Great Expectations: Asia-Pacific Banks After the Credit Crisis

After a downturn not seen for many years, Asia-Pacific banks are showing strong recovery. IDC Financial Insights analysed the latest four months’ performance figures from the top 100 banks in the region (excluding those from Japan and South Korea), and compared these with figures of four months prior, and found that 45 banks showed higher revenues, while even more, 52, showed higher profits. The industry is poised for the year of the comeback.

But 2010 may also very well be the year of great expectations. In an executive survey conducted at the recent Asian Financial Services Congress 2010 we organised, 67 out of 81 C-level executives questioned (82%) expect medium to strong revenue growth (above 3% year-on-year) among banks in their markets in 2010. The remaining 18% anticipate low growth (0-3% revenue growth). None of the respondents project flat growth or declines.

Figure 1: Predicted Revenue Growth in Asia-Pacific Financial Institutions

Source: IDC Financial Insights


Even as the region’s banks face greater prospects for recovery, they too are facing a much-transformed marketplace. We point out the following significant changes seen in the post-crisis marketplace.

More, not fewer, banks in the Asia-Pacific region

While we expect the number of banks worldwide to shrink by 4% by 2010, the current tally for the Asia-Pacific region points to more, not fewer, banks. Many Asia-Pacific markets are still largely unbanked, and we will see more new players coming into the system. In the end, we will see more, not fewer, financial institutions. In some parts of Asia-Pacific, new market leaders will emerge – some because of their sheer size, resulting from mergers and acquisitions (M&A), but some because they have chosen to compete aggressively despite the severe market conditions of 2008-2009. At the same time, ownership of many organisations has changed hands and we anticipate new management to shift market share-building strategies.

Governments will drive consolidation in the industry

Several countries are coming up with new financial sector masterplans – Thailand and Malaysia are bringing to market formal masterplans soon, but other markets like China, Taiwan, Vietnam, and India are introducing salient changes to rules governing competition in the banking sector. These master plans aim to lift the efficiency and competitiveness of the industry, typically by encouraging consolidation and opening up the sector to a greater number of new (or foreign) players. Together with the possibility of governments selling shares in some of the most dominant banks in the region, these financial sector masterplans prove that state action will be a clear driver of M&A and consolidation in the industry.

Large banks gaining even more market share

We note increasing concentration of market share among Tier 1 institutions, especially in Malaysia, Taiwan and Australia. The increasing concentration among top banks brings to the fore issues of decreased competition, collusion, and unfair pricing power. Large banks will have not only greater access to low cost of funds but also deeper pockets for marketing, branding, and channel growth. Certainly, the growing dominance of the largest players highlights not only too-big-to-fail arguments but also systemic risk – both issues gaining prominence worldwide in the recent crisis. However, the banking sectors in Australia, Hong Kong and Singapore, three of Asia-Pacific’s most concentrated markets, have shown good risk management, remained healthy, and have emerged relatively unscathed from the crisis. This supports the share concentration of top-tier banks.

Niche propositions difficult to design, but still possible

Niche propositions will continue to be formulated, albeit with greater difficulty. Opportunities in niche areas will also usher newer banks into the system. Some banks will focus on selected business areas such as microfinance, rural banking, payments, remittance, or trade finance. Others, meanwhile, will differentiate on great customer service, better turnaround time, or product excellence.

The rise of Asia-Pacific super-regionals, as international players retreat from the region

A number of global players have retreated from the region. The previous 18 months saw even the largest institutions selling their operations in Asia-Pacific markets or divesting shareholdings after lock-up periods (this latter trend especially apparent in China). Asian-based institutions, however, have stepped up and have become more aggressive in undertaking acquisitions to support super-regional strategies. A few of these super-regionals promise to be true Asian powerhouses.

Cautious optimism with regard to the region’s growth prospects

Mirroring the gradual revisions (creeping downward) of GDP growth estimates at the height of the crisis, growth estimates for 2010 have been gradually raised. For example, the Asian Development Bank (ADB) has estimated that together, the 14 economies of emerging East Asia (comprising the 10 ASEAN countries, plus China, Taiwan, Hong Kong, and South Korea) would collectively grow by 6.8% in 2010, up from 6.5% in an earlier estimate. Separately, the Reserve Bank of Australia has also raised forecast from 2.25% to 3.25% for the Australian market. Estimates still take into account many risk factors such as fragile recovery in exports, prospects of interest rate increases, and still weak employment levels, among others.

Making the Most of Recovery

How do the region’s banks take advantage of the economic revival? The IDC Financial Insights Executive Survey reveals a number of top priorities (Figure 2).

Figure 2: Business Priorities for Asia-Pacific Banks

Source: IDC Financial Insights


  1. Operational efficiency
    A focus on operational excellence is a key focus for the phase of economic revival. Initiatives in this space include reducing bottlenecks and eliminating non-value-adding processes, but also pushing to reduce errors, improve turnaround time and improve productivity.
  2. Risk management
    Of course, the lessons of risk management are key takeaways from the recent crisis, particularly the lesson that if issues are too complicated to understand, they are likely to be too complicated to manage. Priorities will shift towards solutions that enable banks to quickly fill in gaps in their risk management capabilities as well as take on risk management best practices learned from recent crisis. Risk management investments – ranging from data integration and analytics, credit risk management, security and fraud management will be the highest spend area for 2010.
  3. Staff productivity
    The confluence of staff cuts, expanding compliance mandates, and growth in the number and types of business priorities might have created banks that are too stretched to quickly respond to more dynamic demand. Financial institutions will have to do more with less.
  4. Improving customer experience
    Improved economic prospects now allow banks to go beyond customer retention priorities that were so important in the crisis 2009. Organisations are now more focused on newly revamped programmes for customer acquisition, cross-sell and up-sell, and customer loyalty. The return of ‘grow the base’ rather than ‘keep the base’ is a welcome sign of better times.
  5. Compliance
    Many regulatory bodies across the globe have stepped up their oversight and controls. A lot of these compliance measures, of course, address liquidity risk, but all aspects of risk management have received greater scrutiny. Regulations are added proactively and normally upon short notice. Organisations are now increasingly focused on having the ability to comply within a short period of time.


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