StanChart marks return to Myanmar

StanChart marks return to Myanmar

When Peter Sands, Standard Chartered chief executive, steps onto the tarmac at Yangon airport in a few weeks, he will mark the bank’s return to Myanmar after a forced, decade-long absence.

It will also highlight how Southeast Asia is becoming an increasingly important part of the bank’s Asian business.

While StanChart is domiciled in Britain, about 90 per cent of its pre-tax profits came from Asia, Africa and the Middle East in 2011, the latest full-year period for which data was available. More than a quarter of group pre-tax income came from Southeast Asia alone.

That region encompasses Thailand, Malaysia, Singapore, the Philippines, Vietnam and Indonesia, the region’s biggest economy where StanChart has a minority stake in Permata, a local bank.

The six make up the biggest economies in the Association of Southeast Asian Nations (Asean), a bloc that is home to more than 600m people and combined gross domestic product bigger than that of Brazil or India.

While it has long been overshadowed by China and India, the region has shown greater resilience to the economic downturn and, thanks to the emergence of a middle class and rapidly growing intra-regional trade, is seen by many economists as this year’s big growth story.

Last month the Asian Development Bank revised upwards its estimate for the region’s growth in 2012, from 5.2 per cent to 5.3 per cent.

“I think it is absolutely true that Asean has been underestimated because people have talked an awful lot about India and China and have perhaps not really focused on it as much as they should have,” Mr Sands says in an interview in Singapore. The city-state is headquarters for the bank’s wholesale business, which accounts for more than 60 per cent of group operating income.

Many countries in the region offer the kind of trends that make bankers salivate: savings rates among the highest in the world, growing use of credit cards and, on the commercial banking side, family-controlled companies hungry for capital to expand.

But it is the growing convergence between Southeast Asia’s economies that is the real attraction for StanChart and its Singapore-based rivals like DBS, the region’s biggest bank by assets.

A new breed of Asian companies is forging partnerships with western counterparts to support growth, according to a Boston Consulting Group study. It cites a recent joint venture between Singapore-listed Golden Agri-Resources, the world’s second largest palm oil producer, and Stena Weco, a Danish shipping company, to expand distribution of its palm oil.

“People are [building] supply chains and business models in various industries that straddle various countries and that plays to our strengths because the real differentiating feature of our wholesale banking business is our ability to work as a seamless network,” Mr Sands says.

Even in Myanmar – where StanChart first opened a branch in what was then Burma, in 1862 – that trend is likely to play out, he says. “We were in Myanmar for a very long time so all the trade, the supply chain stuff throughout the region, is a very natural thing.” The bank’s exit from the country a decade ago was forced by international sanctions that prompted many foreign businesses to quit.

Elsewhere in Asia there are concerns. Indian non-performing loans have been rising and there are simmering worries over a possible property bubble in Hong Kong, StanChart’s biggest single country exposure at about 19 per cent of group loans.

Mr Sands is equally sanguine, pointing out that the loan-to-value ratio on its mortgage book is 48 per cent, which is “very different from what you might see, say, in a UK mortgage book”.

He also argues that property price inflation in the territory is on the top end of the market, where apartments are often bought with cash. “We are fundamentally positive about Hong Kong, not least because of the increasing convergence of Hong Kong with the mainland,” he says.

While economists are bullish about Asean this year, there are some concerns about emerging socio-economic risks.

HSBC highlighted in a report last month political jockeying ahead of a presidential election in Indonesia in 2014; uncertainty over the outcome of a general election expected in Malaysia within two months; and simmering political tensions in Thailand.

Yet Mr Sands seems relaxed. “There are lots of elections going on and they could well slow down individual countries. But I actually think from a global economic point of view and the impact on Asia, the big thing is: can the US and the eurozone navigate their way through their various challenges? Because any notion of decoupling [of Asia from the west] has been thoroughly buried.”

Financial Times