Financial Institutions in Asia
General Overview
The rise of Asia as a financial powerhouse and the rapidly growing middle-class of the continent makes it extremely attractive to foreign financial institutions. The stability of the regional ecosystem proved that the populous market is worth serving and this resulted in large-scale expansions of multiple international financial organizations. Among them are famous names like Julius Baer Group, Bank of America, Wells Fargo, HSBC and others.
As the Asian continent accumulates more and more assets in the form of savings, its wealth management industry is growing even quicker. This reflects the sharp increase in the number of high-net-worth individuals benefiting from the region’s extraordinarily resilient economic growth.
In addition, rapid urbanization and the growth of the middle class in the region requires improved urban infrastructure, including amenities, utilities, and links between production locations and centers of domestic consumption. In this respect, countries in the region face huge needs for infrastructure development. However, although the region has an abundance of domestic savings that can be used to finance these infrastructure needs, it is ironic that it is excessively dependent on volatile capital streams for its development.
The problems mentioned in the previous paragraph leave plenty of space for international players to move on to the market and utilize the potential behind the underserved sections of the population. Up until recently the financial services were mostly concentrated around short term lending but as the Asian nations continue to develop and mature their level of consumption of various financial products also will change. In the past the short duration of banks’ liabilities limited their capacity to finance long-term investments such as home loans and infrastructure investments, but this is no longer the case.
All the above-mentioned gaps and the large size of the Asian market gained the attention of numerous operating on the financial market and with this chapter we aim to give a broad overview of their efforts to take part into the burgeoning “tiger” economies of China, India, Pakistan, Indonesia and the rest of the region.
The mindmap created by Deep Knowledge Analytics features more than 425 financial institutions already operating on the continent or planning to get a foothold on it. The main reason for the implementation of the project is to provide key insights to decision makers in order for them to build a strong base on which they could construct their expansion strategy.
Asian Financial Sector
As the share of Asia in world GDP and global capital is growing rapidly, western financial institutions are planning to increasing their involvement in eastern region. Moreover, Asian-based banks see local opportunities too, and follow the trend of regional rather than global expansion. “Asia is now one third of global GDP with a growth rate of 6%. Why would I allocate capital to the other two thirds growing at 1.5%?” - says Piyush Gupta, chief executive of DBS in Singapore, one of the most expansive of Asian banks.
Asia was the continent that recovered the fastest since the global financial crisis of 2007-2008. The average growth rate of the Asian economies exceeded 6% in 2010 (which was more than double that of their Western counterparts). According to the data for 2019, Oriental countries are still leading the world in terms of economic development with a growth rate of more than 3%. Although, it seems that Eastern ascendence has slowed down for the moment, it is only because of the maturing of the Chinese economy while other big players like India and Indonesia are still catching up and will surely raise that number.
Demographics in Asia have grown rapidly over time, and the Asian Development Bank predicts that the number of Asians needing banking services will increase by three billion by 2050. In addition, by that time, per capita income in purchasing power parity is expected to increase sixfold, by which time the continent will account for 52% of global GDP.
Even though the total assets of the Asian banks and insurance companies are comparable to the Western ones, at the current stage they are still smaller. At the same time, there is a growing trend of the expansion of foreign financial institutions towards the East. Asian markets became ‘the second home’ for several banks from Europe and North America. Asia can benefit from both of those trends as they both can fuel the growing economy of the region.
The government plays a larger role in banking in many Asian emerging markets, especially China and India, than in the rest of the world. In China, for example, the five largest banks are government-controlled, and in India, state-owned banks account for about three-quarters of the system's assets. This also applies to non-bank financial institutions: in India, one of the world's largest life insurance companies, the Indian Life Insurance Corporation, is controlled by the Government of India.
There is also inequality across the region - state-owned banks in countries such as the Philippines and Thailand account for a much smaller share of total banking sector assets, and private institutional investors play a significant role in Malaysia.
Banks Activity in Asia
As it could be noticed from the graph, Asia is an attractive market to large Western banks.
HSBC and City Group have the biggest number of Asian employees and that number is expected to grow as the local financial landscape continues to mature.