How Asia's Banks are Changing

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CONSUMERS TAKE CHARGE

Adjusting to the new consumer marketplace is perhaps the most urgent driver of change in Asian banking. Banks across Asia are starting to recognize the value of the customer, and are evolving towards “customer-centric” models patterned after Western retail practices.

In India, for example, retail branches are expanding in both high density and rural areas. Japanese banks have extended branch business hours and call center times, while ATMs have begun to appear in convenience stores. China, meanwhile, has made substantial efforts to develop telephone and online access as a means of improving efficiency and reducing costs.

Customer relationships still tend to revolve around deposit products. A consumer credit market is emerging, however, as Asians overcome their historic reluctance to borrow and banks make credit available. Home mortgages and equity lines are a business with strong potential. In South Korea and Taiwan they have been the predominant growth areas in retail banking, and demand has been strong in India. Mortgage lending is also on the rise in China, where the right to property ownership was granted to individuals in 1995 — a pivotal event in that nation’s growth.

Sources: CEIC, Hong Kong Monetary Authority,
Authority of Singapore: Annual Report 2005 / 2006, Annual 2002 / 2003

GETTING STRONGER: After seeing growth in early and mid 1990’s, Asia’s more developed economies have begun to see their financial sectors consolidate —a trend that may likely carry over to the rest of the region.

Credit cards are taking hold with Asian consumers, too, though not without pain. In South Korea, for example, the government initiated a program in 1999 encouraging the use of credit cards to boost consumption, and over the next three years saw a doubling of default rates. (The market has since stabilized.) In Taiwan, where some 46 million credit cards are in circulation, pundits have coined the term “card slaves” in reference to people who are overextended on their credit cards and struggling to make payments. The issue has prompted calls for tightening lax lending practices, and a major institution stopped issuing cards earlier this year in response.

The credit card business is in Asia to stay, however. Societies should eventually become more accustomed to easy credit, and banks will find the right balance between marketing and risk management.

Source: McKinsey, "The Promise and Perils of China’s Banking System," July 2006

SUPER SAVERS: Asian savings rates remain healthy, but those savings are largely tied up in bank deposits versus other more efficient investment products.

The notion of “one-stop shopping” for financial services is gaining ground, too. In India, Japan and Korea, banks can sell insurance products, while in China and Taiwan they can act as agents of insurance companies. Indian banks are allowed to set up investment brokerage subsidiaries and operate online brokerages. Banks are still restricted from the brokerage business in China, but that could change as capital markets develop and competition intensifies.