Structured products to boost banks’ earnings

KUALA LUMPUR: With the progressive liberalisation of structured investment products by Bank Negara, banks are beginning to take greater interest in such products to increase their revenue base.  

The central bank's move last year to lower the minimum allowable investment size of these products from RM1mil to RM250,000 has enabled banks to introduce different types of structured products that invest in various asset classes, like offshore stocks, commodities and foreign currencies. 

OCBC Bank (M) Bhd, United Overseas Bank (M) Bhd (UOB), CIMB Private Banking and HSBC Bank Malaysia Bhd are among some of the leading players in the structured investment business. 

To date, UOB Malaysia has had 10 tranches of structured investment launches, all of which are 100% principal guaranteed. 

CIMB Private Banking, a division of CIMB Bhd, late last year became the first private bank in the country to launch a commodity-structured product linked to the price of crude oil. It also recently rolled out Nippon Note, a structured product which invests in Japan's stock market. 

Gan Kok Kim

Apart from the normal suite of structured investment products, HSBC Bank is also looking to introduce some based on Syariah principles. 

The latest to hit the market was OCBC Bank's Nikkei-linked structured investment product launched on Wednesday. 

The Nikkei 225 Up & Lock Linked Structured Investment is the second such product that invests in the foreign stock market after the bank's FTSE/Xinhua China 25 Structured Investment launched last year. The new offering invests in the Nikkei 225, a leading index of Japanese stocks. 

(The Nikkei 225 Stock Average is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange.) 

In an interview with StarBiz, senior vice-president and head of treasury, Gan Kok Kim, said the three-year structured investment product was linked to the equity index of the Japanese bourse and offered returns on a quarterly basis.  

The product, 100% principal protected when held to maturity, guarantees potential returns of up to 8% per annum. The minimum investment amount for it is RM250,000. 

“With this product, the investor is guaranteed a regular stream of quarterly interest payments throughout the tenor of the investment, at a minimum of 1% per annum. However, they stand to potentially receive up to 5% or 8% if the Nikkei 225 trades at or above certain barrier levels on quarterly observation dates,” Gan said.  

“In addition, they would take comfort in the fact that we have introduced an up-and-lock feature that allows them to continue to enjoy the enhanced interest rates even if the Nikkei 225 falls below the barrier levels after breaching the upper levels on any earlier observation dates.”  

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