Asia’s banking industry has plenty of room for growth thanks to the region’s resilience through the global financial crisis, which has helped increase capital inflows and trade activity. The challenge for banks aiming to capitalise on this growth lies in identifying the right strategy.
The scale of the opportunity is evident from a comparison of economic growth rates and bank branch penetration, as Accenture revealed at a media roundtable yesterday. China, India and Indonesia have the highest expected GDP growth (9.2%, 8.1% and 6.7%, respectively, from 2011 to 2015), combined with low bank penetration (around 14, 10 and 7 branches per 100,000 people, compared to 45 per 100,000 in low-growth Japan).
“In emerging Asia what we are actually seeing is a much greater potential for growth, obviously, but on the back of that comes an enormous challenge for the banks in those geographies to decide exactly what they do next,” said Andrew Pitcher, senior executive and managing director of Asia-Pacific banking at Accenture.
Innovation, expansion and mastery are the three keys driving banks to grow, according to Accenture. “If you look at what winners [in advanced markets] are doing, they are continuing to drive down costs, investing a lot in core customer-centric distribution and service, and trying to innovate new products and services,” said Noel Gordon, managing director of Accenture’s global banking industry group.
“It is an interesting paradox when you are looking at the European banks right now,” he added, “While they are cutting costs dramatically, investments are going up.”
Back in Asia, Accenture divides the banking market into three segments: advanced Asia, including Australia, Hong Kong, Japan and Singapore; maturing Asia, including Korea, Malaysia, Taiwan and Thailand; and emerging Asia, which comprises China, India, Indonesia and the Philippines.
The firm’s research reveals that buying into the growth opportunity in emerging Asia is still relatively cheap. Share prices reflect two key assumptions: current value and future value, or the growth that investors expect in the future — and, according to Accenture, the future value component makes up 62.3% of the share price of banks in maturing Asia, and 50.9% in advanced Asia, which suggests investors expect banks in those regions to grow relatively fast.
In emerging Asia, where future value comprises just 14.2% of banking stocks, investors are not expecting much growth.
At just 3.3%, China has the lowest future value composition in Accenture’s report. This might reflect the fact that banks in China also had the lowest net revenue growth and low efficiency, or the concerns of investors about the transparency of the country’s banking system, even though pre-tax return-on-equity (ROE) is relatively high. Banks in Japan, adversely, have the highest net revenue growth and the lowest pre-tax ROE ratio, with a future value composition of 40.3%.
