Emerging market respondents overwhelmingly prioritized domestic growth over international expansion. Citing strong opportunities remaining in their domestic markets and the relative high cost of pursuing foreign growth, most emerging market banks suggested their international expansion plans were limited to either satisfying the international requirements of their domestic corporate customers or servicing their nationals living abroad.
The allure of the emerging markets
The KPMG study, entitled Bruised but not broken: the global banking growth agenda, finds that many banks based banks based in relatively mature and saturated western markets are increasingly looking at the emerging markets for their growth plans.
“Given the relatively slow growth rates in the mature and largely saturated western banking markets, it seems hard to avoid the conclusion that any bank not active in Asia, Africa or Latin America will be consigned to the ‘slower grower’ category,” said Stuart Robertson, a partner with KPMG in Switzerland and the Banking Sector Lead for Transactions and Restructuring with KPMG Europe LLP.
Nevertheless, emerging markets may not be the saviour foreign banks might hope for: “For foreign banks to achieve success in the emerging markets requires a great deal of time, patience and investment, as well as a solid and clearly articulated unique selling point. Banks looking to generate quick returns may risk severe disappointment,” suggests Edwina Li, a partner with KPMG in China. “Opportunities for foreign banks are there, but it requires patience. It is not a quick profit generator.”
Regulatory change slows ‘Big Ticket’ deal-making activity in the West
According to the report, regulation is increasingly impacting the growth agenda of banks in the West. Operating model changes driven by regulatory considerations are yet to play out in full, and therefore some larger players report continued focus on non-core disposals or portfolio shuffles in order to build scale in key jurisdictions.
Indeed, many banks are now dealing with greater capital and liquidity requirements, reduced profitability and rising costs of regulatory compliance. Global banks would appear to be at an advantage if they can maintain scale at a country level, as sharing platforms across countries can contribute significant cost savings. But regulatory trends look likely to disadvantage banks that are present in multiple jurisdictions. Basel III, for example, may penalise banks that are unable to secure local funding, which may impact more the multi-national banks if an individual country operation lacks critical mass.