Download - CIMB Group

Acquisition of Bank of Commerce
in the Philippines
8 May 2012
Agenda
1. Summary
2. Philippines Economy and Banking Sector
3. Overview of BoC
4. Details of Acquisition
5. Effects of Acquisition
6. Business Plan
7. Timeline
8. Final Remarks
SUMMARY
Summary

60% of Bank of Commerce (“BoC”) from the San Miguel Corporation (“SMC”) Group and others for
PHP12.2 bil (RM881 mil), equivalent to 1.14x P/BV as at 31 Dec 2011. Post alignment with CIMB’s
accounting and provisioning policies, P/BV could increase to about 1.30x

SMC Retirement Plan retains 27% stake

CIMB signs Collaboration Agreement with SMC for banking referrals into SMC eco-system

BoC ranks 16th in term of total assets among 38 universal and commercial banks in the Philippines

Philippines has been the “missing link” in CIMB Group’s ASEAN footprint

“Option” on probable “take-off” of Philippines economy

BoC has been in “clean-up” mode so it is under-leveraged with high growth potential

SMC is a strong partner with impressive range of businesses and network of business partners

BoC will leverage on CIMB Group’s management capabilities and ASEAN platform and network
4
PHILIPPINES ECONOMY AND BANKING SECTOR
5th Largest Economy and 2nd Largest by Population in ASEAN
Population
(mil)
Indonesia
Thailand
Malaysia
240.5
64.3
28.7
Singapore Philippines
5.3
95.8
Vietnam
Myanmar
Brunei
Cambodia
Laos
89.3
62.4
0.4
14.4
6.6
834.3
Nominal GDP
(USD ‘bil)
339.4
266.5
247.6
216.1
121.6
50.2
Indonesia
CIMB’s
presence
Thailand
Singapore
Malaysia
Philippines
Vietnam
UB
UB
UB
UB
No
IB
presence presence presence presence presence presence
Myanmar
Rep
office
15.6
13.2
7.9
Brunei
Cambodia
Laos
IB
CB
presence presence
WIP
Note: Data as at 2011
Source: IMF statistics
6
Growing Optimism
 The near-term outlook for the
country is favourable, characterized
by moderating but still rapid growth
 Praise the Aquino government for
starting “reforms to address longstanding constraints to growth.”
IMF, 2011
There is a clear market consensus
emerging that Aquino's economic
program is on the right track, one
that could see an unprecedented
influx of capital to the Philippines
in 2012
Asia Times Online, 2012
Philippines’ recent performance
indicates that the country’s economy
has already stabilized since the global
financial crisis, with more robust and
less variable growth
World Bank, 2011
The Philippines has the potential to
become one of the top 10
countries that can greatly
contribute to global growth within
the decade
Goldman Sachs, 2012
7
Increasing Trade and Remittance Volume with ASEAN
Philippines-ASEAN Trade
21.1%
Within ASEAN, MIST are the largest trading
partners of the Philippines
Others
6%
20.0%
22.8
% of Total
Philippines Trade
Thailand
23%
21.2
PhilippinesASEAN Trade
(USD ‘bil)
Malaysia
16%
Indonesia
12%
Singapore
43%
2008
2011
Philippines-ASEAN Remittance
4.7%
% of Total
Philippines
Remittance
3.8%
SG and Malaysia are the top 2 ASEAN countries
sending remittance to the Philippines
Thailand Others
1% Malaysia
1%
13%
Indonesia
2%
944.7
620.5
PhilippinesASEAN
Remittance
(USD ‘mil)
Singapore
84%
2008
2011
Source: Philippines National Statistical Office
8
Improved Corruption Perception and Overall Competitiveness
 World Economic Forum ranked the Philippines as 75th in the world in its 2011-2012 Global Competitiveness
Report
 In the area of Macroeconomic Environment under the same report, Philippines improved 14 places to 54th in
the world noting the country’s improved national savings, managed inflation, low interest rate
environment, lowering debt-to-GDP ratio, and credit ratings upgrade during the year
Corruption perception and overall competitiveness of ASEAN countries
Corruption Index Ranking
Overall Competitiveness Index Ranking
Countries
2010
2011
2010
2011
Singapore
3
5
3
2
Malaysia
56
60
26
21
Thailand
78
80
38
39
Indonesia
110
100
44
46
Vietnam
116
112
59
65
Philippines
134
129
85
75
Laos
154
154
n.a
n.a
Cambodia
154
164
109
97
Myanmar
176
180
n.a
n.a
Sources:
1) Transparency International
2) World Economic Forum - Competitiveness Index
9
However Unemployment Rates and FDIs Remain An Issue
FDI from 2007 to 2010 (USD ‘bil)
Unemployment (%)
9.1
8.4
99.5
Singapore
7.9
7.5
7.4
7.2
7.5
6.6
7.4
6.3
7.1
4.6
4.7
4.6
7.3
4.4
4.1
34.4
Indonesia
Vietnam
31.8
Thailand
31.1
4.1
3.7
3.2
3.3
3.3
2.1
2.2
3.0
1.4
1.4
1.3
2007
2008
2009
2.2
3.2
2.1
1.4
1.1
2010
2011 E
3.0
2.3
1.3
2012F
Phillipines
Malaysia
Indonesia
Singapore
Thailand
Phillipines
Vietnam
26.5
Malaysia
8.1
Source: BSP statistics
10
Philippines Banking Sector Has Yet To Take-Off
Net Loans1
Total Assets
PHP ‘bil
Total Deposits
PHP ‘bil
PHP ‘bil
CAGR 8.1%
CAGR 6.9%
CAGR 8.5%
6,918
7,038
3,201
6,192
2,908
5,676
2,560
2008
2009
2010
Sep-11
2008
Consumer Loans
PHP ‘bil
2010
Sep-11
473
2008
USD ‘bil
363
2009
Sep-11
OFW remittances
CAGR 13.7%
413
2010
4,672
Deposits Breakdown
518
5,036
4,195
2,698
2009
5,125
23%
23%
21%
22%
26%
23%
23%
21%
CAGR 7.6%
20.1
18.8
17.3
2008
Mortgage
2009
2010
Credit Card
Auto
Sep-11
Others
35%
37%
38%
39%
16%
17%
18%
19%
2008
2009
Demand Savings
2010
Time
Sep-11
Foreign
16.4
2008
2009
2010
2011
Notes:
1. Net Loans excludes interbank loans
2. Based on exchange rate of USD:PHP = 43.212
Source: BSP website
11
Overall Banking Penetration Is Still Low
Loan penetration in 2010
Cambodia
Indonesia
Philippines
Thailand
Deposit penetration in 2010
11%
Cambodia
28%
Indonesia
34%
Philippines
86%
Singapore
China
Malaysia
Hong Kong
Outstanding loans as a % of GDP
14%
37%
55%
Thailand
104%
Singapore
137%
China
149%
Malaysia
241%
Hong Kong
75%
140%
197%
187%
392%
Deposits as a % of GDP
Source: Central bank statistics of selected countries
12
OVERVIEW OF BOC
Overview of BoC
122 branches
300 ATMs
1,662 employees
~350k customers

16th largest bank by total assets in Philippines

Core business: Traditional deposit products, corporate banking, consumer banking, treasury, asset management,
trust services, trade, and credit card service

Owns 24.25% equity interest in Bancommerce Investment Corporation (“BIC”) which provides IB services

80.37% owned by SMC Group, 9.8% owned by Caritas Health Shield and 12.7% owned by minority shareholders
Recent History
2007
 SMC Group injected capital into BoC for 34% stake
00
 SMC Group injected further capital into BoC and gradually increase its stake to 80.37%
 SMC Group undertook various initiatives to clean up and deleverage the bank
2008 - 2012
 Orderly disposal of structured notes
 Management overhaul and workforce rationalisation
 Embarked on IT transformation programme
 Healthy capital position with CAR of 23%
Present
 Low LDR (~45%) as SMC has been focusing on cleaning up the bank and exploring options for a
partner to manage the bank
14
Comparative Analysis
Total Assets, Total Deposits and Net Loans1
(PHP ‘bil)
1,200
Market Share: Total Assets 1.5%; Total Deposits: 1.6%, Net Loans: 1.5%
1,000
800
#16
600
400
200
0
BDO
Metrobank
BPI
Land
Bank
Dev Bank
PNB
RCBC
Union
Bank
Total Assets
Citibank
Total Deposits
CBC
HSBC
Allied
Bank
Phil Trust
BoC
Capital Adequacy Ratio1
Tier 1 CAR
24%
785
UCPB
Total Loans
Branch Network2
812
Security
Bank
CAR
22%
744
20%
18%
Average CAR3
= 16.5%
16%
387
334
327
315
Average Tier 1
CAR3 = 14.3%
14%
293
219
12%
189
122
10%
8%
BoC
Phil Trust
Allied Bank
HSBC
UCPB
Security Bank
CBC
Citibank
Union Bank
RCBC
PNB
Dev Bank
Land Bank
BPI
Metrobank
BDO
BoC
Union Bank
UCPB
CBC
Allied Bank
Land Bank
PNB
RCBC
BDO
Metrobank
BPI
6%
Notes: BDO = Banco De Oro Unibank,, BPI = Bank of the Philippine Islands, Land Bank = Land Bank of the Philippines, PNB = Philippine National
Bank, Dev Bank = Development Bank of the Philippines, RCBC = Rizal Commercial Banking Corporation, CBC = China Banking Corporation, UCPB =
United Coconut Planters Bank
1.Based on financial statements published in BSP website as at 31 Sep 2011 2. As 31 Dec 2011 3. Average of top 15 Philippines banks by total assets
15
BoC Indicators (1)
Profitability
Deposits
Gross Loans
PHP ‘bil
13.6%
7.0%
3.9%
87.2
86.8
-56.0%
ROE
PHP ‘bil
77.9
71.8
Net
Profit
PHP ‘bil
617.3
2008
2009
639.3
2010
579.9
39.2
2008
NIM
2009
2010
2011
2008
Asset Quality
140.0%
120.0%
81.9%
39.9%
39.9%
78.1%
49.7%
49.7%
100.0%
15.1%
14.4%
10.8%
88.8%
3.6%
8.2%
25.1%
80.0% 22.9%
65.3%
60.0%
2009
2010
2010
2011
40.0%
49.7%
39.9%9.9%
20.0%
-9.6%
2011
18.0%
16.0%
14.3%
14.0%
12.0%
9.9%
10.0%
2.9% 78.1%
8.0%
10.7%
14.3%
6.0%
23.1%
15.6%
16.8%
23.1%
16.3%
12.8%
4.0%
7.2%
2.0%
0.0%
2008
2009
20.0%
160.0%
3.5%
32.6
Total CAR and Tier 1 CAR
180.1%
180.1%
180.0%
3.7%
31.5
2011
(1,714.6)
4.7%
36.4
0.0%
2006
2008
20072009 2008
Allowance Coverage
2009
2010
2010
2011
2011
Net Impaired Loans ratio
2008
2009
Total CAR
2010
2011
Tier 1 CAR
16
BoC Indicators (2)
LD Ratio
68.0%
CI Ratio
68.4%
66.5%
63.9%
62.6%
62.8%
62.0%
50.0%
45.4%
41.9%
60.0%
61.7%
61.5%
36.1%
2008
2009
2010
BoC
2011
Industry
 Low LDR ~ 45% as BoC has not pursued
aggressive loan growth
 Corporate and SME loans comprise ~95% of total
loan book
 Significant growth potential to expand its retail loan
portfolio
2009
2010
BoC
2011
Industry
 Higher CI Ratio for Philippines banks relative to
other ASEAN banks due to:
 Continued reliance on counter service in
branches
 Under developed IT infrastructure to enhance
operations efficiency
17
DETAILS OF ACQUISITION
Acquisition Structure
Current Shareholding Structure
Entities related to SMC Group (Total = 80.37%)
Q-Tech Alliance
1.08%
San Miguel
Properties
39.35%
SMC Retirement
Plan
39.94%
Caritas Health
Shield *
9.77%
Others
9.86%
BoC
Post Acquisition
San Miguel
Properties
1.14%
SMC Retirement
Plan
26.93%
CIMB Bank
59.98%
Caritas Health
Shield *
9.77%
Others
2.18%
BoC
Note: * Health care provider with over 100 branch offices supported by 554 hospitals and clinics serving ~300,000 members
19
Purchase Consideration and Valuations
RM ’mil
 We will be acquiring:
 A ready banking platform in the Philippines
Purchase Consideration
881
 Low LD ratio and high capital for growth
 Collaboration with one of the largest
59.98% book value
P/BV
770
conglomerates in Philippines
1.14x
 RM111 mil premium to book for controlling stake
 2011 net P/E multiple of 35x as BoC operating at
suboptimal levels
 Post alignment with CIMB’s accounting and
provisioning policies, P/BV could increase to
about 1.30x
Note: * Adjustments made to the book value for the purposes of the Proposed Acquisition subsequent to due diligence
20
Overview of SMC Group
 Philippines’ most diversified conglomerate and one of the
largest publicly listed companies
 Total revenue in 2011 is PHP536 bil (RM38.8 bil)
contributed about 5% to the country’s GDP
 Subsidiaries and affiliates have very strong industryleading positions in key sectors of the Philippine economy
 Has over 17,000 employees as of end 2011
 Growing presence in ASEAN
2011
Revenue
(PHP ‘bil)
2010
Revenue
(PHP ‘bil)
Annual
growth
Beverages
87.0
90.3
-4%
Food
89.6
80.4
11%
Power
71.4
66.1
8%
Packaging
24.1
23.4
3%
Fuel & Oil
274.0
229.1
20%
Key
Businesses
SMC Group recently completed an investment in PAL
Holdings, the parent company of Philippine Airlines
Inc. and Air Philippines Corp
21
Overview of the Collaboration Agreement with SMC
CIMB to be the preferred banking services provider for the SMC ecosystem
1)
Channeling/referral of wholesale and retail banking opportunities
2)
SMC companies shall provide relevant information necessary to undertake credit
review of the vendors/dealers
3)
Co-location of retail distribution points, e.g. setting up branches/ATMs at Petron
stations
Scope
Wholesale banking
 SMC Group
Entities/Subjects
Products/Services
Retail banking
 Vendors/suppliers of the SMC Group
 Employees of the SMC Group and of
affiliate companies of SMC
 Dealers/sub-dealers of the SMC Group
 Retail customers of the SMC Group
 Loans and deposits
 Salary accounts
 Transaction banking
 Housing loans
 Treasury
 Car loans
 Investment banking
 Staff personal loans
 Securities services, e.g. trustee &
custodial services
 Credit/debit cards
Note:
1) Subject to the Bank’s approved licenses, service capabilities, as well as regulations of BSP and/or other Philippines regulatory agencies
22
EFFECTS OF ACQUISITION
Proforma Financial Effects
31 Dec-11
(RM ’mil)
Proforma
BoC
Contribution
Balance Sheet
Total assets
300,203
6,928
307,131
2.31%
Gross loans
191,393
2,361
193,754
1.23%
Customer deposits
221,933
5,204
227,137
2.34%
Total Income
12,122
353
12,475
2.91%
Net interest income *
7,947
234
8,181
2.95%
Net earnings
4,031
42
4,056
0.63%
Income Statement
Notes:
PHP/MYR exchange rate as at 31 Dec-11 of 13.80
* Includes Islamic net financing income
24
Proforma Key Ratios
31 Dec-11 (%)
Proforma
Increase /
(Decrease)
NIM
3.12
3.60
3.13
+0.01
Non-interest income / total
income
34.4
33.8
34.4
-
Cost / Income
54.7
61.7
54.9
+0.20
Allowance coverage
81.1
81.9
81.1
-
Net impaired loans ratio
1.0
2.9
1.0
-
Loans to deposit ratio
86.2
45.4
85.3
-0.90
CASA ratio
34.5
67.3
35.3
+0.80
Note:
PHP/MYR exchange rate as at 31 Dec-11 of 13.80
25
Proforma Financial Impact
Impact to Balance Sheet,
P&L & Key Ratios
 Minimal impact to CIMB Group financials & key ratios
Estimated Capital Impact
 CIMB Bank’s capital position remains strong post- transaction, well above the
proposed internal targets and the minimum regulatory ratios for Basel 2
 Under Basel 2
 Core Tier 1 ratio and Tier 1 ratio remain unchanged
 RWCR: ~ 70 bps decline in FY2012
 No impact to CIMBGH’s DL & Gearing ratio
Estimated EPS and ROE
Impact

EPS & ROE accretive from 2013 onwards

Expect only 3-4 months consolidation for 2012
26
BUSINESS PLAN
Initial Thoughts
 To be among the top 10 banks in the Philippines in terms of assets
 To be No.1 ASEAN universal bank of choice in the Philippines for local and regional customers
 Key focus areas : Wholesale, Mass Affluent Retail and Remittance
Supported by CIMB Group’s UB platform
People
Branding / Marketing
Systems / Platforms
Products
Leverage our product
experts, e.g.
Treasury, IB, retail
Shared ASEAN branding
customised for local market
Regional ATM link, CIMB
Clicks, 1Platform, etc
CIMB Money Transfer, credit
cards, CIMB Preferred , etc
Branches
321
630
157
2
7
122
1,239
ATMs
2,199
1,749
533
6
10
300
4,797
Staff
20,575
13,933
4,198
1,323
93
1,662
41,784
Customers
7.8 mil
4.2 mil
2.2 mil
277 k
3k
350 k
14.8 mil
Detailed Plan Being Formulated
28
Overview of Business Strategy for Philippines
 Tap into ready pool of corporates to offer integrated/ regional corporate banking
products and IB services
 Strengthen transaction banking capabilities to enhance deposit-taking, especially
CASA
Wholesale Banking
 Systematically target the mid corporate/ SME especially those in the SMC
ecosystem value chain, e.g. suppliers, dealers, retailers
 Position CIMB as the preferred ASEAN bank for cross-border transactions, e.g.
trade finance, regional treasury products, etc
 Upgrade license from commercial to universal bank
 Leverage regional strengths to simultaneously target 2 distinct market propositions
in the Philippines:
Retail Banking

Affluent segment – Replicate regional offerings in the Philippines, e.g. CIMB
Preferred, regional credit card proposition, regional ATM link, etc

Regional remittance – Leverage our regional footprint and explore global
partnerships to capture the vast cross-border remittance opportunities in the
Philippines
29
TIMELINE
Indicative Timeline
Details
Signing of Definitive Agreements / Bursa Announcement
Indicative Timing
8 May 2012
Submission / application to regulatory authorities and any other relevant
parties
Late May 2012
Regulatory approvals obtained (assume 3 months) #
Late Aug 2012
Completion
Late Aug 2012
Registration of shares
Late Sep 2012
Note: # Subject to timing of regulatory approvals
31
FINAL REMARKS
In Summary
High Growth Potential
 Banking market still
underpenetrated
 5th largest economy in ASEAN
with a stable growth rate
 Stabilising political situation
 Increasing trading links with
ASEAN
Widen Platform
 Increasing CIMB Group’s
presence in ASEAN to cover
99% of ASEAN population and
almost 100% of ASEAN GDP
 Enhances our scale and
position to capture intra-ASEAN
flows
Strong Partnership
 Leverage on SMC companies’
retail footprint to strengthen
BoC’s distribution capabilities
 Tap into SMC’s >17,000
employee base for distribution
of retail banking products
 Tap into SMC companies’
vendors and clients base
33
Final Remarks

Recent acquisitions of BOC and RBS IB for a total of RM1,730 mil cash

No equity dilution, small goodwill addition and EPS neutral in 2012 and positive in 2013

Enhanced CIMB Group’s intrinsic franchise value


Effectively full coverage of ASEAN

Largest retail branch network in ASEAN

Largest APAC based IB
No further (significant) acquisitions being contemplated
34
THANK YOU
35