ABN AMRO: With Bank of Asia as its local flagship, Dutch giant is ready to expand as well as innovate in Thailand

ABN Amro has been the banking story of the year since March, when it announced that it acquire 75% of Bank of Asia (BoA), purchasing 1.423 billion new shares for an initial payment of 7.5 billion baht, with new shares to be purchased in 2000 at prices based on BoNs net asset value at the end of 1999.

‘We want to ensure that Bank of Asia is in the top five, maybe the top three of Thai banks within the next five years’
SERGIO RIAL
CEO, Asia-Pacific

The deal was certainly novel - some bankers called it absurd - but both parties said it was the right approach because they could not establish a fair value for the acquisition. "The innovative pricing scheme is a neat compromise for both sides and avoids the problems of determining fair asset values during the recession," one analyst concluded.

Netherlands-based ABN-Amro, one of the most aggressively-expanding banks in the world, is a relative newcomer to Thailand, establishing its first representative office in 1991. But it saw the opportunity in the economic crisis to position itself as the leader among the foreign banks operating in the country.

ABN-Amro opened its first full branch in 1994, and last year it purchased 35.5 % of Asia Securities Trading, an established firm allied with the Sophonpanich family of Bangkok Bank. It is now the country's second largest securities company. Also in 1997, the bank started investment banking activities for international clients.

The eighth-largest bank in the world, ABN Amro has $414 billion in assets, with more than 1,900 branches in over 71 countries, emploving about 75,000 people. Total revenues were $12.12 billion last year, and net profit $1.97 billion.

The bank also has ‘Aa l’ and ‘AA’ ratings for long-term debts by Moody’s and Standard & Poor's respectively.

Its, ambitions for the region are considerable. It Want to become one of the top three banks not only in Thailand, but also in Asia.

A five-year plan calls for Asia, which accounted for just 7% of the bank's world-wide revenues last year, to increase its contribution to between 10% and 15% by 2002, according to Mathew Welch, the bank's senior vice-president for strategy and acquisitions.

The new focus on Asia comes after the bank established itself as the largest foreign bank in the United States through the acquisitions of four banks.

It maintains that now is the time to grow in the region, while rivals such as Citibank, Hongkong & Shanghai Banking Corp and Deutsche Bank have put some expansion plans on hold.

The bank is not exactly a stranger to Asia. It started with an operation in Jakarta in 1826, and today has 65 offices in 17 countries. Its Thai presence began in 1964 through a bank it had acquired.

"We are here for the long term, not here so that we can get out of Thailand when the economy is bad. So in the long term we want to continue to expand," said Bruno Schricke, country manager of ABN Ainro (Thailand).

The acquisition of BoA automatically makes ABN Amro the largest foreign bank in Thailand, in terms of people and its capacity to service customers.

‘At the current moment branching is not a priority as Bank of Asia’s network is already a good one and we can make use of this before starting to think about expansion’
BRUNO SCHRICKE
Country manager

Being the largest foreign bank is just a start. its plans are to move BoA into the premier league of local banking as well.

"We want to ensure that BoA is in the top five, maybe the top three of Thai banks within the next five years," said Sergio Rial, Asia-Pacific chief executive officer for ABN Amro.

Mr Schricke underlines the goal: "We plan to reach the number-three spot here in Thailand, That's we really have in mind."

One of the reasons ABN Amro chose Bank ofAsia was its excellent management team, he said.

Noting that ABN Amro was competing with other foreign institutions that had been in the country for many more years, he said that over just four years the Dutch bank had invested around $320 million (1 1.9 billion baht) in Thailand.

Despite what appears to be a very aggressive approach to expansion, ABN Ainro has always been very conservative on the lending side, Mr Schricke noted.

Mr Rial said that ABN Aniro had identified five key markets in Asia and had made no secret of its plans for more acquisitions.

"Expanding through acquisitions is the best way to reach our objective to become a universal bank in a selected number of countries.

"Organic growth will not take us to the level we have set for ourselves."

Thailand had long been identified as one of the countries where ABN Amro intended to become a universal bank, Mr Schricke added. "In Thailand we couldn't grow organically eithe we decided on acquisition."

Despite what appears to be a very aggression approach to expansion, ABN Amro has always been very conservative on the lending side, Mr. Schricke noted.

But at the same time, the corporate culture that stresses alertness to the possibility of go acquisitions is being passed oil to Bank of Mr Schricke said BoA would remain a list company, and that ABN Amro had no plan take a 100% stake in the operation,

"Long-term, say five to 10 years, nobody knows, but not right now. We want to keep in its present identity as a Thai bank."

If Bank of Asia needed a further injection capital due to the deteriorating condition of economy, the Dutch bank was ready to meet commitment, he added. "If the bank needs the money, ABN Amro has a lot of money."

The Thai banking industry will be very different in three to four years, and with the backing of ABN Amro, BoA is well placed t among the best-rated banks in the country proof came recently when major ratings age revised their outlook for BoA to positive.

ABN Amro's Thailand branch, which has asset base of nearly 35 billion baht, is expect remain at around that level, though there m be some room for growth.

The branch will focus exclusively on the wholesale market and multinational corporations, while Bank of Asia will cover t rest of the market, with a particular focus o retail side.

Mr Schricke said that in addition to having good management, Bank of Asia was one of strongest Thai banks in terms of technological know-how. For that reason, a technology transfer to BoA is not a high priority.

He also described the network of 111 branches as a good number for a medium-sized bank.

"We are very impressed by the infrastructure of BoA, and thus we don't think there is any particular need for a technological transfer.

"At the current moment branching is not priority as the BoA network is already a goo and we can make use of this before starting think about expansion."

Among the priorities is the development of "transactional banking", an idea that encompasses trade financing and cash management, custody and other products. Backed by the worldwide presence of ABN Amro, Bank of Asia will be the only Thai ba offer such products.

Mr Schricke also said BoA's loan portfolio among the best in the local banking sector.

Asia Securities Trading Plc (AST) has also performed well in the view of ABN Amro. )The Dutch bank made a tender offer to purchase to 49% in AST last year, but was able to acquire only 46 million or 35.5 % of the 130 million shares outstanding, at 35 baht each. With its investment of 1.6 billion baht, ABN Amro became the largest single shareholder in the farm.

AST, which now focuses only on securities trading rather, has net assets of 1.7 billion baht and a net cash position of over 600 million baht, making it well positioned to ride out the crisis.

"AST is very committed to the retail business, and with not too many margin loans, our firm is profitable," said George Morgan, Managing director.

He said ABN Amro's backing had given AST a good position to look at expansion in terms of branches and other operations.

"We will focus with our research and sales team on the international side, improvement in the institutional side, and domestic equities corporate finance.

"The acquisition of AST fits in very well with [ABN Amro's] policy of developing retail banking in Asia."

Mr Schricke also noted that AST had benefited from the flight to quality during the financial crisis, as clients abandoned weaker finance houses and banks.

"When we bought AST, it was ranked seventh or eighth but today it is one of the top two securities firms in Thailand," he said.

ABN Amro Bank, Bangkok Branch
Established: December 1994
Major shareholders: ABN Amro Bank NV, the Netherlands
Main businesses: A full-branch commercial bank providing financial advice, corporate and project finance, private and transactional banking ; arranging loans in foreign currencies as wel as syndicated loans facilities
Number of employees: 94 (Bangkok branch only)
Members of ABN Amro Group in Thailand: Bank of Asia Plc, ABN Amro Asia Co Ltd, ABN Amro Asia Securities Plc
Assets at end-1997: 38.3 billion baht

Worldwide
Headquarters: Amsterdam
Number of countries: 71
Number of employees: 80,000
1997 gross revenue: 23,768 million Guilders
1997 net profit: 3,853 million Guilders