Acquisitions to fulfil RHB Cap’s ambition


  • Business
  • Monday, 26 May 2008

RHB CEO Interview

WHILE banks in the West are reeling from a major credit crisis and repairing a badly damaged image, the fortunes of RHB Capital Bhd (RHB Cap) could not be brighter. And a bigger game could emerge in the future that may see it playing a larger role than many of its local rivals.

The key drivers of its ambitious plan, the Employees Provident Fund (EPF) and Abu Dhabi Commercial Bank (ADCB), share a common vision to turn RHB Cap into a South-East Asian banking group in just over a decade.

»Everything is for saleat the right time andprice, and nothing isimpossible «DATUK AZLAN ZAINOL

ADCB, with its deep pockets, is expected to play a major role to bankroll that expansion.

Both ADCB and RHB are confident of their strategy to position RHB Cap in South-East Asia. But some serious work is needed, and acquisitions or partnerships are the way to go.

“To do that, we have to discuss with other banking groups in South-East Asia. Mergers, going forward (is possible), as there is no point for us to be a big fish in a small pond. (RHB Cap) should be a small fish in a bigger pond,’’ RHB Capi chairman Datuk Azlan Zainol told StarBiz in an interview.

He said that RHB Cap can no longer be confined to Malaysia and local banks should cross borders. Analysts have said in recent reports that the domestic market was getting saturated and there was a need for local banks to venture overseas.

He cited the example of MALAYAN BANKING BHD (Maybank) acquiring banks abroad. Although it was getting a bit of flak now for paying high prices for its recent purchases, these would be justified in five to 10 years, he said.

Indeed, some of the local banks, such as Maybank, CIMB Bhd and even PUBLIC BANK BHD, have solidified their presence in the South-East Asian market. While RHB is just in its infancy stages, it is raring to sail into some of these uncharted waters.

Maybank has a network that spans from Singapore to Vietnam and as far as the US. CIMB is moving so aggressively in South-East Asia that it is quickly becoming a force to be reckoned with. Public Bank, in its own way, has scored huge successes in many markets that include Cambodia, Vietnam and even Hong Kong.

RHB Cap, at the moment, pales in comparison to the top three banks in the country. It also has to contend with other bigger banks in the region. Can Azlan’s aspirations for RHB Cap be achieved?

“We do not need to be in control. We do not mind if there are other parties that would like to work with us. We are open and looking at any (proposition) to have an Asean/South-East Asian bank,’’ he said.

He did not reveal much as it was still an idea that needed to be conceptualised into a plan. He has briefed his team to look at the possibilities.

He did say that for RHB Cap to be among the top three in South-East Asia, it might mean that banks or parties in Singapore, Thailand or other markets may take a 20% stake each.

“In two to three years, we would see something,’’ he said.

He did not elaborate how RHB would grow through acquisitions, except to say: “We are going into stock broking in Vietnam. We have bought a stake there and we are looking at Indonesia.’’ Even a purchase of a local bank is possible but nothing is on his table yet.

“Everything is for sale at the right time and price, and nothing is impossible,’’ he added.

He sees competition as no longer coming from within the country but externally, and for all the plans to materialise, a strong management team is critical.

Management team

Azlan is modest. He said he had no strong banking background, but it was the team in the banking group that would drive RHB Cap to its destiny. There was a point when the team “was not strong’’ but now, it has been significantly improved. He said the bank had “good people driving it.’’

He cited Michael J. Barret, Jamelah Jamaluddin and Chay Wai Leong as the anchors. Barret is the group managing director (MD) and head of the retail and international strategic business units of RHB Bank; Jamelah is MD of RHB Islamic Bank and Chay is MD of corporate and investment banking.

Talent is a major issue in the financial services industry and it is no wonder that those in the industry have said: “There are not many people like Barret around,’’ referring to Barrett's expertise and long experience in the banking line. He was formerly with Chase Manhattan Bank, which later merged with JP Morgan.

Beefing up existing operations

Azlan may have engineered the transformation of the Employees Provident Fund (EPF) into a proactive and agile organisation and played an instrumental role in the turnaround of RHB Cap but the transformation job is far from over.

“Take our investment bank as an example. Two years ago, it was not known in the marketplace. Now we have done a lot of deals and we are positioning ourselves as one of the leading investment banks.

“The same goes for our Islamic bank. It has more deals now as it has made its presence felt in the industry,’’ he said.

An analyst in his report said RHB Cap and ADCB saw immense opportunities in the Islamic banking business in the Middle East and worldwide.

The RHB group went through a transformation process after EPF bought about 80% in RHB in 2007. Today, it has strategic units such as investment banking, Islamic banking, corporate and commercial.

Azlan's next focus is conventional banking. He also wants to make sure RHB group's operations in Singapore improve and its profit quadruple in three to five years.

“We have told our people to (beef up) operations in Thailand and we can start with the aspect of location. We should relocate and spend more time to build up the business and increase the branch network.

“As for our branch in Brunei, we are changing the business model, not just to do banking but other things,” he said.

As for earnings, Azlan expects the figure to double in three years. For the whole of 2007, RHB Cap recorded net profit of RM712mil, and an analyst projected that RHB Cap should earn RM895mil this year and hit RM1.1bil next year.

Another analyst wrote that he was positive on RHB Cap’s earnings prospects, given the benefits of its ongoing transformation programme and expected value-add from its new shareholder ADCB.

The stock remains an “outperform” and this is based on “the re-rating catalysts of value add from ADCB, benefits from the group wide transformation programme, lower credit charge off rate and potential local or foreign acquisitions.’’

Challenges

The benefits of the transformation are being realised but banking is a competitive industry. It would get more competitive when things open up.

Manpower planning will be a challenge and it is important that RHB gets the best talent. But getting that talent without setting key performance indicators would not drive the results the bank wants. Providing rewards is also crucial.

The top management and board must be strong to provide the vision and thinking to make sure everyone moves in sync.

“We are not so worried about the economic slowdown as everyone is working in the same environment. If you do not have a strong team, it is a challenge,’’ said Azlan.

ADCB

ADCB paid RM3.9bil for a 25% stake in RHB Capital. Azlan likens the partnership with ADCB to a marriage.

“In a marriage, you have to work at it. We think they are fantastic partners. In the negotiation stages, there was trust in each other; that is why we could wrap it up nicely.

“They are well-versed in the commercial world and there's a lot of contribution they can make at RHB. We are also looking at the exchange of management personnel for training,’’ he said.

ADCB also shares the same aspirations of turning the RHB group into one of the top three banks in South-East Asia. It wants to use RHB Cap as a springboard to venture into markets in the Asean region and RHB Cap, on the other hand, wants to tap on ADCB's network for sukuk issuances in the Middle East.

“We hope to take the market at both ends. There will be a free flow of business across this partnership,’’ Azlan said.

Besides board seats at the RHB Cap level, he said ADCB could also be involved at board level of the operating entities without managing the day-to-day activities.

Stake sale

Another 5% is up for grabs at RHB Cap. It could be taken up by a Japanese bank or others, said Azlan.

According to him, Sumitomo Mitsui Banking Corp is just one of the possible parties as there are other parties, such as private equity funds, keen on the 5%.

“We hope to sell the 5% within this year. We (EPF) would also like to keep 40% to 45% of the stake in RHB Cap,’’ he said. EPF bought an 82% stake in RHB Cap in March 2007.

The idea may be there, the funding may be available and the team may be ready. But competition means survival of the fittest, or more accurately, survival for the most powerful.

Does RHB Cap have what it takes to be one of the region’s top three banks by 2012?

“Nothing is impossible,’’ said Azlan. That should be his favourite quote, as that has been his guiding principle.

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