Nazir talks about CIMB as a regional bank (1023)

CIMB Group Holdings Bhd has done what it intended to do in growing its Asean franchise. There are a few small pieces to fill in the overall jigsaw but group chief executive Datuk Seri Nazir Razak (pic) feels the pieces are in place for the group to really grow its Asean vision. He speaks with Jagdev Singh Sidhu and Yvonne Tan about the big picture for the group. Below are excerpts of the interview.

SBW: What's the big picture with CIMB after expanding into the Philippines and buying Royal Bank of Scotland's (RBS) businesses?


Nazir: We set out on this agenda to transform a Malaysian investment bank into this regional universal bank in 2005. We made a series of acquisitions, all of them consistent with our agenda.

RBS looks slightly different to the rest of the acquisitions but if you look at our vision statement it does include having connectivity into markets that actively interface with Asean. We were already building our presence China, India, Australia, etc, but very slowly, and RBS gives us this opportunity to complete the platform instantly. With RBS, we also get stronger distribution into Europe and the US for equities. The RBS deal is therefore part and parcel of building this Asean universal regional bank; attaching Asia Pacific's largest investment banking franchise.

We have achieved our footprint aspirations faster than I had expected. In some ways, the operating environment worked in our favour. I never imagined that we would have the opportunity to buy RBS's investment banking business in Asia Pacific. When I first saw the deal, it look too audacious. I literally walked away. But I thought about it again and said to myself, since I have been saying “If this is going to be the Asian century Asians need to step up” then isn't this just the sort of situation when CIMB should step up and be a little bold?

We are now positioned to intermediate flows of trade and investment between Asean and China, Asean and Australia and so on, as well as within Asean. We are better positioned to benefit from the rise of Asia as a whole.

One has to look at the CIMB story from a longer term horizon. We have to trace it back to its roots as a Malaysian merchant bank in the late 1980s and how it first became the leading player in the Malaysian capital markets. Leveraging on that on a largely equity-based track record to the full gamut of investment banking in the early 2000s and then going into universal banking. The foundations of what we have achieved today is the core CIMB investment banking culture, track record and the brand we built over many years before 2005.

You speak about the multi-local model but the likes of Standard Chartered and HSBC have a single identity. What makes you think your way of doing things is better?

Customers always want choice and there is room for many competitors. The global banks will be better at some things because they have larger economies of scale and global networks. At the same time they will not have the local touch, the local network and the deep local roots.

Banking customers have to realise that a local bank has nowhere to run. Whereas with global banks, when times are tough in the West, their priority is their problems at home. Their priority is Paris, London or New York and not Jakarta, Singapore or KL.

Asean needs strong regional players as pillars of the integrated Asean economy in the long term. That's what we are trying to build. We want to make sure CIMB is a financial pillar of Asean.

You are doing something that's not been done before in this part of the world by having an Asean model. What makes you think you can pull it off?

Cross border banking has been done by global banks. What hasn't been done I guess is a local player around here doing that well. The fundamental of it though is cross border banking. That is not new at all.

The added challenge in these times is that regulators are becoming more national as a result of the global financial crisis. Regulators are more concerned about cross border banking than they have ever been.

By being the first mover of Asean, there are advantages and disadvantages.

As a first mover, you are also first to meet the hurdles. Before we were doing it, no one realised how difficult it was to move people between markets in Asean banking. No one realised how difficult it was to move information. It is also impossible in some places to hub operations.

The most worrying thing to me is that we are so close to 2015 but when you go to regulators, it's either you are local or foreign. There is nothing in between. Asean means almost nothing to the country regulators.

Even if you go to Government agencies, Asean means very little which is quite shocking given that our leaders go on these junkets and say by 2015 there is this Asean Economic Community. The reality of that is operationally, we are quite far from this integrated community.

Nevertheless, we at CIMB are passionate about the need for this economic community and passionate about playing a big role helping this community come together.

For instance, it's a fact that Thai companies are doing more business in Indonesia because of CIMB. These medium sized companies are more comfortable going to Indonesia because via CIMB Thai they get to have a history with CIMB Niaga.

We have also made travel more convenient. More banks have followed but we were the first to make ATMs free across the region.

And you look at brand harmonisation. It's compelling to be a CIMB customer when you can bank in Chiang Rai in Northern Thailand and travel to Bali, Indonesia and find a bank with the same look and feel and that knows you.

Our “Asean for you” tagline is a powerful message to the public about Asean. I've always looked at Asean as another identity we should all have. The world is going to be about large economies and we have to be an economy of 600 million people. Otherwise, there is a risk of us being marginalised in the new world order of China, India, Russia, Brazil, US and Europe, of large economies.

Can you give some sort of tangible benefit the CIMB group has seen from its Asean network?

There are many elements to it. The service levels of the branches in Malaysia were initially poor. Do I hire expensive consultants or do I find the best branches across the region and ask if they could help? We went to Jakarta and got 10 of our best 25-year old branch workers and asked them to come to KL, spread them across 10 branches and asked them to help improve our service levels. They did very well.

We innovated consumer structured products in Malaysia and today that same team effectively manufactures in Malaysia and distributes in Thailand and Indonesia as well.

In terms of cross border M&As. Last year we advised on a billion dollar deal to bring CVC in to buy Matahari supermarkets in Indonesia. Last week we announced helping AirAsia buy Batavia Air. Last year we dual listed Sri Trang from Thailand and Malaysia Smelting Corp in Singapore. Last week, IHH was of course a dual listing from the start.

These are some classic CIMB cross border deals enabled by our Asean positioning.

Today, we have one investment banking team across the region. Located in different places, they work together and have centres of excellence wherever best suites the business. Equities is headquartred in Singapore, training is headquartered in Jakarta. These centres of excellence across the region saves cost and optimises talent.

Is there a cookie cutter formula you use when you expand from one country to another?

The one standard thing is you have to get the right local management in place. The second is that you have got to win over the staff. We send armies of people at multiple levels to bond across borders.

We create a sense of CIMB as a community across the region. We have a whole load of activities. We started with the CIMB SEA Games. We have the CIMB singing competition and all sorts of other contests across the region.

Yes, they are staff of CIMB Niaga, CIMB Thai and so on but their primary identity is that they are staff of the CIMB Group.

So what is the common identity of a CIMB staff across the region?

CIMB is common. As Group CEO I communicate with all 40,000 staff via my blog, once a week. And I travel to meet staff even in far flung places so they feel connected to the group as a whole. I see one of my key KPI's as being responsible for the sense of “one CIMB” across Asean.

You have set the path for the Asean model but you have the others following. How do you maintain your edge over the competition that sees what you are doing and emulate your accomplishments?

When you do something good and you believe in it, when competition comes, the first thing they achieve is they vindicate your strategy.

Competition is the rule of the game, and it's good for customers. You just have to raise your game when they do.

It's just not about the business model. It's also been seen in products. When we innovate products, the lead time for someone to copy you is becoming shorter and shorter.

In just a few years time your foreign ops will generate most of your income. Will that change what CIMB is all about?

CIMB has a Malaysian legacy, a large Malaysian shareholding and is currently only listed in Malaysia. But it is an Asean company already and we are going to be listed in multiple Asean countries in time. The day Indonesia overtakes Malaysia in terms of contribution to earnings will be a milestone but it won't be a milestone that will affect us in anyway. Increasingly, more and more centres of excellence will move around the region.

I don't forsee us moving our group headquarters, but nothing is sacred as such. In order for us to be an integrated as a regional economy, nations also need to get rid of some hitherto sacred cows. I always wondered whether Malaysia needs a stock exchange for instance or should we just share a regional stock exchange.

How soon will CIMB list in other Asean markets?

As soon as the regulators are ready. We have been trying to list in Thailand and at the moment we're down to one last issue. Thailand doesn't recognise bonus issues it's a technicality, their laws don't recognise them. So if you do bonus issues, its repayment of capital, if you do repayment of capital, its dividends, if you do dividends, its taxed.

The reason for listing in other Asean markets is to create stronger connection with our client base, to make us more local in each market. We want to list in Thailand and Indonesia. Singapore, I don't know yet.

Are you shopping around for more assets?

I think we are pretty much done for the foreseeable future, as you know we are still in negotiations for RBS Morgans. There may be small acquisitions like that but in general we're pretty much done.

We've always said we wanted this Asean platform, we now have the full complement of universal banking capabilities in all of the “Asean 5” countries. In the smaller markets, we are going to start from scratch, so no mergers and acquisitions there. Beyond Asean, we have the investment banking platform that we wanted already. But there may be opportunities to buy a loan portfolio perhaps, add maybe some stockbrokers here and there. Maybe another stockbroker in Thailand like SICCO Securities which we bought early last year. That's all.

You are quite outspoken about many other things apart from banking. Give me your view on where you think Asean is heading?

I actually think the next 3 years will be very difficult because I think the operating environment may be quite tough with the global economic difficulties.

Then the reality of economic integration will rise to the surface and this means that there will be winners and losers and the losers will make a lot of noise.

So our Governments have to make quite hard decisions ahead of 2015 and when they do that they actually have to make choices, that's when it can get tough.

A lot of things like dropping tariffs are easy, actually no one really cares because the really prohibitive stuff is actually non-tarrif barriers, like what I said - you cant move people, you cant move information, you need this and that first etc.

Once you start dealing with these non-tariff barriers and really try to create this free flow of services and goods and a single production base region, then I think there will be quite a lot of pushback. And when the political environment is such that Governments are not so strong or are going through elections, then some of these can be quite difficult to deal with. Indonesia for instance will have Presidential elections in 2014.

While we talk about 2015 and aligning ourselves with Asean, we also fully expect that the road will be bumpy. And AEC 2015 will not be what they say is going to be. But that doesn't mean we shouldn't try to integrate as much as we can. And over the longer term, we just have to become one economic region to remain relevant.

What about the Malaysian government's transformation agenda?

I am in full support of the current administration's transformation agenda, and specifically, the economic, government and political transformation programs. There are deep structural problems that are inhibiting our the country's development in the widest sense. The 1Malaysia theme of unity is inherently a good one; I have always believed that our diversity can be our biggest weakness or greatest strength; it's up to us.

I would however like to see the government move more aggressively and consistently to transform the country, although I can imagine how politically challenging it must all be.

I also think that the government should put combatting corruption and racism at the very forefront of its agenda. These are two elements that can destroy this country.

I have shared my views on corruption on several other occasions.

On race, I am frankly appalled by some recent racist actions and comments even in the public arena. Debate and disagreements are part and parcel of a healthy civil society but we must never tolerate criticism based on a persons race, or gender for that matter. I am in favour of firmer legislation, and enforcement, against racism. Or even perhaps a national “say no to racism campaign” even.

In the UK today footballers get charged in court for racist remarks on the field. This is a marked change from twenty-five years ago, when I was studying there; so long as you didn't physically harm anyone you can call them whatever you like. They have made huge progress over the years on racism; we have probably regressed and yet we have so much more to gain if we can leverage on our diversity.

What about the prospects for China and India?

China will slow down. But, China is fortunate because during bad times, it's good to be rich. They have a huge buffer but it is not be so clear how to deploy it effectively to defend against the external downturn. And with political transition, China may not be as decisive as they have been in the past. India - can it get worse? If not, then let's look for signs of recovery but I doubt it will come so soon.

Overall, Asean seems like an oasis now, but it is one world in the end of it all so we can't hide from the full force of a global downturn. But, I think our economies and banking systems are robust so we probably will only see a slowdown, nothing too traumatic.

Your recent Euromoney award, is that vindication for all the work that CIMB has been doing?

The way they judged is on 2 criteria- one's contribution over the long-term to Asian finance and what has been achieved particularly over the past 12 months.

The latter is linked to the realisation that CIMB has become very material to Asia as a whole with the RBS and BOC acquisitions.

On the former, I feel like an old man now. I have been at CIMB, at banking for a very long time. Joined CIMB as a rookie in 1989, CEO since 1999. One company man. So the company's achievements over the years is the real basis of my award.

European banks that have become regional banks are quite prominent over there but never really taken off in this part of the world apart from the StanCharts and the HSBCs. Is this regional model what you are trying to do here?

You look at Santander they've grew aggressively in Europe via an M&A strategy, so there is no issue in terms of the regional model, it's just new in this part of the region. And there is enough of us now already to prove that this works.

CIMB's prospects in Australia is really interesting. Australian corporations used to look at the RBS team and were not so impressed when comparing them with JP Morgan and Goldman Sachs. But today they look at the same guys and suddenly they look much more interesting because they are backed by this Asean powerhouse.

We are going to fuel more business between Australia and Asean. Australian companies are very strong in natural resources and looking for opportunities in Indonesia in particular, that's going to be our sort of tea.

When you expand the way you do, you are exposing yourself to risks as well?

We went out early last year saying that we were worried about the operating environment. We grew aggressively in the first few years of 2006-2010. Now we are growing moderately and we are not shy about it. We think it is the right thing to do.

The paradigm of managing banks has changed. The old way of thinking is that the only way to make money is to lend money. Now it's more balanced, focused on return on capital and liabilities as well.

Everytime you lend you consume capital, so you got to make sure that the loan is really worth the new capital and when you lend you take risk, so you must make sure those risks are worth it.

You don't just grow to satisfy your ego, there are too many egomaniacs in banking and that's actually why the West is got into trouble.