1. Danajamin Nasional Berhad
Session E : How Can Malaysians & Malaysian Companies Best Prepare for a financial Crisis
Presentation to
PERDANA LEADERSHIP FOUNDATION CEO FORUM 2014
24 September 2014
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2. Danajamin Nasional Berhad
OVERVIEW
Background : Malaysia’s Experience Thus Far
Impact Areas and Consequences
Mitigating Action Plans for Companies
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3. 1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
Danajamin Nasional Berhad
1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
Pre 1997 : ‘Business as Usual’
Typical business cycle
Growth spurts & recessions
1997/1998 : Asian Financial Crisis
Origins in Thailand, May ‘Tom Yum Kung’ crisis
July 1997 – Thailand, Malaysia, South Korea, Philippines
August 1997 – Indonesia
October Hong Kong
In Summary
Credit bubble
Currency speculation
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4. 1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
Danajamin Nasional Berhad
1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
1997/1998 : Asian Financial Crisis
EXCHANGE RATE
Exchange rate (to USD1.00)
Change
June ’97
July ’97
Malaysia
- Ringgit
2.5
4.1
(39%)
Thailand
- Baht 24 41
(40%)
Indonesia
- Rupiah
2,380
14,150
(83%)
Philippines
- Peso 26 42
(37%)
South Korea
- Won
850
1,290
(34%)
Source : Bloomberg
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5. 1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
Danajamin Nasional Berhad
1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
1997/1998 : Asian Financial Crisis (+ve outcome)
Recognised need to spread risk better
Accelerated development of Malaysian Capital markets
Banking sector was further strengthened
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6. 1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
Danajamin Nasional Berhad
1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
2008/2009 : Global Financial Crisis
FI contagion
Lehman Brothers – bankrupt
Merrill Lynch, AIG, Freddie Mac, Fannie Mae, Royal Bank of Scotland etc – required rescue
In Summary
Over leveraging of FIs
Financial Over Engineering
Risk Mispricing
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7. 1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
Danajamin Nasional Berhad
1. BACKGROUND : MALAYSIA’S EXPERIENCE THUS FAR
2008/2009 : Global Financial Crisis
Pump priming of economy
Genesis of Danajamin Nasional Berhad
Incorporated in 2009, equally owned by Ministry of Finance Inc & Credit Guarantee Corporation Malaysia Bhd
Provided financial guarantees to 24 bond/sukuk programmes amounting to RM6.9 billion
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8. 2. IMPACT AREAS & CONSEQUENCES
Danajamin Nasional Berhad
2. IMPACT AREAS & CONSEQUENCES
Foreign exchange
Liquidity & credit
Interest rates
Massive shift in equilibrium
Damage to institutions & social fabric
Volatility
1. Individual memories of financial crisis are varied – stock market loses, job loses, loan servicing problems etc
2. Epicentre of financial crisis – volatility on FX, Int rates, liquidity etc,
3. All affects credit – the lifeblood of any economy
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9. 2. IMPACT AREAS & CONSEQUENCES
Danajamin Nasional Berhad
2. IMPACT AREAS & CONSEQUENCES
Massive shift in equilibrium
× Developers using short term financing (overdrafts / revolving credits) to finance long term development
 Exporters gaining massively from currency exchange devaluation
New winners & losers
….. Not long lasting (it is a crisis)
Disruption
Any shift in equilibrium -> new set of winners & losers
Developers vs exporters
Winners & losers -> not permanent
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10. 2. IMPACT AREAS & CONSEQUENCES
Danajamin Nasional Berhad
2. IMPACT AREAS & CONSEQUENCES
Opportunities Exist
Cash is king !
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11. 3. MITIGATING ACTION PLANS FOR COMPANIES
Danajamin Nasional Berhad
3. MITIGATING ACTION PLANS FOR COMPANIES
Action
Hedging - Currency
Hedging - Interest Rate
Hedging - Commodity
Mindset / Attitude
No over leveraging / cash is king
Prudent asset / liability matching
Aspirational -> Go regional -> global (diversification)
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12. 3. MITIGATING ACTION PLANS FOR COMPANIES
Danajamin Nasional Berhad
3. MITIGATING ACTION PLANS FOR COMPANIES
Prudent asset / liability matching
Malaysian Capital Markets
Ideal platform to raise long term & fixed rate funding
Average Portfolio Duration (in years)
Source : Danajamin
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13. 3. MITIGATING ACTION PLANS FOR COMPANIES
Danajamin Nasional Berhad
3. MITIGATING ACTION PLANS FOR COMPANIES
Prudent asset / liability matching (cont’d)
January 2008
End-Sept 2008*
Source : Bondwed
Source : Bondweb
Note* : After collapse of Lehman Brothers
Rates movement obvious in financial crisis
Not an issue for companies who locked-in in January 2008
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14. 3. MITIGATING ACTION PLANS FOR COMPANIES
Danajamin Nasional Berhad
3. MITIGATING ACTION PLANS FOR COMPANIES
Prudent asset / liability matching (cont’d)
19 September 2014
Source : Bondweb
Rates will head north in financial crisis
Would a company look back with regret then ?
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15. Danajamin Nasional Berhad
STRATEGIC TAKEAWAYS
Corporate – To Dos
Adopt prudent fiscal management
Corporate – To Avoid
X Irresponsible financial management
Over leveraging
Not maintaining cash buffers
Punting on low short term rates for long gestation assets
Leveraging responsibly
Maintaining own cash reserves
Proper asset & liability matching
Overseas diversification
It is about striking the right balance !
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16. THANK YOU
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17. Disclaimer
This Presentation has been prepared by Danajamin Nasional Berhad (“Danajamin”) for use at the Perdana Leadership Foundation CEO Forum 2014 (PLCF2014) and is solely for informational purposes to facilitate discussion on “Session E : How Can Malaysians & Malaysian Companies Best Prepare for a Financial Crisis” of PLCF2014.
Whilst Danajamin has exercised good faith and due care in the preparation of this Presentation with the belief that statements contained therein are not false or misleading, Danajamin does not make any representation as to the accuracy or completeness of the Presentation and its contents.
Danajamin expressly disclaims any and all liabilities to the Perdana Leadership Foundation or any other parties for representations, expressed or implied, contained in or omissions from the Presentation or any other written or oral communications transmitted as a result of the circulation, publication or use of this Presentation contrary to the provisions contained herein.
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