Taken from http://daimzainuddin.com/DaimandHisBanks.htm
After
several aborted plans to own banks in Malaysia, former finance minister Tun Daim
Zainuddin gets a promising banking network in place with his Swiss-based ICB
Group.
Stories by Halim Wahab
THE International
Commercial Bank Group (ICB) is as much a mystery as the man behind it.
It carries his
traits and pursues his ambitions, but little is known about the group except
that it is closely linked to former two-time finance minister Tun Daim Zainuddin.
Despite lacking the
size of top players, the achievements of the Swiss-based banking group have
been quite impressive in their own way, with total assets growing at an average
of 60% per year.
It traces its
history to the opening of its first bank in the Czech Republic in 1993. Anchored by this, a decade
later the group spread its wings to eight countries spanning cities like Prague and Budapest in Eastern Europe and Conakry and Accra in Africa.
Yet, ICB’s
network of banks in these emerging markets did not attract media attention
until late last year, when it teamed up with Singapore’s Temasek Holdings in a Sorak
Financial Holdings Pte Ltd consortium to acquire Indonesian bank PT Bank
Internasional Indonesia.
The partnership has
put the spotlight on both ICB and Daim, whose foray into Indonesia includes a controlling stake of
57.9% in another Indonesian bank, PT Bank Bumiputera Indonesia.
It appears that
while Daim has gone low profile since his resignation as finance minister in
2001, conversely ICB has been building its reputation as a credible global
player, teaming up with major foreign partners to expand into the Southeast
Asian region.
As former Prime
Minister Tun Mahathir Mohamad’s chief economic trouble-shooter, Daim was
credited with pulling Malaysia out of the recession in the
mid-80s, then by slashing public debts and relaxing investment rules, and again
in the late 1990s.
Being the
entrepreneur that he is, is there more than meets the eye with ICB expanding
its banking empire closer to home?
Stamping its mark
Daim’s close
associates describe him as a person ‘who is in love with banks’.
But, as the man operates his ventures very much like his nature, privately,
there is scant information on the past performance of the banking group.
Nonetheless, this is set to change soon.
In a rare insight
into ICB’s operations, Malaysian Business reveals for the first time why
Daim picked Eastern Europe and Africa as the launching pad for his
international banking business. We also provide a glimpse of the group’s
growth prospects, future direction and plans.
Since Daim declined
to be interviewed, we spoke to the general manager of ICB Global Management Sdn
Bhd, Harith Harun, who oversees ICB’s global network from Kuala Lumpur. (See excerpts of interview on page
31)
‘ICB will
continue to expand in markets where it sees ample opportunities for growth. We
are fairly strong in Africa,
in six countries now, and we plan to open in several more countries in the next
few years,’ Harith says.
Consequently, in
the next five years, ICB aims to consolidate its operations worldwide into a
successful and respected global banking group and be identified as a key player
in emerging markets.
Going by the
extensive network that Daim has built up in the past 10 years, it looks like
it’s just a matter of time for this plan to reach fruition. In any case,
with stakes in two banks in Indonesia and a total of 24 branches in Hungary, Albania, the Czech Republic, Ghana, Guinea, Tanzania, Mozambique and Sierra Leone, ICB already earns recognition as
the first Malaysian-owned global bank.
Harith declines to
provide profit and asset figures, but
says the return on equity (ROE) of the respective banks has ranged from
5% to 20 % on average over the past three years. Likewise, growth in assets,
revenue and income has been within expectations, with total assets growing at
an average rate of 60% a year.
‘It has to be
noted that the loan growth was funded entirely by customers’ deposits.
Hence, the substantial increase in deposits indicates that the public has
confidence in us,’ he says.
Interestingly,
while the investment holding company of the banking group, ICB Financial Group
Holdings Ltd, is located in Zurich, Switzerland, the hub and nerve centre of its
sprawling network is in Kuala Lumpur, where ICB Global Management is
located.
For the group, this
is about logistics and strategy. Harith says the company was set up in 2001 to
provide technical support and consultancy services to the banks under the
group. It acts as liaison between the management of the banks, its shareholders
and directors and conducts feasibility studies, manages the establishment of
new banks and seeks new business opportunities for the group. The company has
10 employees.
A year ago,
following the steady expansion of his international banking network, Daim set
up ICB Financial Group as an investment holding company to rationalise his
investments in the respective banks. According to Harith, Daim wholly owns ICB
Financial Group.
‘Daim is
principle shareholder of these banks. In some countries, the law sets a certain
limit on the maximum shareholding by a single shareholder and in such
instances, other Malaysian shareholders have taken up stakes in the
bank,’ he says.
A check reveals the
presence of several Malaysian shareholders in some of these banks. For example,
IC Banka in the Czech
Republic, in its FY2003 annual report, lists
Daim’s long-time associate Robert Tan Hua Choon, or the Casio King, as a
shareholder together with former Czech Prime Minister Dr Marian Calfa.
The ‘interrupted’ banker
For the record,
before ICB came into the picture, the 66-year-old Daim had already owned stakes
in two banks, albeit briefly as he had to dispose of them when he was made
finance minister.
Perceived as an
influential player due to his close ties with top party officials and
businessmen, Daim took control of Malaysian French Bank in 1982 when it was
incorporated to take over Banque Indosuez, a privately owned French bank in Malaysia.
The French
Government had then nationalised all French banks, but as Malaysian laws did
not allow banks owned by foreign governments to operate in the country, Daim
bought it from its owners. He later sold the bank to Multi-Purpose Holdings Bhd
in 1984.
The other bank was
United Malayan Banking Corporation (UMBC), then Malaysia’s third largest bank, which
Daim acquired the same year. However, his appointment as finance minister soon
after gave rise to allegations of conflict of interest. He subsequently sold
his UMBC stake.
But Daim’s
association with local banks did not end there. In 1997, he was linked to the
acquisition of a controlling stake in Hock Hua Bank (Sabah) by Langkah Bahagia Sdn Bhd. One of
Langkah Bahagia’s shareholders, Mohd Nasir Ali, had then publicly
declared that he was acting on behalf of Daim, who was at that time Economic
Adviser to the Government. Daim later sold the stake when he was appointed
finance minister in 1999 for the second time.
Despite
Daim’s assertion that he was no longer linked with Langkah Bahagia, the
market still sees his fingerprint on the company. In the years that followed,
Hock Hua Bank, which became International Bank Malaysia, merged with Multi-Purpose Bank
that was later renamed Alliance Bank Malaysia.
Langkah Bahagia has
since sold its 15.37% stake in the bank’s holding company, Malaysian
Plantations, to Temasek. Interestingly, the Singapore investment company had teamed up
with ICB in a consortium that acquired PT Bank Indonesia in November last year.
Why Eastern
Europe and Africa?
As Daim had little
success in owning a Malaysian bank in the past two decades because of the
interruption by calls to serve the country, his involvement in ICB may be a
natural progression.
A close associate
offers an explanation for Daim’s decision to focus on the Eastern
European and African markets. ‘Daim is shy and he doesn’t like
crowded places. So, Eastern
Europe and Africa are natural destinations as hardly
anybody knows him there,’ he notes.
Still, they are not
exactly traditional financial centres where Malaysian banks are willing to
tread. A case in point is that one of the biggest banks in the country has
branches in Cambodia, Vietnam and Papua New Guinea, to name a few, but not in Eastern Europe or Africa. Unless properly managed, retail
banking is a high-risk leverage business and this is true in Malaysia or anywhere else.
An industry
observer says although it usually takes one to two years for a new branch to
break-even in Malaysia, the gestation period differs from
country to country based on the customer profile, make-up of business and
economic growth.
‘Local banks
generally do not blaze the trail, but tend to follow the client to provide
support to their existing customers who have expanded overseas. It is tough
especially if it is a single-bank operation,’ he says.
Thus, he contends
that despite ICB’s modest size, the banking group should be commended for
being able to build up its business over the years.
Aptly, the
group’s model in these countries has been to set up banks rather than to
acquire them. For this reason, Harith says, ICB is able to exercise control
over the cost, recruitment of staff and policy and direction of the banks. It
also does not inherit the work culture or bad-loan portfolios.
He underscores
ICB’s optimism in these markets, which he feels provide relatively
greater opportunities for growth in the long term.
‘Of course
there are risks operating in these new, non-traditional markets. But we are
selective in terms of the countries in which to invest. Based on the
performance of the banks in the ICB Group, we can say that we have made the
right choice,’ he observes.
From a different
perspective, Harith points to one of
ICB’s primary objectives, which is to help promote the development of
bilateral trade and investment between Malaysia and the host countries.
‘In this
instance, we have assisted some of our customers in Africa and Central Europe
to find new suppliers as well as buyers in Malaysia. Their Malaysian
counterparts feel more comfortable knowing they are dealing with a
Malaysian-owned bank in these countries,’ he says.
In April 1997, Daim
led a private visit of Malaysian businessmen to nine countries across Africa in
an effort to enhance bilateral and trade relations as well as to seek
investment opportunities. Guests included close friends and the London-based
New Straits Times correspondent. There were many follow-up visits by Daim
since.
Inadvertently,
those visits have given rise to the perception that Daim had used his influence
to meet with the leaders of these countries to set up businesses there. But a
banker downplays such talk.
‘There is no
need to use influence to set up banks in these countries. There is no conflict
of interest as anyone can open a bank in those countries,’ he says.
Generally,
ICB’s ventures in the emerging markets are seen in a positive light by
the host countries. Foreign embassy officials from countries where ICB operates
not only praise the group, but also say ICB helps boost bilateral trade between
their countries and Malaysia.
‘ICB is an
example to other Malaysians who may want to consider investing in Ghana. Many
think Ghana is a backward country but it is not,’ says an embassy
official in Kuala Lumpur.
He feels
Daim’s investments in Ghana, including those in social development
projects that benefit both parties, reflect his support of the country and
Africa in general. ‘People consult him if they want to go to
Ghana,’ he says.
It is the same in
Albania. An official from the embassy says it is important for a Malaysian-owned
bank like ICB to be in Tirana as it acts as a platform to enhance trade and
investment between the two countries.
Bracing for competition
ICB set up its
first two banks in Prague and Budapest respectively in 1993, at a time when
both the Czech Republic and Hungary were emerging from the shadows of the
communist empire and were opening up their economies to foreign investors.
Likewise, the group
expanded to Africa in 1996 when the Malaysian Government was actively
encouraging local companies and businessmen to invest there.
As such, according
to Harith, ICB has acquired a fairly good knowledge of the local business
conditions and practices, having invested substantially in people and systems.
In Hungary, the
group made some strategic changes in the bank to prepare for the continuing
consolidation and rising competition in the banking industry in anticipation of
the country’s entry into the European Union (EU) in May 2004.
It acquired several
branches of a savings cooperative to expand the branch network and customer
base, replaced the old IT system with an integrated on-line system, hired a new
and skilled workforce and introduced new products such as bankcards and
Internet banking.
Although the larger
than usual expenditure had contributed to a loss in FY2002, the bank’
performance has improved markedly since then, with total assets increasing by
100%. The bank is expected to return to the black this year.
The respective
banks under the group have generally performed to expectations. A few have
achieved recognition for their excellent performance. ICB Guinea, for instance,
has won The Banker magazine’s annual award for ‘Bank of the Year in
Guinea 2004’, while the bank in Ghana is a member of the ‘Ghana
Club 100’, which gives recognition to successful organisations based on
growth and profitability.
Still, there are
challenges looming over the horizon, particularly in the Eastern European
market.
‘The entry of
Hungary and the Czech Republic into the EU has to a certain extent changed the
banking landscape. Large multi-national banks are squeezing out the smaller
ones to the periphery. To survive, we have to be an efficient and innovative
niche player,’ says Harith. But, he contends that ICB has anticipated
these changes and has already put in place strategies to face the challenges.
In view of the
changing trends, Africa will be the thrust of ICB’s expansion drive. The
group will be operating in two more countries in the continent soon, in Sierra
Leone this month and The Gambia in November. It also expects to receive
licences to operate in three other countries in Africa later this year.
Harith says based
on the performance in recent years, growth will be more significant from the
African operations, which, it is understood, offers a lot more scope and better
margins.
Today, at group
level, ICB employs over 1,100 people in 10 countries. However, for Eastern
Europe and Africa, due to the lack of experienced personnel, ICB still relies
on Malaysians to manage the banks. Hungary and the Czech Republic are
exceptions, as operations there have reached a level where local managers are
now capable of taking over.
The future
It looks like while
Daim prefers to remain low key, ICB may take a higher profile in the near
future following its partnership with Temasek, and its foray into
Indonesia.
Incidentally,
Temasek is now seen as a serious investor in the country following the warmer
relations between Malaysia and Singapore. Temasek noted recently it would
co-invest with companies that are interested to invest internationally, away
from their home bases.
This has heightened
speculation that there is a good chance of ICB teaming up with Temasek again,
or any other foreign players for that matter, as the former is already seen as
a reputable and credible player given its extensive network and international
relationships.
‘Indonesia
will not be ICB’s last bus-stop. There is more to come,’ says an
observer.
Perhaps, his
remarks will ring true sooner than expected as the banking group is already
eyeing new opportunities.
‘Indonesia is
our first investment in Southeast Asia. However, we are not limiting our
expansion to the region but are also looking for opportunities in other parts
of Asia,’ Harith says.
Analysts feel ICB
would do well to look at China, Asia’s fastest growing economy.
This
notwithstanding, Daim seems to be having better luck with ICB so far, having
maintained a tight grip on the group for the past 10 years. It will be
interesting to see if he will continue to do so over the long haul, in view of
the big plans that have been laid out for the group.
