SCB seizes Asia opportunitie

SCB seizes Asia opportunitie

SINGAPORE (Dow Jones): With its recent deals in Thailand and Indonesia, Standard Chartered Bank (SCB) is grasping a "once in a lifetime opportunity" to buy into Asia's domestic banking sector, according to Kai Nargolwala, the bank's head of corporate and institutional banking.

The reluctance of many Asian governments to open up their banking sectors made such deals impossible in the past. And Asia's recovering economies mean such transactions may not be easy to conclude for much longer, Nargolwala told Dow Jones Newswires in an interview.

"There is only a small window of opportunity" to pick the best of what institutions are available in countries such as Indonesia, Thailand and South Korea, he said. "As economies bottom out and improve, the ability of local banks to get back on their feet and compete will improve," he added.

Within the past week, Standard Chartered has announced plans to take over Bank Bali in Indonesia and Nakornthon Bank in Thailand. Assuming the deals go through, they will more than double the UK bank's branch network in Asia-Pacific and allow Standard Chartered to push its consumer products into those markets.

Bank Bali has more than 200 branches across Indonesia and Nakornthon Bank has another 68 in Thailand. Standard Chartered's currently has 202 branches in the whole Asia-Pacific region, with only five branches in Indonesia and one in Thailand.

"If you look at Thailand, we have been there for many years but have had only one branch. This is an historic opportunity for us to step in and expand," Nargolwala said.

But banks wanting to make such acquisitions had better hurry.

Many foreign banks are looking for opportunities, and there aren't too many very attractive Asian banks for sale.

"And most countries are fairly conservative about having their financial services industry owned by foreigners and that trend isn't going to change rapidly in Asia," Nargolwala said.

That's an important reason to move on these opportunities now, he said, while they still exist. "If you don't move and your competitors do, you will end up being marginalized in these countries. We don't want to be in that position."

He said other as-yet-undisclosed Standard Chartered deals are in the works throughout the region, but noted that competition is becoming more intense. For the Bank Bali deal, Standard Chartered had at least two other significant competitors as suitors, he said.

"Teams of acquisition people are working across Asia," he said. "The concentration had been in northeast Asia until a few months ago, but they've moved down south now."

By the time the window of opportunity for these purchases closes, Standard Chartered will have "substantially increased its footprint in these domestic markets, and will come out of the economic crisis much stronger," Nargolwala said.

On Wednesday, Standard Chartered announced it would take a 68.4 percent stake in Thailand's Nakornthon Bank by injecting 6.2 billion baht (US165.7 million) into the beleaguered institution.

Once complete, Standard Chartered will have a domestic banking license, access to the bank's 68 branches in and around Bangkok and a strong depositor base, Nargolwala said.

"We can then take our consumer banking products and pump them through that distribution network," he said.

Standard Chartered wants to use Nakornthon Bank's deposit base as a starting point for rolling out consumer products such as credit cards and mortgages into the market, to build the asset base of the consumer-based bank.

Standard Chartered has similar plans in Indonesia, following the announcement last week of its $56 million acquisition of a 20 percent stake in Bank Bali.

The deal - still in the due diligence stage - would give the UK bank management control and the option to buy Bank Bali outright within five years. If completed, Standard Chartered will control a domestic bank with a 200-branch network well-situated across Indonesia.

A crucial part of the deal includes the government's intention to pay 80 percent of the cost of boosting the bank's tier one capital adequacy ratio to 4 percent - at a cost estimated at Rp 2 trillion. The government's willingness to mitigate the cost of the deal was a key factor in allowing agreement to be reached.

"These governments are now giving us an opportunity to substantially mitigate the risk we would otherwise be taking on in such deals; they're more willing to go halfway," he said.

And Nargolwala said he's optimistic about potential earnings.

"When you've curtailed your downside risk on an asset book by assessing a problem loans book which has been replaced by new capital... at 30 percent interest rates, it doesn't take long to make good earnings if you've got good assets deployed in safe places," he said.

And for governments that are being forced through adversity to make these deals with foreign banks, the prospect of recouping funds initially needed to recapitalize its banks is attractive.