Asia-Pacific banks face “a powerful storm” which will probably hurt profit growth in an industry that earned half a trillion US dollars last year, McKinsey & Co said.
A triple threat of slowing economic growth, technology disruption and weaker balance sheets could come together to “cripple” returns on equity by 2018, the New York-based consultancy said in an analysis of 328 banks in the region.
Profit growth might slow to below 4 percent annually from this year through 2021, down from about 10 percent in the 2011-to-2014 period, said Joydeep Sengupta, one of the report’s authors.
The region’s slowdown has led to weaker lending growth and surging loan defaults, sending stressed assets in China, India, Indonesia and Japan to almost US$400 billion last year, McKinsey said.
Since the 2008 global financial crisis, lenders have been grappling with tighter regulatory and capital requirements that have curtailed their ability to dole out credit.
Banks in the region have “seen extraordinary growth” over the past decade, Sengupta — a senior partner in McKinsey’s Singapore office — said in a telephone interview.
“At this point in time, we would say we’re at the end of the golden era. There is a trinity of threats which we are seeing,” he said.
Asia-Pacific banks have accounted for almost half of global banking profits per year since 2009, according to the report.
Last year, the region’s lenders represented 46 percent of the US$1.1 trillion in after-tax earnings generated by the industry worldwide, the report showed.
The McKinsey study showed that return on equity for the Asia-Pacific lenders had fallen to 14 percent in 2014 from 15 percent the previous year.
That figure might fall to “single digits” if banks do not take action, Sengupta said.
China, which had led regional banks’ profit gains for most of the past decade, is now dragging on growth as its economy slows, according to the report.
That is a challenge for the financial hubs of Hong Kong and Singapore, which had benefited from the years when China’s super-charged expansion spurred its industrial giants and banks to tap the cities for financial know-how and billions of US dollars worth of debt and share issues. Hong Kong’s economy unexpectedly contracted in the first quarter, while Singapore eked out only a modest expansion in the same period.
“China is certainly a very important factor,” Sengupta said. “Undoubtedly a lot of Asia’s fortunes are linked to how China does and that’s something we’re going to be keeping a very tight eye on.”
The consultancy is calling on banks to build their digital capabilities to fend off rising competition from technology start-ups and more established digital companies, including Alibaba Group Holding Ltd (阿里巴巴) and Tencent Holdings Ltd (騰訊), which are offering financial services from mortgages to payment systems.
A customer-focused digital strategy would foster loyalty, as well as cut costs, McKinsey said.
“In surveys, banking customers in Asia-Pacific frequently list limited digital financial offerings and unsatisfactory service as major sources of frustration,” the report said. “A well-designed digital bank could address these disappointments.”
To ease the impact of slowing economies, McKinsey recommended banks tap into “growth pockets” in the region — the 1.1 billion individuals with no formal banking relationships, the region’s affluent middle class, and small to mid-sized businesses.
The consultancy’s analysis indicates banks in Asia need to raise between US$400 billion and US$600 billion in additional capital by 2020 to cover losses from nonperforming loans, while maintaining capital adequacy ratios.
“The reality is that doing things the way you do will create significant challenges,” Sengupta said.
By addressing these, “there are opportunities which are hitherto untapped, but significant and large, that banks can pursue,” he said.
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last
US CONSCULTANT: The US Department of Commerce’s Ursula Burns is a rarely seen US government consultant to be put forward to sit on the board, nominated as an independent director Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, yesterday nominated 10 candidates for its new board of directors, including Ursula Burns from the US Department of Commerce. It is rare that TSMC has nominated a US government consultant to sit on its board. Burns was nominated as one of seven independent directors. She is vice chair of the department’s Advisory Council on Supply Chain Competitiveness. Burns is to stand for election at TSMC’s annual shareholders’ meeting on June 4 along with the rest of the candidates. TSMC chairman Mark Liu (劉德音) was not on the list after in December last