The Asian free lunch is over - Editor's Blog -

With European banking still in a crisis of low returns and bad assets, it is tempting to think that everything is rosy in Asia. Two recent reports dispel this myth, writes Brian Caplen.

Banks from Asia-Pacific (including Central Asia) contribute 42% of global banking profits, according to The Banker’s 2019 Top 1000 data set (see chart). For many years now regional returns have tended to outstrip those of American and European competitors on the back of faster economic growth.

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But the latest Asia-Pacific banking review from McKinsey declares that “the days of a free lunch and fast growth [in Asian emerging markets] are behind us” and that “Asia-Pacific banks are facing challenges typical of mature markets, including slowing growth, thinning margins and higher capital requirements”.

McKinsey envisages a period of consolidation in Asian banking as those players able to modernise and gain advantages of scale take over weaker institutions.

At the same time as economies are slowing, Asian banks are facing the ramping up of all the challenges banks elsewhere face – the threat from big tech, payment players and challenger banks; the arrival of new technologies such as artificial intelligence and blockchain; and the rise of open banking.

A report from Temenos shows that Asian bankers see big tech (Google, Facebook, Alibaba) as their biggest competitive threat in the years up to 2025, followed by payments players (PayPal, AliPay, Apple Pay, WeChat Pay) and then neo-banks (Volt, Varo, Monzo).

It is interesting to note that Asian banks are facing this threat from two directions – Asian players such as AliPay and WeChat as well as Western players such as Facebook and Google – whereas Europe and US banks mostly only have to deal with the Western competitors.

What both reports conclude is that best-in-class digital strategies will be key in deciding who comes out ahead in the coming shake-up in Asian banking. 

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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