BANKING - Hong Leong to expand banking ops to China and Vietnam (and Indonesia)

KUALA LUMPUR: Hong Leong Financial Group Bhd (HLFG) plans to expand its banking operations to another emerging market after venturing into China and Vietnam, said president and chief executive officer Raymond Choong.

“Our strategy is to have a strong presence in two or three large emerging markets within the region either through new start-ups or acquisition of existing businesses.

“We are already in two markets now so we are looking for another one. Our third emerging market could be Indonesia or Thailand,” Choong told StarBiz. “However, this does not stop us from looking at Singapore, Hong Kong and even Australia. The focus is mainly within the region. So we will continue to explore.”

He said HLFG’s banking arm, Hong Leong Bank Bhd (HLB), was looking to expand into Indonesia – which has been the favourite foreign market for other domestic banks such as CIMB Group Holdings Bhd and Malayan Banking Bhd – but was taking a very careful approach as “pricing and valuations in Indonesia were very high.”

Raymond Choong ... ‘We want to complement the products and services offered by the big boys in the industry.’

 

“We are taking a very careful and disciplined approach. We are not rushing to grow for the sake of growing,” Choong said. “Indonesia has been a market that we have been looking at for many years but we have not found anything that is fair and reasonable yet.”

HLFG has some 63.5% stake in HLB.

He said funding any acquisitions, be it locally or overseas, would not be a problem as the group had the capacity to raise funds due to its strong balance sheet.

“This puts us on a very good footing to take advantage of any opportunities that come about,” he added.
Choong said despite being a successful bank in the country, HLB was still not a major player unless it had a regional presence as the local market was still small.

“We have entered China through the Bank of Chengdu and we have a full banking licence in Vietnam. Nevertheless, we will continue to look for other opportunities in emerging markets,” he said.

HLB acquired a 20% stake in Bank of Chengdu in 2008. It entered Vietnam last year.

According to Choong, HLB’s maiden foray into China via Bank of Chengdu had been a rewarding investment.

Contribution from Bank of Chengdu increased 44.4% for the year ended June 30, 2010 to RM143.6mil year-on-year, making up 12.1% of HLB’s pre-tax profit.

According to Bank of Chengdu’s latest published accounts for the year ended Dec 31, 2009, its return on equity stood at 15% while its non-performing loan ratio was 1.3% and loan loss coverage stood at 167%.
The next big market for HLB is Vietnam. It has a branch in Ho Chi Minh City and is in the midst of opening another one in Hanoi soon.

“We are working hard to grow the business. With the banking licence, we have no restrictions on the number of branches we can open. We can also buy local banks there.

“However, we are treading carefully before expanding. Vietnam is an unknown market for us and one that is evolving very fast,” Choong said, adding that the banking industry had been growing more than 20% every year for the last few years.

The initial plan is to open five to 10 branches/transaction centres in the next 24 months to have the basic infrastructure to tap the Vietnamese market.

Choong also sees regional opportunities for the group’s investment banking business, especially in Vietnam.
“Our plan for the investment banking business is to find our own niche in the market to serve Malaysian corporates. We also want to complement the products and services offered by the big boys in the industry,” he said.

In the insurance business, the group completed a strategic partnership with MSIG Insurance (M) Bhd, the local unit of Mitsui Sumitomo Insurance Co Ltd (MSI), on Oct 1.

“We see a lot of synergies in the tie-up as MSI is the biggest insurer in Japan and it has a lot of expertise in the life and general insurance business.

“MSI has seconded staff to us for bancassurance, product development and actuarial services. This will enable us to up our game here,” he said.

Choong also said the group’s Islamic banking and takaful business was growing well.

“A major focus is to find new innovation in Islamic financial solutions for corporates and large businesses.
“Our takaful business is a new business with a strong potential for growth,” he said.

Source : http://biz.thestar.com.my/news/story.asp?file=/2010/10/8/business/7181114&sec=business - Oct 8, 2010