February 4, 2012  Print Email | M&A could be the only option for SE Asia banks
New dealmaking wave to begin
Posted by Agencies at 07:04 AM GMT on Mar 10, 2009 | SINGAPORE/BANGKOK (REUTERS): M&A activity is likely to resurface in Southeast Asia's banking sector as the global financial and economic crisis forces foreign lenders to pull out and local players to team up with larger rivals for safety.
 Unlike the last flurry of M&A activity in 2006-08 at the peak of the bull market, buyers are expected to call the shots now as deal valuations are likely to be significantly lower.
"Without a doubt prices will come down," said Peter Elston, a Singapore-based strategist at UK fund manager Aberdeen Asset Management. "The days of anyone considering banks to be worth more than two times book are gone."
Potential buyers include Chinese lenders, London-based Asia heavyweights HSBC and Standard Chartered Plc, and Australian banks, led by Australia and New Zealand Banking Group, bankers familiar with negotiations said. They did not want to be named because of the sensitivity of the matter.
HSBC, which bought 89 per cent of Indonesia's Bank Ekonomi Raharja Tbk last year, told Reuters recently it is keeping an eye open for more deals in key Asian markets including Indonesia, Southeast Asia's biggest economy.
Among Indonesian banks, Bank Panin Tbk is considered an acquisition target, the bankers said. Many buyers would also be interested if tobacco giant Djarum Group were to relinquish ownership in Bank Central Asia, they said.
"Buyers of Asian assets will be either well capitalised local banks looking for assets in their own countries or players that have Asia at the very core of their businesses," said Sandeep Pahwa, head of global banking for Southeast Asia at Deutsche Bank in Singapore.
The first phase of the new dealmaking wave has already begun. Troubled US insurance firm American International Group recently sold its two consumer businesses in Thailand to Thai lender Bank Ayudhya.
Royal Bank of Scotland has also put its assets in Vietnam and Philippines, among other assets worldwide, on the block as it tries to shore up operations at home.
NON-PERFORMING LOANS
The compulsions for regional banks to consolidate are only just starting to emerge and they will drive the second phase of M&A over the next few years, analysts said.
"Economies are only just entering recession around the region so credit charges are unlikely to peak until 2010-2011," said Matthew Wilson, a banking analyst at Morgan Stanley. "They usually only run into trouble at the end when the non-performing loans emerge."
Indonesia, Philippines and Malaysia, which have very fragmented banking sectors, could see the bulk of the consolidation.
Indonesia has more than 100 banks. In Australia, by comparison, just four large lenders command 70 per cent of bank assets.
Past experience with M&A in the region will make potential buyers wary about overpaying for banking assets. Dutch financial group ING's investment in Thailand's TMB, for example, has more than halved in value since late 2007 when it bought a 30 per cent stake for $675 million.
And Malaysia's Maybank faces writedowns on its $2.2 billion acquisition of Bank Internasional Indonesia made last year, which valued the bank at around 4.2 times book. BII now trades at 2.89 times book.
Maybank, which had been very aggressive on M&A and had snapped up Pakistan's MCB and Vietnam's An Binh Bank, besides BII, in less than a year, could write down 4.9 billion Malaysian ringgit ($1.32 billion) for the MCB and BII acquisitions, Deutsche Bank analysts in Malaysia said.
Investors are hitting out against the pricey deals. Aberdeen Asset, which manages $34 billion in Asian assets, dumped Maybank shares last year, saying its risks had risen. And banks are paying heed.
DBS Group Holdings, Southeast Asia's biggest bank, which actively sought Asian acquisitions in 2007, recently said it wants to boost its existing businesses instead of acquiring new assets.
At reasonable valuations, however, Asian banks are still attractive to both acquirers and investors such as Aberdeen.
"Asian banks are very good ways of getting exposure to the Asian growth story, which we still believe in," said Aberdeen's Elston.
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