House of the year, Malaysia: CIMB

Asia Risk Awards 2022

Chu Kok Wei, CIMB

With the dawning of 2021, investors in Malaysia were cautiously optimistic that the worst of the pandemic was behind them but, as the year unfurled, it quickly became clear that recovery was going to be a slow process. Amid the persistent market turmoil and prolonged lockdowns, CIMB’s market-making and structuring capabilities continued to prove their worth.

“The Covid-19 pandemic came as a real shock to the whole banking system. Faced with large-scale lockdowns and uncertainty as to when this would all end, some banks pared down their risk. But in CIMB’s case, we adapted and learned fast, and by the end of the year we had a strong liquidity position and were continuing to quote prices in the market,” says Chu Kok Wei, co-chief executive officer of group wholesale banking.

As a result, CIMB was able to maintain a leading position in the market and even strengthen its footprint in certain asset classes.

Rising rates

CIMB’s strength in interest rate structuring has been particularly appreciated by clients, as clients have started to prepare for rising interest rates around the world.

“In the last one year the overall market sentiment has changed,” says Chu. “We had many clients who were looking to lock in fixed dollar rates or even local ringgit interest rates, due to the higher interest rate environment that was taking hold from the end of last year.”

As the MYR interest rate curve has steepened, CIMB’s sophisticated warehousing capabilities have also allowed the bank to bring more competitive and advanced pricing to clients.

An example of this is the Callable Islamic Range Accrual (Cira) note, linked to the Kuala Lumpur Interbank Offered Rate. This product was originally launched in 2020, and proved a perfect fit for many of the bank’s clients during Covid by offering a safe harbour via exposure to traditionally stable MYR rates.

At the end of last year, with a rate-hike cycle widely expected to start in 2022, CIMB sensed an opportunity to improve pricing. At the end of March, CIMB was able to offer a profit rate of 4.28% per year, for a five-year Cira product, non-callable for six months. This was 2.48% above prevailing deposit rates at the time.

“Given our warehousing capabilities we are able to provide very competitive pricing versus the market, and so we have seen an increase in the number of clients and new funds coming to the bank to buy our products,” says Chu.

As a result of this attractive pricing structure, volumes for Cira during the awards period under review increased by 576% compared to the previous 12 months.

But the strength of CIMB’s success is more than that. Not only does it offer its own products to the market, but other banks often turn to it for price-making on this.

“Other banks have also reached out to us to hedge their issuance of the same product, so I would say that a lot of the other transaction volume seen in the Malaysia market is also coming back to CIMB itself,” says Chu.

New structures

In terms of new product launches at CIMB, one that has done particularly well was in the forex space: a Sharkfin structure that provides a variable yield linked directly to the movement of the underlying currency.

This principal-guaranteed product is intended to be fairly short-term – between six and 12 months – and can be adapted to the customer’s preferences by tweaking tenor, strike levels and currency pair. The product knocks out and pays the client a fixed coupon if its value dipped beneath a certain level.

“This was the first time we had offered this kind of product to private banking clients in a principal-guaranteed format, and it filled the gap on our product shelf,” says Chu. “We have a lot of short-term products for forex, and many longer-term products for fixed income and rates, but we needed a product to fill the six-month to one-year tenor, and that is where this product fits in.”

Credit

On the credit side, CIMB has been looking at ways of offering clients extra leverage.

The bank recently developed a product to provide investors with leveraged exposure to specified bonds on a non-recourse basis, with an option to buy at a tenor shorter than the underlying bond’s maturity. The product features various protective provisions including an early termination trigger that aims to mitigate the issuer’s risk while allowing sufficient scope for the investor to participate in the upside.

CIMB says it has received a lot of inquiries from clients on this new product, although no trades have yet closed.

Another development was to allow the use of credit-linked notes (CLNs) as collateral for portfolio financing. This has enhanced the appeal of such notes for clients and contributed to the revival of CLN issuances that was seen at the start of the year.

“We are confident these products will help to grow the business franchise and meet clients’ demand for leveraged tools to manage their investments,” says Chu.