Not every bank desires to be a global powerhouse but there are some markets that are TBTI (too big to ignore). Chief executives need to have a China strategy and an India strategy for sure but the TBTI list is growing faster than CEOs can keep up with. As well as the BRIC countries, there are other places that in terms of size of population or economy (or both) should be on the radar. They include Mexico, Indonesia, Turkey (witness the scramble to get in there), Korea, Pakistan and South Africa.
In a report entitled Banking in 2050: Key Findings, PricewaterhouseCoopers (PwC) has laid out the starting points for a discussion about which markets are TBTI (this is The Banker’s term, not PwC’s) and how to approach the ones that qualify. On the former point, the report’s authors, John Hawksworth and Nick Page, predict that total domestic credit in China will overtake that in the UK and Germany by 2010, Japan by about 2020 and the US by 2045. India is likely to emerge as the third largest domestic banking market in the world by 2040 and could grow faster than China in the long run. Brazil, Indonesia, Mexico, Russia and Turkey all have the potential to develop banking sectors of comparable scale to major European economies such as France and Italy before 2050, says the report.
But clearly it is not possible to expand in every market all at once. Helpfully, PwC has put together numbers on domestic credit and profits growth for some individual countries to identify the hottest prospects.
Domestic credit to gross domestic product of 200% is considered a ceiling for any country, and markets are looked at in terms of their development towards this goal as well as their income per capita. Most emerging markets are squeezed up at the part of the graph where both domestic credit and incomes are low, with the exception of China. Most developed countries are squeezed up in the graph where both domestic credit and incomes are high, with the exception of the US. China has exceptionally high credit because of its massive non-performing loans and underdeveloped equity markets, whereas the US lags because of its fragmented banking sector and powerful capital markets.
Whether Chinese banks would conclude from this that there are opportunities for them in the US is debatable but certainly banks from the emerging markets will be going overseas as well. We certainly do live in interesting times.
