KPMG’s executive head of Financial Services in Africa, Trevor Hoole, said that there was significant consensus among interviewees regarding the key trends facing senior executives at the world’s major banks.
“One of these is the regulatory trends and uncertainty choking growth in the West, which looks unlikely to change over the next three to five years. Meanwhile, China tops the growth agenda, but opportunities for foreign banks to build scale to match domestic banks there, are limited,” explains Hoole.
As one interviewee based in Hong Kong agreed: “China and India remain hot, with the profit pools continuing to grow. However, only a small percentage is available to foreign players.”
Another trend is that emerging market banks are regionally focused and are not looking to build global empires. Also, there continues to be a substantial and growing focus on domestic and regional banking propositions and business models.
“A key trend is that M&A is driven by top-tier portfolio re-alignments among larger banks and second-tier consolidations as smaller banks seek to achieve scale,” says Hoole.
However, several useful insights into the global banking growth agenda that may be relevant to local players were brought to light. For instance, as one European-based interviewee pointed out: “Indian banks are not yet on the global radar screen – they have not made their international footprint.”
Another respondent in China felt that “linking to telecoms is a logical extension of transaction banking”.
The brain drain is being felt across the globe in the industry. “Squeezed margins due to regulation will lead to lower remuneration and the loss of the brightest minds to non-banking industries. This will seriously impact the banking sector over the next 10 to 15 years,” said one European-based interviewee.
KPMG in South Africa’s head of Transactions & Restructuring, John Geel, noted that regulation will continue to challenge large Western banks’ abilities to pursue big-ticket M&A, but will encourage some asset disposals as banks seek to focus and to adapt their operating models.
“Over the next few years, M&A is likely to be dominated by second-tier consolidation in countries such as China, the USA, Germany and Spain, giving rise to mainly domestic transactions. Emerging market banks will continue to pursue their primarily organic growth agendas in order to grow in their home countries,” says Geel.
It appears that the need to build scale in growth hotspots will be hampered by a lack of available acquisition targets.
In summary, the KPMG global banking report indicates that emerging markets dominate the growth agenda, but might not be the panacea that many in the West hope for. As regulation chokes big-ticket M&A and organic growth takes priority, the real question is: which banking model will prevail?