Benefit $ Come at a Price
An interview with Ray Ferguson, Regional Chief Executive, Singapore & South East Asia, Standard Chartered Bank.
Q: How would you describe Standard Chartered business in Southeast Asia (Asean) in terms of prospects for revenue growth, compared with the other markets in the Asia Pacific?
A: Southeast Asia is a region we know well and where we have longstanding relationships. In many cases our operations in the
region have histories stretching more than 100 years, which gives us an advantage over competitors.
The region generates a significant part of total group income and profits and we are excited about its growth potential. We believe that Indonesia, which makes up almost half of Southeast Asia’s population and has seen its GDP more than double in four years, can be compared with India and China when you talk about growth potential.
We estimate that Asean (excluding Singapore and Brunei) could see its per capita purchasing power increase by 50 percent, relative to 2008, by 2015 and double by 2023. The growth potential is clearly there and as a leading emerging markets bank Standard Chartered is well placed to seize opportunities.
While I can’t reveal specifics, our businesses in the region are performing well, given the conditions. We had a strong first quarter.
The Bank remains in good shape with firm foundations and we will soon announce our half year results.
Singapore remains our biggest market in Southeast Asia and it has maintained momentum despite the contracting economy of the city state. We are continuing to invest in markets like Indonesia, Thailand, Malaysia and Vietnam to expand our business and make it more customer-focused. In Malaysia, for example we have recently opened an Islamic banking subsidiary and we expect to start business as a locally incorporated bank in Vietnam in August.
Q: Export declines have hit the economies in Singapore, Malaysia, Thailand and Vietnam. What does this mean for Standard Chartered?
A: The decline in exports in the Asean region has been significant. Both imports and exports are still 20 percent to 30 percent lower than a year ago. The decline appears to be stabilizing, but there is still considerable uncertainty with the timing and pace of recovery as the United States and Europe are still in recession.
The good news is that Asia is expected to recover faster than the rest of the world as the recession here has been shallower and the extensive deleveraging we have seen in the West has not been as great in Asia. The banking system is in a much better state in Asia as well, mostly thanks to the systemic changes implemented after the 1997- 1998 Asian financial crisis.
For Standard Chartered, this environment creates both challenges and opportunities. Concerns about counterparty risk have persuaded some sellers to return to letters of credit from trading on open account.
While the overall size of the pie in trade related business is probably getting smaller due to the external environment, our focus on deepening our client relationships has helped us cope with these challenges.
Q: What is your outlook for domestic loans in the region – Southeast Asia?
A: We have seen a decline in total lending in Singapore, Thailand and the Philippines in recent months, but total loans outstanding have continued to rise in Indonesia and the Malaysia. We believe that loan growth in the region in the near term is likely to be moderate as the private sector’s appetite for borrowing remains dampened by the uncertain global business outlook and concerns about ability to service loans.
Despite this the underlying conditions for borrowing are actually favourable. Central bank policy rates at historical lows in all Southeast Asian countries and some governments have even launched initiatives to encourage borrowing, especially in the SME sector. An improvement in market sentiment is what will drive lending growth going forward.
Q: Slow recovery in Asean’s export markets may be a boon for intra-regional trade. Would that open opportunities for financial service providers?
A: Persistently weak economic performance in the United States and Europe will prompt Asia businesses to look at alternative markets. We are likely to see growth take place in emerging market trade corridors, such as Asia with the Middle East, Asia with Africa and within Asia.
Financial service providers with a network across these regions and a good understanding of emerging markets will be in the best position to capture this opportunity. Such an environment plays to Standard Chartered’s strengths. The Bank was established 150 years ago to be a bridge between UK and Asia, Africa and the Middle East, capitalising on the burgeoning trade amongst those countries.
Today we remain a bridge between the most active and emerging regions in the world. Typically when a client in UAE requires commodities from Indonesia we want to be there to facilitate that aspect of trade.
Q: Asean plus China, South Korea and Japan have set up a currency swap arrangement, which is seen as a foundation to a unified market similar to that of EU. Please share your opinion?