks loan books, on average, now only account for 24%
of their asset bases due to the post-crisis replacement of their
worst NPLs with government bonds that now represent 51% of
assets. Hence the damage that NPLs can inflict on the banks
financial position is limited.
In Malaysia, NPLs grew substantially over 2001, from 13.4%
of loans to 16.2%. However, only half of this was attributable
to economic stagnancy with the balance due to the banks
finally recording a handful of large corporate NPLs as in fact
non-.Banks performing. Prior to this, regulatory forbearance
had enabled the banks to record these NPLs as current. Over
the coming year, Fitch expects NPLs to decline by about
three percentage points (before any write-offs), largely on the
back of the long-awaited restructuring of the aforementioned
and other large corporate NPLs, which are now receiving
forceful attention from the governments Corporate Debt
Restructuring Committee. We see a divergent trend among
Malaysias banks, with the best managed banks in good
shape and the weaker players still burdened by asset quality
problems and in need of support.
Hong Kong and Singapore banks are showing similar trends:
asset quality is generally improving but the trend was slowed
in 2001 by a sluggish economic environment. It is notable
that even as NPL ratios fell, loan loss provisions for Hong Kong
and Singapore banks were up in 2001. In Hong Kong this re-
flects the fact that the bulk of losses were coming not from
corporate lending which would be reflected in outstanding
NPL ratios but from personal lending/credit cards where
prompt charge off policies keep the balance of NPLs down
even though the charge-off rate may be high and rising. In
Singapore it also reflects the need for topup provisions as
collateral values declined.
The charge-off rate on personal lending is indeed high and
rising. In Hong Kong in 2001 the average charge-off rate on
credit cards was 8% and in 2002 has risen further to 15%. In
Korea the delinquency rate is around 10% but this is based on
one day overdue. Our view is that while the losses are putting
a dent in bank profits it has not seriously hurt their profitability
since the credit card business remains generally profitable:
the wide spreads can absorb a high level of charge-offs.
Hence, while we have some concerns about the quality
of consumer lending, and the banks ability to manage it
in markets like Korea where it is a new area of business for
most banks, the wide margins should provide an adequate
cushion to absorb the losses, in contrast to the low margin
highrisk corporate lending of the past.
Overall, we see bank financial strength under pressure in
Taiwan and Philippines due to past failures to tackle the
mounting bad debt problems. Elsewhere in Asia the outlooks
for banks are generally stable, with a longer-term outlook
that is modestly positive reflecting the prospects for a less
than robust recovery in the US. Further upgrades are pos-
sible for banks in Korea as the economy remains fairly buoyant
and the transformation of the risk profile, profitability and risk
management of the banks that has taken place since the
crisis continues. Elsewhere upgrades will be selective, based
on actions to clean up bad loans and strengthen balance
sheets (Thailand, Malaysia, possibly Taiwan) or evidence that
mergers have been effectively implemented (Singapore) and
balance sheets are being rebuilt prudently (Indonesia).

Name Location Telephone no. Email address

David Marshall Hong Kong 852 2263 9911 david.marshall@fitchratings.com
Vivek Goyal Singapore 65 6336 6064 vivek.goyal@fitchratings.com
Vincent Milton Thailand 66 2655 4759 vincent.milton@fitchratings.com
Sadateru Nishiura Japan 813 3288 2657 sadateru.nishiura@fitchratings.com
Andrew Smith Australia 617 3222 8618 andrew.smith@fitchratings.com
Amit Tandon India 91 22 5637 0920 amit.tandon@fitchratings.com

Copyright 2002 by Fitch, Inc. and Fitch Ratings, Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission
in whole or in part is prohibited except by permission. All rights reserved. All of theinformation contained herein is based on information obtained from issuers, other obligors, underwriters, and other sources
Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of any such information. As a result, the information in this report is provided as is without any representation or warranty
of any kind. A Fitch rating is an opinion as to the creditworthiness of a security. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch
is not engaged in the offer or sale of any security. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified, and presented to investors by the issuer
and its agents in connection with the sale of the securities. Ratings may be changed, suspended, or withdrawn at any time for any reason at the sole discretion of Fitch. Fitch does not provide investment
advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor,
or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees
generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed
by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dis-
semination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial
Services Act of 1986 of Great Britain, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic
subscribers up to three days earlier than to print subscribers.

The Asian Banker Journal 55

SPONSORED STATEMENT
Asia-Pacific Banking Outlook 2003
Ian Thompson, Melbourne (61) 3-9631-2100; Terry Chan, Hong Kong (852) 2533-3590; Gavin Gunning, Melbourne (61) 3-9631-2092; Naoko
Nemoto, Tokyo (81) 3-3593-8720; Takamasa Yamaoka, Tokyo (81) 3-3593-8719; Ernest D Napier, New York (1) 212-438-7397
The rating outlook for the majority of the banking systems in
the Asia-Pacific region is stable (table 1). These systems are
the banking sectors of Australia, China, Hong Kong, Indonesia,
Malaysia, New Zealand, Singapore, Thailand, and Vietnam.
Standard & Poors has revised its outlooks for the banking sectors
in Indonesia and Thailand to stable from negative and its outlook
for the Malaysian system to stable from positive. The outlooks for
the banking sectors of India, Japan, the Philippines, and Taiwan
remain negative, although there are some signs of stability for
selected Taiwan banks. Standard & Poors outlook for the Korean
banking system is still positive, although this may be moderating
as the sector begins to digest the recent mergers of leading banks,
which in turn begin to cope with higher consumer credit risk.
While slow economic growth in the countries of the region (with
the notable exceptions of China, Australia, and New Zealand) is
conspiring to thwart any real improvement in performance, the
forward momentum created by efforts on the part of both banks
and regulators to emerge from the trough of the 1997-1998 Asian
financial crisis is expected to ensure that most banks and banking
Table 1
Outlook for Asia-Pacific Banking System
Source: Standard & Poors rating outlooks
56 The Asian Banker Journal
systems will be able to hold their own through 2003.
Nonperforming Loans and Recoverability
The levels, trends and, importantly, degrees of likely recover-
ability of nonperforming loans (NPLs) are critical, though not
the only, factors influencing Standard & Poors assessment of the
rating outlooks for Asia-Pacific banking systems. This aspect of
bank asset quality is particularly essential, given that the majority
of the systems are in emerging economies.
The NPL ratios of many Asia-Pacific banking systems are gen-
erally available although there is a need to adjust the disclosed
NPL ratios of many systems upward, to include restructured loans
and foreclosed assets, to better reflect asset quality problems.
Data on the degree of NPL recoverability, however, is harder to
come by, with ratios dependent on assumptions made. The re-
coverability ratios cited below, of necessity, represent estimates
of average recoverability. NPL ratios, for the purposes of this
article, exclude nonperforming assets sold or transferred to asset
management companies.

Table 2
Estimated NPL* Ratios and Recovery Rates for Asia Pacific Banking Systems
Based on Standard & Poors estimates.
*Gross nonperforming loans-to-total loans ratio. For Japan, includes restructured and overdue loans. For Korea, includes precautionary loans. For Philippines and Thailand,
includes restructured loans and foreclosed real estate.
The most notable change to Standard & Poors estimates is the
decrease in the recovery rate on nonperforming loans in Taiwan,
down to 40% from 50% (table 2). The change reflects the stresses
affecting Taiwan banks as they strive to strengthen their business
profiles in the face of competitors merging to form larger groups.
As a consequence, many banks are emphasizing the disposal of
nonperforming loans and foreclosed assets, which, at least in the
short term, is placing pressure on collateral values.
Low to Moderately Low Industry Risk
Australia.
The stable outlook is predicated on the very strong profiles of the
major banks and investment-grade profiles of the other domestic
players, as well as Australias economic outlook. The increased
indebtedness of the private sector, which is driving the banks
asset growth, is subject to surveillance. Although this growth has
been in relatively low-risk home mortgage assets, Standard &
Poors nevertheless continues to monitor real estate prices, which
have been moving upward for several years. The NPL ratio for
the banking system is forecast to remain below 1% by mid-2003
(table 2). The recovery rate on NPLs is estimated to be 70% at
the same time (table 2 and chart 2), assuming there is no further
weakening in corporate exposures, which remain large relative
to the capital bases of individual companies.
Moderately Low to Moderate Industry Risk
Singapore, Hong Kong.
The outlooks on Singapores and Hong Kongs banking sectors
remain stable, partly due to adequate capitalization and loan
loss provisioning levels, although both sectors are in economies
struggling to redefine their role in their respective economic sub-
regions. Although Standard & Poors estimates that Singapore will
continue to have a higher ratio of gross NPLs to total loans (about
SPONSORED STATE-
9%) at mid-2003 than Hong Kongs projected 5.5% (see chart
1), the recoverability on Singapore banks NPLs is estimated to
be much better at 75%, compared with Hong Kongs 50%. The
value of collateral held by banks in Hong Kong has been affected
by a very sharp fall of 60% in real estate prices from a peak in
1997 and, to a lesser extent, exposure to mainland China risk.
In contrast, the property market in Singapore has been less se-
verely affected. Despite the fall in Hong Kong real estate values,
problem residential mortgages have not risen to an extent that
significantly endanger the banking sectors health. Individual
borrowers have tended to continue servicing their mortgage loan
as long as they remain employed. While the unemployment rate
has climbed to historical highs, most of the newly unemployed
are not large borrowers.
Moderately High Industry Risk
Japan.
The extensive problems of the Japanese banking sector explain
Standard & Poors negative outlook on the industry. Among the
banking systems of developed countries, Japans banks rank
far ahead of all others in respect of high credit costs due to
problem loans and the corresponding drop in the banks ability
to absorb these losses, due to their low profitability and weak
capital bases. A further decline in stock prices is another po-
tential risk, as unrealized losses on stock investments would
balloon, further eroding the banks balance sheets. Without
effective countermeasures, such events could drastically lower
the confidence of both depositors and those who invest in the
banks. Japans economic malaise is generating a further rise
in NPLs, which are expected to reach 11% by mid-2003. The
countrys estimated NPL recovery rate, at 30%, is below aver-
age for the Asia-Pacific region, and is partly due to depressed
collateral values.
The Asian Banker Journal 57
SPONSORED STATEMENT
Chart 1
Asia Pacific NPL Ratios
Based on information from regulators, banks, and Standard & Poors own estimates. Ratios for mid 2002 onward are estimates.
Korea.
The countrys banks have made significant progress in rebuild-
ing their respective business franchises and risk management
systems over the past few years. This is providing them with some
forward impetus in terms of their credit profiles, and supports
Standard & Poors positive outlook for the countrys banking
sector. Some of Koreas leading banks, however, are likely to
focus more in 2003 on their efforts to digest their acquisitions
and confront the threat of higher rising consumer credit defaults.
Standard & Poors expects NPL ratios in the sector to rise to
possibly 8% by mid-2003 from an estimated 7.5% at the end of
2002, reversing the trend of the past 18 months. The estimated
recovery rate on Korean NPLs is 35%.
Taiwan.
The outlook for the islands banking sector is negative although
it should be mentioned that, on a case-by-case basis, certain
Taiwan banks would have a stable outlook attached to their ratings
based on their own credit profiles. Gross problematic assets for
the banking system are projected to peak at 18% in mid-2002
before declining to 15% as banks increase their write-off rates.
Write-offs however, are expected to cut into the capitalization of
many banks owing to the inadequacy of loan loss provisioning
in the sector. Real estate values in Taiwan are down by up to
40% from their peak in the mid-1990s. In view of enthusiasm
in the sector in recent months for NPL disposals, the decline
supports an estimated recovery ratio of 40%. Recently proposed
sales of NPLs imply recovery ratios significantly lower than the
estimate but this incongruity is explained by the poor quality
of the NPLs in question, and the inadequacy of the collateral
attached to them.
58 The Asian Banker Journal
Malaysia.
The outlook on Malaysias banking sector has been revised to
stable from positive, although there remains some upside po-
tential, from a ratings perspective, for the leading banks. The
implementation of debt restructuring schemes by several major
corporates should entail a decline in NPLs to about 16% by end-
2002, but the decline is likely to slow in 2003 as improvements
in asset quality lag the growth rate of the countrys economy. At
the same time, individual bank managements are busy with the
business of integration following the industry-wide mergers of
2001-2002. Standard & Poors maintains its expectation that the
recoverability rate on NPLs will remain unchanged at 45%.
High Industry Risk
India.
The outlook for the countrys banking sector remains negative
due to both significant structural weaknesses of individual
banks and the negative ratings outlook on the government of
India, which remains the largest shareholder in the sector by
far. The governments debt burden continues to grow, while the
finances of the public sector weaken. Structural weaknesses in
the sector include a high degree of information risk and a lack
of operational efficiency, which makes the banks vulnerable not
only to economic shocks but also to any potential threat to their
business franchise caused by dramatic changes in regulations.
Despite the opacity of the banking system, Standard & Poors
estimates that the level of NPLs is about 25%, while the NPL
recovery rate is estimated at about 30%.
The Philippines.
The negative outlook on the banking sector is unchanged. NPLs,

which, in this instance, include restructured loans and foreclosed
assets, are likely to increase in 2002. Standard & Poors had
initially expected that the NPL ratio would ease by the end of
2002, but the poor outlook for the Philippine economy points to
a rise in gross NPLs, although the actual level may be limited
by sales of NPLs to newly set-up asset management companies.
Investor sentiment has been dampened by recent bomb attacks
in the country and a diminished likelihood that the government
will reduce its high debt burden. Although the NPL recovery rate
has yet to be significantly tested owing to the protracted nature
of foreclosure and sale in the Philippines, Standard & Poors
estimates that it is likely to be about 25% on the face value of
outstanding loans.
Thailand.
Standard & Poors has changed its outlook on the countrys
banking sector to stable from negative, to reflect the increased
stability of the system. Efforts by Thailands banks to recover
from the Asian financial crisis and sales of NPLs to the Thai As-
set Management Co. reduced the countrys estimated NPL ratio
dramatically to about 32% at the end of 2001 from about 50%
in 1999. While the ratio is estimated to have risen since then by
up to three percentage points as at mid-2002 (a lag effect of the
recent economic slowdown), the NPL ratio is likely to resume
its declining trend and fall to about 30% by the end of 2002
and further to 28% by mid-2003. Standard & Poors estimated
30% recovery ratio on Thai NPLs continues to indicate that the
countrys banks need to make further loan loss provisions.
Very High Industry Risk
China.
Despite continued strong economic growth with flow-on effects for
Chart 2
Estimated Average NPL Recovery for Asia-Pacific Banking Sectors
Note: based on Standard & Poors estimates
SPONSORED STATE-
the countrys banks, the outlook for the banking sector remains
stable rather than positive. The sector continues to face structural
problemsin particular very high levels of NPLs. The opacity of
the system makes it difficult to accurately estimate NPL levels.
Nevertheless, Standard & Poors stand by its estimate of about
50% allowing for a slight decline due to system loan growth on
the back of continued economic expansion. With total bank
credit standing above 130% of GDP, the risk of embedded sys-
temic losses is much higher than many other regional systems.
Accordingly, Standard & Poors estimates an NPL recovery rate
of about 15%.
Indonesia.
The outlook on the countrys banking system has been revised
to stable from negative. The economy, and consequently inves-
tor confidence, continues to be affected by shocks, including a
recent major terrorist bomb attack on the tourist island of Bali.
The banking sector has, however, achieved some stability, albeit
limited, after years of recapitalization by the government and
nurture by the Indonesian Bank Restructuring Agency. A slight
decline in the systems NPL ratio in 2003 is likely as total loans
grow. While Standard & Poors estimates a 15% NPL recovery
rate, loans now make up only a small percentage of total system
assets, following the massive recapitalization of the countrys
banks through the issue of government bonds.
New Zealand.
The majority of banks operating in New Zealand are Australian-
owned and the New Zealand economy has strong links with
Australia. Accordingly, the New Zealand banking sector benefits
to a substantial extent from the strength of its banks Australian
parents. The sector outlook is correspondingly stable.
The Asian Banker Journal 59
OPERATIONS
Competition to streamline
trade finance heats up
More global banks and vendors are rolling out online trade processing capabilities in
Asia as a value proposition for their clients, as Matthew Taylor finds out.
Alan Wilkinson, HSBCs head of trade services
(Asia Pacific)
Global banks, major players in the
Asian market, have devised IT plat-
forms and services wh ich can be
offered to client banks in the region.
Some emerging best practices have
been developed in Asia, with a pleth-
ora of offerings from the banks and
non-bank service providers.
Typically a trade finance letter-of-
credit deal can take around 15 days to
process involving 12 sets of documents.
Staff costs associated with processing the
trade and the complexity of the process
which can often lead to expensive errors
and delays means historically transac-
tions with a value of below $1 million
dollars have rarely been profitable.
Many of the global banks in Asia are
rolling out new trade finance products
to help automate and speed up the
flow. This in turn will make smaller
transactions more viable and should
increase volume.
Banks have tailor-made automated
trade finance services for many years
to their larger trading customers.
HSBCs Hexagon cash management
product, which according to HSBC has
60 The Asian Banker Journal
around 2,500 clients, has been operat-
ing for 15 years, and incorporates a
trade finance facility. HSBC is rolling
out a new Internet-based offering
which it hopes to be able to offer to
many more smaller customers.
HSBC launched its new online trade
services as an addition to a suite of cash
management functionalities in Hong
Kong at the end of last November, four
months after launching its Business In-
ternet Banking initiative.
HSBC says the new online trade func-
tionalities allow customers to apply for
and amend documentary credit (or let-
ters of credit) online.
According to Alan Wilkinson, HSBCs
head of trade services (Asia Pacific), over
40 percent of Hong Kongs 300,000 small
and medium enterprises are involved
in trade. Based on traffic statistics from
the Society for Worldwide Interbank
Financial Telecommunication, HSBC
is estimated to have a 25-percent share
of the overall trade services business in
Hong Kong.
Wilkinson added that out of the 7,000
companies signed up with the banks
Business Internet Banking service, about
a third are also trade clients. It therefore
makes sense to add trade functionalities
to our Business Internet Banking serv-
ice, he says.
After its launch in Hong Kong, HSBC
plans to roll out the service in other
markets, with Singapore reportedly fol-
lowing suit before the end of 2002.
JP Morgan TradeDoc service has been
operating for three years. According to
Bruce Alter, vice president of treasury
sales for JP Morgan in Singapore, the
essential benefit for customers is expe-
diting the process for exporters so that
they are getting paid quicker. Alter
believes that, on average, this can re-
duce the time to payment for exporters
from between 15 and 20 days to around
five days. TradeDoc was developed in
Asia to meet regional requirements
and allows for on-line entering and
monitoring of various each stages of
the trade process. Alter says electronic
document preparation outsourcings
major benefit is the improvement in
the cash flow cycle, which is ultimately
a result of a significant reduction in
discrepancy rates.
Trade Information Exchange (TIE)
allows for multiple access from the
customers to view outstanding trade
transactions on-line as well as trade
document images. Relevant documents
can be accessed by staff, agents and au-
thorised supply chain service providers,
with a view to expediting the process of
the trade as quickly as possible. Accord-
ing to Alter it is an extrmeley powerful
and interactive trade info tracking tool
clients really benefit from it. TIE also
provides courier information, to monitor
the progress of documents relating to the
trade in real time.
ABN AMROs award winning Max-
Trad web-based service claims to
be the first mover in offering a full
Bruce Alter, vice president of treasury sales for
JP Morgan in Singapore

Abraham Chacko, executive director, regional
manager, trade sales, South East Asia and
Australia for ABN AMROs global trade and
advisory division,
suite of trade products for corporates
and white labelling capabilities for
financial institutions that outsource
to ABN AMRO.
According to Abraham Chacko, ex-
ecutive director, regional manager, trade
sales, South East Asia and Australia for
ABN AMROs global trade and advisory
division, MaxTrad has been launched in
24 countries in Europe, Asia and the
US and will be available worldwide
through 2003.
ABN AMRO has also streamlined the
back-end of its trade finance processing.
Eighteen months ago, trade was proc-
essed in 121 sites around the world. This
has now been streamlined to just 14. This
may be further rationalised, with most
global processing taking place in Chen-
nai, with additional sites in Rotterdam,
Manchester, Dubai, Chicago, San Paolo
and Hong Kong.
The latest development of ABN
AMROs trade finance offering is
AllTrade which, according to Chacko,
will allow the buyer and seller and
their service providers to coordinate
all aspects of the transaction online.
Chacko says AllTrade has been built
with the aim of providing a blueprint
for a completely paperless environment
in the future.
Adds Chacko: AllTrade allows for
processing of digital documents and
monitoring the progress of physical
documents, dealing with order manage-
ment, risk mitigation, financing, fulfill-
ment and settlement in cross-border
trade. There are additional value-added
features such as calculating landed costs
for shipments, identifying import and
export licences. It also automatically
verifies performance, and expedites
customs processing by creating and
validating documentation.
Standard Chartered launched B2BeX,
its own web-based trade facilitation plat-
form last November. B2BeX is designed
to provide a secure on-line environment,
accessible by all the necessary parties to
the trade.
Banks have traditionally been im-
portant providers of trade finance, says
Andrew Charlton, Standard Chartereds
group head of product sales and manage-
ment. B2BeX moves us beyond being a
provider of trade fi nance solutions to
being a facilitator of trade. Now, we are
applying our expertise across a bigger
part of the supply chain with B2BeX, to
deliver significant efficiencies and cost
savings to buyers, suppliers and their
trading partners.
The B2BeX platform allows the dif-
ferent parties in the trade process to
exchange documents and data including
purchase orders, confirmations, shipping
instructions, letter of credit applications
and so forth.
The platform includes a product
catalogue where buyers and suppli-
ers can post and source products, in
either a public or private community,
where they can then re-use the data
i n s end i ng Reque st s for Q uote s,
Purchase Orders and so on, through
t he ent i re t ra n sac t ion. St a nda rd
Chartered expects ability to inherit
information from one document to the
Andrew Charlton, group head of product sales
and management, Standard Chartered Bank
OPERATIONS
next to reduce work and errors due to
the data being manually re-keyed into
multiple documents.
There are also a number of non-bank
solutions being offered in the trade fi-
Some emerging best
practices have been
developed in Asia,
with a plethora of of-
ferings from the banks
and non-bank
service providers.
nance solutions marketplace. The most
established of these are TradeCard and
Bolero.net.
TradeCard, a global trade credit card
uses smart card technology to provide
online transaction management services
using XML messaging. TradeCard has
patented a method of facilitating inter-
national trade in goods which avoids the
use of a letter of credit and the presenta-
tion and manual processing of documen-
tation for compliance therewith.
TradeCard is marketed to buyers and
sellers looking to reduce the costs of
trade transactions and streamline their
processes, but TradeCard is also being
seen by banks as improving the op-
erational efficiency of processing trade
finance business.
Kurt Kavano, chairman and chief
executive officer of Trade Card, thinks
that banks can use TradeCard to as a
way of expanding current offerings to
existing customers and to expand their
group of customers.
TradeCard says it has signed up 600
corporate customers and that these have
recently been joined by 15 financial insti-
tutions. According Kavano, some banks
are selling TradeCard to their corporate
customers, other banks are providing
additional export finance services on
TradeCard, usually pre-export and post-
export finance.
TradeCard handles the process-
ing of the trade instructions, gives
the instruction to pay to JP Morgan
The Asian Banker Journal 61
OPERATIONS
Global trade is product, which may provide more direct
$7 trillion dollars,
of which one third is
between the US
and Asia.
We are going to $500
million this year and
two to three billion
next year, and could
do $10 billion the follo-
wing year.
There is so much busi-
ness that can be auto-
mated that its a CCF have underway a roll-out of the new
huge opportunity.
- Kurt Kavano
62 The Asian Banker Journal
Chase which TradeCard uses as its
payment provider. JP Morgan Chase
would then debit the buyer and credit
the seller.
Bolero.net (Bolero) is often seen as
one of TradeCards key competitors but
Kavano disagrees with this:Bolero is
not a direct competitor. The success
that Bolero has had for the majority of
their customers has been in the com-
modities space, whereas for Tradecard
the success has come in the finished
goods space for products such as ap-
parel and footwear.
Bolero is rolling out its boleroSURF
competition with TradeCard. bolero-
SURF is an Internet-based mechanism
that ensures both parties of a cross-
border trade transaction have fulfilled
their contractual obligations, allowing
payment to take place and goods to be
delivered. A number of leading banks,
including JPMorgan, have worked with
Bolero to develop the boleroSURF prod-
uct. JPMorgan will begin to customise
and integrate the product to offer it to
its clients.
Bolero, in partnership with SWIFT, is
also marketing a series of solutions that
aims to assist banks in lowering their
costs through the replacement of mail,
facsimile and the support of alterna-
tive proprietary electronic products.
BoleroAdvise offers banks the ability
to save costs and improve the quality
of their existing Documentary Credit
Advice services to exporters through the
provision of a web-based XML messag-
ing solution. A group of French institu-
tions including BNP Paribas, Societe
Generale, Natexis Banque Populaire,
Credit Agricole Indosuez and HSBC/
BoleroAdvise solution.
Bolero has a bill-of-lading repository,
which is popular with commodity trad-
ers, but not useful for fi nished goods
providers. TradeCard however has cer-
tain functions that Kavano says provide
them with a unique ability to process
complicated orders for goods such as
footwear where users have to manage
multiple shipments against colour size
and style. TradeCards compliance tech-
nology, also matches the order against
the invoice.
Tradecard has ambitious plans to
grow its presence in the global trade
arena. Says Kavano:Global trade is $7
Kurt Kavano, chairman and chief executive
officer of Trade Card
trillion dollars of which one third is
between the US and Asia. We are go-
ing to $500 million this year and two
to three billion next year, and could do
$10 billion the following year. There is
so much business that can be automated
that its a huge opportunity.
Despite first mover advantage, Trade-
Card lacks the capital backing of Bolero
which is owned and funded by a indus-
try group including SWIFT, TT Club,
Apax Partners, Baring Private Equity
Partners and Palio Portfolio. TradeCard
has however recently secured a new
round of funding from Warburg Pincus
which will satisfy its funding require-
ments in the short term but Kavano still
needs to find a way to make the loss-
making business, profitable.
It appears that the banks are likely to
continue to control a large part of the
trade finance business. The latest web-
based products are likely to streamline
the process, reducing settlement er-
rors and delays. However we also see
a place for the stand-alone providers ,
and expect that more banks may look
to partner with providers as JP Morgan
has done.
Says Alter with regard to JP Mor-
gans ties withTradeCard and Bolero,
Our partnerships are gaining trac-
tion. We are attempting now to bring
in some clients on the Bolero side in
Asia, and have key prospects in Asia,
including Australia and Japan. We are
also conducting joint marketing in
Asia with TradeCard. It will be inter-
esting to see how quickly the business
can expand.

Shanghai Futures Exchange -
completing the third stage
of development
Dr.Jiangyang,CEOofShanghaiFutures
Exchange looks ahead into Chinas
Derivative Market of the New Century
Chinas futures market was launched since the beginning of
1990s and has gone through three stages as what we call
exploration, consolidation and regulation.
The first stage: exploration (1993 ~ 1997)
It was the time that Chinas economic restructuring was
just taking place. The underdevelopment of Chinas market
system resulted in the disorder of futures market. In 1993,
there were over 50 futures exchanges and more than 2000
futures brokerages all over the country. The trading scale,
however, expanded enormously, with the turnover in 1995
exceeding RMB 10 trillion. (See Fig. 1)
The second stage: consolidation (1998 ~ 2000)
It was hard times for Chinas futures market and the market
was dull for a long period. In 2000, the overall trading turnover
shrank to RMB 1.6 trillion (See Fig.1).
The third stage: regulation (2001 ~ 2002)
After the consolidation stage, the market supervision and
regulation have been promoted. In a brand-new market
environment, a further development is prepared for.
In the new century, the market circumstances under which
Chinas futures market exists will undergo profound changes.
After the entry into the World Trade Organization, people from
all walks of society come to the consensus that we need a
complete market system and risk management means. It is
acknowledged that derivative markets are what the whole
market system cannot do without and the derivative tools are
effective risk management means. Noting the importance
of futures market, the Chinese government has vowed its
wish to steadily develop the futures market. Since 2001,
Chinas futures market resumed its growth momentum. In
that year, the trading turnover was 3.014498 trillion yuan
and the volume was 120.4635 million lots, 87% and 120%
higher than one year earlier respectively; over the first half of
2002, the trading turnover reached 1.5 trillion yuan, 30.89%
higher year-on-year.
Shanghai Futures Exchange is one of the chief markets that
trade derivative products in China. Established in 1999, it
originated from six former exchanges. Through many years
development the commodity futures contracts now traded in
our exchange include Copper, Aluminum and Natural Rub-
SPECIAL STATEMENT
ber. All of them are quite mature, and Copper, particularly,
plays an exceptional role. Shanghai Futures Exchange has
become the largest Copper futures trading center all over
the Asian area. Since the year of 2001 the trading in our
exchange has been active and the growth trend remained
positive. In 2001 the trading turnover rose 30% to 854.4
billion yuan; in the first half of 2002, the trading volume has
been 114% greater year-on-year.
The development of market economy requires derivative
markets to supply more risk management instruments,
and the market has a need for the large-volume, influential
commodity derivatives and financial derivatives as well. To
study the development of energy contracts and launch pe-
troleum futures accordingly are helpful to Chinas reform on
petroleum circulation system, and it also helps cushion the
impacts from international oil price fluctuations. The study
and development of financial futures will be important to
Chinas economic advance and financial reforms. Shanghai
Futures Exchange is working on both of them.
In the study and development of petroleum futures, we
observe that in the next decades China will rely on the inter-
national markets for their oil supply and 50% of the domestic
need has to be met by imports. As a large oil consumer, China
must set up its own strategic oil reserve and also quickly
establish a set of oil price hedging mechanisms.
After the research of the domestic petroleum markets we
observe that heating oil is the most suitable to be traded as
a futures contract. Currently we are working hard to push
the listing of heating oil.
In the study and development of financial futures, we observe
that at this stage financial markets are in greater need for risk
management instruments like financial derivatives, so it is
almost the time for them to go traded. With the entry into the
WTO and globalization, it is obliged to manage risks under
international practices. Shanghai Futures Exchange is thinking
ahead. We keep a close look at the reforms and opening-up
of Chinas financial market and try to work out every possible
method in advance to research and prepare for the listing.
To a fast growing economy such as China, to develop deriva-
tive market is of much significance. It is a must if China wants
to merge into the international market quickly. It is also an
opportunity for Shanghai to build itself into an international
financial center. Shanghai Futures Exchange will input more
resources for the listing of more suitable derivatives, so as
to make its contributions to Shanghais progress towards an
international financial center.
For more information visit www.chinamoney.com
The
TheAsian
AsianBanker
BankerJournal
Journal 6363
INTERVIEW
Putting Pakistans
Habib Bank
back on track
Pakistans largest commercial bank, Habib Bank, presses on with reforms in a climate
that remains challenging. Zakir Mahmood, president and CEO, discusses his progress
on restructuring the bank and what lies ahead.
When Zakir Mahmood took over the
helm at Habib Bank in 2000, he had his
work cut out.
Habib Banks financial health was
looking grim. An independent audit
that he commissioned on the banks
1999 portfolio and balance sheet found
a gap of nine billion rupees. The cen-
tral bank, State Bank of Pakistan, had
to pump in eight billion rupees in
cash to restore Habib Banks capital
adequacy ratio.
This was despite the World Banks
financial sector reform programme in
1997, under which new management was
brought in to restructure Habib Bank and
pave the way for its privatisation.
Back then, Habib Bank had the high-
est non-performing loans (NPL), the
highest cost-base, highest number of
employees and, if that was not enough,
the highest employee loan-size. It had
also reported a loss of 7.1 billion rupees
($122 million).
Three years later, after extensive
reform efforts, the second largest state-
owned bank in Pakistan remained in
critical condition. Mahmood, who had
garnered 23 years of experience in inter-
national banking, faced an uphill task to
step up restructuring of the bank.
We inherited the largest NPL port-
folio of any financial institution (in
64 The Asian Banker Journal
Pakistan) - it was about 50 percent
of our overall portfolio in 1997, said
the former country manager of Credit
Agricole Indosuez for Pakistan in
an interview with The Asian Banker
Journal. Seated comfortably in an office
located in Pakistans tallest commer-
cial building, the soft-spoken banker
recalled Habib Banks troubles three
years ago.
Years of poor credit practice and
overbearing political influence left the
public sector banks with a huge non-
performing portfolio. The situation
was so grave that its extent could not
be fully quantified.
But Habib Banks beginnings, though
humble, were far from bleak.
Born as a family-owned business in
1941, Habib Bank grew to be the largest
commercial bank by 1971. However, the
government took control then as part of
its nationalisation programme. Twenty-
five years later, continued interference by
successive governments combined with a
dire lack of corporate governance almost
ran the bank to the ground.
Even though the World Bank had
stepped in to help, external pressures
put a cap on the banks progress. Habibs
battle was not just one of restructuring
alone. In 1998, political upheaval threw
Pakistans financial industry into disar-
ray. India and Pakistan conducted tit-for-
tat nuclear tests, after which the Pakistan
government froze all foreign-currency
accounts. Coupled with western nations
economic sanctions, Pakistans invest-
ment image crumbled and its privatisa-
tion process stalled.
Now, more than five years later, po-
litical tensions have somewhat eased a
little. India continues to refuse to talk
to Pakistan, but both sides have stepped
back from the brink of war.
At Habib Bank, Mahmood said plenty
has been achieved despite Pakistans
political troubles. Overall, the banks
current NPL ratio stands at 28 percent of
its total portfolio. In the last three years,
21 billion rupees were shaved off NPLs
worth a total of 56 billion, he said with a
hint of pride. Besides NPLs, Mahmood
claimed that cost-to-income ratio has
dropped from 100 percent in 2000 to
what should be less than 70 percent
in 2002.
Habib Bank now has branches in
24 countries outside Pakistan, with
a customer base of five million and
assets worth 333.7 billion rupees.
This comes as Pakistans banks are
experiencing an unprecedented level
of growth and profitability.
So how did Mahmood put Habib Bank
back on the recovery path?
Zakir Mahmood, president and CEO of Habib Bank, Pakistan
The Asian Banker Journal 65
INTERVIEW
Pakistanis working
overseas started with-
drawing money from
foreign accounts to
send it home.
They started to chan-
nel their remittances
through the banking
system instead of in-
formal money transfer
syndicates, which
Washington had
suspected of being used
by terrorists.
66 The Asian Banker Journal
Successful internal restructuring,
which bore fruit at a time when ex-
ternal events unexpectedly helped
boost Pakistans financial and eco-
nomic environment.
On Sept. 11, 2001, the global commu-
nity received a rude awakening when
terrorists slammed into the World Trade
Center in the US and forced most world
economies to head south in the follow-
ing months.
The attacks marked a turning point
for Pakistan as well, but in the opposite
direction. This was due to its decision to
join the US-led war on terrorism to oust
the Taliban, a move which led western
nations to drop economic sanctions
against Pakistan. In addition, Washing-
ton also gave $1 billion in aid $600 mil-
lion of which did not have to be repaid.
In a January report, the World Bank
said that Pakistan has turned around a
deteriorating macro-economic situation
to a rapidly improving one.
The most significant windfall of all
may have come from the flood of cash
that rushed in as Pakistanis working
overseas started withdrawing money
from foreign accounts to send it home.
They started to channel their remittances
through the banking system instead
of informal money transfer syndicates,
which Washington had suspected of be-
ing used by terrorists. Back at home, even
local businessmen, who used to keep
their export profits outside the country
for tax purposes, started pulling back the
money to avoid being caught up in the
international campaign against undocu-
mented sources of funds.
As a result, Pakistans remittances
from abroad nearly tripled in 2002,
boosting foreign reserves from about $3
billion before Sept. 11 to over $9 billion,
according to the World Bank.
For Habib Bank, the volume of remit-
tances has nearly doubled over the last
year, said Mahmood. Home remittanc-
es are an area of intense focus. The bank
handles the largest share of home remit-
tances (in Pakistan). As the market was
flush with liquidity, Pakistans banks,
including Habib, took the opportunity
to roll out consumer financing products
in the retail market.
A post-Sept. 11 world has brought with
it opportunities for Pakistans banking
industry, but Habib Banks own restruc-
turing efforts should not be discounted.
The benefits of ongoing reform at the
bank happened to kick in at the same
time as those very opportunities came
about. But it was more than just good
timing that fuelled Habibs progress.
What essentially helped put the bank
back on track was a combination of
centralisation, cost-cutting measures,
technological upgrading, and risk
management practices and procedures,
said Mahmood.
My first priority was to bring the
balance sheet into a state of stability,
he said, recounting his initial days on
the job. The second task was to build
up the businesses of the bank - that is to
reinforce the existing lines and establish
new lines of business. Thirdly, operating
efficiency had to be improved. Fourthly,
the skill level of the bank staff needed to
be raised and finally, processes required
re-engineering to reduce costs.
Mahmood, who is trained in both
engineering and business management,
wasted no time in getting down to the
job. His first target was NPLs.
It was a very difficult portfolio to
handle, he said. A dedicated unit,
staffed by 400 people, was established
to just handle the problem loans. This is
now divided into two sectors, which are
retail and corporate. We are looking to
restructure and help out. When the cus-
tomer comes forward - if he is in trouble
- I set the terms to restructure. When we
find that there is a wilful default, we go
to the courts, or whatever system there is,
to pursue the wilful defaulters.
Mahmood said that he believes the
bank can now demonstrate that lending
criteria are more prudent. He added that
loan-loss ratio - for the 46 billion rupees
of loans underwritten during the last
four years - is less then half a percent.
This is a result of risk management prac-
tices and procedures put in place across
Habib bank.
The bank has put in place very clearly
defined systems and processes, includ-
ing a very comprehensive credit policy
manual, he said. The entire bank now
works according to that credit policy
manual, which defines all levels of au-
thority. It also defines regulatory risk,
classified credit, write-offs, and handling
of problem loans.
In addition, the credit-underwriting
system is now decentralised with levels
of authority delegated and sub-delegated.
We do not have the committee system
anymore, he said. All credit author-
The Asian Banker Journal 67
INTERVIEW
ity is awarded to individuals. This is to
inculcate a sense of responsibility and
also for these officers to sign off and be
accountable for their actions.
Besides cracking down on problematic
loans and stepping up risk management
practices, centralisation forms another
pillar in Habib Banks restructuring
plan. That translates into streamlining
the banks operations. The bank has cut
down its branches from 1,900 in 1997 to
1,450 in 2002. Staff was reduced from
32,000 employees in 1994 to 13,000 in
2001. Branches with an asset or liability
base below 50 million rupees were either
closed down or merged with others.
Meanwhile, Habib Bank has launched
a segmented strategy of automating and
upgrading. Upon closer scrutiny, 300
branches have been found to generate
95 percent of loans and 80 percent of
deposits out of the whole network of
1450 branches. Therefore, these branches
have been targeted for automation and
networking.
Until now, 100 branches have been
networked. In the next six months, 250
branches will be upgraded. The re-
mainder will be linked through remote
access. Mahmood said that the upgrade
of IT systems and processes are part of
a medium-term programme, which will
be completed in two years. The bank is
in the process of implementing a new
core banking system, starting mid-2003,
he added. It will mean great benefit in
two areas: it provides one more delivery
channel and it will dovetail with our
push in consumer banking. With product
delivery and product base we will be able
to reach out much further to our target
customers.
Looking ahead, Mahmood said that
the bank plans to develop its cards busi-
ness. Habib Banks priorities lie in devel-
oping consumer banking, small business
banking, investment banking and capital
market operations, he explained. Con-
sumer banking will be developed with
a wider array of products for individual
customers, he said. Consumer banking
(in Pakistan) is just at the beginning of
the cycle over here. The banking sector
here has really only started to scratch
the surface.
As for small business banking, Mah-
mood said he sees considerable growth.
Small business banking and retail bank-
ing currently form the biggest compo-
nent of Habib Banks business.
68 The Asian Banker Journal
Consumer banking
will be developed with
a wider array of pro-
ducts for individual
customers, Mahmood
said.
Consumer banking (in
Pakistan) is just at the
beginning of the cycle
over here. The banking
sector here has really
only started to scratch
the surface.
Overall, Mahmood is convinced that
Habib Bank, like other state-owned
banks, is gaining market share as foreign
banks face a hard time sustaining their
historical lead. Traditionally, foreign
banks depended on foreign currency
deposits for their liquidity needs, and
to hedge against frequent fluctuations
in the exchange rate. A large part of the
foreign banks deposits comprised dollar
deposits under the old (foreign currency
deposits) scheme, (but) that scenario has
changed, he revealed.
When the Pakistani government
froze foreign currency accounts after
the nuclear tests in 1998, it had used
the funds from these accounts to fi-
nance its immediate foreign currency
obligations. Subsequently, the govern-
ment allowed the foreign currency ac-
count holders to withdraw their funds
in rupees. According to Mahmood,
large sums from these accounts were
withdrawn and moved into domestic
private banks and the big nationalised
commercial banks.
Now we are involved in many more
of the large transactions, so we are find-
ing a more rightful share of the market
that we did not have previously, he
said. We are now at the stage where
all the holes in the banks balance sheet
are filled and adequately provisioned on
all accounts. As a result, we have been
more active in going into new lines of
business and increasing revenue base
of the bank.
However, Mahmoods optimism is
also tinged with caution. Pakistan is
still an underdeveloped market, as far
as financial services are concerned, he
said. The way we see growth is a fac-
tor of the economy and increasing the
product range that we offer.
And it would appear that cautious
optimism is a good combination for
Mahmood and Habib Bank. There are
challenges that still need to be tackled
ahead. The main issue being whether
Habib Bank can sustain the momentum
in its restructuring process. After hav-
ing suffered painful cost-cutting, the
banks employees seem to be running
low on morale.
At the strategic level, convincing
prospective buyers of the sustainabil-
ity of changes that have been carried
out in the bank could be difficult. They
will need to be assured that future
governments will not abuse the banking
system to plug their funding gaps and
banks operations will be insulated from
political interference.
More importantly, investors will also
need to be reassured of security in Pa-
kistan. Post-Sept. 11 may have brought
unexpected windfall to the banking
industry, but theres been a negative
impact as well. Warnings issued by
governments around the world not to
travel to Pakistan because of a spate
of terrorist attacks on Westerners have
scared off many foreign investors.
The privatisation campaign, launched
by Pakistans military-led government
two years ago to raise US$3 billion from
the sale of state assets including Habib
Bank, had suffered a setback when the
terrorists struck. The government has
put on a brave face saying it is pressing
on with its privatisation efforts this year.
But it remains to be seen what kind of
bidders it can attract.
 The Bank as an Investible Asset
Hong Kong Convention & Exhibition Centre, DELEGATES INFORMATION
Fa
registra x
+603 228tion to
Hong Kong SAR (Please type or write in block letters) 45300

Dr Mr Mrs Mdm Ms
2 - 4 April 2003 Family Name: First Name:

Job Title:

Organisation:

The premier event on transformational issues Address:

affecting the financial services industry is Country:

Telephone: Fax:
conceptualized around several forums:
E-mail:
The Value Creation Forum Secretarys Name and Contact:

The Risk Forum AUTHORISATION

The Technology & Operations Forum Name and Position (if different from above):

The Industry Outlook & CEO Scenario

Planning Forum Signature / Date: This booking is invalid without a signature.

REGISTRATION FEE (per delegate)

REGULAR RATE US$1590

EARLY BIRD RATE (Only for payment received by 14 Feb03) US$1430
Featuring prominent personalities Submit 4 registrations and Get the 5th registration FREE
(Group registration: delegates must be from the same organisation and forms must be submitted at the same time)

Famous for his thinking on nation Each Delegate should complete a separate Registration Form.
The fee is subjected to 4% GST for Singapore-registered companies.
state and borderless world,
Dr. Kenichi Ohmae, renowned Please indicate which Forum you would be likely to attend on 4 April 2003.
Technology and Operations Forum Value Creation Forum Risk Forum
management guru, will lead an
unprecedented panel of CEOs and Please indicate your dietary requirement.

senior executives of banks to redefine Vegetarian Non-vegetarian

the financial services for the future. METHODS OF PAYMENT

By Bank Cheque. Payable to T.A.B International Pte Ltd, only in US Dollars or
Singapore Dollar equivalent.
By Bank Transfer. Development Bank of Singapore
Suntec City Branch, 3 Temasek Boulevard, Singapore 038983
Account no.: 074-001420-8
Account name: T.A.B International Pte Ltd

One of the worlds most respected Please indicate ABS03 and participants name for our reference.
By Credit Card Please debit my Mastercard Visa Amex
figures in the financial services industry,
Sir Brian Pitman, former Chairman & Cardholders name:

CEO, Lloyds TSB and currently Senior Card no.: Expiry Date:
Advisor, Morgan Stanley, will share his
definition of Creators of Value that
Authorised Signature:
propels Lloyds TSB into one of the most
profitable retail bank institutions in By Invoice (only for corporate organisations) Payment must be made within 5 working
the world. ONE-ON-ONE SESSION WITH DR KENICHI OHMAE

The Asian Banker is arranging a very limited number of special one-on-one sessions with
Dr Kenichi Ohmae on the fringe of the conference.

Yes, I/my board/we are interested in an additional one-on-one session with Dr Kenichi
For more information on sponsorships and exhibition opportunities, please contact Ohmae. Please contact me with the details on our requirements as well as the fees and
Mr. Cyrus Daruwala, Director, Global Clients Services at arrangements involved.

tel: (65) 6236 6522, fax: (65) 6236 6530 or e-mail: cdaruwala@asianbanker.com.sg *Please read the Terms and Conditions on www.asianbankerforums.com/summit2003/registrations.htm
For official use. Ref:ABS03-08 ID No.: __________________

www.theasianbanker.com The Asian Banker Journal 69

PEOPLE
McCrossan sees outsourcing
opportunities for custodians
Thomas J. McCrossan, executive vice
president of investment manager solu-
tions at global custody player State
Street, believes that the success of stock
exchanges with broker/dealers will
strengthen the custodian banks case
against asset managers for the outsourc-
ing business.
If [stock exchanges] show a level of
success in their ability to work with third-
party providers to enhance service, that
alone will help validate our model. It will
show that third-party providers can in-
deed provide valued service, he says.
In Asia, he shares, the emphasis on dis-
cretion by dominant government-owned
asset managers translate into these bod-
ies becoming unable to take advantage
of market opportunities. Big pools of
money [in the region] are government
money asset pools. They tend to be very
secretive and refrain from disclosing
what the real issues are. It becomes a
problem since they try to do [things] on
their own, McCrossan says.
To illustrate, McCrossan says: In
certain markets, players take one piece
of technology and install it with their
own. They have their own buy-and-build
type of strategy, and they do their own
Vatsa thinks STP is not mandatable
Sanjay Vatsa, chairman of the SIA STP In-
ternational Committee
70 The Asian Banker Journal
integration without taking advantage of
what the marketplace has to offer.
He thinks, however, that Hong Kong
is developing into something that will
present a bigger market opportunity.
Right now, Hong Kong is going through
changes and is deciding on whether there
is any particular model it can allude to,
he adds.
According to McCrossan, local players
in the territory are still not ready, but in-
ternational players operating in that mar-
ket are already looking to outsource.
On the other hand, he views Europe as
a big opportunity for custodian banks to
capture outsourcing businesses because
the regions asset management industry
is consolidating, resulting in disparities
in technology platforms.
He explains: As consolidation in Eu-
rope continues, you will see large firms
migrating and consolidating with others,
creating economies of scale. But that
will continue to create other disparities
around different technology platforms,
presenting more opportunities.
However, McCrossan believes the
outsourcing model for asset managers
still has to prove itself. Until there is
demonstrated success, markets will still
The US Securities Industry Association
commends the variety of products for
matching in the market, but cautions
against redundant costs as the indus-
try strives to achieve straight-through
processing (STP).
Sanjay Vatsa, chairman of the Secu-
rities Industry Association (SIA) STP
International Committee in the US,
believes that having an array of products
for matching should not compromise the
cost for interoperability nor increase the
cost burden.
Vatsa, who is also first vice president
at Merrill Lynch Investment Managers,
says, We do need competition to ensure
that the right pricing is there, and its
good that there are several products and
Thomas J. McCrossan, executive vice president
of investment manager solutions, State Street
be slow to respond. But in the next three
to five years outsourcing will be a very
common theme in middle offices for asset
managers, he foresees.
McCrossan firmly believes cross-
border trade will grow due to the current
economic climate. We are going to see
more complexity, and [therefore demand
for] more straight-through processing,
not less.
choices in the market. But what is more
important is that these should be able to
connect seamlessly.
Asset managers can choose any vir-
tual matching utility (VMU) in order to
deal with other players. However, [the
idea of] broker-dealers and custodians
becoming members of all the VMUs
and protocols is not feasible. It would
be redundant because it would push up
costs, which would finally reflect on the
cost for the end-client.
Interestingly, the two-year-old in-
dustry-owned utility Global Straight-
through Processing Association (GSTPA)
recently shut down operations after in-
vestors refused to provide further fund-
ing. They concluded that there would be

inadequate projected volumes due to the
lack of support from the asset manage-
ment community, the tough economic
climate and the SIAs decision to scrap the
2005 deadline mandating the single-day
settlement cycle, or T+1.
Earlier this year, GSTPA outsourced
the development of its matching utility to
SunGard after it dropped its agreement
with the Axion4 technology consor-
tium. GSTPA subsequently went live in
September and concluded an interoper-
ability agreement for the US market with
Omgeo, the joint venture between Thom-
son Financial and the Depository Trust &
Clearing Corporation in the US.
SunGard has disclosed its own plans to
roll out a matching utility in the future,
and it would be interesting to see how
interoperability will be carried out with
the new situation at hand.
In defending SIAs decision to scrap the
T+1 mandate, Vatsa explains, The move
towards a shorter settlement cycle is
currently deferred because the primary
focus should be on straight-through
PEOPLE
The move towards a shorter settlement cycle
is currently deferred because the primary focus
should be on straight-through processing. What
is most critical is sustaining costs and connecti-
vity pressures between counterparties.
processing. What is most critical is sus- Vatsa believes that STP, though
taining costs and connectivity pressures critical in bringing costs down, can-
between counterparties. not be mandated. He says one of the
Vatsa continues, While focusing on biggest c ha l lenges i n ma ndat i ng
T+1, we realised that it is essential to standards on an international level
address issues related to the synchroni- is the absence of a global enforce-
sation of foreign exchange transactions ment entity.
with the securities settlements. This was In India, the Securities and Ex-
one of the issues that the international change Board of India drives the market
community felt the SIA had to address towards STP and shorter settlement
before embarking on T+1. We have to en- cycle. But in other countries various
sure first that cash (foreign exchange that participants need a more disciplined
funded the securities transactions) and approach to achieve STP of their own,
securities are settled simultaneously. Vatsa says.
The Asian Banker Journal 71
PEOPLE
Williamson says FIX adoption in Asia
hinges on exchanges
Gavin Williamson, co-chairman of the Finan-
cial Information Exchanges regional commit-
tee for Asia (excluding Japan)
Asias slow widespread take-up of the
Financial Information Exchanges (FIX)
protocol standards could see a turna-
round once exchanges begin incorpo-
rating the message format, says FIX co-
chairman for Asia Gavin Williamson.
Gavin Williamson, co-chairman of the
Who, What, Where
AUSTRALIA AND NEW ZEALAND
BANK has restructured its special-
ized businesses to sharpen its focus
on customers with effect from Decem-
ber 1, 2002. The bank has appointed
Elmer Funke Kupper as Managing
Director, Personal Banking and Wealth
Management Australia; Greg Camm
will be come Managing Director, New
Zealand; Bob Edgar will become Man-
aging Drector, Global Institutional and
Investment Banking.
BANK OF THE PHILIPPINE ISLANDS
has named Antonio V Paner as its
treasurer, replacing Alberto S Villarosa.
Villarosa has tendered his resignation as
executive vice-president and treasurer
with effective from October 29, 2002.
72 The Asian Banker Journal
Financial Information Exchanges (FIX)
regional committee for Asia (excluding
Japan), and director of equity electronic
trading at Salomon Smith Barney, ex-
pects most markets in the region to have
adopted FIX in two years time.
FIX, the 10-year-old communications
protocol prototyped by then-Salomon
Brothers and Fidelity Investments,
started with the aim to standardise all
communications between fund man-
agers and brokers but has spread to
exchanges and other institutions. Wil-
liamson believes the impact of FIX in the
region will be significant as exchanges
like Shanghai, Hong Kong, Singapore,
Australia and Jakarta continue to adopt
the protocol.
Its all a matter of persuading the
exchanges of the benefits of FIX and con-
vincing them it is the standard for front
office communication, even if they run it
in parallel to their existing protocols,
Williamson says.
All the major international players use
FIX to trade electronically in markets like
Hong Kong, Singapore, Taiwan, Korea
and Australia, Williamson claims.
BANKWEST in Australia appoints Ri-
chard Turner to the board of directors.
Turner will also become chairman of the
banks audit committee early next year.
Dr Li Lihui has resigned as vice chair-
man and director of INDUSTRIAL AND
COMMERCIAL BANK OF CHINA with
effect from November 12, 2002.
Germanys DRESDNER BANKs former
head of investment banking, Leonhard
Fischer is to become chief executive of
WINTERTHUR with effect from the
beginning of 2003, the insurance unit
of Credit Suisse, Switzerlands second
biggest bank. Fischer was ousted from
Dresdner after internal battles over the
future of investment bank.
Although the take-up in Asia is
progressing well, Williamson admits
it needs to more local firms to be us-
ing it before it is seen as fully accepted
in Asia.
Globally, FIX has reportedly seen enor-
mous growth within the buy side and sell
side firms in Europe and US and now ac-
counts for most of their communication
with other entities, including exchanges
and ECNs.
Williamson confesses that the small
players slow take-up of FIX is partly due
to market perception. We created the
problem ourselves by telling big players
to use the protocol. Although the cost
for adoption is not huge, the perception
is there because big players have been
using it.
Williamson reveals that the shortage
of low-cost vendor solutions providing
the protocol had also aided in delay-
ing the adoption of FIX. This is now
changing with providers offering a
wide range of options for FIX usage
plus there are now a lot more choice in
the FIX market with new companies
pushing the costs down.
The HONG KONG MONETARY AU-
THORITY said that Tony Latter, deputy
chief executive will leave on 3 January
2003. Marian Li, currently seconded
from the HKMA as chief executive officer
of Exchange Fund Investment Ltd has
also given notice of her resignation from
HKMA. Latter has been with HKMA
since January 1999.
STANDARD CHARTERED said Bryan
Sanderson will succeed Sir Patrick Gil-
lam as company chairman. Sanderson
joined the board as a non-executive
director last December and will assume
the role of chairman in May 2003. Sand-
erson, 62, has worked since 1964 with
the global petroleum and petrochemical
group BP.
The Asian Banker Journal 73
PARTNERS
HP wants to
change customer
attitudes
Frederick L. Pennino, director, global solutions marketing for
Hewlett Packard
Hewlett Packard (HP) is looking to HP has had to do a lot of soul searching
change the way its customers think about and change the way it views itself and
straight through processing(STP). Freder- deals with customers in order to address
ick L. Pennino, director , global solutions many issues such as straight through
marketing for HP sees a notable contrast processing. Pennino outlined how it has
between the great change that has taken required HP to put in place relationships
places within HP with the myopia of and build up internal capabilities, with
customers, in what he perceives as their the goal of becoming more than just a
unwillingness to move towards a zero- hardware vendor. The important fac-
latency enterprise. tor in this is not just that HP has had to
HP takes great pride in the position change but also that customers need to
it has taken as a vendor to the financial change. Pennino says that he believes
services industry but it is not resting on that many industries have a myopic
its laurels, said Pennino. Financial view when engaging in STP initiatives.
institutions are an important focus area The customers still think of this as IT
and HP has a commitment to provide problem and they have a tendency to
the best-in-class solutions, applications relegate it to the CIO or some depart-
and consultancy partnerships needed to ment within IT, and not to look at it as a
technology services and solutions based business problem and holistically within
on our understanding of banksneeds. the enterprise. You dont have the buy
Microsoft sees
web services
as radical and
incremental
Ed Muth, director, financial services group for
Microsoft Corporation
Web services are important everywhere Muth says that, in rolling out web
in the world, according to Ed Muth, services, Microsoft has a commitment
director, financial services group for Mi- to the Asian region in general and
crosoft Corporation, but web services specifically to financial institutions. It
are creating an opportunity for financial could be argued that because Chinese
institutions in Asia to leapfrog banks in and Indian banks have, by and large,
the US and Europe. Muth believes that built their IT infrastructure on UNIX
Asian banks will not have to go through platforms Microsoft might find problems
some of the pain and expense, complexity penetrating some emerging Asian mar-
and technical risk that banks in other parts kets but Muth refutes this: I honestly
of the world have faced when they tried to dont think it is a steeper challenge, he
achieve enterprise integration before there said. Mainframes are the most expensive
were the right tools and standards. way to do data processing, which is why
74 The Asian Banker Journal
in that you need at senior levels within a
financial institutions.
Pennino continued You have to at
least bite off the roadmap and under-
stand where you need to go. That isnt
happening. In many cases there is a
specific project, which the company is
willing to undertake as an experiment
in STP. On completion, the project can
provide an element of STP, for one func-
tion within the organisation, but is used
to claim that they have achieved STP for
the organisation as a whole.
Pennino stated that STP is not a back
office issue but really deals with the life
cycle of financial transactions from in-
ception to settlement. Without the crea-
tion of a real time enterprise he said,
it is not feasible to create the business
control, rationalisation of infrastructure
and operational efficiencies needed to
function in the new competitive and col-
laborative world of the finance industry
in the new millenium.
He said that believes financial insti-
tutions should ask How do I create
the most effective, efficient and com-
petitive environment possible? If I can
create an enterprise that is operating
to the maximum level of efficiency,
then I have probably achieved straight
through processing.
they have lost market share in every on of
the last 20 years. Risk UNIX is the second
most expensive way and that is losing
market share now too. If someone has
a fixed or declining IT budget and they
want to do more, Muth believes that web
services and specifically Microsofts .NET
suite of products should be able help
them find a solution.
The investment that Microsoft has
made in the plumbing mean that .NET
hides the complexities of SOAP and XML
from the developer. Muth continued
The billions of dollars that Microsoft
have invested and the several hundred
thousand companies that have been in-
volved in field tests have allowed Micro-
soft to develop a cost effective technology
that customers can use more easily and
more cheaply.
There are very few things in the whole
history of IT that are both radical and
incremental says Muth but he believes
strongly that the advent of web services
is one of them.

First Datas
new Shanghai
stronghold
Henry T. Tsuei, president of First Datas card and merchant
processing operations in North Asia.
According to Henry T. Tsuei, president of enhance their competitiveness and
First Datas card and merchant process- increase profitability.
ing operations in North Asia. The First Data owns Western Union
establishment of First Data operations in money transfers, but its reach extends
Shanghai demonstrates our commitment far beyond the Wild West of the US.
to providing local support for the emerg- Its money transfer networks include a
ing China payments market. total of approximately 135,000 Agent
First Data, with global headquarters locations in more than 190 countries
in Denver, Colorado, is an established and territories. It is also a veteran
player in the global payments market. provider of a broad range of payment
Tsuei said: First Datas 30 years solutions. Its offerings include credit,
of payments industry expertise and debit, smart card and stored-value
advanced technology will enable us to card issuing and merchant transaction
deliver state-of-the-art payment serv- processing services, to approximately
ices that will help China companies 2.8 million merchant locations, 1,400
PARTNERS
card issuers and millions of consumers
around the world.
First Datas wholly owned subsidiary
First Data (China), aims to provide a full
range of payment technology and serv-
ices to the Chinese market. The offering
will include a range of card and merchant
processing services, in addition to its Vi-
sionPLUS software, to card issuing and
merchant acquiring companies in China.
The company will establish operations in
Shanghai, including an administrative
office and a data center. The Shanghai
operations are scheduled to be fully op-
erational in the first quarter of 2003.
The initial focus will be on Chinas
large money transfer market. Tseiu
said:First Data hopes to build on exist-
ing relationships with several leading
financial institutions to provide money
transfer services through its Western
Union subsidiary.
In addition, the Industrial & Com-
mercial Bank of China and the Agricul-
tural Bank of China recently chose to use
transaction processing software offered
by First Data.
The Asian Banker Journal 75
PARTNERS
PARTNER NEWS
News from partner organi-
sations serving the financial
services community
BANK ONE in the US said it has imple-
mented NCRs ImageMark Enterprise
Transaction Archive as the technology
and services platform to convert paper
checks and other paper transaction docu-
ments into electronic images. NCR said
the archive has the ability to interface
with existing platforms and achieve im-
mediate response time.
BANK THAI said it will use FNX Ltd
to deploy the Sierra Treasury Solution
for the banks treasury department.
Bank Thai employees are expected
to utilise the solution for trading,
accounting, risk management and
general ledger processing.
Business intelligence software provider
MicroStrategy said EXPORT-IMPORT
BANK OF KOREA is using the Micro-
Strategy Business Intelligence Platform
enterprise-wide to support extensive
financial analyses. The bank, which has
approximately 11.9 trillion won ($9.85
billion) in assets, said MicroStrategy
enables its end-users to search and ana-
lyse statistics on Korean firms overseas
direct investments in order to effectively
manage economic risk.
CashTech Solutions India said that
ANDHRA BANK has awarded the
company a contract to implement its
product, CashIn, in the bank. The bank
said it expects to launch cash manage-
ment services to corporate customers
and other financial institutions soon.
COMMERCE BANK in the US has up-
graded its online banking platform pow-
ered by Corillian. Added features include
improved navigation, additional transfer
capabilities and E-Bill services, which
can deliver electronic bills directly to a
customers Online Bill Pay account.
Corillian and CashEdge have announced
a partnership to provide an aggrega-
tion and Internet banking platform for
76 The Asian Banker Journal
Corillians financial institution clients.
Corillian said BANK OF STOCKTON in
the US, which has more than $1 billion
in assets, will be the first client to use
the service.
EDS and BOC Credit Card (Intl), a
subsidiary of BANK OF CHINA (HK),
said that EDS will be responsible for
migrating BOCIs credit card operations
to an IT system with powerful credit
processing modules on a mainframe
platform. EDS said it will provide IT
services for the migration of the existing
legacy systems supporting BOCIs credit
card operations in the mainland, Hong
Kong and Macau.
Hong Kongs LIU CHONG HING BANK
has replaced its legacy information
technology (IT) systems with a more
advanced computing set-up based on
HPs Unix operating platform. The bank
says its IT revamp is a preparation for
the launch of improved retail banking
systems early next year.
Hong Kongs BANK OF EAST ASIA
(BEA) said it has partnered with Joint
Electronic Teller Services (JETCO), a
Hong Kong operator of ATM networks
and certification authority, to offer the
JetCert digital certificate to BEA Corpo-
rate Cyberbanking customers. JETCO
said the clients will be able to use JetCert
to authenticate banking transactions on-
line with a high level of security.
International Financial Corp (IFC),
the private-sector lending arm of the
WORLD BANK, said it has selected ALL-
TEL Information Systems to deploy the
ACBS system for IFC as an application
service provider. The ACBS commercial
lending system will process and manage
IFCs portfolio of loans to companies in
emerging markets.
Koreas HANA BANK has invested $1
million in Nortel Networks Optical
Ethernet networking solution. The new
investment is expected to connect Hana
Banks corporate headquarters, customer
service centres, disaster recovery centre
and some of its largest branches to Korea
Telecoms dense-wavelength division
multiplexing optical backbone.
Malaysias BANK MUAMALAT has
completed the implementation of its
deposits, customer information and
general ledger systems with ALLTEL.
The bank, which has $1.35 billion in as-
sets, 40 branches, six retail service outlets
and about one million customers, claims
to be the second largest Islamic bank in
the country.
PUNJAB NATIONAL BANK (PNB) in
India has signed up Cisco Systems to
network 3,870 branches as part of the
banks technology upgrade. PNB expects
the deal with Cisco to enable to bank to
offer multi-model delivery services to
customers in 150 to 200 of its branches by
the end of 2003. The bank has also tied up
with Infosys to provide banking software
for the project.
SunGard Treasury Systems says Ma-
laysias ALLIANCE BANKING GROUP
has selected SunGards Quantum to
support its front-, middle- and back-
office of its merchant and commercial
bank operations.
Sun Microsystems and Infosys recently
introduced the Retail Banking Reference
Architecture, a new core banking plat-
form, to enable banks to easily respond to
customer demand 24-hour web-enabled
banking, straight-through processing and
a unified access to manage their personal
financial information. UNION BANK OF
INDIA is one of the latest users of the
new platform.
The Singapore branch of Indias UCO
BANK, which offers trade finance, for-
eign exchange, cross-border financing
and wholesale banking services, has gone
live with Misys International Banking
Systems Trade Innovation trade finance
solution. The bank said it is now actively
using the product to process all its import
and export letters of credit, inward and
outward collections, bills financing and
standbys and guarantees.
The UKs HBOS said it has moved to a
multi-vendor open-software platform
for ATMs through an $18 million deal
with NCR. The financial group said it
would use NCR APTRA Edge software
across its ATM network composed of
3,400 NCR and 400 Fujitsu ATMs. NCR
said HBOS would be able to integrate
its complete ATM network with other
service channels to provide cross-channel
consistency.

Stricter rules deal Thailands card industry a hard hand
In a roundabout turn to its earlier deregulatory move, the Bank
of Thailand (BoT) has re-imposed tighter regulations on the
countrys flourishing credit card market.
The complete set of regulations, which took effect from
December 2002, calls for a maximum annual interest rate
ceiling of 18 percent, a criterion of full-time employment, and
a minimum income of 15,000 baht ($340) for all new credit
card applicants.
Last April, the government was urging citizens to spend in
a move to boost economic growth. Then, to level the playing
field for banks to compete with the countrys aggressive finance
companies not governed by the BoT, the central bank scrapped
the minimum salary requirement, lowered the minimum age
bar from 22 to 20, and reduced required payment from 10 to 5
percent of the monthly bill.
The policy change could be in response to the consumer
credit market opening up too quickly and proving to be a
double-edged sword. While card usage in Thailand is not yet
excessive, growth has been explosive with banks (faced with
limited opportunities in the corporate market) and finance
companies such as Aeon Thana Sinsap and GE Capital have
been aggressively courting middle- to low-income customers
earning as little as 7,500 baht a month. As a result the number
of bank-issued credit cards surge 30 percent YoY to 2.8 mil-
lion, with outstanding credit of 44 billion baht by June 2002.
Another 1.6 million cards are estimated to have been issued
by non-bank institutions operating under the purview of the
central bank.
Asia Pacific credit card penetration levels
Source: Asian Banker Research
BENCHMARK
In Korea and Hong Kong, delinquency and personal
bankruptcies soared in the wake of explosive card is-
suance. For instance, credit card bills outstanding for a
month or more in Korea reached 7.9 percent last 2Q, even
exceeding the 4.6 points in US. If the experience in South
Korea and Hong Kong were anything to go by, concern
would be that the potential damage to the Thai economy
from excessive consumer debt outweighed any gains in
terms of economic stimulus from domestic, consumer-
led spending.
The rate limit would hit foreign banks and non-bank institu-
tions the hardest, given that most quote rates upwards of 24
percent vis--vis 17 percent for the domestic banks.
The new rules would bring all card issuers under a common
regulatory framework. For instance, the interest ceiling would
create fairer competition among the bank and non-bank players
alike by enabling consumers to leave interest rates out of the
equation when choosing credit cards.
But albeit card revenue does not represent a major fraction
of total revenues, the move will hurt profitability given that
credit card operations have traditionally been a high yield-
ing business arm for the issuers. With lesser differentiation,
issuers may have to step up competition by running promo-
tions like loyalty programmes and merchant tie-ins, further
skimming margins.
The BoT plan could trigger the re-imposition of card mem-
bership fees and require card issuers to increase customer
base to compensate for reduced interest rates. With Asian
The Asian Banker Journal 77
BENCHMARK

Banker Research estimating the me- Existing credit card rates for foreign and non-bank institutions
dian household income in Thailand
to be at $2,000-3,000 p.a. (7,370-11,000 Interest on credit cards %
baht per month), implementation of Average for 5 largest Thai banks 1) 17.5
a minimum income requirement of Standard Chartered Nakornthon 24
15,000 baht per month would elimi- HSBC 26
nate millions of lower income people Citibank 27
from holding a credit card. This Aeon Thana Sinsap 28
would make the issuance of new cards
all the more difficult. 1) Bangkok Bank, Krung Thai, Thai Farmers, Siam Commercial Bank and Bank of Ayudhya
Fortunately, the industry is starting
off from a low base with card pen- Source: Bank of Thailand
etration at just 0.04 cards per capita as
against 1.4 to 1.8 cards for each resident in Japan, South Korea it is based on an assumption that the people in Thailand are
and Hong Kong. The market is still far from saturated and not sufficiently mature and responsible to handle their own fi-
industry observers project the number of cards multiplying to nances. The new rules might also just tempt card-issuers to look
20 million within 5 years, growing at a compounded annual to personal loans or hire purchases to expand their customer
growth rate (CAGR) of 50.4 percent each year. bases. It would have been better if consumers were educated
Though re-regulating the credit card industry might be ap- on the risks of purchasing on credit and market forces allowed
propriate to nip potential consumer debt problems in the bud, to operate freely.

Major Korean players cap household lending growth

In the South Korean governments latest efforts to rein in gal- tember from the end of June, and the overdue payment ratio
loping household debt, the Financial Supervisory Commission against household loans rising by 0.56 of a percentage point
stepped up disciplinary measures on credit card issuers. This to three percent. The sharp rise in loan-loss reserves partly
is in response to total consumer lending climbing to 6.3 trillion resulted in Kookmins 29 percent drop in 3Q2002 net profit
won ($5.2 billion) last September from 4.1 trillion won in July, to 349 billion won ($289 million), from 492 billion won in the
and overdue card receivables rising to 1.3 percentage points previous quarter.
from 7.9 percent three months earlier. About half of Koreas Woori Banks measures for household loans are even more
major commercial banks also saw capital adequacy ratios drastic. It would trim the growth of household lending to 17
deteriorate in the third quarter due to the rapid increases in percent from 93 percent as of the end of last October, and growth
household loans. in lending to SMEs to 18 percent from 57 percent or 13.9 trillion
Measures to be effected from this April include stricter loan won ($11.4 billion) in corporate loans as of the same month end.
classification criteria, and writing off loans unpaid for more As a result, Wooris combined lending will rise just 20 percent to
than six months. Violations of tightened rules will be punished 60 trillion won ($49.6 billion) next year, compared to this years
by steps ranging from restricting the firms entry to other busi- estimated 66 percent expansion.
nesses to forced closures.
In line with this stemming of rising consumer lending and in Planned deceleration in lending
moves to brace themselves from upcoming economic uncertain- actitives for 2003
ties, two major Korean banks Kookmin and Woori an-
nounced plans to stem the growth of household lending to the 10
percent range and lower the rise of lending to small and medium
companies (SMEs) to around 16 to 19 percent next year.
As of the end of last September, Kookmin Bank, the countrys
largest lender, loaned 70.6 trillion won ($58.4 billion) or 26
percent more to individuals, compared with the same period a
year earlier. As such, the planned move will halve the growth in
household lending. Growth of loans to SMEs was 24.5 percent
as of the end of September 2002 this is expected to fall below
20 percent shortly. As part of its contingent measures to im-
prove asset quality at its credit card business, Kookmin is also
stopping offering card loans service to its cardholders, and drag
down the upper limit for cash advances for those classified as
potentially delinquent customers.
This is in response to credit card delinquency rate rising
by 2.15 percentage points to 11.18 percent at the end of Sep- Source: Kookmin and Woori Banks

78 The Asian Banker Journal

BAI ADS (FILM)

The Asian Banker Journal 79

BENCHMARK

Gross NPAs of Indian banks jump 11 percent

Non-performing assets (NPAs) of commercial banks in India In contrast, the cumulative provision for impaired assets of
continued climbing in spite of substantial recoveries and loan Indian public sector banks in FY3/02 was just 42.5 percent of
re-schedulements last year. Bad assets of commercial banks rose gross NPAs.
by 11.2 percent to 70,904 rupees ($14.7 billion) as on March 31,
2002, as compared to 63,741 rupees in the previous fiscal year. Net NPAs up 9.5% in FY3/2002
Out of the aggregated amount, six percent relates to the merger after a respite the year before
of the ICICI group holding company with ICICI Bank.
Private banks are also not lagging behind the public sector
banks in NPA creation. New private banks had substantial ad-
dition to their NPAs with the gross amount up 4.2 times to 6,822
rupees, reflecting the impact of mergers during the year.
A report by the RBI revealed that net NPAs in 2001 to 2002
increased by 9.5 percent to 35,546 rupees at March-2002. Sev-
enteen of the 22 private sector banks had net NPA ratios up to
10 percent, with the remaining five registering figures in excess
of 10 percent.
The central bank urged banks to adopt their own risk-rating
systems to assess the risk of lending and is pushing for a reduc-
tion in NPAs, both as a stock (a one-time cleansing of balance
sheet) and a flow (preventing substantial accretion) method.
It regards present net NPA levels as still too high vis--vis
international norms of two percent and has argued for full
provisioning to match international practice of 140 percent. Source: The Asian Banker Research, RBI

Philippine banks report weak core earnings

Lending at the Philippine banks continued to remain sluggish tribute substantially to the bottom lines. However, the anaemic
for the first nine months of 2002. Although lower interest in- lending activities might get a boost from the implementation of
come resulted in earnings cuts from their main business lines, the special purpose asset vehicle bill allowing the sale of bad
a majority of the banks still managed to report bigger bottom loans to the asset management companies. Lowering of non-
lines from trading in investment securities and non-core sources performing loans which stood at circa 20 percent should bring
such as fees and charges, and foreign exchange profits. in fresh funds for the banks.
Among the banks, China Banking Corp. recorded the biggest
growth in net profits with net income reaching 2.3 billion pesos
($ 43 million), three times higher than the 663 million pesos Philippines: Financial results of
posted a year ago. Net interest income improved as income selected listed banks (nine months to Sept)
from low-risk investment securities made up for the decline in
lending rates and continued low demand for loans.
The same was true for Allied Banking Corp., which posted
net profits of 731 million pesos, more than the 281 million pesos
for the first nine months in 2001. Aside from strengthening its
consumer lending business, the bank relied on fee-based earn-
ings from remittances, trust products and merchant banking to
prop up its net income.
For Union Bank of the Philippines (Unionbank), net profits
grew by 64.5 percent during the period to 1.2 billion pesos from
only 712 million pesos a year ago. Like other banks, Unionbank
also reported a smaller interest income but foreign exchange,
trading profits and commissions helped the bank post a double-
digit growth in its bottom line during the period. This account
alone ballooned to 1.2 billion pesos from only 567 million pesos
a year ago.
In the coming months, non-core earnings will continue to con- Source: Individual bank results

80 The Asian Banker Journal

 Changes in Bank Ratings for Asia as at 11 November, 2002
Moodys Investors Service Standard & Poors
Bk Deposit Financial Long-Term Debt Outlook Foreign Currency Counterparty Credit
Long Term Short Term Strength Senior Subordinate LT Debt ST Debt Outlook LT Debt ST Debt Watch
AUSTRALIA
AMP Bank A3 P-2 D A3 Baa1 Stable
CHINA
China Development Bank Baa1 Positive
Export-Import Bank of China Baa1 Positive
Industry and Commercial Bank of Baa1 Positive
China Baa1 Positive
Bank of China Baa1 Positive
China Construction Bank Baa1 Positive
Agricultural Bank of China
KOREA P-2 A3
Export-Import Bank of Korea A3 P-2 E A3 Baa1 Stable
Industrial Bank of Korea A3 P-2 E A3 Stable
Korea Development Bank Baa2 P-3 D Baa2 Stable
Hana Bank
MALAYSIA BB+ Stable
RHB Bank
TAIWAN BB B Negative
Grand Commercial Bank A Negative
International Commercial Bank of
China
Ba1 NP D Baa3 Positive
THAILAND

The Asian Banker Journal

Ba1 NP D Baa3 Positive
Note: Shaded areas represent adjusted ratings.

81
RATINGS UPDATE
82
As at 13th Dec 2002 Australia China Hong Kong India Indonesia Japan South Korea Malaysia Pakistan Philippines Singapore Sri Lanka Taiwan Thailand Vietnam

Interbank offered rates

4.73 - 1.44965 - 8.2 0.07333 - 2.82 8.925 - 0.6875 - 1.8 1.875 -
one month in%
DATAFILES

M2 Money % change YoY - 16.58% -2.85% 12.63% 6.74% 3.19% 12.60% 6.21% - - 1.36% 16.01% 2.54% 1.86% -
(3rd Qtr) (Oct) (Sep) (Oct) (Nov) (Nov) (Oct) (Oct) (Sep) (Oct) (Oct)

The Asian Banker Journal

Time Deposit Rates
1 month 4.1 0.72 1.40525 4.75 13.5 0.003 - 3.2 - 3.938 0.9375 10.53 1.45 - -
3 months 4.35 1.71 1.47 6.25 13.5 0.02 - 3.2 - - 0.9375 - 1.55 1.75 -

Prime lending
- - 5 - 21 1.375 6.7 6.4 - 7.972 4.5 13.42 7.31 6.875 -
interest rates

Currency units per US$

1.76788 8.2872 7.7986 48.185 8875 120.545 1204.5 3.8 58.38 53.575 1.7458 96.45 34.825 43.27499 15394
Spot Rate

Stock market
capitalisation (US$/bn) 358 20 418 98 23 2026 222 93 5 16 94 - 192 34 -
(Datastream Market Indices)

Consumer Price Inflation 3.03% -1.62% -3.55% 3.82% 12.06% -1.04% 2.71% 1.02% 2.64% 3.23% -0.51% 12.19% -0.41% 0.54% -
(% annual avg change) (3rd Qtr) (Nov) (Oct) (Oct) (Nov) (Oct) (Nov) (Oct) (Apr) (Nov) (Oct) (Apr) (Nov) (Nov)

Current Account Balance -5.2 20.745 12.36 1.283 1.283 7.5 1.3808 6.033 2.442 0.503 5.632 -0.589 4.961 1.026 -
(US$bn) (3rd Qtr) 2002 2002 (1st Qtr) (1st Qtr) (Oct) (Oct) 2001 2002 (Jul) (3rd Qtr) 2002 (3rd Qtr) (Oct)

GDP (Constant) 4.08% 7.66% 3.34% 5.40% 3.96% 1.52% 5.84% 5.56% 2.70% 3.77% 3.87% -1.40% 4.77% 5.06% -
(%) chg on year earlier (3rd Qtr) (3rd Qtr) (3rd Qtr) (est 2002) (3rd Qtr) (3rd Qtr) (3rd Qtr) (3rd Qtr) (est 2002) (3rd Qtr) (3rd Qtr) (est 2002) (3rd Qtr) (2nd Qtr)

Foreign Reserve in US$bn

19.874 262.964 111.201 60.319 29.154 453.177 116.926 33.886 6.784 13.317 80.5174 1.446 - 36.352 1.407
(excluding gold,
(Oct) (Sep) (Sep) (Sep) (Sep) (Oct) (Oct) (Sep) (Oct) (Sep) (Sep) (Sep) (Oct) (Aug)
IMF definition) 1998

This information is provided "as is" and Thomson Financial disclaims all warranties with regard to this information, including all implied
warranties of merchantability and fitness. In no event shall Thomson Financial be liable for any special, direct, indirect, or consequential
damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other
tortious action, arising out of or in connection with the use or performance of this information.
The Asian Banker Journal 83
84 The Asian Banker Journal