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Thursday January 24, 2013

Stiffer competition in investment banking

Weaker investor appetite, volatile markets seen weighing on the sector

PETALING JAYA: Players in the investment banking industry are expected to face tougher competition against a backdrop of economic moderation, said Affin Investment Bank.

In a recent note to investors, the bank said the investment banking industry was facing stiffer competition due to weaker investor appetite amidst volatile markets.

However, opportunities would arise from new funding activities from Economic Transformation Programme-related projects in the domestic private sector, it added.

“The deal pipeline from the equity and debt capital markets remain robust, although the timeline for capital-raising remains uncertain, while investor risk appetite is still low on beta,” said analyst Tan Ei Leen.

Tan added that new funding activities would come from areas such as construction and infrastructure, oil and gas as well as the financial services sector.

In the report on Malayan Banking Bhd, Tan said: “Competition amongst investment banks in the Asian region continues to be a key challenge, and Maybank's global wholesale banking (GWB) faces the need to scale up its business level and build regional capabilities in order to compete effectively in bigger markets such as greater China and the Asean region.”

Through the acquisition of Singapore-based Kim Eng Holdings Ltd in 2011, Maybank's GWB has been able to access a greater distribution network and could take advantage of funding activities for various businesses, which were facing withdrawal of lines from the European banks, she said.

“Nonetheless, various investment banking deals and initiatives are constantly being deliberated, as the GWB division continues to leverage on Maybank's group network, including infrastructure, balance sheet and strong relationship management.”

According to Tan, Maybank's GWB was also expanding in the Middle East, Singapore, Thailand, the Philipines, Vietnam, China and India.

“Management continues to remain optimistic, given that under the enlarged entity of Maybank-Kim Eng, it is expected to continue winning regional mandates and continue making inroads into new markets.”

She said the recent acquisition of an 18% stake in Saudi Arabia's Anfaal Capital, which is licensed to undertake Syariah-compliant investment banking activities in Saudi Arabia, would enable Maybank Investment Bank to showcase its expertise in Islamic financing and other investment banking capabilities.

Meanwhile, Affin Investment Bank has revised the gross dividend per share forecast for the bank from 61 sen to 69 sen for the financial year ended Dec 31, 2012 (FY12) as a higher final dividend was expected for the fourth quarter of FY12.

The bank's fourth-quarter results for FY12 was expected to be steady, supported by its healthy loan growth.

Tan also noted that the banking group aimed at increasing profit contribution from its Indonesian unit PT Bank Internasional Indonesia TBK from 7% to the low teens in FY13 to FY14 via more aggressive marketing and business penetration.

The research house has maintained its “add” call on Maybank with a price target of RM9.16 based on a price-to-book value of 1.56 times.

The stock was last traded at RM8.90, with 14 million shares changing hands.

Meanwhile, Fitch Ratings has affirmed Maybank's ratings at A- with a stable outlook.

In a statement, the rating agency said: “Maybank's status as the largest banking group in Malaysia supports the diversity and stability of its income and funding.

“Liquidity is satisfactory, with government securities, interbank assets and short-term unencumbered funds covering all short-term money market obligations, and 15% to 20% of deposits.”

Fitch also said its core capitalisation was bolstered by a private equity placement in October 2012, which was likely to be supported by the bank's satisfactory earnings generation and modest cash dividend record.

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