BoA Merrill Lynch Study Highlights How Asia's Banking Sector Has Surged

Tom Burroughes

26 November 2012

Asia’s banking industry doubled its share of the world’s total financial sector over the past decade to 31 per cent, reflecting how the region has set the economic pace, according to research from Bank of America Merrill Lynch.

The region has been the fastest growing banking market in the world, especially in the past four years since the 2008 financial crisis; the region’s importance as other parts of the world have delveraged their balance sheets, BoA Merrill said in its Asia Banks Primer report. The survey examines 12 countries’ markets.

The size of Asia Pacific bank assets, as a percentage of the global total, has risen from just 15 per cent in early 2000 to 31 per cent in 2011. While the report does not specify wealth management in its breakdown of the data, the overall figures help explain why the region excites so much interest in the industry.

The total assets of the Asian financial industry are estimated at $60 trillion, of which Asian banks hold about $40 trillion, the report said.

China makes up almost half of Asia’s bank assets; China and Japan – holding 44 per cent ($18 trillion) and 27 per cent ($11 trillion) of Asia’s bank assets, clearly dominate the region.

Relatively mature markets – eg, Hong Kong and Singapore – too have maintained fairly high growth rates, courtesy of their position as the region’s financial hubs and superior infrastructure, the report said.

“Banking industries in the various Asian countries have genuinely differentiated dynamics. The key value drivers – banking penetration (measured by loans/GDP ratio), loan growth rates, net interest margins, fee income contribution, cost efficiencies, control over loan quality, capital adequacy, profitability – all these differ widely, implying varied banking dynamics in Asia,” the report said.

“Developed and saturated banking markets (eg, Japan, Australia) have loans/GDP ratio of above 100 per cent and net interest margins below 2 per cent, whereas developing markets (eg, India, Indonesia) have huge growth potential, with penetration levels below 50 per cent and NIM of 3-5 per cent, the report said.

Across most bank sectors, meanwhile, the report noted that cost/income ratios converge around the mid-40 per cent area, regardless of a firm’s state of development.

“Notably, Philippines, Japan and Taiwan (in that order) tend to have higher C/I ratios of 58-60 per cent,” the report said.

“Meanwhile, a higher overheads ratio and marketing campaign costs for building a retail franchise for private banking has resulted in rather inferior cost efficiencies in Japan and Taiwan,” the report said.