Malaysian CIMB looks to RI for future growth

Hendarsyah Tarmizi, The Jakarta Post, Kuala Lumpur

After a successful expansion at home, Malaysia's CIMB financial group is now looking to Indonesia.

CIMB, the second largest financial service provider in Malaysia, is committed to providing capital, technology and market access to expand the operation of Indonesian units Bank Niaga and CIMB GK Securities, the business group's chief executive, Nazir Razak, said here last week.

He said the expansion would be needed as the Indonesian units had become an integral part of the company's business vision: being among the largest and also the being the most valued financial service provider in Southeast Asia.

"Our business strategy for expansion of Indonesian units will be carried out through mergers and acquisitions," he told Indonesian journalists following a Bank Niaga platinum credit card launch in the Malaysian capital.

CIMB, listed on the Kuala Lumpur stock exchange through Bumiputra-Commerce Holdings Berhard (BCHB), has become the fifth-largest bank in Southeast Asia, after a series of mergers and acquisitions over the past five years.

The restructuring has seen what was formerly a local bank with a staff strength of only 1,000 grow into a major regional bank with more than 24,000 employees in 12 countries. Assets have reached about 155 billion Malaysian ringit (about US$46 billion).

Bank Niaga, which contributed more than 60 percent of CIMB's earnings from overseas operations as of September this year, has continued to show positive results in the past two years, amid an improvement in Indonesia's banking industry.

The bank reported a net profit of about Rp 590 billion (US$63.5 million) in the nine months ended in September, an on-year increase of 10 percent.

Net interest income reached an all-time high of Rp 1.91 trillion, up 12 percent from a year earlier, said the bank's vice president, D. James Rompas.

He said that lending also grew by 17.4 percent year on year to Rp 36.6 trillion, while assets rose by 11.3 percent to Rp 47.32 trillion.

According to Rompas, net profit was a little lower during the first nine months of the year due to more competition in the lending market and a drop in the lending rate.

"But, for next year, we are quite optimistic the earning growth rate will be higher," he said. The bank's platinum credit card product, he said, would see the credit card business make more of a contribution to total earnings.

With regard to growing speculation over the possible merger of Bank Niaga and Bank Lippo, both effectively controlled by Khazanah, CIMB's chief executive Nazir said the merger decision hadn't been made.

Khazanah, which owns 87.5 percent of Bank Lippo, is the majority shareholder of CIMB, which in turn holds a 66 percent stake in Bank Niaga.

The source said that the merger would be the best option for Khazanah to comply with Bank Indonesia's single presence policy, which prohibits a single player from having a dominant stake in more than one bank.

Khazanah has three compliance options: sell its stake in one of the banks, merge the two or put both under a holding company.

While the group has until 2010 to comply, it has to report which option it will chose to the Indonesian central bank before year-end.

Nazir neither denied or confirmed merger plans but he said, whatever measures were taken to comply with the policy, Bank Niaga would stay.

"We would keep the name of Bank Niaga even if we chose the merger option," he said. "Perhaps, we would add something to the name of Bank Niaga, if there is a merger."

Besides a merger with Bank Lippo, Bank Niaga is also open to acquiring other banks, he said.

"But for us, we prefer to acquire large banks, which can create more value for customers. Besides being more costly, acquiring small banks will not create added value."

It would be up to Bank Niaga's board of executives to decide what type of expansion will best situate us to take advantage of growing business opportunities, he said.

"The money is really not an issue. As long as (the option) is feasible, we are ready support the expansion."

Nazir said that, instead of the current set-up - where CIMB does commercial banking through Bank Niaga and investment banking through CIMB GK Securities -- the ideal arrangement would be to have both services under one roof, provided by a single business entity as in the Malaysian operation.

If Bank Niaga could offer the entire range of financial services, it would be able to leverage more of the Malaysian company's growing Middle East capital market business.

He said the Malaysian financial bank had successfully attracted many large investors from the Middle East thanks to the issuance of various types of attractive sharia-compliance Sukuk bonds.

"We want to bring them to Indonesia, so the country can attract more Middle East investors to its capital markets."

However, there would need to be a change in Indonesian market regulations, to allow full-service banks in the country.

Presently, regulations don't allow a bank to directly engage in the capital market business -- which includes securities underwriting. If a bank wants to enter that business, it has form a security company.

"But we are glad, now that the Indonesian government is aware of the need to change the policy," he said.