The golden decade of the Asia-Pacific banking industry is fading, says McKinsey in their latest banking review. So is the party over for Asian banking?
The global management consulting firms annual report, «Weathering the storm: Asia–Pacific Banking Review 2016» finds that the momentum from this golden decade is now already on the wane.
Among the factors taking a bite out of the traditional banking and financial-services industry in the region are fintechs, which are offering financial products such as payment systems and lending platforms, and newly established companies from outside the industry, such as Alibaba.
Traditional Models Eroding
These factors, combined with slowing economic growth and frailer balance sheets, could converge to form a powerful storm that might cripple banks' returns by 2018.
McKinsey says financial firms already see the impact of the changing environment: Their analysis of 328 banks in the region showed that while 39 percent posted an economic profit in the period from 2003 to 2006, only 28 percent did so from 2011 to 2014.
Beating the Odds
McKinsey’s Vinayak HV believes that banks must take action to uncover new growth opportunities and measures that could help rekindle their momentum.
He highlights crucial areas – all outside of private banking for the wealthy — where banks could gain strength amid the turbulence. Banks should explore three clear pockets of growth: the unbanked and underbanked; an expanding, affluent middle class; and small and midsize enterprises, which are increasingly important for corporate banking.
Forge Fintech Alliances
Banking organisations must adapt to the new environment. In particular, they should build partnership skills and form alliances with fintechs and other players to create and enable a digital ecosystem. These organizations must also become more flexible and nimble by creating room for innovation.
Although the coming storm is a potent and clear threat to most banks in the Asia–Pacific region, it may also provide the kind of significant industry disruption that creates opportunities for those that recognize it. The most aggressive banks will not merely survive the turbulence but also be strengthened by it, according to McKinsey.
