A1261860309ockdy

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STRATEGIES FOR PRIVATISING CASE STUDY FOR
STRATEGIC INVESTORS BY HERMAN MULDER, SENIOR
EXECUTIVE VICE PRESDIENT CO-HEAD GROUP RISK
MANAGEMENT FOR WORLD BANK, IMF BROOKINGS
INSTITUTION CONFERENCE ON THE ROLE OF STATE-OWNED
FINANCIAL INSTITUTIONS

Washington 27 april 2004
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NATURE ROLE OF STATE-OWNED BANKS (SOB)

• NO ARCHE-TYPE SOB MANY TYPES IN DIFFERENT
  COUNTRIES DETERMINANT IS GOVERNANCE STRUCTURE,
  NOT OWNERSHIP PER SE
• KEY FACTOR (POLICY-) DIRECTED LENDING ON
  CONCESSIONAL TERMS
• BUT NON-SOBS MAY AFFECT THE BANKING SYSTEM TOO
  WEAK GOVERNANCE RISK MANAGEMENT, MISPRICING
• WEAK BANKING SYSTEM ASIAN CRISIS SHOWED FISCAL
  ECONOMIC COSTS PLUS LOSS OF TRUST/CONFIDENCE
  AMONG DEPOSITORS/INVESTORS
• UTILITY ROLE OF BANKING SECTOR MULTIPLE
  PROTECTION STATE OWNERSHIP, BANKING
  LAW/REGULATIONS, EFFECTIVE SUPERVISORY BY
  (INDEPENDENT) CB, SELF-REGULATION MARKET
  DISCIPLINE EVOLUTIONARY SCALE

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NATURE ROLE OF FOREIGN BANKING INVESTORS IN EM
COUNTRIES

• FULL ACQUISITION OR ONLY CONFIGURATION ?
• FIT IN GLOBAL FRANCHISE
• DUE DILIGENCE, FINANCIAL ROBUSTNESS UNDER
  DIFFERENT SCENARIOS
• TURNAROUND STORY ABILITY IF (EX-) SOB, MORE
  DIFFICULT/COSTLY
• ACCEPTABLE LEGAL FRAMEWORK
• LOCAL BANKING SYSTEM SUFFICIENTLY MARKET BASED
• BUILDING ON CURRENT MANAGEMENT OR NEW TEAM ?
• ROLE MODEL FOR LOCAL PEERS AND SUPERVISOR
  SYSTEMS, EFFICIENCY, RISK, PRODUCTS, DISCLOSURE,
  WINDOW TO INTERNATIONAL MARKETS

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SOME KEY ISSUES FOR NEW OWNER

• OVERALL GOVERNANCE STRUCTURE STANDARDS
• IMPROVE INFRASTRUCTURE SYSTEMS, MIS, DATA
• IMPROVE RISK-PARADIGM DISAGGREGATION OF RISK
  TYPES (INCL. MRM, ALM, ORM) RISK CHARTER, RISK
  ORGANISATION, POLICIES, TRAINING
• DISCIPLINE CREDIT-ANALYSIS - CLASSIFICATION
  REDIRECT NAME LENDING, MIS-PRICING,
  ASSET/COLLATERAL VALUATION, INTEREST ACCRUAL ON
  NPLS, ETC
• MFV, CUSTOMER ORIENTED BUSINESS MODEL,
  PERFORMANCE RELATED COMPENSATION

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THE BASEL 2 CHALLENGE OPPORTUNITY

• SYSTEMIC RISK IS NOT LIMITED TO LARGE, COMPLEX,
  INTERNATIONALLY OPERATING BANKS FROM
  BC-COUNTRIES
• B2 IS A FURTHER BROADENING DEEPENING OF THE
  CORE PRINCIPLES
• B2 IS MORE THAN JUST COMPLIANCE IT WILL RE-SHAPE
  BANK CAPITAL MARKETS WORLDWIDE
• B2 CONSULTATIVE PROCESS WAS RICH EXPERIENCE,
  ACCELERATING UNDERSTANDING, DEVELOPMENT AND
  CONVERGENCE OF MODERN RISK/ERM CONCEPTS
• B2 IS BY DESIGN NOT BEST PRACTICE FUTURE WORK
  WAITING, FURTHER CONVERGENCE OF RC AND EC (INCL.
  DIVERSIFICATION)

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BASEL 2 PERSPECTIVE FOR EM-COUNTRIES AND SOBS (1)

• B2 OFFERS TEMPLATE FOR EM SUPERVISORS AND LOCAL
  LEAD-BANKS RESP. BANKING ASSOCIATIONS TO
  STRENGTHEN LOCAL BANKING SYSTEM CHALLENGE
  OPPORTUNITY
• SOUND LOCAL BANKING SYSTEM IS ESSENTIAL FOR
  CREATING SOUND, DEEP LOCAL CAPITAL MARKETS, WHICH
  IS KEY FOR LOCAL DEVELOPMENT AGENDA (INCL.
  INFRASTRUCTURE, TRADE)
• SHAPE OF LOCAL BANKING SYSTEM WITH 4-5 ANCHOR
  BANKS ? SOBS UNDER PRESSURE

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BASEL 2 PERSPECTIVE FOR EM-COUNTRIES AND SOBS (2)

• RATING AGENCIES, EQUITY ANALYSTS, INVESTORS,
  INTERNATIONAL BANK COUNTERPARTIES WILL PREFER
  BANKS WITH STATED BASEL2 AMBITION
• COUNTRY-SPECIFIC ROADMAP BETWEEN SUPERVISOR AND
  BANKING ASSOCIATION TO BE AGREED UPON
• FOREIGN BANKS, ALREADY SUBJECT TO BASEL 2, WILL
  PLAY AN ACTIVE ROLE IN SUCH ROADMAP OUR SUBS
  WILL BE A-IRB/AMA

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CONCLUDING OBSERVATIONS ON SOBS

• PACE OF THE MARKET PLACE ACCELERATING ONLY BEST
  PRACTICIONERS WITH MARKET DISCIPLINE WILL
  EVENTUALLY SURVIVE
• NOTWITHSTANDING POLITICAL FRAGMENTATION, BUSINESS
  GLOBALLY AND INTRA-REGIONALLY BECOMING EVER MORE
  INTER-WOVEN
• B2 IS WAKE-UP CALL FOR MOF/SOBS ON THEIR
  RELATIONSHIP, AN ISSUE TO BE CATALYSED BY THE
  INDEPENDENT SUPERVISOR, FIS, FOREIGN
  PARTNER-BANKS
• SOB ROLE MUST CHANGE COMPLEMENTARITY,
  MARGINALITY, TEMPORARITY
• BUSINESS CONFIDENCE/TRUST WORLDWIDE HAS BEEN
  SHAKEN, NEEDS TO BE REBUILT ! (AND TRUST IS OUR
  CORE BANKING ASSET).