Nazir Razak talks about CIMB's growth and the future of banking

At our recent Country Awards dinner we awarded Nazir Razak, CEO of CIMB Group, our Lifetime Achievement Award for his contribution to Asian banking and finance. After the awards dinner, we sat down and talked to Nazir about CIMB's rapid growth and his views on banking in Asia. Below is an excerpt from that conversation.

What has been the key to CIMB's positive financial performance over the past year?
I think the performance has been pretty consistent with the rest of Malaysian banks. This is fairly surprising to some people, as we have a fairly large business involving capital markets and indeed we are the most active in the global financial markets. We were able to achieve this in part because in 2008, the turnaround of our consumer banking business actually came through and therefore that was able to offset the 35% decline that we saw in our capital markets business. At the same time, we took rather big steps with regard to our counterparty risk positions and also managed our liquidity very prudently and so this helped insulate the firm from many of the global shocks.

What was the most challenging decision you faced during that period?
Actually, the most challenging decision I faced was whether to proceed with the acquisitions we had embarked on during that period. If you looked around in the region and elsewhere at the time, people were reneging on deals left, right and centre. And there were times when some people thought that finance was going to fall off the cliff. So it was quite hairy as we had M$5 billion ($1.4 billion) worth of acquisitions on the plate. We had to look at it all very carefully, steady ourselves and believe in our view, which is that this is for the long term and we can still create value even though valuations were off, relatively speaking.

What was the original motivation behind the strategy of acquiring more banks and becoming a regional player?
In the early part of 2004 we were a liquid, Malaysian investment bank that had 30%-40% market share, and when we looked ahead we were wondering where to go to grow? So we decided we had to look around regionally. And then we made this rather dramatic acquisition of GK Goh. Then we started looking around even more in the region and quickly we realised we were not going to get very far without a bigger balance sheet.

At the same time, I looked at the way accounting was going -- mark-to-market accounting, etcetera -- where accountants lost their prudence and basically decided to go with anything that smoothed out earnings. That made it very difficult to be a listed pure investment bank. 

And the third thing that came into play was a convergence of interests. The GRC [governance, risk management and compliance] reform in Malaysia was just beginning, and the new Khazanah [the investment holding arm of the government] mandate came into play -- they were encouraging companies to re-energise themselves [and merge]. 

So we had a sister bank, Bumiputra Commerce Bank, that was in dire straits. There was a convergence of interests. The holding company of BCB hired McKinsey and asked them what to do. And when they came to me and asked me what I thought, I said to them, 'Look, for the first time as consultants you are actually going to get a solution. This is the solution. We merge the investment bank and the commercial bank and I will run it.'

In the past, there had been overtures for me to just cross over and go run the commercial bank but I thought that lacked scale. The best thing to do was to merge the two entities, to merge the people. And all that came together in 2005. From a larger perspective this was also about economies of scale. I think a commercial bank needs a regional-level scale. 

We feel the right position for us is to be between mindlessly global and hopelessly local. And I think we've found that position.

How difficult is it to manage the transition from being a Malaysian bank to a regional player?
In some ways it is actually easier for us. Think about it -- is it easier for me to go to Indonesia or for a global bank to go to Indonesia? And in terms of solutions that we offer, do I understand the requirements of say the development of a rupiah-bond market better than a global bank, given the Malaysian experience in the region? I do.

You must also remember that when we go into these markets we try very hard to make sure that it is not just CIMB, but rather it is a combination of CIMB and a local franchise coming together. As a result, people see us as local. If you go to Indonesia they see us as the old Bank Niaga franchise plus CIMB. If you go to Thailand they see us as the old Bank Thai guys plus CIMB. And even in Singapore they see us as the old GK Goh franchise plus us. In a way, we want to be seen as a local brand.

I do remember when you were making some of those early acquisitions a lot of people said: 'This isn't going to work'. Were your investors among those critics or were they on board from the beginning?
They weren't all onboard. When the group first entered Indonesia in 2002 the stock got panned and we lost about 25% in value when we announced the acquisition of Bank Niaga. Keep in mind this was at a time when some people thought Indonesia was in bad shape. We were the first -- and only -- people who bid for Bank Niaga. At the time the feeling was: 'Why are you going into Indonesia? Do you know what you're getting into?' So on and so forth... But since then we have proven that we can do business in Indonesia, and indeed in general, that we can do business abroad. 

But you know we have been very careful about winning investor confidence. One of the things we do is that every time we do a transaction we take investors through, in quite a lot of detail, every step of what we plan to do and why we think this is a good transaction. We actually show the books and explain the synergies.