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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


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


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 Liquidity 54






Table Liquidity 59


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 Liquidity 74






Table Liquidity 80


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

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