..•.. .. " ........
PERFORMANCE OF PUBLIC LISTED BANKS IN ASEAN
Amy Chin Ee Ling
Corporate Master in Business Administration
2013
pusat Khidmat Maldumat~~~ V1'1VERSm MALAYSIA
P.KHIDMAT MAKLUMAT AKADEMIK
1111111111~riillllllllll 1000246852
PRESTASI BANK TERSENARAI A W AM DI ASEAN
AMY CHIN EE LING
Tesis ini merupakan salah satu keperluan untuk
Ijazah Sarjana Korporat dalam Pentadbiran Pemiagaan
Fakulti Ekonomi dan Perniagaan
UNIVERSITI MALAYSIA SARA W AK
2013
PERFORMANCE OF PUBLIC LISTED BANKS IN ASEAN
AMY CHIN EE LING
A thesis submitted
In fulfilment o(the requirements for the degree of Corporate Master in Business Administration
Faculty of Economics and Business
UNIVERSITI MALAYSIA SARA W AK
2013
Pengesahan Pelajar
Saya mengakui bahawa tesis bertajuk "Prestasi Bank Tersenarai Awam Di ASEAN"
ini adalah hasil kerja saya sendiri kecuali nukilan, petikan, huraian dan ringkasan yang
tiap-tiap satunya telah saya nyatakan sumbernya.
AMY CHIN EE LING 11031762
Statement of Originality
The work described in this thesis, entitled "Performance of Public Listed Banks in ASEAN"
is to the best of the author's knowledge that of the author except where due reference is made.
AMY CHIN EE LING 11031762
ACKNOWLEDGEMENT
Firstly, I would like to greet a special thank to my supervisor, Dr Rossazana Abd
Rahim who put on effort in assisting, encouraging and supporting me along the way of my
Corporate Business Project (CBP) implementation. Through her well guidance and advices, I
have been able to complete my thesis smoothly.
In addition, I would also like to thank my parents in giving me financial aids and
support which allow me to complete my thesis. Besides, I would also like to thank my friends
in sharing of knowledge and assisting me during the research process.
Last but not least, I would like to thank UNIMAS for giving us as a Corporate
Business in Business Administration (CMBA) students the opportunities and chances to
conduct a research of our own.
,
ABSTRAK
PRESTASI BANK TERSENARAI A W AM DI ASEAN
Oleh
Amy Chin Ee Ling
Kajian ini dijalankan untuk menilai pre stasi bank tersenarai · awam di lima negara
ASEAN iaitu Malaysia, Singapura, Indonesia, Thailand and Filipina. Kajian ini meliputi
sebanyak 63 bank tersenarai awam termasuk 10 bank dari Malaysia, 3 bank dari Singapura,
28 bank dari Indonesia, 10 bank dari Thailand, dan 12 bank ciari Filipina. Dengan
menggunakan analisis CAMEL, kajian ini mengukur prestasi perbankan sepanjang tempoh
tahun 1997 hingga 2011. Kaedah analisis CAMEL adalah berdasarkan kepada lima petunjuk
iaitu Kecukupan Modal, Kualiti Aset, Pengurusan Prestasi, Kualiti Pendapatan dan Kecairan.
Objektif kajian ini adalah untuk mengukur prestasi bank tersenarai awam serta menyiasat
kesan krisis kewangan ke atas prestasi mereka. Keputusan analisis CAMEL menunjukkan
bahawa bank tersenarai awam dari Singapura mempunyai prestasi yang terbaik dibandingkan
dengan negara ASEAN yang lain. Berdasarkan lima penunjuk CAMEL, bank tersenarai
awam dari Thailand mempunyai prestasi yang terbaik dalam kecukupan modal, bank
tersenarai awam dari Malaysia mempunyai prestasi yang terbaik dalam kualiti aset, bank
tersenarai awam dari Singapura mempunyai prestasi yang terbaik dalam kecekapan
pengurusan, manakala bank tersenarai awam dari Filipina mempunyai prestasi yang terbaik
dalam kedua-dua kualiti pendapatan dan kecairan. Seterusnya, keputus~n komprehensif
r
mendedahkan bahawa Public Bank di Malaysia, United Overseas Bank di Singapura, Bank
Artha Graha di Indonesia, Bank of Ayudhya di Thailand dan Kesatuan Bank di Filipina di
Filipina adalah bank dengan pre stasi yang terbaik mengikut negara. Selain itu, hasil kajian ini
mendapati bahawa kesan krisis · kewangan global pada tahun 2008 terhadap perbankan di
ASEAN adalah kurang teruk berbanding dengan krisis kewangan Asin pada tahun 1997.
I
ABSTRACT
PERFORMANCE OF PUBLIC LISTED BANKS IN ASEAN
By
Amy Chin Ee Ling
(rhe study is conducted to measure the performance of public listed banks in the five
ASEAN countries namely, Malaysia, Singapore, Indonesia, Thailand and the Philippines.
This study covers e a total of 63 public listed banks which include 10 banks from Malaysia, 3
banks from Singapore, 28 banks from Indonesia, 10 banks from Thailand, and 12 banks from
the Philippines. By employing CAMEL analysis, this study measures the banking
performance over the period of 1997 to 2011. The CAMEL analysis methodology is based on
five indicators which are Capital Adequacy, Asset Quality, Management Efficiency, Earning
Quality and Liquidit~. The objectives of the study are to measure the performance of public
listed banks as well as to investigate the impact of financial crisis on their performance. The
results of the CAMEL analysis show that Singaporean public listed banks are the top
performer as compares to their counterparts. Based on the five indicators of CAMEL,
Thailand' s public listed banks have the best performance in capital adequacy, Malaysia's
public listed banks has the best performance in asset quality, Singapore's public listed banks
has the best performance in management efficiency, while the Philippines' public listed banks
has the best performance in both earning quality and liquidity. Next, the comprehensive
results reveal that Public Bank in Malaysia, United Overseas Bank in Singapore, Bank Artha
I
Graha in Indonesia, Bank of Ayudhya in Thailand and Union Bank of the Philippines in the
Philippines are the banks with best performance by country. Moreover, the results of this
study discover that the impact of global financial crisis in 2008 on ASEAN banking lS
relatively less severe as compares to the Asian financial crisis in 1997.
Pusat Khidmat MakJumat Akademik UNlVERSm MALAYSIA SARAWAK
. TABLE OF CONTENTS
List of Tables List of Figures
Chapter One: Introduction 1.1 Introduction
1.2 Research Background
1.3 Background of Association of Southeast Asian Nation (A SEAN)
1.4 Problem Statement
1.5 The Objective of Study
1.6 The Significance of Study
1_7 Scope of Study
Chapter Two: Literature Review 2.1 Introduction
2.2 Theoretical Motivation
2.3 Empirical Studies on Bank Financial Performance
2.3.1 CAMpL Analysis 2.3.2 Financial Ratios
2.4 Other Empirical Studies on Banking Performance
2.5 Empirical Studies on ASEAN Banking
2.6 Conclusion
Chapter Three: Methodology 3.1 Introduction
3.2 Conceptual Framework
3.3 Data and Variables
3.3.1 Data Collection
3.3.2 Variables
3.4 Methodology
3.4.1 CAMEL Analysis
Chapter Four: Results and Discussion 4. 1 Introduction
4.2 CAMEL An~lysis 4.2.1 CAMEL Analysis on Performance of ASEAN Banking Sector
4.2.2 CAMEL Analysis on Performance of Banking Sector by Country
4.2.2.1 CAMEL Analysis on Performance of Banking Sector in Malaysia
4.2.2.2 CAMEL Analysis on Performance of Banking Sector in Singapore
Pages
11
1-6
6-9
10-11
11-12
12-13
13
14
14-15
15
15-20
20-24
24-32
32-34
34-35
36
36-37
37
37-39
39-40
40
40-44
45
45
45-49
50
50-55
56-60
~~--~~~======--~~==~==============~==~I
I,....
4.2.2.3 CAMEL Analysis on Perfonnance of Banking Sector in 60-69 Indonesia
4.2.2.4 CAMEL Analysis on Perfonnance of Banking Sector in 70-75 Thailand
4.2.2.5 CAMEL Analysis on Perfonnance of Banking Sector in the 76-82 Philippines
4.3 Perfonnance of ASEAN Banking Sector for the period of 1997 to 2011 83-92 4.4 Discussion of the Results 93-94
Chapter Five: Conclusion 5.1 Introduction 95 5.2 Conclusion of the Study 95-96 5.3 Recommendation 96-98 5.4 Limitation 98
References 99-106
Appendix I 107-127
Appendix II 128-l34
1 2 3 4
5 6 7
8 9 10 11 12 13 14 15
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
36 37 38
LIST OF TABLES
Pages Table List of Public Listed Banks in ASEAN 38-39
Table List of Variables Chosen 39-40
Table Capital Adequacy 45
Table Asset Quality 46
Table Management Efficiency 47
Table Earning Quality 47
Table Liquidity 48
Table Composite Ranking for Overall Performance 49
Table Capital Adequacy 50
Table Asset Quality 51
Table Management Efficiency 52
Table Earning Quality 53
Table Liquidity 54
Table Composite Ranking for Overall Performance 55
Table Capital Adequacy 56
Table Asset Quality 57
Table Management Efficiency 57
Table Earning Quality 58
Table Liquidity 59
Table Composite Ranking for Overall Performance 60
Table Capital Adequacy 60-61
Table Asset Quality 62-63
Table Management Efficiency 63-64
Table Earning Quality 65-66
Table Liquidity 67
Table Composite Ranking for Overall Performance 68-69
Table Capital Adequacy 70
Table Asset Quality 71
Table Management Efficiency 72
Table Earning Quality 73
Table Liquidity 74
Table Composite Ranking for Overall Performance 75
Table Capital Adequacy 76
Table Asset Quality 77
Table Management Efficiency 78
Table Earning Quality 79
Table Liquidity 80
Table Composite Ranking for Overall Performance 81
LIST OF FIGURES
Pages Figure 1 The Conceptual Framework of the Study 36
Figure 2a Capital Adequacy Ratio (%) 83
Figure 2b Debt to Equity Ratio (times) 83
Figure 2c Advances to Assets Ratio (%) 83
Figure 3a Total Investments to Total Assets (%) 85
Figure 3b Provision for Loan Loss Ratio (%) 85
Figure 4a Total Advances to Total Deposits (%) 88
Figure 4b Return on Equity (%) 88
Figure 5a Operating Profit to Total Assets (%) 89
Figure 5b Net Profit to Total Assets (%) 89
Figure 5c Interest Income to Total Income (%) 89
Figure 5d Net Interest Margin to Total Assets (%) 89
Figure 6a Liquid Asset to Total Assets (%) 91
Figure 6b Liquid Asset to Total Deposits (%) 91
11
CHAPTER ONE
INTRODUCTION
1.1 Introduction
This chapter starts with the background of the study in Section 1.2. Section 1.3 covers
the introduction of Association of Southeast Asian Nation (ASEAN) formation and the
development of banking sector in ASEAN region. Section 1.4 specifies the problem statement
of study. Section 1.5 provides the main objective as well as the specific objectives of this
study. The significance of the study is explained in Section 1.6. Section 1.7 explains the range
of the study covered and its boundaries.
1.2 Research Background
The banking sector serves as an important part in the ASEAN economies as their
performances influence the health of general economies at large. This can be seen during the
outbreak of Asian financial crisis during 1997, where the banking sectors in the region were
suffered with distress. The study of Kim, Kose and Plummer (2001) refers the Asian financial
crisis as Asian contagion whereby the stability of a country suddenly collapses following the
economic crisis from the other country. In the period of crisis, the currencies constantly
depreciate against US dollar, the amount ofunhedged foreign borrowings and non-performing
loans in the ASEAN countries were mounted. This caused most of the banks exposed to high
1
level of losses and entered into bankruptcy. The financial crisis has severely mauled the
ASEAN economies.
The financial crisis has resulted in a systemic crisis of the banking system in ASEAN
region. Most of the banking system in ASEAN countries has implemented the process of
recovery through restructuring and financial reforms. In addition, the consolidation of banks
continued with the government's intervention. Some banks in the respective countries were
taken over by the government, while others received government support (Klingebiel,
Kroszner, Laeven, and Van Oijen 200 1). However, most of the state-owned banks were sold
to the private sectors which include domestic and foreign investors from within and outside
the region.
Again in year 2008, ASEAN countries were not excluded from the influences of the
global flDancial crisis in 2008 which was caused by the failure of subprime mortgage market
in the United States of America. However, the impact of the global financial crisis towards
ASEAN countries was not as huge as the Asian financial crisis because they had learnt the
lessons from the past crisis in 1997. Das (2000) highlights several important lessons provided
by the Asian financial crisis particularly policy areas in the banking and finance, prudential
regulations, microeconomics, macroeconomics and global financial architecture. In the
banking sector, it. highlights important lesson that besides a strong regulation and supervision,
the combination of market discipline and corporate governance are the main aspects to ensure
the soundness of the banking system. Based on ASEAN Studies Centre (20 1 0) and Kanaoka
2
(2012), most Asian economies had learnt and applied the lessons of the Asian financial crisis
1997 in managing the implications of subprime mortgage crisis.
Followin~ the globalisation in the late 1990s and the global financial crisis in 2008,
these trends have shown significant influences on the economic in the ASEAN region. The
ASEAN countries are challenged with the efforts to hold a sustained recovery from the past
crisis. Nevertheless, the restructuring efforts, reforms and structural adjustments process
taken by the financial sector in the crisis-affected economies has shown that the banking
reforms not only take time but also involve large amount of cost to the economy to produce
the results.
In the vein, the global trends and crisis have revived the need for ASEAN to continue
to work for further integration among country members. Accordmg to the Bank for
International Settlements (2012), the Governor of the Central Bank Malaysia, Dr Zeti Akhtar
Aziz has proposed at the 19th ASEAN Banking Conference 2012, Kuala Lumpur, to increase
the banking integration among ASEAN countries. The objective of the integration is to
achieve the vision of ASEAN Economic Community (AEC) for regional economy integration
by 2015. This has brought the conference theme "ASEAN-towards a more integrated market".
According to the Governor of Central Bank Malaysia, ASEAN banks serve as the important
intermediaries in increasing the connectivity among ASEAN members and supporting the
financial integration in the region. The strong growth of ASEAN financial institutions is
driven by the development of business fundamental and the increasing competitiveness of
financial institutions in this region. Therefore, the ASEAN banking contributes a large part to
3
the regional integration as it increases the corporation among ASEAN countries especially in
the financial perspective.
Based on Bernama (2012), the central banks of the ASEAN countries have approved
the ASEAN Financial Integration Framework on 2011 and they are in the final step to execute
the framework for regional integration in banking sector. Through the ASEAN Banking
Integration Framework (ABIF), it will provide an important presence of qualifying the banks
and promote financial stability in the ASEAN region (Bank for International Settlements,
2012). Under the framework, the qualifying ASEAN banks that are well managed and have
the capacity will be served as the standard bearers in the region as well as accorded with more
flexibility to access into the regional markets. In addition, the framework also assists the
qualifying ASEAN banks in their regional expansion plans as they serve as a channel of
financial intermediation in the region.
Concerning the banking reform history and the recent banking integration, this
provides a unique feature to the ASEAN banking market for this study to embark upon the
issue of ASEAN banking performance. In addition, ASEAN countries are also moving toward
to strengthen their economic and financial ties. Hence, this study attempts to measure the
perfonnance of public listed banks in five selected ASEAN countries which are Malaysia,
Singapore, Thailand, Indonesia and the Philippines. These five ASEAN countries also known
as ASEAN-5 are the five original members of ASEAN before the participation of Brunei,
Vietnam, Cambodia, Myanmar and Laos in the later year. These countries are chosen for the
study because ASEAN-5 is among the fast growing emerging countries and they share more
4
Pusat Khidmat MakluDlat Akademik UNlVERSm MALAVSIA SARAWAf(
or less the same social and economic characteristics (Echchabi, 2013). The strong economic
growth of ASEAN-5 is driven by five factors as following (The Nation, 2013):
1. Resilience of domestic demand.
11. Monetary nonnalization amid inflation uptrend.
lll. Policies to stay vigilant against external and financial imbalances.
IV. Capital inflows and strength of the Chinese Yuan to drive forex appreciation,
expect the Indonesian rupiah.
v. Long-tenn spillover from rebalancing in China to persist.
Besides strong economic growth, the five major ASEAN countries have joined
commitment on cross border financial supervision in 2010. The purpose of this agreement is
to supervise the financial activities and central banks of the countries as well as to protect the
countries from the negative impacts of recent flooding capital inflows.
The public listed banks are selected and examined in the study because according to
Wyman (2012) most of banks in Asia are increasingly becoming publicly listed. Therefore,
they play an important role in the development of economies in the region. The study aims to
measure the listed banks perfonnance and contribution to the local domestic economy as well
as the economy of the ASEAN region as a whole in achieving the regional integration.
5
The CAMEL Analysis is applied in the study to measure the performance of public
listed banks in the five selected ASEAN countries. The CAMEL analysis has been widely
applied to evaluate the financial performance of banks both local and internationally. There
are several studies which explained the rationale of CAMEL rating system. The study of
Barker and Holdsworth (1993) which predict the bank failure found that the CAMEL rating
system provides important internal supervisory information in monitoring the banks even
though most of the publicly available information regarding the bank performance has been
controlled. Another study on bank failure prediction Cole and Gunther (1998) also reveals
that CAMEL rating system contents useful information. Besides, Hirtle and Lopez (1999) has
implied the CAMEL analysis as an important tool in measuring the bank past results and
current condition. CAMEL analysis has provided further insight on the current bank condition
which is summar!zed by the current results of CAMEL analysis. In general, all the studies as
mentioned above concluded that CAMEL analysis is useful in providing private supervisory
information to measure and monitor the bank performance.
1.3 Background of Association of Southeast Asian Nation (ASEAN)
The Association of Southeast Asian Nations (ASEAN) is established since 8 August
1967 among five countries which include Malaysia, Singapore, Thailand, the Philippines, and
Indonesia. The purpose of the establishment of ASEAN is to achieve cooperation in the
different fields and to promote peace and stability among country members. Subsequently, the
five others countries in Southeast Asia have decided to join the association which includes
Brunei in 1984, Vietnam in 1995, Cambodia in 1999, Myanmar in 2001, and Laos in 2004
which brings ASEAN with a total often members.
6
The cooperation of ASEAN countries in banking sector can be seen with the
establishment of Special Committee of ASEAN Central Banks and Monetary Authorities. The
Special Committee was made up of the Governors of central monetary authorities and it is
responsible for examine the issues relating to monetary and financial cooperation among
ASEAN. Nevertheless, the special committee was ceased to operate after the establishment of
Committee on Finance and Banking (COFAB) in 1977. COFAB is usually represented by the
most senior officials of Finance Ministries. In addition, ASEAN held its ASEAN Finance
Ministers' Meeting (AFMM) annually to discuss the regional corporation in finance and
promote further financial stability in the region. On 30 March 2012, ASEAN held its 16th
ASEAN Finance Ministers' Meeting in Phnom Penh, Cambodia.
In 1976, ASEAN show further cooperation in banking industry with the formation ofa
regional banking organization known as the ASEAN Bankers Association (ABA). The ABA
is chaired by the 'permanent secretariat which includes the Chairman, Secretary-General and
Executive Officer. The members of ABA include the National Bankers Association of ten
ASEAN countries. According to the ASEAN Bankers Association (2012), the objectives of
ABA are as following:
1. To accelerate economic growth of ASEAN countries through collaboration among its
member banks
II. To promote the development of banking and financial systems and profession m
ASEAN countries
lll. To foster friendship and cooperation among bankers in the ASEAN countries
7
IV. To activate collaboration of its institutions and provide assistance to one another when
necessary
v. To identify growth opportunities for ASEAN banks and to promote their common
interest
Under ABA, there are two principal organs and three permanent committees. The two
principal organs include:
I. ASEAN Banking Conference
The ASEAN Banking Conference is organized each two years to explore and discuss
on ideas to achieve the objectives of ABA. Then, the conference will present the ideas
to the ASEAN Banking Council for further consideration and implementation.
11. ASEAN Banking Council
The ASEAN Banking Council (ABC) serves as the management division ofthe ABA.
The Council meets annually to fonnulate and coordinate the activities executed and
implemented by ABA through its various Committees.
On 7-9 November 2012, ABA held its 19th ASEAN Banking Conference and 42nd
ASEAN Banking Council at Sasana Kijang, Kuala Lumpur, Malaysia. The conference is
hosted by ABA in Malaysia with the theme "Laying the Foundation for the One ASEAN
Market-Identifying and Prioritizing Initiatives". The conference in 2012 was successfully held
and attended by over 350 banking experts and executives from ASEAN regions.
8
The followings are the three permanent committees of ABA in which responsible for
discussing plans and making suggestions to the ABC:
i. Permanent Committee on Banking Education, chaired by the Bankers
Association of the Philippines
11. Permanent Committee on Cooperation In Finance, Investment and Trade
(CO FIT), chaired by The Association of Banks in Singapore
lll. Permanent Committee on ASEAN Inter-Regional Relations, chaired by The
Association of Banks in Malaysia.
In 1981, AFC Merchant Bank (AFC) is the creation of ABA was incorporated in
Singapore as ASEAN Finance Corporation Limited. AFC is recognized as the first ASEAN
joint venture by the private sectors. The shareholders of AFC constitute of the leading banks
and financial institutions from the five original ASEAN's members which include Singapore,
Malaysia, Indonesia, Thailand and the Philippines. According to AFC Merchant Bank (2012),
the mission of AFC is to mobilize the financial resources in order to finance projects and
promote the economic development and industrialization of ASEAN region.
The banki"ng sectors of the five selected ASEAN countries are all adhere to the Basel
TIl Framework which include Malaysia, Singapore, Thailand, Indonesia and the Philippines.
The Basel III is also known as the third Basel Accords are the world voluntary regulatory
standard in banking. It provides recommendations on the laws and regulations of banking
sector which are formed by the Basel Committee on Banking Supervision (BCBS).
9
1.3 Problem Statement
During th~ post-period of the Asian Financial Crisis in 1997/98, the crisis-affected
countries have implemented efforts of restructuring process and reforms in order to recover
and sustain their banking system from continuing deteriorated. After the crisis, banks
regulators implemented several measures to reform the banking system with the aim of
providing efficient banking services to the economy on a sustainable basis (Garcia, 1997).
According to Barry et af. (2010), the bank restructuring program took place instantly after the
crisis in 1997 until the early of 2000s. Besides, the countries in the ASEAN region also
continuing with the consolidation, merger and acquisition process of local banks as well as
begin to open the banking sector for the entry of foreign banks. There are several studies
examining the relationship between foreign bank entry and bank efficiency in developing
countries (Claess'ens, DemirgUcy-Kunt, and Huizinga, 2001; Fries and Taci, 2002; Bonin,
Hasan and Wachtel, 2005), however, the studies provide mixed results.
The banks play an important role in mobilising, allocating and investing the savings of
the society. Therefore, it is essential to have a comprehensive insight on the performance of
banking industry as the bank performance has a significant influence on the investment, firm
growth, industrial expansion, and economic development of a country. According to Mugume
(2007), there has been an increasing number of studies with regard to the banking efficiency
in developed countries while there is less studies focus on the banking efficiency in the
developing countries despite the fact that there is an increasing recognition that the
development of financial sector is the key sector to sustain the economy growth in the
developing countries. Besides, the study of Besar (2011) also stated there are many studies
10