UK: Bracing for Limited Growth Upside

This Reuters report  highlights the concerns of the British banking system.

Let us read it.

"British banks warn that upcoming banking regulation could shave two percentage points off the country’s economic growth," said Sky News today, citing an unpublished report by PriceWaterhouseCoopers.

Forcing banks to keep more capital on their balance sheets would stymie bank lending and prevent credit flowing into the economy, the report quoted Sky.

In a statement, the British Bankers’ Association confirmed PwC was carrying out an analysis on behalf of the banks on the economic effects of capital, liquidity and other proposals being considered for the industry.

“The analysis is yet to be completed but we will at all times be discussing with the various authorities the issues that arise from the study,” BBA said.

Sky said the report looked at measures being proposed by the financial regulator, the Financial Services Authority, and at the international level, but did not include the bank taxes recently proposed by the International Monetary Fund.

The broadcaster said the banks — including Barclays, HSBC and the Royal Bank of Scotland — and the BBA had wanted to delay publication until after the UK’s May 6 general election.

On the campaign trail, Prime Minister Gordon Brown told reporters: “We have got to reform the banks, the banks have got to serve the public.

“The recapitalisation of the banks and a proper system of remuneration and dealing with liquidity ratios is absolutely crucial to the future of British industry and the future of everybody who is a homeowner in this country.”

Barclays earlier on Friday followed other banks in reporting a fall in bad debts as Britain and other economies pulled out of recession.

In a statement at the bank’s AGM, Chairman Marcus Agius told shareholders: “We fully recognise that changes to regulation need to be made.

“But there are important and difficult trade-offs to be made between improving the stability of the financial system, reducing the risk of a recurrence of a financial crisis and stimulating and supporting economic growth.”

Greece: A Silver Lining for Bursa?

After reading the possibility of Malaysia becoming another Greece in the former posting, it is with relief that we read that our stock market can indeed benefit from this Grecian fall-out.

Let us read this report from Bloomberg.

"Malaysia, which is seen as a defensive market, could benefit if concerns over the Greek fiscal crisis continues.

Asian stocks ex-Japan could fall as much 17 per cent due to the Greek fiscal crisis according to a BNP Paribas report.

The bank said that US$6 billion (RM19.1 billion) may be withdrawn from funds investing in Asian shares next month, wiping out most of the estimated US$7 billion of inflows this year and recommended that investors buy Malaysian shares. [So who would be losing out? Possibly China.]

“If regional markets are weak, investors might look toward more defensive markets,” said Hwang-DBS Group senior analyst Wong Ming Teck.

OSK Research head of research Chris Eng said however that the Greek crisis will blow over quite quickly and the Asian markets will take the cue from the US.

“Malaysia is always a defensive market and a safe market to go into generally,” he said.

Most Asian equity markets closed higher yesterday due to upbeat earnings reports on Wall Street and expectations that a bailout for Greece would be ready soon.

So let us see whether the oracle readers are right.

Malaysia: Another Greece?

This is indeed a Mayday Call.

This is the postulation of Prof Danny Quah of the LSE.

He opines that Malaysia could find itself in the same fiscal mess currently facing several European countries such as Greece if planned economic reforms are not undertaken.

So what gave us away?

Let us look at what is happening in the Eurozone these last few weeks.

"Portugal, Ireland, Greece and Spain, the so-called PIGS, are under international scrutiny and have roiled global markets due to their level of national debt. Greece, whose government bonds were downgraded to junk status this week, has a debt to Gross Domestic Product (GDP) ratio of about 115 per cent which could hit 150 per cent by 2012.

Quah, who is also a member of the National Economic Advisory Council (NEAC), said that while Malaysia’s debt to GDP ratio is below that of the PIGS, it isn’t far off either.[He is sounding warning bells!]

“It won’t be too long before we push into PIGS type territory,” said the Prof at a dinner lecture organised by LSE alumni last night where he spoke in his capacity as an LSE economist.

He said that Malaysia needs to take out its stimulus spending, implement the New Economic Model (NEM) reforms and ensure that growth takes place in order to stabilise the nation’s debt to GDP ratio.

Quah also cautioned that Malaysia is expected to become a net oil importer by 2014 and that the country is one of the most sensitive to oil price volatility.[We will be in trouble now that we have supposedly lost RM320 billion to Brunei. Wonder whether there is any truth in this?]

He added however that “it is not all doom and gloom” as Malaysia’s financial sector is relatively robust and Malaysia’s debt consists largely of medium and long term instruments. [Saving grace,at last!]

He said the NEAC, which drafted the NEM, is studying the possibility of reducing corporate and income tax by one per cent per year for several years in tandem with tightening public finances via measures such as the goods and services tax (GST).

The council is also studying a proposal of a “1 Malaysia Supply Chain” to make business promotion efforts more integrated and streamlined.[We have talked about this close to 30 years or more)

Asked by the audience if he thinks the government has the political will to see through economic reforms, Quah replied that while he acknowledged widespread scepticism, his reading of the situation is that the government is serious as it has continued to stress the importance of change. [PM needs to balance off political pressure for level-headed action!]

“I have been impressed over and over again that the leadership doesn’t want to take the easy way out,” said Quah. “I feel even more optimistic, energised and enthusiastic and that we (the NEAC) are not wasting our time. We’re not paid anything at all. Some of us fly halfway around the world.” [Junkets?]"

After having read this article, I think the Prof may possibly be an unintended alarmist.

Genting: Now It Has Gone into Banking

So listen here. What do you know?

Genting has now put its money into banking as well. It is with many parties moving slowly into a Sri Lanka ban called the Union Bank of Colombo (UBC).

Let us read excerpts of  this news article.

Managed by a high-powered Board of Directors and Management Team, UBC has received commitments for an additional equity capital of Rs. 2 billion and is set to join hands with several new foreign investors in achieving its objective of becoming one of Sri Lanka's topmost financial services organisations.

In a significant move, Genting Berhad, the Malaysian conglomerate engaged in leisure and hospitality, and USA based fund Shorecap would be strategic investors in Union Bank.

Mr. Ajita de Zoysa, Chairman of Union Bank said, "This investment demonstrates the solidity and strength of Union Bank. Genting Group is Malaysia's leading Multinational Corporation and one of Asia's best-managed companies."

"A significant factor enabling Union Bank to raise new capital is the safe and viable environment for investment created by the progressive financial and economic policies being adopted by the Government. With the end of the conflict and the prevailing peaceful conditions, Sri Lanka's sound financial markets, rapid economic development programmes and the immense resource base, will attract new investors globally, thus enabling Sri Lankan corporations to make rapid progress.  Sri Lanka today is being regarded as a favourable investment destination."

Mr. Ajita de Zoysa added, "In progressing towards further growth, the Union Bank developed a five year Strategic Plan in consultation with an International Organisation. The objective of the equity raising is to fund the expansion envisaged under the plan and to meet the Central Bank's Minimum Capital Requirement."
Mr. Ajita de Zoysa had a special word of praise for the Central Bank officials for the efficiency and guidance demonstrated during the approval process.

Speaking on the Bank's performance Mr. Nilanth De Silva, Acting Chief Executive Officer of Union Bank stated that that Bank aims to build on the extensive re-organisation carried out in the last few years.
He stated, "Union Bank achieved new heights in 2009, recording an impressive growth after posting a profitability of Rs. 62.1 million. The profitability recorded in the previous year was Rs. 23.1 million. The Bank's deposit base grew from Rs. 10.4 billion to Rs 12 billion, while the Bank's asset base saw upward movement from Rs. 12.5 billion to Rs. 14.1 billion."

Mr. Anil Amarasuriya, Consultant/Director stated, "Part of the strategic plan is to reach out to a wider customer base, hence, the Bank aims to open several new branches this year. The Bank has already opened new branches in the North and plans to expand to other parts of the Island."

Mr. Amarasuriya added, "In order to achieve shareholders' aspiration in terms of growth and profitability, the Bank will expand organically and through acquisition. The end game is to elevate Union Bank to be a financial services powerhouse. The Bank is also working towards an Initial Public Offering (IPO).

"The Bank is led by an experienced Board of Directors comprising entrepreneurs, experts from banking, financial and management fields and industry leaders, who, have provided leadership and vision in taking the bank towards its goals. The entry of the new investors will give added impetus," he noted.

So,do you think it is a good move by Genting?

Sounds promising. Time will tell.