The landscape is changing in Asian banking. The broad sweep of it is nothing new – westerners retreating, locals strengthening – but the nuances are becoming clear.
An industry that in recent years has carelessly misplaced Barclays Capital, a fair chunk of Société Générale, ING, RBS, decent slices of Nomura and more cash equities businesses than you can shake a stick at, has found the shortfall eagerly picked up by local players. ANZ is looking for buyers for parts of its Asia business; expect local buyers to be writing cheques again.
This is most apparent in private banking, with three of the four last big slabs of assets on the block having gone from western banks to Singaporeans: ING and Barclays to Bank of Singapore (part of OCBC); and SG to DBS. The only exception is BAML’s business sale to Julius Baer.
A few years ago DBS announced grand ambitions to rank in the top five in regional wealth management by assets – it might already be there by now; Bank of Singapore has leapfrogged JPMorgan among others and is not stopping there. The industry is expecting more sales like these and they are very likely going to Singapore.
On top of that is the steady creep overseas of previously home-grown names. CIMB and Maybank’s Asean expansions are well known and well established, but how many noticed that Taiwan’s Cathay United is now present in 12 countries outside its own? Or that the best investment bank in Bangladesh is Sri Lankan?
Advisory and capital markets excellence is sustained in international banks, but the environment where they operate is changing. Domestic liquidity is so plentiful that even in the vast cross-border deals that keep sprouting from China, international lenders are just not in the picture when there are rumours of Chinese banks putting tens of billions of dollars on the line in decisions reached over the course of a single hectic weekend. It is the same in Thailand and the Philippines.
While local bank debt is so abundant that it impedes the development of capital markets, the scale of China’s bond market shows us the future. It is worth $3 trillion now, it is not going to stay restricted for ever, and it is totally dominated by Chinese underwriters, with foreign joint ventures nibbling at the sides and wondering where all the fees are. In time, China will have a market the size of all other emerging debt markets combined, controlled by Chinese firms.
Then there is the competitive power of digital banking. Everyone in Asia is talking about Ant Financial – what it is, what it means, where it is going. DBS’s Indian venture DigiBank has no branches, no tellers and precious little staff; it brings in new customers through their phones in cafes, and it wants 5 million customers.
A McKinsey study in late June found that $400 billion of banking revenues in Asia Pacific could be at risk from online providers, some of it through migration to start-ups but much of it just through price erosion.
Local banks will have the stomach for this fight – they have no choice – but will multinationals? Will we even see them in retail consumer banking in Asia 10 years from now?
International firms will always have familiar truisms to fall back on: that no Asian player can truly market a global deal properly in London and New York; that there is no need to play in bleak-fee commoditized deals when they have the smarts to do more lucrative and creative structured lending; that they have the best people for the big deals.
But there is a new order taking shape and it is time to stop thinking that Asian banks are just volume-hungry lenders, they are proving themselves to be much more than that.
Jakarta? Jammed carter
Jakarta is to be congratulated on a singular achievement. Against all odds, its traffic has actually got worse. The reasons are something that global banks should take note of.
First, the city abandoned its three-in-one car-pooling policy after it inadvertently created a new industry of people offering to sit in cars for a living and with it a range of social problems. Secondly, the emergence of Indonesia’s middle class has led people to abandon their two-stroke motor-bikes for second-hand cars. The result is gridlock.
Any bike-fuelled Asian city will be facing the same problem.
Yet many Asian governments are stymied in the public spending they need for infrastructure development by slowing economies and, in Indonesia’s case, weak commodity prices and uncertainty about a tax amnesty. That makes it clearer than ever that there is a role for clever private-sector financing of roads and rails. Bankers, step up! We want to get from the airport to Jalan Sudirman in less than two hours.