Taipei Times (TT): Let’s start with macro conditions, how quickly do you think Asian economies will recover?
Jaspal Bindra: It will depend on many things. The [financial] problem started with the subprime mortgages [in the US] and moved on to become a liquidity problem, which is, for the first time in living memories, that the inter-bank markets in the UK and the US came to a stop. So that was a big liquidity challenge. Then it moved on to capital shortage and there is the overhang of possible debt bubbles — concerns over credit-card [defaults] and increasing unemployment around the world. Finally, there’s a big question mark on the government bubbles. You see one or two governments struggling and a few governments have already gone to the IMF for rescue.
PHOTO: CHANG CHIA-MING, TAIPEI TIMES
But the [biggest] problem is that none of the issues that have been part of the big [financial] problem — subprime, liquidity, capital or unemployment — has yet been bottomed out. Until you get to a bottom on any one of them, it’s very difficult to bring confidence back. And that’s a big challenge and has to be restored for things to come back.
But we’re very confident that once that bottom is seen, Asia will recover much quicker because the problem with Asia is more of a cyclical nature, whereas the problem in the West is more of a systematic nature. I think there’s a big difference in terms of the recovery potential.
TT: Until Asian economies bottom out, will you be concerned about rising defaults on corporate loans, which was your bank’s main growth driver last year? Also, bad times may present themselves with opportunities. Do you have any plans to expand by mergers and acquisitions both in Asia and Taiwan?
Bindra: Clearly, for most of 2009, it will look quite slow. You’ve seen it from the dropping fees and the drop of overall activities in terms of investments, both foreign and domestic investments, [and] a lot of the private-sector’s growth being held back for the current time. I think all of that is going to only come back when the confidence of the market revives. As far as Standard Chartered Bank is concerned, the benefits we have in some way outweigh some of the challenges we face such as slowing revenues and a higher risk of delinquency.
The possibilities we have are two or three. One is, as the competition retreats, we’re getting a huge benefit in market share. So, even though the cake will be becoming smaller, we’re getting a bigger slice of the cake.
Secondly, as our businesses continue to grow, we’ve been quite encouraged over the past few years that part of our growth came from organic growth. Even in 2008, we’ve got 80 percent of our growth from organic. So, we will continue with our huge aspiration for growth in Asia, [the] Middle East and Africa. But we’re not naturally dependent on having to make acquisitions to meet that aspiration.
Having said that, [when] opportunities present themselves, we will be very open to be looking at everything that is in our footprint, which is Asia, the Middle East and Africa, and in banking. So, we’re not getting distracted by seeking growth in markets we don’t understand or doing businesses we haven’t done before. We want to stay with our core strength and be even more disciplined in making acquisitions.
TT: The local media speculated that your bank is interested in bidding for Chinfon Commercial Bank (慶豐銀行), which will be auctioned off by the government later this month.
Bindra: We’re not going to comment on specific transactions or market rumors. But I think it will be sufficient for me to say that in Taiwan, we have done a fair bit of acquisition. And right now, the bottom of our forecast is to streamline and integrate that. And I think we have a very strong platform here to take the next leap of growth.
TT: Still, your bank appeared to have been looking at Royal Bank of Scotland’s (RBS) Asian assets since last year.
Bindra: On RBS, logistically, we will take a look at it. It’s not public that they are being, more or less, mandated to divest their Asian portfolio. I think it’s still early stage because we don’t know exactly what they want to divest. But when it becomes available, we will definitely give it a look. But it will have to [be able to] give us a double-digit return on investment and an EPS [earnings per share] appreciation in the next two to five years. Equally important, we will have to see if it fits our culture and integration requirements. If they were met, it would be strategically a good fit, given which pieces of business are coming out [of RBS] and in which countries. Once all that’s clear, we would be in a better position to tell you how strong our interest is.
TT: In the face of unprecedented financial challenges, has there been any revision to your strategies in Taiwan?
Bindra: For Taiwan, we want to have a very broad-based offering and equally large wholesales and consumer banking here. So we want to run it as a full-product suite across wholesales and consumer banks. It’s clearly going to be one of the emerging market platforms, which will cover the whole range. We think, when both the world and Asian economies recover and, secondly, as the linkage with the mainland strengthens; there’ll be a transformation of step-up in the growth potential of Taiwan for Standard Chartered. As some of the competition disappears, we’re getting a very good window to attract the best talents and hopefully also gain market shares with existing and new customers.
TT: Your consumer banking suffered a 33 percent year-on-year decline in operating profit to US$1.12 billion last year. What will your strategies be to develop wealth management businesses when it comes to a time that consumers are highly risk alert?
Bindra: For the last six months, we’ve seen a very noticeable shift in the risk appetites of consumers, who are moving away their money in wealth management to time deposits. Hong Kong is a very good example. So, people still want the yield, but they don’t want the risk.
The consequence for Standard Chartered Bank is that, because interest rates are low, our income from time deposits is very little compared to our agency fees/commissions on wealth management products, which are very high, especially as we don’t manufacture the products ourselves. But, so be it. We’re still continuing to build our deposit base aggressively without putting a cap, because we think, in the long run, it’s much better to have the cushion.
Throughout 2008, we have brought our asset-to-deposit ratio down from 86 percent to 75 percent, becoming even more liquid than before. Our balance sheet is roughly US$400 billion, US$100 billion of which is classified as very liquid. Although some of it is uneconomical, given a low return from [time deposits], we are willing to take the risk-averse appetites. We think that’s a good tradeoff.
We firmly believe that, after having gone through the Asian financial crisis and credit-card bankruptcy both in Hong Kong and Taiwan, cash is king, so, we’re staying highly liquid. We want to keep our balance sheet strongly capitalized and highly liquid, and to have the cash to be productive. We do believe that, when interest rates come back, we will have a big windfall.
Aside from the liquidity cushion, we think this is a good time to win customer shares because clients will eventually come back for wealth management. So, it’s important to house them for the time being. If you shut them out now, it’ll be very difficult to get them back.
TT: Taiwan and China are about to ink trade pacts to foster financial exchange and economic integration across the Taiwan Strait. How will that impact the banking sector in the greater China market in terms of stiffened competition and, maybe, future growth potential?
Bindra: I think it will be hugely positive for Taiwan and doubly positive for Standard Chartered because we get the benefits from both sides. We’re also looking for huge gains from the other side because, first of all, we think our presence in Taiwan provides us with a premium source of Mandarin-speaking talent for our ever-growing need in China. Secondly, it’s the flow of businesses since we’re one of the few banks privileged to cover businesses in both sides.
TT: Aren’t you concerned about competition after Taiwanese banks storm into China to go after the same piece of pie — China-based Taiwanese businesses?
Bindra: It’s not an easy market to enter or penetrate. We’ve been there for 150 years. Unless things change, the regulation is only for a few licenses per year [for foreign players]. You can only get one license in one province in three years. Then for every few licenses, you get to open a regional bank. And the requirements and regulations are separated by provinces, so, it’s not one country for banking. It’s several countries depending how many provinces you want to be in. I wouldn’t [describe] the past competition as being active. But I wouldn’t either jump to the conclusion that they’re going to eat your cake and rice very quickly. It takes time. And for Taiwan, I suspect it would have a privileged position in terms of competition.
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