Banks chasing retail growth

Based on their returns on retail-banking assets in 2014, Indonesia’s Bank Mandiri was the most profitable with return on assets (ROA) of 14.5 per cent, followed by Union Bank of the Philippines at 5.10 per cent and Thailand’s SCB at 4.5 per cent.

The survey covered banks in 19 economies: Australia, Brunei, Bangladesh, Cambodia, mainland China, Taiwan, Japan, Vietnam, Sri Lanka, India, Hong Kong, Singapore, Indonesia, Thailand, Malaysia, Myanmar, the Philippines, South Korea and Vietnam. 

Retail financial services cover retail deposits, mortgages, credit cards and unsecured lending, wealth management, and SME (small and medium-sized enterprise) banking.

Gross income from retail financial services for banks in the Asia-Pacific region will grow to US$824 billion by 2020, from $464 billion (Bt16.8 trillion) expected for this year, according to the study. 

The growth is driven by a growing shift away from thinning margins in corporate banking and volatile treasury income. 

 

China to keep growing

Increasing consumption and improved access to financial services in combination with mobile banking technologies will be key catalysts in driving retail banking income in the next five years.

Malaysia is expected to see the slowest income growth and the Philippines the strongest, while China will continue to generate the highest income among emerging markets by 2020.

“The ability to generate gross income in any given market is regarded as a key indicator of wallet share and a determinant of a bank’s bench strength in retail financial services,” said Mobasher Zein Kazmi, head of research at the Asian Banker, a Singapore-based company that provides information for the financial-services industry.

Currently, China’s retail financial-services industry alone generates 48 per cent of total regional income, followed by India (12 per cent) and Australia (9 per cent). 

The survey showed that retail financial services in developing markets had grown on average by 13 per cent annually to 2015. 

However, there have been dramatic changes since 2014. 

The fastest-growing markets up to 2013 were Thailand and China, which experienced annual growth of more than 20 per cent. 

Both markets have been slowing down in line with wider economic woes, and the researchers expect retail financial services in these markets in the next few years to grow at a slower pace. 

Between this year and 2020, the average growth rate in Thailand is estimated at 15 per cent per annum, compared with 18 per cent in the Philippines.

Over the past decade, commercial banks have increasingly relied on the contribution of consumer-banking income, which has grown from the low teens to 36 per cent on average by 2014. 

Shrinking margins and saturated markets will force banks to seek new sources of income in higher-yielding business such as personal loans, SME banking, wealth management and insurance.

While most banks in emerging markets still have room to grow in the SME segment and have been ramping up their business capacities in this area, SME banking is unlikely to become a major income source in the medium term. 

Many SMEs are experiencing the damaging effects of the slowdown in economic activities, particularly small enterprises with an asset size of less than $1.5 million, which often make up more than 70 per cent of all SMEs in a country. 

This segment of the loan book |is currently a concern to many banks.