THAI BANKS and corporates plan to issue ringgit-denominated bonds in Malaysia to diversify funding sources and lower funding costs after seeing the overwhelming feedback Krungthai Bank received from issuing such an instrument, according to CIMB Thai Bank.
CIMBT was the underwriter for KTB’s 1-billion-ringgit bond issue early this month. The deal helped strengthen cross-border income for CIMBT in the first half of this year, said Pornchai Padmindra, senior executive vice president and head of CIMB Thai’s wholesale banking group.
Many financial institutions and Thai corporates are keen on ringgit bonds after KTB witnessed a lower cost of funds, he added.
CIMBT’s wholesale banking has been active in cross-border activities for Thai corporates because the network of Malaysia-based CIMB Group in Asean has made it the regional bank of choice for Thai clients, he said.
A Thai conglomerate that has business in Singapore plans to issue a Singapore-dollar-denominated structured bond, with the fund mobilisation swapped for baht. Pornchai said the deal was part of the bank’s strategy to focus on business activities in Asean instead in Thailand alone.
Funding cross-border deals
The slowdown in exports means investment in Thailand has dropped as well, so CIMBT’s strategy in supporting cross-border deals is a way to help Thai companies diversify portfolio risk, he said.
The bank has added sector specialists to strengthen its wholesale banking in preparation for expanding its client base from large corporates to medium-sized companies with annual turnover of around Bt5 billion. At present, medium-sized companies show good prospects for taking another step from cross-border trading to direct investment in Cambodia, Laos, Myanmar and Vietnam, Pornchai said.
The bank will focus on 30 medium-sized corporate groups such as manufacturing, foods and beverages, consumer products and healthcare. However, the procedures for servicing them will be different from the approach for larger corporates because medium-sized companies have often been founded as family businesses, and each generation of management has different views on how to grow the firm.
“For example, the first-generation management might require bank loans to support expansion, while the second-generation management might require an initial public offering to mobilise funds. Therefore, the bank has [tried to] understand what the customer needs in order to provide the right solutions,” he said.
Most activities at CIMBT’s wholesale banking group are outbound rather than inbound, so in terms of lending the Thai unit might not grow much because actual loans can be booked anywhere in Asean where CIMB has a presence.
CIMBT’s loan portfolio in the first six months was around Bt50 billion, up by 8-9 per cent from the end of last year. However, total income of CIMBT’s wholesale banking group grew by 42 per cent to between Bt1.5 billion and Bt1.6 billion. The proportion of non-interest income at Pornchai’s division increased to 50 per cent from 37 per cent during the first half of last year, he noted.
He said that the bank had a backlog of 25-30 deals worth Bt70 billion to Bt80 billion. Total income this year is expected to grow by 40 per cent.