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PROSPECTS FORBANKING IN ASEAN

Arvind MathurHead, Capital MarketsAsian Development Bank

DBS 10am

ENTRY/ EXIT/ GROWTH CRITERIA

Macroeconomic Conditions(+ve correlation with performance)

Bank Quality – Ability to exploit opportunities

Success in high Margin Businesses to Maximise Economic Value Added (EVA)

1

MACRO SITUATION

Distressed GDP growth rates Export Prospects Sovereign Credit Quality Currency Stability Bear Push from Japanese Recession

Prospects 2

GDP GROWTH (%)

2000 2001(f)

SINGAPORE 9.9 5.0

THAILAND 4.2 3.5

PHILIPPINES 3.9 3.1

INDONESIA 4.8 4.2

MALAYSIA 8.5 4.9

3

DISTINCTIVE FEATURESOF DBS

Reputation

Solidity

Know How - Credit Analysis Skills/

Technology

People & Talent

Good Corporate Governance

Regional Presence

4

THESIS: CIRCUMSPECTION NOT ABANDONMENT

Fundamental Strengths Remain Low Cost Mfg Base Infrastructure Policies Business Transplants from

Japan/US/Europe

5

IMPLICATIONS OF ADDED RISK

Proper Pricing of Risk

High Risk-Adjusted Return Hurdle

Avoid Price Competition to Protect

Margins

6

PROSPECTSFOR BANKING PRODUCTS

Corporate Exposures

Project Finance

Retail/ Consumer Banking

Distressed Assets

FX Trading/ Treasury (Controls)

Capital Markets

Build or Acquire ?

7

DISTRESSED ASSET PRODUCTS

Debt-Equity Swaps (Form of Private Equity)

Purchase & Sale of Retail Distressed Debt

Pools

Purchase & Work-Out: Maximize Recoveries

Purchase & Hold to Maturity

8

ADVANTAGES OFDISTRESSED DEBT

Bargain Price

Benefit from Improving Credit Qualityas Macro Conditions Improve

Capitalize on ASEAN Presence

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SUCCESSFUL MODELS

GE Capital – Thai Distressed Debt Goldman Sachs

Japan Real Estate Korean Distressed Debt Pool

Lonestar U.S. Korean Distressed Debt Pool

Citicorp Latin America Debt/Equity SWAP

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THAI DISTRESSED DEBT:JACK WELCH GE CAPITAL QUOTE

“This guy, this nut, wants us to invest $1billion in autos. I’m going to blow him out of the water tomorrow. This guy’s got no chance Norbom came in and made a convincing case. If you asked me five minutes before the meeting, I’d say “What are you nuts? And yet he made a great case, and you love him for doing it.”

Source: GE Digs Info Asia, Fortune, October 2, 2000

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GOLDMAN SACHS: TERMS OF KOREAN DISTRESSED DEBT PURCHASE

Seller: KAMCO

Buyer: Goldman Sachs

Price: 5 cents on the $ i.e. 5% of par value

Contingent Profit Sharing:

Seller receives 50% - 60% of profits

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POTENTIAL APPROACH

Develop Core Competency in

Distressed Debt

Partner with Seasoned Players Distressed Asset Funds G.E. Capital / Lonestar etc

Specialist Teams – Debt Restructuring

Specialists/ Turnaround Artists

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POTENTIAL APPROACH

Lending Officers can be Trained

Focus on Thailand, Malaysia initially

Asset Pools

Info source: www.debtmarketplace.com

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CONCLUSION

Citibank & Standard Chartered never

abandoned countries

Tailor strategy to exploit changing

conditions

Though macro conditions are poor, DBS

could exploit special opportunities

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