The banking industry in Asia is dynamic, with a number of mergers and acquisitions shifting the competitive landscape for the region’s players. As global financial institutions are rethinking their strategies, and China’s behemoth banks are preoccupied with a massive domestic market, Asian regional banks are being presented with a window of opportunity.

A pan-Asian banking presence is no longer the preserve of global titans. The financial crisis – and the subsequent wave of regulation – has forced many US and European banks to reshape their strategies, creating opportunities for Asian banks to expand. These emerging pan-Asian financial institutions are creating a patchwork of many types of regional banks in a paradigm shift away from a landscape of global banks aspiring to be ‘all things to all men’. 

Clusters of bank activity are emerging in Asia, with each bank’s strategy influenced by the nature of its domestic market as well as the opportunities arising from asset purchases in the region. The domestic markets of China, India and Indonesia provide enough opportunities for the local banks within their national boundaries, while the smaller economies of Singapore and Malaysia are giving rise to regional banks that are expanding throughout south-east Asia and beyond. 

Pan-Asian growth

In recent years it has been the growth of the Chinese banks that has garnered the most attention. ICBC, China Construction Bank and Bank of China now rank in the global top 10 in terms of Tier 1 capital in The Banker's Top 1000 World Banks listing. And not only is China known for some of the world’s largest banks, it is also home to the fastest growing. 

According to The Banker’s database, of the fastest-growing banks in the Asia-Pacific region, seven of the top 10 are Chinese. Kunlun Bank, for example, recorded a year-on-year assets growth of 294.22% while Bohai Bank saw a rise of 132.54%.

This dramatic growth story in China has overshadowed the steady performance of Japan’s banks, which have been involved in some prominent acquisitions in Asia in recent months. In December 2011, Mitsubishi UFJ Financial Group agreed to pay A$425m ($457.5m) for a 15% stake in the Australian fund manager AMP Capital Holdings. And earlier in September 2011, Mizuho Financial Group agreed to buy a 15% stake in Vietcombank for approximately $567m. 

These deals, however, were dwarfed by Sumitomo Mitsui Financial Group’s recent acquisition from UK-based RBS. In January 2012, RBS announced that it was selling the aircraft leasing business RBS Aviation Capital to Sumitomo for approximately $7.3bn. The deal follows a string of asset disposals as RBS recovers from its ill-fated acquisition of ABN Amro assets just before the financial crisis.

ANZ expansion

Another bank that has done well out of RBS’s retreat from Asia is ANZ, which used the former ABN Amro assets as a platform to aggressively expand into the region. In 2009, ANZ completed the acquisition of RBS’s businesses in the Philippines and Vietnam. And in 2010 the Australian bank completed the acquisition of RBS’s retail wealth, private banking and commercial businesses in Indonesia, Singapore and Hong Kong. In the same year, ANZ’s locally incorporated bank began operating in China, and in 2011 ANZ began banking operations in India and opened its first branch in Mumbai.

Asia is front and centre of [ANZ's] strategy to become a super-regional bank... Obviously Australia and New Zealand’s economic future is completely tied to the economies of Asia. We think of Australia and New Zealand as part of the Asian economic block

Mike Smith

The bank is currently working on expanding in Thailand, where it currently has a representative office, to establish a subsidiary with full banking operations. ANZ’s presence now spreads across the region from China, Taiwan and Hong Kong to the Greater Mekong region of Vietnam, Cambodia and Laos, as well as in Singapore and Indonesia. 

“Asia is front and centre of our strategy to become a super-regional bank,” says Mike Smith, CEO of ANZ Banking Group. He adds that the region accounted for 7% of the bank’s earnings in 2007. That figure now stands at about 18%, and the target, says Mr Smith, is for 25% to 30% of ANZ's earnings to come from Asia-Pacific by 2017. “Obviously Australia and New Zealand’s economic future is completely tied to the economies of Asia. We think of Australia and New Zealand as part of the Asian economic block,” he says.

Does this mean that ANZ is now an Asian bank, rather than an Australian bank? “We call ourselves a regional bank with very strong Australian ties,” says Mr Smith. The pull for ANZ’s customers, Mr Smith explains, is that the bank offers access to the Australian and New Zealand markets as well as intra-regional connectivity. 

When asked whether this kind of expansion is part of a wider trend of regional players creating a new landscape, Mr Smith says: “The days of the global banking model were numbered,” adding that global banks became too difficult to manage. “There are huge opportunities for a bank like [ANZ] in this environment. In 2008 we saw a number of players, especially US and European banks, pulling back. We are seeing that again now, primarily from the European banks drawing in their horns and shrinking their balance sheet under Basel III rules,” says Mr Smith. 

Western retreat

This landscape of regional banks could reshape again in the medium term. The current move away from the dominance of global banks is a consequence of the fallout from the financial crisis. Once the environment improves, a new – or existing – player could emerge to form a truly global universal bank. “It goes in cycles,” says Mr Smith, who had a 29-year career at HSBC before taking the helm at ANZ. 

While RBS’s retreat from Asia has created opportunities, Mr Smith’s former bank, HSBC, has also shed some assets in the region. Like RBS, HSBC has undergone a major strategic review. The UK-based bank’s current strategy for Asia is to expand in Greater China and build scale in other key markets, such as India, Singapore, Malaysia, Indonesia, Australia and Vietnam. 

However, the bank has been selling off assets across the globe. In Asia, it announced in January that it was selling its retail banking and wealth management business in Thailand to Bank of Ayudhya for approximately $115m. A month earlier, HSBC announced it was selling its private banking business in Japan – with gross assets of approximately $2.7bn – to Credit Suisse. 

There have also been reports that HSBC has been in discussions to sell its retail banking business in South Korea to KDB Financial Group. It comes at a time when KDB is pushing ahead with a privatisation and acquisition agenda. The South Korean bank has ambitions to be one of the top 20 banks in Asia and is poised to capture opportunities that have been left by European banks in the region. Likewise, fellow South Korean operator Woori Financial Group is also in the process of privatising and sees international expansion as essential. 

Staying put

However, not all South Korean banks are pursuing international acquisitions as their strategy. In a previous interview with The Banker, Euh Yoon-Dae, chairman of KB Financial Group, argued that there is not a competitive advantage in expanding internationally, and expansion and growth should come from improving costs and the quality and efficiency of management. 

Establishing a pan-Asian presence is not the goal of many of Asia’s largest banks. Indonesia’s Bank Mandiri, for example, is focused on its domestic customers. “Our strategy is to try to dominate the Indonesian environment – to not only grow in the corporate banking segment but also in the retail banking segment,” says Zulkifli Zaini, president director and CEO of Bank Mandiri.  

Mr Zaini explains that Bank Mandiri’s strategy is to grow outside Indonesia to facilitate the growth of its Indonesian customers beyond their domestic market, whether it is in Singapore, China, the Middle East or elsewhere. “Bank Mandiri will grow with the Indonesian economy and with the companies that grow outside Indonesia,” he says. “We have the ambition to be in the top five banks in south-east Asia in terms of market capitalisation. Our ambition is more on the asset and market capitalisation side, not in the sense that we are everywhere in south-east Asia." 

Mr Zaini argues that it is not easy for Indonesian banks to open elsewhere in Asia and there is not the same degree of reciprocity as there is for foreign players coming to the Indonesian market. “The markets in Malaysia, Singapore and China are not as open as Indonesia,” he says. In Singapore, for example, Bank Mandiri has a branch but has a limited licence and is unable to tap the country's retail market. When asked if Bank Mandiri would pursue a wider geographical spread if it was easier to do so, Mr Zaini says: “We are just following our strategy to grow with Indonesia. If an opportunity is there, then we will open branches.” 

No one has aligned themselves as much with Asean as CIMB... We believe strongly in getting uplift from synergies between the investment and commercial banks, and between countries

Nazir Razak

From a small base

In contrast to Indonesia, which has a large domestic market, Malaysia and Singapore are relatively small and are home to banks that are pursuing a regional strategy in Asia. Malaysia’s CIMB Group and Maybank and Singapore’s DBS, OCBC and United Overseas Bank (UOB) are taking advantage of the current environment to expand into the region. 

The most immediate turf for these banks is in the rest of south-east Asia. According to The Banker’s Top 1000 World Bank rankings, in the Association of South-east Asian Nations (Asean) region, DBS ranks highest in terms of Tier 1 capital, followed by OCBC, UOB and Maybank. Yet it is CIMB Group, which is currently sixth on the list of Asean banks by Tier 1 capital, that has the clearest intention to become a universal bank for south-east Asia. 

“No one has aligned themselves as much with Asean as CIMB,” says Nazir Razak, managing director and CEO of CIMB Group. The bank’s slogan is 'Asean for you', and Mr Razak explains that CIMB is the largest indigenous investment bank in south-east Asia and has the largest retail branch network across the Asean region. “We believe strongly in getting uplift from synergies between the investment and commercial banks, and between countries,” says Mr Razak. 

Abdul Wahid Omar, president and CEO of Maybank, says that his bank’s strategy is also tied to the Asean region. A key reason for this is to increase co-operation with other Asean nations. “We believe it is important for the countries to get together and be supportive of the Asean economic community,” says Mr Omar, adding that together, the 10 south-east Asian nations will be able to trade more effectively with China and the US.

“For the Asean economic community to be successful, Asean must be supported by well-capitalised regional banks,” says Mr Omar. He, like Mr Razak at CIMB, sees his bank playing a key role in facilitating such Asean economic integration. 

Indonesian promise

Within the Asean region, Indonesia is widely viewed as one of the most attractive markets. “There are plenty of opportunities for us in Indonesia,” says Maybank’s Mr Omar. 

The chief executives of many other regional banks agree on the potential of Indonesia as the bright spot in the region with its large population, domestic consumption and rich resources. David Conner, CEO of OCBC Group, is one of them. “Our bank [in Indonesia] is growing pretty rapidly in the small and medium-sized enterprises [SME] business. We anticipate those opportunities will continue to be there,” he says. 

Indonesia is a difficult market to crack in the sense that relationships are important, possibly more so than in other parts of Asia. Operating in a market such as Indonesia, Bernard Tan, president commissioner of DBS Indonesia says, “Indonesia is very driven by relationships – we choose the right client relationships and stay and grow with them for a long time.” And for a bank such as DBS, it is important to have a network that is established on the ground. “You also need to have market insights, which you cannot get from sitting outside the country. A bank needs to have operations here to serve the customers locally,” says Mr Tan. 

For the Asean economic community to be successful, Asean must be supported by well-capitalised regional banks

Abdul Wahid Omar

The same principle applies for the other markets in Asia. For example, Chan Kok Seong, CEO of UOB (Malaysia), says that the bank has been traditionally strong in the SME market in Malaysia. "We have been in Malaysia for more than 50 years and operating in the SME market so we have good market information on many customers in many industries. The informal flow of information is often more critical than official information in the SME business," says Mr Chan.

He adds that with the growth of multinationals coming out of the region, the US and European banks are not able to fulfil their needs. "In this region, there is a window of opportunity for us. The Chinese banks have been preoccupied with their own domestic economy for the time being," says Mr Chan.

China holds back

All the same, China’s banks have begun to establish an international presence, with ICBC’s investment in South Africa’s Standard Bank being a prime example. Many observers, however, say that for now the Chinese banks are still in the learning phase of development. This also applies to China’s major banks in Taiwan. While economic co-operation between mainland China and Taiwan has opened up opportunities, observers there say that at present Chinese banks’ presence in Taiwan is more of a flag-planting exercise, as the banks take the opportunity to learn from the more developed Taiwanese market. 

As for Chinese banks expanding elsewhere in Asia, Piyush Gupta, CEO of DBS Group, argues that it will not happen in a hurry. “It will be between 10 and 20 years before they will have a meaningful presence,” he predicts. 

When asked if he is worried about the potential threat of Chinese banks competing in Asia, Mr Razak at CIMB says: “When people are interested in competing on your turf, there must be something good about your turf. If you want to internationalise you have to expect that people will internationalise into your turf. We have always competed with Western global banks; why should we not be ready to compete with Chinese banks?”

CIMB’s turf is south-east Asia, which Maybank is also focused on. On the question of going further afield, to China, for example, Maybank’s Mr Omar says: “We do not have any plans to operate in China – that is best left to Chinese banks. Our presence there is to support trade and investment with Asean, to facilitate Chinese investors coming to Asean.” 

The Singaporean bank DBS, however, differs, as it has its sights set on all of Asia. Mr Gupta says that his bank’s strategy extends to all of Asia – including Greater China and south Asia – rather than just the Asean region. He adds that it is now a good time for banks such as DBS to expand in Asia, especially as European and US banks have retreated from the region. “The competitive environment makes it easier for us to win business – we are seeing that with private and corporate banking,” says Mr Gupta, who previously worked at Citi for 27 years. 

Domestic demand

A few years ago, multinational corporations typically banked with large international banks such as Citi and HSBC. Now, Mr Gupta says, those companies are quite comfortable with using an Asian bank for their business in the region.

In terms of DBS’s strategy, Mr Gupta says: “Our ambition for the next five to 10 years is on Asia and we will be focused on that region.” When asked if the bank ultimately has global ambitions, Mr Gupta says: “We have enough opportunities in our own back yard.” However, he does not rule out that possibility in the long term. Mr Gupta gives the example of Santander, which grew out of Spain to become an international banking brand. “It did that in a 10- to 15-year window – it took Santander a long time.” While a global reach such as Santander’s could be possible for DBS further down the road, for now the bank is focused on Asia.  

When asked if he intends for CIMB to be a global player, Mr Razak simply says: “No.” At one time, however, he admits that he had ambitions to build a bank such as Lehman Brothers. “That was back in the 1990s – we learnt from Lehman, we learn from everyone. We do not have anyone we would mimic wholesale. In terms of competition we worry about everybody,” says Mr Razak.

As these Asian banks jostle for position and take advantage of the new environment, the pattern of regional banks could be a regular feature of banking across the globe. “It’s not just that the Western banks are retreating, there is such a thing as being too big and the world may soon see a landscape of many regional banks,” says Mr Razak. 


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