Philippine banks lead in retail financial services
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Singapore-based publication The Asian Banker sees the Philippines leading the strong growth in the retail financial services market in Asia Pacific on the back of increasing consumption and improved access.
A study conducted by Asian Banker Research showed the income of commercial banks from retail financial services in Asia Pacific growing 77.5 percent to $824 billion by 2020 from the projected $464 billion this year.
“Asia Pacific’s retail financial services market will be worth $824 billion by 2020. Increasing consumption and improved access to financial services in combination with mobile banking technologies, will be key catalysts in driving retail banking income between 2015 and 2020,” The Asian Banker said.
Retail banking income was defined as business from retail deposits, mortgages, credit cards/unsecured lending, wealth management and, wherever possible, small and medium enterprises banking.
“The ability to generate gross income in any given market is regarded as a key indicator of wallet share and a determinant of a bank’s bench strength in retail financial services,” said Mobasher Zein Kazmi, head of research at The Asian Banker.
The study showed the Philippines is expected to book the highest compound annual growth rate and total income generated among emerging markets between 2015 and 2020 with 18 percent followed by Indonesia with a little over 15 percent, and Thailand with 15 percent.
Malaysia is seen to post the slowest income growth with a growth rate of six percent for the five-year period.
“Since 2014, the Philippines has outpaced China and Thailand and is becoming one of the key growth engines in the Asia Pacific,” The Asian Banker said.
However, China would continue to generate higher earnings by 2020.
“Currently, China’s retail financial services industry alone generates 48 percent to total regional income, followed by India with 12 percent and Australia with nine percent,” it added.
The Asian Banker sees income from retail financial services of commercial banks in Asia posting a CAGR of 12 percent from 2015 to 2020.
“Since 2014, the Philippines has outpaced China and Thailand and is becoming one of the key growth engines in the Asia Pacific,”
“There are, however, stark variances in growth rates between the mature markets of Korea, Hong Kong, Australia, Japan, Taiwan and Singapore and developing markets,” it said.
On the other hand, income growth in mature markets is lower and expected to grow by an average of five percent this year and by the same amount in subsequent years until 2020.
Developing markets have grown on average by 13 percent annually to 2015. However there have been dramatic changes since 2014.
The fastest growing markets up to 2013 were Thailand and China after having grown by more than 20 percent annually. Both markets, however, have been slowing down due to economic woes.
The Asian Banker noted that retail banking income is shifting focus on high yield businesses but sees tightening of consumer banking regulations as a key threat.
The greatest change in regulations is a shift away from a principle-based regulatory framework to a rule-based framework. As a result regulators have much more power to intervene.
In particular, in emerging markets, financial authorities often want to control everything down to the product level, including loan pricing and fee income.
Commercial banks have managed the impact of new regulations imposed on banks’ wealth management businesses in the aftermath of the global financial crisis, but a second wave of regulatory scrutiny, initiated in 2012, into interest rates and fee structures, compounded by recent macro-economic weaknesses, continues to pose ongoing threats to income expansion.
“Regulators are increasingly worried about rising consumer debt so they have resorted to tightening unsecured lending, credit cards and home loans. In addition, consumer protection and optionality, which requires banks to seek a customer’s consent to opt in or out of services, are becoming key agenda items for financial regulators in this region,” Kazmi said.
According to The Asian Banker, the most profitable banks in Asia include Bank of Mandiri in Indonesia, Union Bank of the Philippines, and Siam Commercial Bank in Thailand.
Questions & Answers
Q.What is driving the growth in the retail financial services market in Asia Pacific?
What is driving the growth in the retail financial services market in Asia Pacific?
Increasing consumption and improved access to financial services, combined with mobile banking technologies, are key catalysts. These factors are expected to drive retail banking income significantly between 2015 and 2020 across the region.
Q.Which specific countries are projected to have the highest growth rates in retail financial services among emerging markets?
Which specific countries are projected to have the highest growth rates in retail financial services among emerging markets?
The Philippines is expected to have the highest compound annual growth rate at 18%, followed by Indonesia with just over 15%, and Thailand with 15%. Malaysia is predicted to have the slowest income growth in this category.
Q.What are the primary threats to income expansion for commercial banks in Asia Pacific's retail financial services sector?
What are the primary threats to income expansion for commercial banks in Asia Pacific's retail financial services sector?
Tightening consumer banking regulations are a key threat, especially new regulatory scrutiny on interest rates and fee structures. Regulators are also concerned about rising consumer debt and are tightening rules on unsecured lending, credit cards, and home loans.
Q.How is retail banking income defined in the context of this study?
How is retail banking income defined in the context of this study?
Retail banking income is defined as business generated from retail deposits, mortgages, credit cards/unsecured lending, and wealth management. Where applicable, it also includes banking services for small and medium enterprises, providing a broad measure of a bank's retail strength.