Wednesday, 16 May 2012

More bankers, some financial jargon and robots


This piece is just out in the latest edition of Finance Asia, which is such a cool magazine that if you want to buy a copy, it will cost you a hundred bucks. Plus it goes into Cathay Pacific first class lounges and seat pockets, so it's bound to be smeared with a better class of dim sum. Full disclosure - UOB was a client back when I worked at Inhouse Brand Works and this campaign was probably my last big job in advertising. But I was not working for the bank in any capacity when I wrote this. But Dear UOB Bigwigs - feel free to get in touch if you need some PR. 


You can tell a lot about a bank by its choice of headquarters. Architecture has become the ultimate bank statement.
   
Look no further than HSBC’s Hong Kong headquarters, the world’s most expensive building when Sir Norman Foster’s exoskeletal structure was unveiled, levitating above Central like some alien mothership. Or IM Pei’s Bank of China building, an architectural marvel inspired by bamboo, created to symbolise the inexorable rise of the bank and of China, its cutting angles reputedly aiming blasts of bad feng shui at the colonial oppressor.

In London, the august board of Barclays opted to think inside the box, taking up residence in the reassuringly boring glass cube of One Churchill Place, while in Frankfurt. Deutsche Bank pushed the boat out by turning its old headquarters into one of the world’s greenest and most sustainable structures in the hope some warm fuzziness might rub off on a hostile public.
   
United Overseas Bank (Thai) PCL occupies one of Bangkok’s most architecturally exuberant and whimsical buildings – Sumet Jumsai’s award-winning ‘Robot Building’ in Sathorn Road. The structure was selected by the Museum of Contemporary Art, Los Angeles as one of the 50 seminal buildings of the century and earned its creator the first ever award bestowed on a Thai designer by Chicago's Athenaeum Museum of Architecture and Design.
   
It’s an unlikely home for a bank that has built its brand upon prudence, caution, a low profile and a slow-and-steady approach; more C-3PO, say, than the Terminator or HAL.
   
OPEN THE VAULT DOORS, HAL
But UOB might at last be growing into its look-at-me head office, throwing a coming out party pegged to the looming changes to Thailand’s Deposit Protection Agency (DPA) and revealing plans to raise its profile and make a grab for more market share
   
The DPA came into force in 2008 to replace the Bank of Thailand’s
Financial Institutions Development Fund, which gave a blanket guarantee on all deposits in all financial institutions to restore confidence in a banking system shattered by the 1997 financial crisis.
   
On August 11 last year, the sum  guaranteed under the DPA dropped from the entire total of deposits to a maximum of THB 50 million. But it’s August 11, 2012 that is causing ripples through Thailand’s financial community: on that date, the maximum any depositor can expect to reclaim if a bank goes under plummets to just THB 1 million.
   
Which is why I am seated in a plush top-floor executive lounge somewhere in the robot’s brain with Han Chong Tay, executive vice-president of UOB (Thai), former Major in the Singapore Armed Services, and one of the driving forces and fresh faces behind the bank’s decision to take a ‘more proactive role’ in Thailand’s banking sector.
   
AND OUR NEW ATM FEATURES
 THREE SLOTS FOR YOUR CASH
What this means is a short sharp marketing push to position UOB (Thai) as a safe bet in uncertain times, with a view to catching the attention of nervous depositors with sizeable sums sitting in local bank accounts. As leverage, the bank is trumpeting its National Long-term Rating at 'AAA(tha)'; Stable Outlook, from ratings agency Fitch, which was affirmed by the agency on November 25, 2011, and again last week (April 30, 2012), no doubt to audible sighs of relief from the bank’s boardroom. It shares this honour with just one other bank in Thailand, a competitor it visibly pains Mr Tay to name: Standard Chartered.
   
 The AAA rating factors in the backing of the Singapore-based UOB Group  (rated 'AA-'/Stable), which Fitch believes would stand behind its Thai subsidiary in a crisis, and the agency's view that Thailand's restriction on the foreign ownership limit at 49% is unlikely to prevent a capitalisation by UOB Group if required.
   
In its ratings announcement last week, Fitch downgraded the bank’s Viability Rating (VR) to ‘bb+’ from ‘bbb-‘, to reflect UOB (Thai)’s ‘persistently lower profitability and asset quality, relative to similarly rated peers’.
   
“The VR also reflects its continuing weak funding profile due to a modest franchise network… Fitch views that it would take at least one to two years for UOB (Thai) to improve both profitability and asset quality and longer to improve its deposit franchise, especially in light of intense competition for deposits in Thailand.’’
 
 Fitch also notes UOB (Thai)’s strong capital position, with a Tier 1 ratio of 15.54% at end-December 2011, although this was down from 17.78% at end-2010 due to a more aggressive growth strategy. The bank’s long-term target of a Tier 1 ratio of 14%-15%, Fitch notes, is higher than most domestic and international peers, but appropriate for the bank's operating environment and risk profile. Asset quality had ‘steadily improved’ with non-performing loans declining to THB 7.5bn, or 3.96% of total loans at end-December 2011. This was weaker, however, than numbers posted by Thailand’s major domestic banks and UOB's other banking subsidiaries in Asia.
   
Mr Tay says Thai depositors should consider the heft and reach of the UOB Group, operating since 1935 in Singapore, with subsidiaries in Malaysia, Indonesia and China, over 500 branches in 19 countries and territories, and assets totalling almost S$237 billion, when thinking about the safety of their savings.

 “That’s about the same as the combined assets of the three biggest Thai banks,’’ Mr Tay points out. “So while our market share in Thailand is only around three percent, there’s no doubt that regionally, we are a powerful force.
 
“UOB’s group CEO (Mr Wee Ee Cheong) has been very clear that liquidity and deposits are the building blocks of our business. We manage our own liquidity, raising deposits and lending to our customers as opposed to relying on interbank liquidity funding.’’
 
Beginning last year, UOB (Thai) launched its first major television, print and digital ad campaign to proclaim its Fitch AAA rating while challenging consumers to consider impact of changes to the DPA. It made the group’s first serious foray into social media, started a back of house ‘living the brand’ initiative for all its staff and appointed financial journalist and television personality Bancha Chumchaivate as the brand’s “Credit Rating Campaign Ambassador’’.
 
For a bank which had hovered in the background since its November 2005 incorporation following the merger of Bank of Asia and UOB Radanasin Bank, this was heady stuff.
      “The campaign is about being proactive, transparent. We aim to be the bank that tells it like it is,’’ Mr Tay said. “That’s why we adopted the ‘Ask Me’ initiative, to give all our team members at the coalface the knowledge and tools to answer  people’s questions about the DPA and how it affects them.’’
 
Whether any of this boosts the bank’s bottom line remains to be seen. For now, UOB (Thai) claims a network of 157 branches, 373 ATMS and 31 foreign exchange kiosks nationwide as of March 31, 2012.
 
 In 2011, the bank turned a net  profit of THB 1,474 million, almost THB 400 million less than in 2010, although much of that loss can be blamed on the impact from Bangkok’s worst floods for 60 years. Total assets are listed at a whisker under THB 300 billion, up almost THB 50 billion from the preceding year, with loans at around THB 190 billion, up from THB 163 billion in 2010, and deposits of THB 166 billion.
   
By comparison, Thailand’s biggest homegrown bank, Bangkok Bank, has over 1000 branches, and saw profits jump by more than 11 percent last year to THB 27.3 billion.
   
Mr Tay said the UOB (Thai) had to pick its battles and play to its strengths as a  foreign-owned David in a market of Thai Goliaths. “UOB is very strong in consumer and SME banking, and these two sectors will continue to be our engine of growth, supplemented by large corporates.
 
 “We have launched our privileged banking service, to serve individuals with assets of upwards of three million baht. We try to make it a very personalised experience, with special briefings by our leading economists and analysts, combined with events like our ‘Three for Tea’’ tea tasting afternoons in Chinatown.
   
 “We have also been pursuing a strategy of ‘clusters’ in terms of our branches, focusing on areas with a concentration of individual wealth and business activity, such as Chinatown, the CBD around Sathorn, the Sukumvit area, and areas of new growth like Rayong and Chonburi on the Eastern Seaboard.’’
   
As part of its plan to use the DPA changes as impetus for growth, Mr Tay said that besides high net worth individuals, the bank had also targeted Thailand’s new ‘mass affluent’ by lowering minimum investments in bills of exchange and fixed term deposits to THB 500,000, from one to three million baht.
   
Mr Tay said ‘aggressive’ plans were in place to grow the Thailand operation’s contribution to the group’s total earnings from the present level of under five percent. The goal, he said, was to grow the ‘mass affluent’ and high net worth individual business in Thailand to account for 50 percent of the group’s earnings in those sectors, up from the current level of around 35 percent.
 
Thailand is abuzz with various theories and rumours on the extent of the effect the DPA changes could have on deposit levels. A Thammasat University academic recently circulated a paper claiming deposits in Thai banks could be halved as consumers seek safer havens for their money. Former Finance Minister Korn Chatikavanij warned last year that the DPA’s fund base of around THB 52 billion was far too small considering the nation’s total deposits of THB 7 trillion.
   
The DPA fund base will rise following a hike in the levy on banks from 0.4 percent of their deposit base to 0.47 percent. Persistent lobbying from the Thai Bankers Association has also seen the government act to bring state-owned banks including the Government Savings Bank (which had seen deposits soar by almost 30 percent to THB 1.53 trillion as investors sought refuge from the DPAchanges) and Government Housing Bank under the DPA’s control and subject to the levy.
   
Singha Nikornpun, president of DPA, said it would take four to five years for the agency to accumulate the THB 200 billion required to cover 98.5 percent of total deposit accounts (which also illustrates the amount of wealth held by Thailand’s ‘one percenters’).
 
Mr Singha does not expect fund flows from commercial banks to state-run banks after August 10. He also pointed to the January 1 expiry of Hong Kong’s
Deposit Protection Board and the new protection limit of HK$500,000, which had been accepted by the public with minimum fuss.
I'LL BE BANK 
Mr Tay said UOB (Thai) did not expect any ‘big shift of money’ between institutions or any real panic in the market. “It’s an education process. The Thai economy is performing well and confidence in banks is high.’’
   
His bank’s contribution to this ‘education process’ – its AAA/DPA campaign – brought the scrutiny of the Bank of Thailand, which takes a dim view of anything that could destabilise or undermine confidence in the nation’s banking sector. The campaign was deemed to fall within acceptable limits, but the central banker’s gaze will remain fixed upon the Robot Building as UOB (Thai) makes its case as a safe haven for deposits.
   
At the time of his beloved building’s launch in 1986, Mr Jumsai, the doyen and philosopher king of Thai architecture, wrote that it “need not be a robot’’ and that a “host of other metamorphoses’’ would suffice, as long as its daring design drove debate and created change.
   
He might yet get his wish. Change is in the air. The robot is coming to life.

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