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Western banks in Asia

Western banks in Asia- what does it take to succeed?  

It is rare to find a major international bank which does not wish to expand its presence in the Asian retail, corporate banking and wealth management markets. The portion of the population that remains unbanked, particularly with respect to more sophisticated products, is an obvious major attraction, especially given comparative stagnation in the west. The emergence and growing wealth of the middle classes is another key opportunity. But why do so few western banks manage to achieve their objectives and the desired footprint in Asia? What does it take to succeed?

It is clear that penetration of Asian markets is a key objective for many Western banks in search of opportunities for growth and profits. Almost all the major western banks in ‘expansion mode’ profess to have an interest in Asia. It is illustrated by the fact that over 200 western banks have operations in Asia’s banking hubs of Hong Kong and Singapore. However, it is notable that in many cases such aspirations are not supported by detailed and realistic strategy and plans. And historically, only a handful of western banks have been notably successful in entering Asian markets and gaining a strong foothold.


In most Asian countries, the market share of Western banks is very low, and this has not changed much over the last 5-10 years. Foreign banks’ penetration in terms of total banking assets is highest in Hong Kong and Singapore. Elsewhere, penetration has been very limited: China, Philippines and Thailand have the lowest penetration with total assets held by foreign banks of 1.9 percent, 2 percent, and 6 percent respectively. Foreign banks hold of only 1.9 percent of total assets in China is the lowest share amongst major emerging markets, according to the International Monetary Fund.


Headlines

  1. There are over 200 western banks in Hong Kong and Singapore - Western banks have successfully penetrated these markets (particularly in the investment banking and private banking sectors)
  2. Outside of Hong Kong and Singapore Western penetration has been low – 1.9 percent of assets held by foreign banks in China compared to 69 percent in Singapore.
  3. Half of the major western banks will be challenged by a lack of critical mass and gaining a foothold – banks need to deploy assets of US$100 billion to have critical mass.
  4. Western banks need to have focus, either on geography or product – they can lead the market in wealth management as the middle class grows wealthier or investment banking as markets become more sophisticated.
  5. Successful banks will adopt a long term commitment to organic growth supplemented by opportunistic acquisitions (e.g. as sub-scale Western banks retreat to home markets)
  6. Some developing markets might need their banks to raise capital to support GDP growth – Western banks can have a part to play.

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