Acquisition of Bank of Commerce in the Philippines 8 May 2012 - - PowerPoint PPT Presentation

Acquisition of Bank of Commerce in the Philippines

8 May 2012

Agenda

• 1. Summary
• 2. Philippines Economy and Banking Sector
• 3. Overview of BoC
• 4. Details of Acquisition
• 5. Effects of Acquisition
• 6. Business Plan
• 7. Timeline
• 8. Final Remarks

SUMMARY

4

Summary

• 60% of Bank of Commerce (“BoC”) from the San Miguel Corporation (“SMC”) Group and others for

PHP12.2 bil (RM881 mil), equivalent to 1.14x P/BV as at 31 Dec 2011. Post alignment with CIMB’s accounting and provisioning policies, P/BV could increase to about 1.30x

• SMC Retirement Plan retains 27% stake
• CIMB signs Collaboration Agreement with SMC for banking referrals into SMC eco-system
• BoC ranks 16th in term of total assets among 38 universal and commercial banks in the Philippines
• Philippines has been the “missing link” in CIMB Group’s ASEAN footprint
• “Option” on probable “take-off” of Philippines economy
• BoC has been in “clean-up” mode so it is under-leveraged with high growth potential
• SMC is a strong partner with impressive range of businesses and network of business partners
• BoC will leverage on CIMB Group’s management capabilities and ASEAN platform and network

PHILIPPINES ECONOMY AND BANKING SECTOR

6

5th Largest Economy and 2nd Largest by Population in ASEAN

Indonesia Thailand Malaysia Singapore Philippines Vietnam Myanmar Brunei Cambodia Laos

Population (mil) 240.5 64.3 28.7 5.3 95.8 89.3 62.4 0.4 14.4 6.6 Nominal GDP (USD ‘bil) CIMB’s presence UB presence UB presence UB presence UB presence No presence IB presence Rep

• ffice

IB presence CB presence WIP

834.3 339.4 266.5 247.6 216.1 121.6 50.2 15.6 13.2 7.9

Indonesia Thailand Singapore Malaysia Philippines Vietnam Myanmar Brunei Cambodia Laos Note: Data as at 2011 Source: IMF statistics

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Growing Optimism

The Philippines has the potential to become one of the top 10 countries that can greatly contribute to global growth within the decade Goldman Sachs, 2012 There is a clear market consensus emerging that Aquino's economic program is on the right track, one that could see an unprecedented influx of capital to the Philippines in 2012 Asia Times Online, 2012 Philippines’ recent performance indicates that the country’s economy has already stabilized since the global financial crisis, with more robust and less variable growth World Bank, 2011

• The near-term outlook for the

country is favourable, characterized by moderating but still rapid growth

• Praise the Aquino government for

starting “reforms to address long- standing constraints to growth.” IMF, 2011

8

Increasing Trade and Remittance Volume with ASEAN

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Source: Philippines National Statistical Office

Philippines-ASEAN Remittance Philippines-ASEAN Trade

Philippines- ASEAN Trade (USD ‘bil) % of Total Philippines Trade

Within ASEAN, MIST are the largest trading partners of the Philippines

Philippines- ASEAN Remittance (USD ‘mil) % of Total Philippines Remittance

SG and Malaysia are the top 2 ASEAN countries sending remittance to the Philippines

21.2 22.8 20.0% 21.1%

2008 2011

Malaysia 16% Indonesia 12% Singapore 43% Thailand 23% Others 6% 620.5 944.7 3.8% 4.7%

2008 2011

Malaysia 13% Indonesia 2% Singapore 84% Thailand 1% Others 1%

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Improved Corruption Perception and Overall Competitiveness

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Sources: 1) Transparency International 2) World Economic Forum - Competitiveness Index

Corruption perception and overall competitiveness of ASEAN countries Countries Corruption Index Ranking Overall Competitiveness Index Ranking 2010 2011 2010 2011 Singapore 3 5 3 2 Malaysia 56 60 26 21 Thailand 78 80 38 39 Indonesia 110 100 44 46 Vietnam 116 112 59 65 Philippines 134 129 85 75 Laos 154 154 n.a n.a Cambodia 154 164 109 97 Myanmar 176 180 n.a n.a

• World Economic Forum ranked the Philippines as 75th in the world in its 2011-2012 Global Competitiveness

Report

• In the area of Macroeconomic Environment under the same report, Philippines improved 14 places to 54th in

the world noting the country’s improved national savings, managed inflation, low interest rate environment, lowering debt-to-GDP ratio, and credit ratings upgrade during the year

10

However Unemployment Rates and FDIs Remain An Issue

10

Unemployment (%) FDI from 2007 to 2010 (USD ‘bil)

3.2 3.3 3.7 3.3 3.2 3.0 9.1 8.4 7.9 7.1 6.6 6.3 2.1 2.2 3.0 2.2 2.1 2.3 1.4 1.4 1.3 1.1 1.4 1.3 7.2 7.5 7.4 7.4 7.5 7.3 4.6 4.7 4.6 4.4 4.1 4.1

2007 2008 2009 2010 2011 E 2012F

Malaysia Indonesia Singapore Thailand Phillipines Vietnam 8.1 26.5 31.1 31.8 34.4 99.5

Phillipines Malaysia Thailand Vietnam Indonesia Singapore Source: BSP statistics

Consumer Loans Deposits Breakdown OFW remittances Total Assets Net Loans1 Total Deposits

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Philippines Banking Sector Has Yet To Take-Off

Notes: 1. Net Loans excludes interbank loans 2. Based on exchange rate of USD:PHP = 43.212 Source: BSP website

PHP ‘bil CAGR 8.1%

2,560 2,698 2,908 3,201

2008 2009 2010 Sep-11

CAGR 8.5% PHP ‘bil

4,195 4,672 5,125 5,036

2008 2009 2010 Sep-11

PHP ‘bil CAGR 6.9%

2008 2009 2010 Sep-11 Mortgage Credit Card Auto Others

363 413 473 518

CAGR 13.7% PHP ‘bil

16% 17% 18% 19% 35% 37% 38% 39% 26% 23% 23% 21% 23% 23% 21% 22%

2008 2009 2010 Sep-11 Demand Savings Time Foreign

USD ‘bil

16.4 17.3 18.8 20.1

2008 2009 2010 2011

CAGR 7.6%

5,676 6,192 6,918 7,038

2008 2009 2010 Sep-11

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Overall Banking Penetration Is Still Low

12

Loan penetration in 2010 Deposit penetration in 2010

Source: Central bank statistics of selected countries

Outstanding loans as a % of GDP Deposits as a % of GDP

241% 149% 137% 104% 86% 34% 28% 11%

Hong Kong Malaysia China Singapore Thailand Philippines Indonesia Cambodia

392% 187% 197% 140% 75% 55% 37% 14%

Hong Kong Malaysia China Singapore Thailand Philippines Indonesia Cambodia

OVERVIEW OF BOC

14

Overview of BoC

• 16th largest bank by total assets in Philippines
• Core business: Traditional deposit products, corporate banking, consumer banking, treasury, asset management,

trust services, trade, and credit card service

• Owns 24.25% equity interest in Bancommerce Investment Corporation (“BIC”) which provides IB services
• 80.37% owned by SMC Group, 9.8% owned by Caritas Health Shield and 12.7% owned by minority shareholders

00 122 branches 300 ATMs 1,662 employees ~350k customers Recent History 2007

• SMC Group injected capital into BoC for 34% stake

2008 - 2012

• SMC Group injected further capital into BoC and gradually increase its stake to 80.37%
• SMC Group undertook various initiatives to clean up and deleverage the bank
• Orderly disposal of structured notes
• Management overhaul and workforce rationalisation
• Embarked on IT transformation programme

Present

• Healthy capital position with CAR of 23%
• Low LDR (~45%) as SMC has been focusing on cleaning up the bank and exploring options for a

partner to manage the bank

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Comparative Analysis

Notes: BDO = Banco De Oro Unibank,, BPI = Bank of the Philippine Islands, Land Bank = Land Bank of the Philippines, PNB = Philippine National Bank, Dev Bank = Development Bank of the Philippines, RCBC = Rizal Commercial Banking Corporation, CBC = China Banking Corporation, UCPB = United Coconut Planters Bank 1.Based on financial statements published in BSP website as at 31 Sep 2011

• 2. As 31 Dec 2011
• 3. Average of top 15 Philippines banks by total assets

Total Assets, Total Deposits and Net Loans1 Branch Network2 Capital Adequacy Ratio1

(PHP ‘bil) 200 400 600 800 1,000 1,200 BDO Metrobank BPI Land Bank Dev Bank PNB RCBC Union Bank Citibank CBC Security Bank UCPB HSBC Allied Bank Phil Trust BoC Total Assets Total Deposits Total Loans

Average CAR3 = 16.5% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% BDO Metrobank BPI Land Bank Dev Bank PNB RCBC Union Bank Citibank CBC Security Bank UCPB HSBC Allied Bank Phil Trust BoC Tier 1 CAR CAR Average Tier 1 CAR3 = 14.3%

Market Share: Total Assets 1.5%; Total Deposits: 1.6%, Net Loans: 1.5% #16

812 785 744 387 334 327 315 293 219 189 122

BPI Metrobank BDO RCBC PNB Land Bank Allied Bank CBC UCPB Union Bank BoC

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BoC Indicators (1)

Profitability Deposits Gross Loans NIM Asset Quality Total CAR and Tier 1 CAR

PHP ‘bil PHP ‘bil ROE Net Profit PHP ‘bil (1,714.6) 617.3 639.3 579.9

2008 2009 2010 2011

• 56.0%

13.6% 7.0% 3.9% 4.7% 3.7% 3.5% 3.6%

2008 2009 2010 2011

10.7% 15.6% 16.8% 23.1% 7.2% 12.8% 16.3% 23.1%

2008 2009 2010 2011 Total CAR Tier 1 CAR

77.9 86.8 87.2 71.8

2008 2009 2010 2011

2008 2009 2010 2011

Allowance Coverage Net Impaired Loans ratio

39.9% 49.7% 180.1% 81.9% 15.1% 14.4%

• 9.6%

2.9% 39.2 36.4 31.5 32.6 2008 2009 2010 2011

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BoC Indicators (2)

LD Ratio CI Ratio

• Low LDR ~ 45% as BoC has not pursued

aggressive loan growth

• Corporate and SME loans comprise ~95% of total

loan book

• Significant growth potential to expand its retail loan

portfolio

• Higher CI Ratio for Philippines banks relative to
• ther ASEAN banks due to:
• Continued reliance on counter service in

branches

• Under developed IT infrastructure to enhance
• perations efficiency

50.0% 41.9% 36.1% 45.4% 68.0% 66.5% 62.6% 68.4%

2008 2009 2010 2011

BoC Industry 60.0% 62.0% 61.7% 63.9% 61.5% 62.8%

2009 2010 2011

BoC Industry

DETAILS OF ACQUISITION

Post Acquisition Current Shareholding Structure

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Acquisition Structure

BoC Caritas Health Shield * Others San Miguel Properties

39.35% 9.77% 9.86%

SMC Retirement Plan

39.94%

Q-Tech Alliance

1.08%

Entities related to SMC Group (Total = 80.37%)

Note: * Health care provider with over 100 branch offices supported by 554 hospitals and clinics serving ~300,000 members

BoC Caritas Health Shield * Others SMC Retirement Plan

26.93% 9.77% 2.18%

CIMB Bank

59.98%

San Miguel Properties

1.14%

20

Purchase Consideration and Valuations

RM ’mil Purchase Consideration 881 59.98% book value 770 P/BV 1.14x

• RM111 mil premium to book for controlling stake
• 2011 net P/E multiple of 35x as BoC operating at

suboptimal levels

• Post alignment with CIMB’s accounting and

provisioning policies, P/BV could increase to about 1.30x

Note: * Adjustments made to the book value for the purposes of the Proposed Acquisition subsequent to due diligence

• We will be acquiring:
• A ready banking platform in the Philippines
• Low LD ratio and high capital for growth
• Collaboration with one of the largest

conglomerates in Philippines

21

Overview of SMC Group

Key Businesses 2011 Revenue (PHP ‘bil) 2010 Revenue (PHP ‘bil) Annual growth Beverages 87.0 90.3

• 4%

Food 89.6 80.4 11% Power 71.4 66.1 8% Packaging 24.1 23.4 3% Fuel & Oil 274.0 229.1 20%

• Philippines’ most diversified conglomerate and one of the

largest publicly listed companies

• Total revenue in 2011 is PHP536 bil (RM38.8 bil)

contributed about 5% to the country’s GDP

• Subsidiaries and affiliates have very strong industry-

leading positions in key sectors of the Philippine economy

• Has over 17,000 employees as of end 2011
• Growing presence in ASEAN

SMC Group recently completed an investment in PAL Holdings, the parent company of Philippine Airlines

• Inc. and Air Philippines Corp

22

Overview of the Collaboration Agreement with SMC

Note: 1) Subject to the Bank’s approved licenses, service capabilities, as well as regulations of BSP and/or other Philippines regulatory agencies

CIMB to be the preferred banking services provider for the SMC ecosystem Scope 1) Channeling/referral of wholesale and retail banking opportunities 2) SMC companies shall provide relevant information necessary to undertake credit review of the vendors/dealers 3) Co-location of retail distribution points, e.g. setting up branches/ATMs at Petron stations Wholesale banking Retail banking Entities/Subjects

• SMC Group
• Vendors/suppliers of the SMC Group
• Dealers/sub-dealers of the SMC Group
• Employees of the SMC Group and of

affiliate companies of SMC

• Retail customers of the SMC Group

Products/Services

• Loans and deposits
• Transaction banking
• Treasury
• Investment banking
• Securities services, e.g. trustee &

custodial services

• Salary accounts
• Housing loans
• Car loans
• Staff personal loans
• Credit/debit cards

EFFECTS OF ACQUISITION

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Proforma Financial Effects

31 Dec-11 (RM ’mil) Proforma BoC Contribution Balance Sheet Total assets 300,203 6,928 307,131 2.31% Gross loans 191,393 2,361 193,754 1.23% Customer deposits 221,933 5,204 227,137 2.34% Income Statement Total Income 12,122 353 12,475 2.91% Net interest income * 7,947 234 8,181 2.95% Net earnings 4,031 42 4,056 0.63%

Notes: PHP/MYR exchange rate as at 31 Dec-11 of 13.80 * Includes Islamic net financing income

25

Proforma Key Ratios

31 Dec-11 (%) Proforma Increase / (Decrease) NIM 3.12 3.60 3.13 +0.01 Non-interest income / total income 34.4 33.8 34.4

• Cost / Income

54.7 61.7 54.9 +0.20 Allowance coverage 81.1 81.9 81.1

• Net impaired loans ratio

1.0 2.9 1.0

• Loans to deposit ratio

86.2 45.4 85.3

• 0.90

CASA ratio 34.5 67.3 35.3 +0.80

Note: PHP/MYR exchange rate as at 31 Dec-11 of 13.80

Impact to Balance Sheet, P&L & Key Ratios

• Minimal impact to CIMB Group financials & key ratios

Estimated Capital Impact

• CIMB Bank’s capital position remains strong post- transaction, well above the

proposed internal targets and the minimum regulatory ratios for Basel 2

• Under Basel 2
• Core Tier 1 ratio and Tier 1 ratio remain unchanged
• RWCR: ~ 70 bps decline in FY2012
• No impact to CIMBGH’s DL & Gearing ratio

Estimated EPS and ROE Impact

• EPS & ROE accretive from 2013 onwards
• Expect only 3-4 months consolidation for 2012

Proforma Financial Impact

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BUSINESS PLAN

• To be among the top 10 banks in the Philippines in terms of assets
• To be No.1 ASEAN universal bank of choice in the Philippines for local and regional customers
• Key focus areas : Wholesale, Mass Affluent Retail and Remittance

28

Initial Thoughts

Detailed Plan Being Formulated

Supported by CIMB Group’s UB platform People

Leverage our product experts, e.g. Treasury, IB, retail

Systems / Platforms

Regional ATM link, CIMB Clicks, 1Platform, etc

Products

CIMB Money Transfer, credit cards, CIMB Preferred , etc

Branding / Marketing

Shared ASEAN branding customised for local market

Branches 321 630 157 2 7 122 1,239 ATMs 2,199 1,749 533 6 10 300 4,797 Staff 20,575 13,933 4,198 1,323 93 1,662 41,784 Customers 7.8 mil 4.2 mil 2.2 mil 277 k 3 k 350 k 14.8 mil

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Overview of Business Strategy for Philippines

Wholesale Banking

• Tap into ready pool of corporates to offer integrated/ regional corporate banking

products and IB services

• Strengthen transaction banking capabilities to enhance deposit-taking, especially

CASA

• Systematically target the mid corporate/ SME especially those in the SMC

ecosystem value chain, e.g. suppliers, dealers, retailers

• Position CIMB as the preferred ASEAN bank for cross-border transactions, e.g.

trade finance, regional treasury products, etc

• Upgrade license from commercial to universal bank

Retail Banking

• Leverage regional strengths to simultaneously target 2 distinct market propositions

in the Philippines:

• Affluent segment – Replicate regional offerings in the Philippines, e.g. CIMB

Preferred, regional credit card proposition, regional ATM link, etc

• Regional remittance – Leverage our regional footprint and explore global

partnerships to capture the vast cross-border remittance opportunities in the Philippines

TIMELINE

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Indicative Timeline

Details Indicative Timing Signing of Definitive Agreements / Bursa Announcement 8 May 2012 Submission / application to regulatory authorities and any other relevant parties Late May 2012 Regulatory approvals obtained (assume 3 months) # Late Aug 2012 Completion Late Aug 2012 Registration of shares Late Sep 2012

Note: # Subject to timing of regulatory approvals

FINAL REMARKS

33

In Summary

High Growth Potential Widen Platform Strong Partnership

• Banking market still

underpenetrated

• 5th largest economy in ASEAN

with a stable growth rate

• Stabilising political situation
• Increasing trading links with

ASEAN

• Increasing CIMB Group’s

presence in ASEAN to cover 99% of ASEAN population and almost 100% of ASEAN GDP

• Enhances our scale and

position to capture intra-ASEAN flows

• Leverage on SMC companies’

retail footprint to strengthen BoC’s distribution capabilities

• Tap into SMC’s >17,000

employee base for distribution

• f retail banking products
• Tap into SMC companies’

vendors and clients base

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• Recent acquisitions of BOC and RBS IB for a total of RM1,730 mil cash
• No equity dilution, small goodwill addition and EPS neutral in 2012 and positive in 2013
• Enhanced CIMB Group’s intrinsic franchise value
• Effectively full coverage of ASEAN
• Largest retail branch network in ASEAN
• Largest APAC based IB
• No further (significant) acquisitions being contemplated

Final Remarks

35

THANK YOU