Liberalisation less likely to affect competitive landscape

PETALING JAYA: While competition in the local investment banking scene is expected to become more intense in line with the recent liberalisation of the financial sector, some bankers appear relatively unfazed, choosing instead to focus on the sector’s prospects.

Says CIMB deputy chief executive officer, corporate and investment banking, Datuk Charon Wardini Mokhzani: “In the investment banking space, foreign advisors have, for a long time, been active participants in Malaysian transactions.”

“Given that we have been constantly competing with, and in some cases partnering with, foreign institutions on certain transactions, we don’t see the liberalisation significantly affecting the competitive landscape on Malaysia’s investment banking industry, at least as far as we are concerned,” he told StarBiz via email.

CIMB was the leading advisor for mergers and acquisitions (M&A) in Malaysia last year with a 35% market share. Nevertheless, the group saw its income from corporate and investment banking fall 30% to RM866.3mil in the fiscal year ended Dec 31 from 2007 due to a decline in capital market activity amid the global slowdown.

Charon said as risk aversion began to ease with the sharp improvement in equity markets over the past few months coupled with positive signs emerging in both domestic and global economies and the spillover improvement in debt market sentiment, the medium-term outlook for investment banking income “appeared to be improving.”

“We’re seeing greater interest and urgency by corporations to embark on various activities like domestic and cross-border M&As, corporate restructuring and initial public offerings (IPOs) now, compared to late 2008/early 2009,” he said.

The improving prospects is a positive thing in a local investment banking market that is crowded with the existence of nine bank-backed investment banks, six non-backed investment banks, five foreign brokers and 14 stockbrockers.

With the government’s recent move to increase foreign ownership to 70% from 49% previously in all domestic financial institutions except commercial banks, and the issuance of nine new bank and insurance licences between now and 2011, competition can only become more intense.

Already, talk is rife that the standalone or non-backed investment banks such as K&N Kenanga Bhd and ECM Libra Financial Group Bhd could be potential takeover targets for foreigners wanting to establish their presence in Malaysia. However, RHB Investment Bank Bhd managing director Chay Wai Leong opines that liberalisation is “inevitable”.

“It’s a global trend,” he said.

“Even before the liberalisation, the foreign banks here have already been quite active, if they wanted to do Malaysian business, somehow they found a way.

“It’s not like the door of competition has suddenly opened up,” he told StarBiz.

Asked whether the bank was worried about thinning profit margins, Chay said this was not the main issue.

The main issue was that there were not enough corporate deals “to go around” no thanks to the global slowdown although the scenario had improved of late, he noted.

For OCBC Bank (M) Bhd, the largest foreign bank in Malaysia (by loan assets), the recent liberalisation will enable it to expand its footprint in Malaysia, said investment banking head Tan Ai Chin.

“While Malaysia has done well in developing the debt market both in terms of product range and depth of market, especially in consolidating our leadership position in Islamic sukuk, there is still room to develop the other major components of investment banking like equity advisory, stockbroking, asset management and treasury, among others,” she said.

The local sukuk market averaged a growth rate of 22% per annum over the past eight years. Last year, Malaysia contributed 60% of global sukuk issuance.

Tan said stronger foreign equity participation would enable the infusion of skill sets, product offerings and international best practices besides potentially bringing in a swifter flow of cross border deals.