Asian Banks: 6 Mega-Trends to Watch

IDC Financial Insight’s looked at 13 markets in the Asia Pacific region and found 6 mega-trends to watch in 2011. The organization predicted banks and technology vendors to make the most sense of the macro-level drivers of the 2011 stage – deciding which strategies and investments of the past few years need to be focused, and which need to be forgotten in today’s changing marketplace.

1.      The emergence of super-regionals

IDC Financial Insight’s looked at 13 markets in the Asia Pacific region and found 6 mega-trends to watch in 2011. The organization predicted banks and technology vendors to make the most sense of the macro-level drivers of the 2011 stage – deciding which strategies and investments of the past few years need to be focused, and which need to be forgotten in today’s changing marketplace.

1.      The emergence of super-regionals

IDC’s reports in 2010 found the emergence of what they termed ‘super-regional institutions.’ These are institutions that increased acquisition activities in several markets in the region in a short period of time and created their own regional franchise. These are the banks that are expected to build traction in their markets in 2011.

2.      One ASEAN

The ASEAN Economic Community (AEC) will to come to fruition by 2015. AEC is expected to liberalize financial services in the 10-member Association of South Asian Nations, allowing more players to compete with domestic markets. “The region’s banks will have to seriously consider the prospects of a 700-million-strong market and anticipate the unique trade finance and corporate banking opportunities therein. Alongside the creation of the AEC is the continued expansion of trade and economic cooperation with ASEAN partners like China, Japan, South Korea, Australia, New Zealand, and India — effectively made up of the major economies of the Asia Pacific.”

3.      Cheap deposits

Increasing interest rate environment leading to higher costs in the wholesale market, more aggressive competition for domestic customer deposits and more stringent regulation governing reserve ratios and liquidity coverage will make funding even tighter for banks in 2011.

4.      Normal loan growth targets

While Singapore and Indonesia are likely to see their banks accelerate lending further, IDC expects banks in general to moderate their loan growth targets in 2011. The scaling back is crucial to prevent overheating. In China, the government is likely to increase reserve rations and enforce loan growth targets not be breached, also meant to prevent overheating of the economy. Meanwhile India banks reduce loan growth targets with little demand for loans outside the infrastructure sector.

5.      Fee income disruption.

Bank fee income strategies need to be overhauled. Current sources of fee revenue are being eliminated with caps in debit card merchant fees. In Australia, new measures to cut exit fees on mortgages and deposit account transaction fees are already underway. In the Philipines, banks will be able to use a new one-day central clearing system but stand to lose key sources of fee income. IDC sees banks will offset fee revenue by expanding fee generation from commercial and corporate banking.

6.      The rise of midsize institutions

The highest loan growth targets in 2010-2011 came from ambitious midsize banks. They continue a trend from 2010 where midsize players competed aggressively in the deposit business, though with detriment margins. The same efforts are also seen coming from IT plans. Technology capabilities will allow midsize players to handle more transactions and customers, as well as support expansion of their operations and offerings.

The full report from ICD.