EPF goes full fledged banking

Yesterday, EPF CEO, Dato’ Azlan Zainol announced that EPF’s bid to take over Utama Banking Group’s 32.6% of RHB Bank has been accepted. Azlan also announced that EPF plans to take complete control of the bank through the MGO, de-list the bank and taking it private. However the listed status of RHB Capital is still maintained and cut its 75% to 40% stake, by selling to two or three strategic investors. According to Azlan, co-operation with KFH, is highly plausible. This is EPF’s first attempt into controlling of a high street banking and it has gained many positive remarks from analysts, on this ten billion Ringgit strategic investment move.

Kuwait Finance House, a competitor, stood down after the decision was made. EON Capital is also interested in bidding the bank and had actively forwarded a proposal.

There’s a lot skepticsm about this buy in. Some, like the DAP, strongly oppose to it. Tony Pua, who is now the Economic Adviser to the DAP Secretary General for example, in Freelunch 2020’s blog, calls it “scandalous”. EPF, as the custodian of over RM 100 billion workers’ retirement funds, is being scrutinized here; especially EPF is investing into RHB Bank, a financial institution with its high colourful history, just this past 10 years or so.

RHB Bank transformed from Development and Commercial Bank, then DCB Bank, when Tan Sri Rashid Hussain, the much talked about capital market player of the 80s (along with his very careful much trusted partner, Chua Ma Yu) took over its control from the late Tun H. S. Lee’s family. After the near collapse of Sime Bank (formerly UMBC), it was taken under the RHB Bank, to consolidate all its assets and liability, to make it a much stronger tier one commercial bank.

Yvonne Chia from Bank America was brought in to manage the bank. Then, the Sarawak based Cahaya Mata Group through Utama Banking Group took over from Rashid (part of his holding was sold to EPF), with the flamboyant Dato’ Seri Abdul Rahman Sulaiman Taib, sat in as the Executive Chairman. Bank Negara Malaysia however disapproves Rahman’s ascension to the Executive Chairmanship and soon after, RHB Bank is out on sale again.

There is some basis in the skepticsm on the EPF new move. EPF supposed to be investing the larger Malaysians’ pension funds into low risk high security investments, like Treasury bonds and financial market fixed deposits. EPF also made a blunder once, with Malaysia Building Society Bhd. MBSB accumulated loss is in excess of two billion Ringgit, most of it irrecoverable loans and ventures, in the property market.

Then again, Azlan cautioned that EPF has no expertise in running a bank. The former Arab Malaysian Finance CEO admitted that in the media conference, yesterday. However, they plan to engage banking professionals to manage the newly controlled RHB Bank.

Most probably that is the right thing to do. Khazanah Holdings, the other substantial shareholder in RHB Bank, is expected to support the decision for the ‘professional manager’ game plan. Since RHB is a matured banking group and EPF’s own investment committee include professional bankers such as Dato’ Amirsham Aziz, Maybank, Dato’ Mohamed Nazir Razak, CIMB, and Cheah Tek Kuang, Am Merchant, in the EPF board, a good system should be in place for the ride, this round. As Azlan put it when ask to comment on Khazanah’s position on the plans for the bank, “We are on the same page. We are just on different paragraphs”.

In the EPF’s earlier experience with MBSB, it was managed with almost ‘free hand’ by the management lead by Dato’ Yusuf Sudin, a chartered accountant by profession. Most of the MBSB board members representing the Government/EPF are civil servants. They also, most probably have very little understanding and skills on the management of a building society. That is probably how over RM two billion irrecoverable NPLs are recorded in the MBSB’s books, most accumulated during the boom early to mid 90s “overheated” economic phase. Even after few rounds of auctioning, most of the properties under this list are actually economically undevelopable and thus, invited very lame attention by industry players.

One of the people who gave MBSB the NPL is Dato’ Kamalul Bahrin, former Finance Minister Anwar Ibrahim close buddy . He took a RM 40 plus million loan, approved by MBSB board in 1995, to purchase and develop a high end parcel in the KLCC vicinity. He was formerly an UMNO PJ Selatan Divsion Exco and after the Anwar Ibrahim sacking episode of 2 September 1998, now he is Keadilan Secretary General. Another project which MBSB ventured was the 22 acre development project in Jalan Yahya Awal, Johor Bahru.

Perhaps, this recklessness of the management of MBSB allowed all these highly risk projects be financed and ventured by MBSB. The under skilled board members probably is the right opportunity for the management to undertake these directions. For the record, there is a legal case against Yusuf.

Now is different. Now EPF is no long run by civil servants. Yes, many civil servants are still board members, along some unionists. However, the management team are professionals.

In short, professionally managed RHB Bank is destined for a good ride. So if the management of EPF now submits to the planned professionally run and managed RHB Bank, with all of the systems in place, there is no reason why the interests of the millions of EPF contributors and depositors should be wearisome much about. After all, with the calculated risk, they actually have a lot to gain. Considering the banking industry last quarter’s performance is measured at RM 4.4 billion, RHB Bank should be gaining a substantial piece of this pie. And now, with the announcements of the Malaysian economy is over the RM one trillion mark, trade surplus have been recorded over 111 month straight months, KLCI is recovering at the 1200 pointer and too many goodies promised under the soon to be mobilized 9MP, then the banking sector should be optimistic in this bullishly indicated Malaysian economy.

This is last year’s RHB Capital’s performance brief:

  • Net interest income of RM1.95 billion

  • Net NPL ratio improved to 4.63% on 3-month classification

  • Shareholders’ funds increases 9.7% to RM4.93 billion

  • Asset base grows 14.9% to RM103.3 billion

  • Net assets per share rises 9.8% to RM2.70

  • Net earnings per share of 24 sen

To sum it up, professionally managed RHB Bank is destined for a good ride. So, shall most most of us.

Published in: on March 10, 2007 at 20:41  Comments (9)