Corporate Sep 2, 2011
Here is a warning for foreign banks scaling down retail loan portfolios in developed markets and looking to tap new growth markets in Asia. As high as 81 percent of consumers in emerging Asian markets and 63 percent of consumers in developed Asian markets consider it important to deal with a local institution, says a McKinsey Global Institute survey of 20,000 individuals in 13 Asian countries.
In India, this percentage surges to 95 percent, a jump of 20 percent over the survey conducted in 2007. "We speculate that these changes reflect Asian consumers' anxiety over the safety of foreign banks in the aftermath of the financial crisis," the survey says.
In mainland China, this percentage jumped 12 points, to 87 percent in 2011 from 75 percent in 2007; in Hong Kong, by 21 points, to 76 percent; and in Taiwan, by 17 points, to 68 percent.
This clearly shows the challenge that lies ahead for multinational banks looking to sell financial services in high-growth countries. HSBC and Standard Chartered are two banks that are looking to expand in the region actively. HSBC is looking to expand the existing branch network in India organically as well as through an inorganic route.
McKinsey Global Institute (MGI) makes an important suggestion. It has advised foreign banks to hire locals in Asian countries instead of expatriates. "One way to do so is to shift from a reliance on expatriate managers and embrace local professionals, who should be better able to develop and execute a more relevant frontline, customer-centric model," the MGI article argues.
It is not surprising that HSBC India CEO Stuart Davis - an expat manager himself- admitted that the bank was losing talent to local banks in India and faced higher wages in the country. According to a report in Bloomberg, he said this was unheard of earlier. This perhaps goes to show why the pressure to build the business in markets like India is high.
Banks have lost loyalty
An average Asian consumer seems to be taking his banking relationships to a new high. That means an individual is happy spreading the risk of investing or depositing money across banks. "In some segments, the increase was even higher: mass-affluent customers in developed Asian markets reported having 4.7 banking relationships in 2011, compared with 3.6 in 2007," the survey said.
This has a serious implication for wealth managers. Many top Indian private sector banks and foreign banks thrive on wealth management. While this could be good for smaller banks that the money is spread around, it could also make the wealth management space more competitive.
Asian consumers too are adapting to Internet and mobile banking rapidly. The use of new channels - mobile and Internet- rose to 3.2 times a month in 2011, from 2.35 in 2007. Traditional channels like a brick and mortar bank branch witnessed a fall in usage which dropped to 2.57 times a month, from 3.5.
In India, the government is keen on using technology to reach out to the poor. Mobile and Internet platforms are a low-cost method to deliver financial services. It is a win-win for both sides as customers have the comfort factor too.
The cost of a transaction put through a branch is Rs 40. The transaction cost is much lower for net banking at Rs 6 and mobile banking at Rs 9, says a bank manager at Corporation Bank, according to an article in the Hindu Business Line.
The domestic banking industry is set for an exponential growth in coming years, with its asset size poised to touch $28,500 billion by the turn of 2025 from the current asset size of $1,350 billion (2010), according to a Boston Consulting Group report released recently.