The Malaysian structured products market has been beset on all sides over the past year, hit by a falling Malaysian ringgit, increased inflation expectations in the run-up to a goods and service tax hike in April, and stricter regulatory capital requirements for banks.
Yet in market conditions that led to a drop in issuance volumes that participants put at more than 30%, CIMB has made hay, boosting its market share from approximately 28% to around 40%.
The bank achieved this by rapidly responding to market conditions and tailoring offerings to encourage reinvestment from clients who either had products that became callable through volatility in the equity markets, or were looking for opportunities from the slumping domestic currency.
Compared with the 30% drop in volumes across the market, CIMB managed to limit its overall fall in sales and maintained holding 25% or more of market share for a ninth consecutive year. The bank grew volumes in equity, credit and commodity-linked products, offsetting a reduction in the other asset classes.
"We strive to provide our investors with good investing experience via active monitoring of their investment portfolios. We also try to find ways to make available any attractive reinvestment opportunities for them," says Chu Kok Wei, group head of treasury and markets at CIMB Group.
Roszali Ramlee, head of fixed income at Amanahraya Investment Management, in charge of around 7 billion Malaysian ringgit ($1.8 billion) in assets under management, buys a lot of derivatives products from CIMB. "They always provide me with good feedback on opportunities and good investment advice. That's why I keep investing with them. Being one of the biggest banks in Malaysia, I don't see any reason to change my view on them," he says.
The nation, a net exporter of energy, was badly affected by the slump in crude oil prices and the ringgit has steadily weakened over the year. At the same time, the market was widely expecting further action from the central bank after its first interest rate hike for three years last June, while the Kuala Lumpur Interbank Offered Rate (Klibor) was advancing as banks looked to hoover up capital to improve their liquidity coverage ratios.
Taking these macro events into account, in June 2014, CIMB introduced the US dollar funding arbitrage strategy, structuring it into interest rate range accrual products. This provided investors with attractive arbitrage opportunities in dollar/ringgit funding and brought back some of the value of the original interest rate product, which was being eroded due to the impending expectation of rate hikes. The bank hedged out its foreign currency risk with a cross-currency swap.
"We offered this before the reference index level increase and investors who opted to reinvest in the funding arbitrage callable power range accrual structure continued to earn the coupons as six-month Klibor remained within the widened range," Chu says, adding that the restructured product proved popular among their existing clients.
Investors who opted to enter into the reinvestment proposal entered a structure with a wider range. The percentage of conversion was more than 50% from those who were at risk of falling out of range, notes Chu.
"We studied the offering on the funding arbitrage and we quite liked it," says one institutional investor. "Their speed in offering in a very short timeframe before the arbitrage window closes puts them ahead of their competitors. They do show us other new structures that we may be interested in. Their speed and proactive approach for market developments and updates are what sets them apart as we continually seek new investments for returns. Even for older structures, re-customisation with regular refreshing of levels puts them on a very strong footing, indicating understanding of our needs with a view for a longer-term relationship."
Another step the bank took to keep investors from cashing out and moving on was to offer high-yield, equity-linked investments to clients when dropping equity markets triggered autocallable products to be settled with stocks delivered to investors. Investors could use the shares they received as a result of the conversion of the autocall structures to enter into products that could pay higher yields, at the same time as offering a chance to sell the shares back at a fixed target price.
"We saw an improvement in autocallable equity volumes," says Chu. "We widened the referenced equities, from local stocks to Asian names and even some ex-Asia stocks."