The Asian Alliance: a transaction bank’s next top model

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The rapid growth of intra-regional trade in Asia is encouraging local banks to enter into an alliance to facilitate the cross-border activities of under-banked Asian medium-sized companies, writes Enrico Camerinelli of Aite Group, a financial services research firm.

Enrico Camerinelli, senior analyst at Aite Group
Global trade has never been more dynamic, even as the crisis in world growth rages. Fast-growing regions, such as Asia, Africa and Latin America, are in the midst of a revolution in global trade.

Trade between Africa and the rest of the world grew 51% in 2011, compared with a modest 4% growth of US exports. Asia, the epicentre of global growth, presents the greatest potential for intra-regional trade flows, estimated by the World Trade Organization to be $2.9 trillion in 2012, second only to Europe.

Asian local and regional banks are facilitating this historic transformation by servicing corporate clients involved in cross-border activities.

While revenue-starved global banks are scrambling to attach themselves to the Asian growth engine, they could be missing an historic opportunity: the under-banked local medium-sized companies in frontier markets such as Cambodia, Indonesia, Laos and Vietnam.

Against this backdrop, one of the leading Thai banks, Kasikornbank, crafted the term Asian Alliance – equivalent to Star Alliance in the airline business – to describe a flagship international business model that aims to serve the demands of a domestic corporate client, initially in Thailand, that intends to expand its business network in the Asian Alliance programme coverage.

The partnership should be seen as a wake-up call for global international financial institutions – by underscoring the banking needs of local medium-sized companies. Small and medium-sized enterprises (SMEs) are more used to working with local domestic banks, while global international banks do not always have a physical presence in all countries.

As a result, the Asian Alliance model enables participating banks to overcome the shortages of correspondent banking, and the limited coverage of services and presence laid down by each country’s regulator and/or government.

There are more than 40 participating partner banks, mainly covering the Asean+3 – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, plus China, Japan and South Korea – countries.

For Asean, in particular, active countries are Thailand, Cambodia, Laos, Myanmar, Vietnam and Indonesia. The Asian Alliance model is scalable and exportable also to European banks.

The Asian Alliance model is mutually beneficial as it is a reciprocal collaboration among banks based in different countries to serve their own corporate customers in doing cross-border business.

The objective is to facilitate customers in their quest to obtain financial and non-financial support when doing business overseas similar to what they have in their home base country, by supporting them with information-sharing, resource-sharing, business-matching services and customer referral.

Kasikornbank is spearheading this initiative and it plans to expand the Alliance where the market is best suited for such collaboration. Already, 40 banks are participating, with a few European banks considering opportunities to join.

Given that banks are in competition, the Alliance could be perceived as a threat rather than a mutually beneficial solution. Experience shows, though, that the Alliance model fosters true collaboration. It’s more of a cultural change that Asian banks have in their DNA opposite to European and US banks.

Success factors of the Asian Alliance model already show double-digit business growth values, although these cannot be shared publicly yet.

Although there is no specific standardization of technology between Alliance partner banks, it is possible to envisage technology platform solutions that can enable the automation of the Asian Alliance model.

This includes customer relationship management systems that can allow shared information between banks about the activities performed with the ‘imported’ SME clients, as well as cash-management applications to provide unified visibility to the corporate client of its cash positions across all accounts in those banks participating in the MOU.

In sum, Asian and non-Asian banks alike need to think carefully about whether their business models are well-suited to capitalize upon the red-hot growth of intra-regional trade – and the Asian Alliance model could prove lucrative.

Enrico Camerinelli is a senior analyst at Aite Group – an independent research and advisory firm specializing in wholesale banking, cash and trade finance, and payments.