UOB regional network well placed to benefit
Significant FDI both within and into the region
Surging foreign direct investment in Asean is expected to present an excellent opportunity for financial institutions that possess a strong Asian franchise, including United Overseas Bank, according to executives of the Singapore-based bank.
Eric Tham, managing director and head of Group Commercial Banking at UOB Group, described UOB's network of 500 offices in 19 Asian, Western European and North American countries and territories as its strong point when compared with Chinese banks, whose networks are mostly domestic.
UOB has 14 offices in China.
The bank has noted what it sees as a mega-trend of foreign direct investment (FDI) in Southeast Asia in the past few years, with more and more Western and Chinese companies having invested in Asean countries. During 2009-2012, Asean's FDI inflows grew by 227 per cent to US$107 billion (Bt3.18 trillion), while the regional grouping's share of global FDI increased from 2 per cent after the 1997 Asian economic crisis to 8.2 per cent last year.
Although FDI in Singapore last year fell to $54 billion from $64 billion a year earlier, the country still constituted more than 50 per cent of overall FDI in Asean, he said.
Singapore is a springboard for foreign investors who want to cash in on the growing economic strength of Asean, the executive added.
Apart from Asian FDI from the West, the intra-Asian flow has also significantly increased. UOB research found that in 2011, intra-Asian FDI accounted for 44 per cent of all Asian foreign direct investment, a level that it estimates will surge to 60 per cent by 2020.
Two-way FDI advice
Given this trend, UOB is expanding the reach of its Foreign Direct Investment Advisory Unit service in Asean with a view to boosting the bank's lending.
The first such unit was set up in Singapore last year, with further units being established this month in Malaysia and Thailand. The local unit will assist Thai companies in expanding their business in Asean, as well as foreign companies looking for investment opportunities in the Kingdom.
Tham said each FDI Advisory Unit would work with capable local business partners, both at the state and private level, to advise on the legal framework for investment, tax implications, investment incentives and organisational structure when investing overseas.
In Thailand, the Board of Investment will be one such partner, he added. Samk Cheong Chwee Kin, executive director of Group Commercial Banking, said Asia was now also moving beyond a reliance on Western Europe and the United States for its trade, and the upcoming Asean Economic Community would mean a significant increase in intra-regional commerce.
Rapid urbanisation, a growing middle class and abundant natural resources in Southeast Asia are also attracting regional companies, including those in Thailand, to look for expansion opportunities to upgrade their businesses, he said.
Loi Kai Cheow, executive director, Commercial Banking, UOB (Thai), said the local FDI Advisory Unit would help the bank double its cross-border business in the next two years. However, he declined to disclose UOB (Thai's) current outstanding lending for such business.
"We can only say that we have many deals in the pipeline, most of which are Thai companies investing overseas," he said.
As end of June 30, 2011, cross-border lending accounted for 15 per cent of the bank's corporate loans.
According to the Bank of Thailand, 2011 was the first year that the Kingdom's level of outgoing FDI, $10 billion, was higher than that for foreign direct investment in Thailand ($8 billion).
Outward FDI from the manufacturing, mining, petroleum and coal sectors accounted for more than 50 per cent of the total. Some 35 per cent of the amount was invested in other Asean countries.
Cheow said that at the outset, the FDI Advisory Unit's main focus would be on Thai companies wishing to expand within the region in order to upgrade their businesses in terms of natural resources.
Thai manufacturers are expected to increase their expansion overseas with a view to lowering their production costs following the increase in the daily minimum wage, but also because of the labour shortage at home.