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Analysis: Asian Banking Industry Consolidation Increasingly Apparent
A group of banking analysts predicted that consolidation in the Asian banking industry is increasingly apparent with the emphasis on capital management, judging from the recent events in the sector.
Many financial institutions across the landscape have moved strongly into the direction of becoming technology savvy, continuing to reduce costs and build scale, while exploring cheaper delivery channels for banking service, Salomon Smith Barney (SSB) Asia Pacific CEO William J. Mills said here on Monday.
Mills made the opening remark to the SSB's Asia Banking Conference, which addressed the theme Managing Value, bringing together 500 professionals this year, including more than 360 institutional investors and more than 25 banking institutions representing over 13 countries and regions and six central banks in Asia.
Mills noticed that many Asian governments are now redefining the financial services landscape by creating an enabling infrastructure which does not reward standing still.
South Korea is witnessing the merger of private and state-owned banks, while in Taiwan and Hong Kong financial authorities are encouraging local banks to consolidate and foreign banks to participate, continuing the theme begun last year in Malaysia, Thailand and Singapore, Mills said.
"In China, some of the banking sector is preparing to approach the international capital markets for the first time," Mills said.
Mills noted that the banking issues of consolidation, new delivery channels, cross-selling, government infrastructure and drives for efficiency are relevant globally as well as regionally.
In the banking industry research report -- Banking Valuation in Asia, Raymond Lee, head of SSB's Asian Financial Institutions Research team, noted bank profitability varies widely within markets, showing the importance of individual banks' strategy.
"The Asian banking crisis, and the subsequent fallout, may well have been the catalyst for change," Lee said, adding that Asia's banks are experiencing significant and irrevocable structural changes to their competitive environment, brought about by globalization, market liberalization and technology.
Structurally lower loan growth and interest rates are placing a greater emphasis on fee-based income, Lee said. The analysts also noted that capital efficiency and financial engineering may be as important for share price performance as managing the core business strategy itself, he added.
"Capital management is increasingly becoming a critical success factor for investors to focus on," Lee concluded.
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