Banks to compete in niche areas of investment banking
Banks fight for their special space in investment banking amid economic uncertainty
PETALING JAYA: Banks are strategising to compete in niche areas in investment banking at a time when the investment climate is affected by global economic uncertainties and market volatility.
Debt capital market, loan syndication and mergers and acquisitions (M&A) are among the areas where banks in the country see good prospects to strengthen their investment banking portfolios and earnings.
CIMB Investment Bank Bhd CEO Datuk Kong Sooi Lin (pic) told StarBiz the investment banking industry was still growing, particularly on the debt capital market front where CIMB’s capital markets franchise continues to record steady growth in terms of mandates.
To ensure CIMB stays ahead of the competition, she said the banking group would continue its coordinated efforts to optimise regional client coverage to drive greater regional collaboration and synergies whilst leveraging off its Asean platform.
The bank would also continue its strategy to focus more on M&A activities as values of M&As are becoming more realistic with corporates continuing to be on the lookout for business diversification and cross-border opportunities.
The strategic partnership with China Securities Galaxy Group is expected to boost CIMB’s distribution capabilities, especially in North Asia, she noted.
In the regional debt capital markets (RDCM) space, Kong said the bank has maintained its number one spot in the Malaysian ringgit corporate bonds market for the 12th consecutive year in 2016 with a 26.59% market share and 136 issuances for 2016 (based on Bloomberg data).
“Over the last few years, the RDCM business has also successfully expanded across to regional markets specifically our core markets in Indonesia, Singapore and Thailand with a strong focus on Asean local currency local bond markets as well as Asean US dollar bonds.
“In addition, we continued our global sukuk leadership across the world covering Hong Kong/China, Turkey, United Kingdom etc, whilst maintaining our footprint in the Middle East with continuous deal flows from these markets,’’ she noted.
Within the M&A space, Kong said the volatile economic conditions caused by the global slump in commodities prices and the weakening of the currencies has provided corporates with opportunities to identify quality asset targets with attractive valuations.
Furthermore, driven by the money flow under the expansionary policy in Japan and China, regional M&A activities have picked up in 2016 after a lull in 2015, she said.
According to Dealogic, Malaysia’s M&A deal value was 30% higher at RM84.8bil in 2016 compared to RM65.4bil in 2015.
This momentum is expected to sustain going into 2017.
Primary ringgit denominated corporate bond offerings are expected to be led by debt-raising for infrastructure-related projects, banks raising fresh capital, and private companies issuing financing for corporate expansion.
“The ringgit markets have remained resilient through the years despite global events and we expect activity to remain robust going into 2017.
“Assuming sustained economic growth in 2017 within the government’s target range of 4%-5%, we expect primary ringgit denominated corporate bond offerings to remain healthy and reach RM80-90bil this year with RM41.1bil due for maturity, which is higher than last year’s ringgit denominated corporate bond offerings which totalled RM77.9bil,’’ Kong added.
Without disclosing figures, she said contribution from the debt capital market business in 2017 to the bank is also expected to be significant as debt fund raising would be largely dependent on funding mandates for infrastructure projects, capital raising by financial institutions, refinancing of maturing debt obligations and changes in regulatory rules for un-rated bonds.
Meanwhile, OCBC Bank (M) Bhd senior banker and head of global investment banking and corporate development Tan Ai Chin said the bank was strengthening its position as an investment banker of choice by continuing to build itself as a niche corporate-cum-investment banking outfit that can offer holistic solutions to our corporate clients both locally and abroad.
And the bank is well poised to do this by tapping into the OCBC Group’s network of overseas branches in the key markets where we operate, such as Singapore, China, Indonesia, London and, Australia, amongst others, she added.
“Despite a declining overall syndicated loan market volume last year, the bank increased its market share by 35% over the previous year, ending off the year with about 13% of the entire Malaysian market volume.
“This is gratifying for us, considering we are not a local bank.
“In 2016, the bank was ranked first in terms of number of issuances and second in terms of volume of syndicated loans in Malaysia.
“These achievements have been drawn from our wide coverage of customers across different segments.
“In the private debt securities space in Malaysia, OCBC Bank has consistently ranked among the top two foreign banks over the past few years,’’ she said.
On loan syndication, Tan said the loan syndication market in Malaysia has been on a declining trend in the last three years, from US$18.9bil in 2014 to US$13.2bil in 2015 and US$12.15bil in 2016. On the other hand, she said the corporate bond market was expected to see corporate issuances hitting the RM80bil to RM85bil mark which is around the 2016 level of RM85bil.
Hence, she expects the investment banking business in Malaysia to grow at around the same pace as in 2016, driven largely by debt capital market and loan syndication activities.