Download introducing danajamin nasional berhad

Session E :
How Can Malaysians & Malaysian Companies Best
Prepare for a financial Crisis
Presentation to
PERDANA LEADERSHIP FOUNDATION CEO
FORUM 2014
24 September 2014
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OVERVIEW
 Background : Malaysia’s Experience Thus Far
 Impact Areas and Consequences
 Mitigating Action Plans for Companies
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1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
 Pre 1997 : ‘Business as Usual’
 Typical business cycle
 Growth spurts & recessions
 1997/1998 : Asian Financial Crisis
 Origins in Thailand, May 1997 - ‘Tom Yum Kung’ crisis
 July 1997 – Thailand, Malaysia, South Korea, Philippines
 August 1997 – Indonesia
 October 1997 - Hong Kong
In Summary
 Credit bubble
 Currency speculation
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1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
 1997/1998 : Asian Financial Crisis
EXCHANGE RATE
Exchange rate (to USD1.00)
June ’97
July ’97
Change
Malaysia
- Ringgit
2.5
4.1
(39%)
Thailand
- Baht
24
41
(40%)
Indonesia
- Rupiah
2,380
14,150
(83%)
Philippines
- Peso
26
42
(37%)
South Korea
- Won
850
1,290
(34%)
Source : Bloomberg
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1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
 1997/1998 : Asian Financial Crisis (+ve outcome)
 Recognised need to spread risk better
 Accelerated development of Malaysian Capital markets
 Banking sector was further strengthened
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1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
 2008/2009 : Global Financial Crisis
 FI contagion
 Lehman Brothers – bankrupt
 Merrill Lynch, AIG, Freddie Mac, Fannie Mae, Royal
Bank of Scotland etc – required rescue
In Summary
 Over leveraging of FIs
 Financial Over Engineering
 Risk Mispricing
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1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
 2008/2009 : Global Financial Crisis
 Pump priming of economy
 Genesis of Danajamin Nasional Berhad
 Incorporated in 2009, equally owned by Ministry of
Finance Inc & Credit Guarantee Corporation Malaysia
Bhd
 Provided financial guarantees to 24 bond/sukuk
programmes amounting to RM6.9 billion
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2. IMPACT AREAS & CONSEQUENCES
Volatility
Foreign exchange
Liquidity & credit
Interest rates
Massive shift in equilibrium
Damage to institutions & social fabric
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2. IMPACT AREAS & CONSEQUENCES
Massive shift in equilibrium
×

Developers using short term financing (overdrafts /
revolving credits) to finance long term development
Exporters gaining massively from currency exchange
devaluation
New winners & losers
….. Not long lasting (it is a crisis)
Disruption
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2. IMPACT AREAS & CONSEQUENCES
 Opportunities Exist
Cash is king !
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3. MITIGATING ACTION PLANS FOR COMPANIES
 Action
 Hedging - Currency
 Hedging - Interest Rate
 Hedging - Commodity
 Mindset / Attitude
 No over leveraging / cash is king
 Prudent asset / liability matching
 Aspirational
->
(diversification)
Go
regional
->
global
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3. MITIGATING ACTION PLANS FOR COMPANIES
 Prudent asset / liability matching
 Malaysian Capital Markets
 Ideal platform to raise long term & fixed rate
funding
Average Portfolio Duration (in years)
Source : Danajamin
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3. MITIGATING ACTION PLANS FOR COMPANIES
 Prudent asset / liability matching (cont’d)
January 2008
7.50
End-Sept 2008*
7.50
7.00
7.00
6.50
6.50
6.00
6.00
5.50
5.50
5.00
5.00
4.50
4.50
4.00
4.00
3.50
3.50
3.00
3.00
3Y
5Y
MGS
7Y
Cagamas
10Y
AAA
Source : Bondwed
15Y
20Y
AA2
3Y
5Y
MGS
7Y
Cagamas
10Y
AAA
15Y
20Y
AA2
Source : Bondweb
Note* : After collapse of Lehman Brothers
 Rates movement obvious in financial crisis
 Not an issue for companies who locked-in in
January 2008
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3. MITIGATING ACTION PLANS FOR COMPANIES
 Prudent asset / liability matching (cont’d)
19 September 2014
6.50
6.00
5.50
5.00
4.50
4.00
3.50
3.00
3Y
5Y
7Y
MGS
10Y
Cagamas
15Y
AAA
20Y
AA2
25Y
30Y
Source : Bondweb
 Rates will head north in financial crisis
 Would a company look back with regret then ?
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STRATEGIC TAKEAWAYS
Corporate – To Dos
 Adopt prudent fiscal
management
 Leveraging responsibly
 Maintaining own cash
reserves
 Proper asset & liability
matching
 Overseas diversification
Corporate – To Avoid
X Irresponsible financial
management
 Over leveraging
 Not maintaining cash
buffers
 Punting on low short
term rates for long
gestation assets
It is about striking the right balance !
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THANK YOU
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Disclaimer
This Presentation has been prepared by Danajamin Nasional Berhad (“Danajamin”) for use at the Perdana
Leadership Foundation CEO Forum 2014 (PLCF2014) and is solely for informational purposes to facilitate
discussion on “Session E : How Can Malaysians & Malaysian Companies Best Prepare for a Financial Crisis”
of PLCF2014.
Whilst Danajamin has exercised good faith and due care in the preparation of this Presentation with the
belief that statements contained therein are not false or misleading, Danajamin does not make any
representation as to the accuracy or completeness of the Presentation and its contents.
Danajamin expressly disclaims any and all liabilities to the Perdana Leadership Foundation or any other
parties for representations, expressed or implied, contained in or omissions from the Presentation or any
other written or oral communications transmitted as a result of the circulation, publication or use of this
Presentation contrary to the provisions contained herein.
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