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1、 NewMonetaryOrderTHEThe State of Financial ServicesAsiaPerspectives Oliver Wyman1The New Monetary Order|Asia PerspectivesDear Reader,The monetary policy context for the global financial system since the GFC has been low or ultralow interest rates in most of the world,an expansion of central bank bal
2、ance sheets,and a significant program of regulatory reform.This period has reshaped the financial system in profound ways,in terms of liquidity and funding structures,capitalisation,the level of interest rate risk in the system,and the growth of different forms of credit.The period has also seen sig
3、nificant shifts in the roles of constituents in finance,with the growth of non-bank financial institutions,the rise of regional and domestic banks in some parts of the world,and the increasing challenges with cross-border and international banking.Yet what does the future hold?Whether or not you bel
4、ieve we have moved into a longer period of inflation taming,high interest rates and lower liquidity,it is clear that low-for-long is over and this represents a major paradigm shift which will undoubtedly also reshape the financial system in the coming years.Do we understand the possible scenarios be
5、fore us?Do we retain the expertise in the industry to manage through these scenarios after two decades of low-for-long?Who will the winners and losers be?In our State of Financial Services work this year on the New Monetary Order,we explore these questions.Our work will look at the dynamics of diffe
6、rent regions and segments in a series of papers and conclude with our global perspectives.Here is our Asia Perspectives paper on the New Monetary Order.We hope you enjoy the research.Sincerely,Ted Moynihan Managing Partner and Global Head of Financial Services Oliver Wyman2The New Monetary Order|Asi
7、a PerspectivesExecutive SummaryThe global financial landscape is in the midst of a seismic transformation.A nearly 15-year period of ultralow interest rates,known as“Low for Long,”is giving way to a“New Monetary Order”marked by rising rates and,in some regions,stubborn inflation.This report examines
8、 the ways Asias future financial landscape might be reshaped.We see four distinct scenarios unfolding,each with its own set of implications:Local banks triumph as global banks pivot;non-banks ascend in the region;Asia remains highly global,with the US dollar and global capital remaining crucial;or a
9、 supercharged Asian bloc takes shape.What will a New Monetary Order look like in Asia?The Asia experience of Low for Long was different from that of the United States and Europe.The effect was more nuanced,and it did not produce the paradigm shift observed elsewhere.The same is true of the regions r
10、ecent rate hike and inflation experience.However,there are still knock-on effects for Asia,given global financial and economic linkages.Domestic champion(tier 1)banks in each country have further expanded their dominant positions.Their balance sheet and funding structures are largely unchanged,and t
11、hey have not needed to materially shift their strategy.Foreign banks and neo-challenger banks are still trying to chip away,with varying degrees of success.They have the capabilities to gain a share but need a differentiated strategy.The role of the Japanese financial institutions in terms of provid
12、ing external financing to the region or making direct acquisitions,especially in the Association of Southeast Asian Nations(ASEAN),has flown under the radar and is one to study for foreign players looking to make inroads.Japans slow reversal of its zero-interest-rate policy means the countrys financ
13、ial institutions and intraregional capital flow will remain a strong influence on how the New Monetary Order plays out in Asia.Non-bank financial institutions(NBFIs)are slowly growing their market share,but from a low base.There is ample opportunity to expand into underserved segments.Foreign banks
14、could also reposition to focus on NBFI opportunities where they have significant experience.Legacy domestic banks will need to stay alert to the challenges and find ways to participate in any material NBFI opportunities.The tension between globalization and regionalization will grow in Asia as part
15、of a New Monetary Order.Higher interest rates or tighter regulation in the rest of the world could trigger capital outflows from the region or spur global banks to refocus strategies on their home markets.Oliver Wyman3The New Monetary Order|Asia PerspectivesIn their place,Japanese capital and region
16、al financial institutions would play a more dominant role.Chinese financial institutions will also grow in regional importance.Finally,the rise of a multipolar currency region including the USD is increasingly likely,especially in ASEAN given tight linkages and maturing intra-regional payments infra
17、structure.The RMB will play a leading role in this shift,as the country is now the biggest trading partner for most Asian countries.Higher Chinese capital outflows,if Chinese policy settings allow,would only accelerate the RMBs regional rise.Together,these shifts will boost Hong Kongs role as a glob
18、al RMB hub and as Chinas valve for managing the currencys internationalization.This report evaluates diverse scenarios shaping Asias future financial landscape.In short,our findings unveil the regions potential path along a single or combination of these scenarios:ever-dominant local banks,non-bank
19、challengers in the mainstream,a highly globalized Asia,and a supercharged Asian financial bloc.How will this play out across financial institutions?For financial services firms,there will be winners,losers,and wildcards no matter which outcome prevails.Winners across all scenarios.Domestic champion
20、banks already have a dominant position,but there is limited room to grow in their home markets alone.In a more regionalized market with competition from NBFIs increasing,domestic champions must consider expanding their regional footprint via partnerships or venturing with NBFIs and global banks to c
21、apture new niche lending opportunities.Losers across all scenarios.Local tier 2 banks need to adapt to survive,or they risk being acquired by local or regional competitors.Harnessing analytics and designing new products targeted to core client segments can strengthen customer relationships to defend
22、 market share.Wildcards across all scenarios.Global foreign banks stand to benefit from any shifts between greater globalization and regionalization.In the former,they can continue with business as usual or double down on existing strategies.The latter will create a different set of opportunities,an
23、d they can focus on areas such as exploring broader regional partnerships or refocusing strategies on niche capital market lending opportunities.Asias financial journey through the New Monetary Order is still to be determined.Financial sector participants should keep an eye on factors such as policy
24、 rate differentials,regulatory trends,and geopolitical tensions that will influence Asias future course.Oliver Wyman4The New Monetary Order|Asia PerspectivesAsias Post-GFC Financial JourneyAnd the New Monetary and Financial OrderThe rules of the game for the global financial sector shifted strongly
25、last year when the Low for Long era of monetary policy slammed shut and the New Monetary Order began.We define Low for Long as the post-global financial crisis(GFC)period running from 2008 to the end of 2021,characterized by stimulative monetary policy and low interest rates globally,particularly in
26、 the United States and Europe.The New Monetary Order is the period from 2022 to the present,characterized by a turn in central bank actions globally and changes in macroeconomic and structural conditions in response to the reemergence of inflation in most markets.Successful strategies in the financi
27、al sector must reflect the paradigm shift triggered by this transformation.We start by investigating how events during the Low for Long period and its more recent end have shaped Asias monetary and financial landscape.A quick review of events in the United States is helpful to understand the backgro
28、und against which the conditions for a New Monetary Order arrived in Asia,especially given historical linkages between monetary policy in the US and Asia,and global capital flows.During Low for Long,the US Federal Reserve(US Fed)cut rates to near zero and embarked on a policy of quantitative easing(
29、QE).This created an environment of low interest rates and abundant liquidity,resulting in major shifts in risk pricing and in the relative attractiveness of investments.Super-low rates in the United States and Europe also threatened to trigger large,destabilizing capital inflows to Asia.Meanwhile,th
30、e tightening of financial sector regulation reduced banks profitability and changed their risk-taking incentives.Low rates lured some banks into accepting interest rate risk on high-quality,longer term securities.Non-bank financial institutions(NBFIs)expanded their lending to select sectors,includin
31、g high-yield bonds,leveraged loans,and other private credit.US NBFI lending deviated from that of Asia across maturity,scale,and business models,with non-banks providing up to 68%of non financial sector credit,compared with 27%in Asia.Oliver Wyman5The New Monetary Order|Asia PerspectivesAsia exited
32、Low for Long with few monetary distortionsThe end of the Low for Long period resulted in fewer monetary imbalances in Asia than in the United States.Asias central banks,in general,did not cut rates to near zero or massively expand central bank balance sheets like the US Fed did after the GFC,as illu
33、strated by Exhibit 1 and Exhibit 2.(Japan is the clear exception,given its 20-year zero-rate policy,as we explore further in this report.)Asias central banks also have hiked at only half the pace of the US Fed since the beginning of 2022,because inflation has consistently trended two to five percent
34、age points lower.Exhibit 1:Trends across inancial system drivers Asia vs.US2007 Q42021 Q41Monetary policyEconomic growthIndonesiaEmergingeconomiesAdvancedeconomiesVietnamThailand557712.7x1.0 x2.8xN/A23.2x2.7x6.3x3.1x3.2x1.5x9.9x2.33.94.85.94.67.60.24.02.02.91.6%of quarters withpolicy rate
35、s less thanor equalto 0.5%Central banks balancesheet expansionReal GDPgrowthCAGRMalaysiaPhilippinesJapanSingaporeHong KongSouth KoreaUnited StatesChinaAsiaUS1.End of Year figures 2.Vietnam CentralBank assets data not available from 2007 Source:IMF,CEIC Data Company Ltd,Federal Reserve,Oxford Economi
36、cs,Oliver Wyman analysis(July 2023)Exhibit 2:Time series of central bank assets Asia vs.USMedian of 10 Asian economies vs United States,Central bank assets indexed to 2001,805200020052002520022,2001,500CAGRLow for longCAGRCentral bank assets in
37、Advanced Asia and Emerging Asia develop in line witheconomy growth,whilebeing expanded massively in the USAdvanced AsiaEmerging AsiaUS5.1%12.3%+7.2 pts12.8%6.1%-6.7 pts11.2%6.7%-4.5 pts1.CAGR for US for 20082021,as 2022 Central Bank assets data not available Source:IMF,FRED,OECD,Oliver Wyman analysi
38、s Oliver Wyman6The New Monetary Order|Asia PerspectivesExhibit 3:Capital flows and foreign bank debts across 5 Southeast Asia(SEA)nations(Indonesia,Malaysia,Philippines,Thailand,Vietnam)Quarterly1,200120212,US$billion-00820153045GFCEuroSov.CrisisTaperTantrumRMBDe-valuation2016U
39、S Election2018EM sell-offCOVID-1920152022DirectPortfolioOther1.Smoothened by taking moving averages of four-quarter-sums 2.Vietnam data available from 2006-2021 only Source:IMF,Oliver Wyman analysisNeither has Asia experienced a sudden or material outflow of capital in response to recent rate rises,
40、as QE-triggered portfolio inflows had already faded by 2015.In their place,foreign direct investment inflows have risen to account for a larger and more stable source of funding,limiting the impact of rate hikes in the United States and other advanced economies on the regions external balances.It is
41、 Japanese inflows to the region that have been more important during the past decade,unlike before the GFC,when American and European flows dominated.Oliver Wyman7The New Monetary Order|Asia PerspectivesAsias financial sector balance sheets have similarly exhibited less change relative to the United
42、 States.For the leading local and regional banks,most continue to show a heavy reliance on deposits and limited exposure to high yielding securities.The sector also looks robustly capitalized,with tier 1 capital ratios having risen steadily to amedian of 15.5%.There are pockets of credit risk,especi
43、ally after the regions total debt levels rose a median 29 percentage points in the wake of the pandemic.But the financial sector is still relatively risk-averse following the 1998 Asian financial crisis and 2008 GFC.(Exhibit 4 and Exhibit 5)Exhibit 4:Bank assets and liabilities Asia vs.US%of totalAs
44、iaUSAssetsShare change0823Share change0823Liabilitiesand capital2008 Q12023 Q12008 Q12023 Q1LoansSecuritiesCashand balancesOther assetsDepositsLoans payableOther liabilitiesCapitaland reserves68664202081076129-+1 pts+2 pts-2 pts+1 pts-1 pts-2 pts+2 pts+11 pts-6 pts+6
45、 pts-12 pts-1 pts-5 pts-8 pts+14 pts33Source:Oxford Economics(July 2023),Oliver Wyman analysis Oliver Wyman8The New Monetary Order|Asia PerspectivesExhibit 5:Tier 1 capital ratios by market0510152025IndonesiaEmergingeconomiesAdvancedeconomiesThailandMalaysiaPhilippinesChinaVietnamHong KongJapanSinga
46、poreSouth KoreaAsia medianUnited StatesLate COVID(2022)Pre-pandemic(2019)Pre-GFC(2007)AsiaUSSource:Bank of International Settlement(BIS),IMF,Oliver Wyman analysisWhat comes next is far less certain.We believe financial institution competition and global and regional integration are the two key drive
47、rs of the outlook.Asias banks are generally in a strong competitive position,accounting for 73%of private credit.Leading local banks are in a particularly healthy position given captive deposit bases and strong corporate loan books.Our data shows that the top five banks across the region generally a
48、ccount for 70%to 80%of total deposits,with market concentration especially high in Singapore,Hong Kong,Japan,and Indonesia.Local banks might even face reduced international competition if global banks allocate more money to their own domestic markets,where interest rates have moved rapidly higher.Bu
49、t competition is heating up.NBFIs have increased their share of private credit to 27%from 20%since the GFC,as the regions capital and financial markets mature.Households could grow wary of receiving low yields on their bank deposits and search for alternatives,such as higher-yielding bond funds,espe
50、cially if living costs spike.Bank deposits in some markets are indeed already leveling off,even as mutual funds and private equity,among others,grow in importance.The regions economic and financial integration,meanwhile,is accelerating.Japan has played an outsized role in intraregional capital flows
51、,with its share of foreign bank claims on members of the ASEAN soaring as Japanese firms invest in manufacturing,acquire stakes in local banks,and buy real estate.China may also come to play a greater role.Its financial transactions with the region are already rising,whether because of ASEANs growin
52、g reliance on trade with China(which has doubled to 20%of total trade since the GFC),increased Panda bond issuance,or private capital outflows as growth and policy rates fall at home.(Exhibit 6 and Exhibit 7)Oliver Wyman9The New Monetary Order|Asia PerspectivesExhibit 6:Bank claims(loans)owed by res
53、idents of 5 SEA nations to foreign banks,by lenders nationalityUSD billion,quarterly 2005Q42022Q4,average of past 4 quarters2005201020152020JapanSouth Korea1UKUSFranceGermanyAustraliaOthers400,000350,000300,000250,000200,000150,000100,00050,00001.South Korea investment data only available from 2013Q
54、4 Note:Does not account for foreign bank capital investment in local entities Source:IMF,Oliver Wyman analysisExhibit 7:Chinas rise in dominance in SEA trade19902021,percentage of total imports and exports002005206280222426MalaysiaThailandPhilippinesIndonesiaVietnamS
55、ingapore1.Share of total disclosed imports and exports Source:IMF,Oliver Wyman analysis Oliver Wyman10The New Monetary Order|Asia PerspectivesIf integration accelerates,local financial players might operate in a more self-contained regional ecosystem in which local banks dominate,capital and other f
56、inancial flows are increasingly intraregional,and the logic and infrastructure for settling in non-US dollar currencies grows.It is still early days,but the pace of acceleration might even quicken if tighter regulation and higher interest rates in the rest of the world,in response to a New Monetary
57、Order,deter global capital participation in Asia.In short,we expect that the New Monetary Order will look very different in Asia compared with the United States and the rest of the world.Our analysis suggests the New Monetary Order in Asia will have two main markers.First,there will be increased com
58、petition between a wide range of financial institutions,including banks and non-banks,as well as local and global banks.The regions leading banks exited Low for Long in a relatively strong position,monetary policy distortions were limited,and changing interest rate differentials will shape how globa
59、l institutions view Asia as an opportunity.Second,there will be increased integration as intraregional capital and trade flows continue to rise and the possibility of multicurrency settlement grows.Integration has already accelerated over the past 10 years and local market and regional dynamics as w
60、ell as geopolitics will likely sustain and even accelerate the change.Asias Many Monetary and Financial Systems In the opening analysis,we have focused on regional trends.Despite this,we acknowledge that Asia has various distinctive monetary and financial systems,each with unique responses to the ev
61、ents of the past 15 years.In this deep dive,we highlight some of the more important themes.Japans zero rate policy and(possible)exit Japan is the worlds Low for Long pioneer,having embarked on a zero-interest-rate policy and QE well before the GFC as part of efforts to fight deflation and jumpstart
62、economic growth.The Bank of Japan(BOJ)cut rates to zero in 1999 and largely persisted throughout the global Low for Long period.In December 2022,the BOJ announced a relaxation of the banks yield control policy.However,the central bank is expected to take a cautious approach going forward to prevent
63、a reversal in growth and inflation expectations.DEEP DIVE Oliver Wyman11The New Monetary Order|Asia PerspectivesThis policy stance is important because it contributes to the shift in the regions funding.European banks pulled back from the region after the GFC even as Japanese banks increased their l
64、ending.The likelihood that Japans current approach to monetary policy will continue suggests it will remain a source of funds for the region and a potential buyer of regional banks and asset managers accelerating Asias financial integration,especially between North Asia and ASEAN,as we outline in Sc
65、enario 4.Chinas independent monetary and growth cycles China is not immune to global crises,especially when they impact the countrys export sector.China responded to the GFC via a massive fiscal stimulus program in 2009 worth 600billion US dollars,or 11%of gross domestic product(GDP),as well as rapi
66、d credit expansion,including a surge in local government financial vehicles.By early 2010,the Peoples Bank of China(PBOC)was already tightening its monetary policy to control inflation as GDP growth reached 12%.However,the countrys capital controls and large domestic market enable the PBOC to run a
67、more independent monetary policy relative to other countries in the region.During the Low for Long period,interest rates generally moved in response domestic conditions,rather than global ones.The same was true during the pandemic,when Chinas economy significantly outperformed the rest of the region
68、 and rates held steady after initial cuts.Chinas exit from COVID-19 has created challenges,however.After an initial post-lockdown bounce,activity has slowed markedly as exports and real estate both growth engines have contracted,while consumer sentiment remains fragile.Private sector investment is a
69、lso soft,with a dim outlook.The PBOC has in turn cut interest rates even as other nations hike,with inflation remaining modest and the economy flirting with deflation.The switch in interest rate differentials with the United States could accelerate capital outflow into the rest of Asia as companies
70、see greater opportunity abroad.Bloomberg data shows a rise in foreign corporates seeking to raise capital in the domestic market via Panda bonds,with issuance reaching a record renminbi(RMB)14.5 billion in the first eightmonths of 2023,as well as capital outflows anecdotally to the Hong Kong SAR and
71、 Singapore in particular.Hong Kong SAR follows the Fed The Hong Kong SARs monetary policy and financial sector activity shared greater similarities with the United States during Low for Long,owing to the citys currency peg with the US dollar.Policy rates were less than 0.5%for nearly half of the Low
72、 for Long period and 300 basis points below the Asian median.In response,and like US banks,the Hong Kong SARs banks increased their security holdings to 39%of total assets from 17%between 2008 and 2022,raising the sectors exposure to interest rate risk.Oliver Wyman12The New Monetary Order|Asia Persp
73、ectivesThe challenge for the Hong Kong SAR from a monetary policy perspective is navigating between tightening US policy and slowing growth in China.Inflation peaked at between 23%even as interest rates rose.Real interest rates have since approached record highs at near 3.0%,levels not seen since th
74、e deflationary period after the Asian crisis.With Chinas economy slowing,the Hong Kong SAR will need to navigate an environment of historically slower growth matched with historically high real interest rates.Singapore and its exchange rate regime Much like Hong Kong,Singapores monetary policy share
75、d similarities to that of the United States during Low for Long.The countrys exchange rate targeting and open capital account mean the Monetary Authority of Singapore(MAS)largely gives up control over domestic interest rates,and policy rates moved near lockstep with those in the United States after
76、the GFC and during the recent hike.In contrast to Hong Kong,however,banks did not increase their holdings of securities significantly,instead seeing a shift of assets into cash balances.Singapore has also benefited from significant Foreign Direct Investment(FDI)and other capital inflows,partly owing
77、 to the countrys status as both an international and an ASEAN financial hub.Inflows have risen steadily since the GFC and throughout the pandemic.Japanese financial institutions play an important role.But events across the rest of the NorthAsia have also contributed to a rise in inflows as investors
78、 seek to rebalance portfolios,not least against rising geopolitical risks.Thailands debt challenges and security holdings Thailands divergence from the regional trend was more felt via balance sheets,rather than interest rates as the countrys banks grew their securities assets faster than loans,with
79、 the formers share rising to 20%from 12%between 2008 and 2022.Local government bonds account for a significant share of those holdings.But banks were also buying corporate bonds,and total corporate debt growth outpaced bank loan growth during the period.Thailands debt challenges,which emerged in 201
80、5,also worsened during the pandemic.The countrys total private and public debt as a percentage of GDP has increased by 42 percentage points to 232%,the largest increase among ASEAN member nations.GDP growth has also lagged,similar to Hong Kong,creating greater risks in the current credit cycle.Manag
81、ing these risks among financial sector players will be key going forward.Oliver Wyman13The New Monetary Order|Asia PerspectivesExhibit 8:Total debt snapshots across pre-GFC,pre-pandemic,and late COVIDTotal private1 and government debt as a%of nominal GDP in key Asian economies040803600024
82、0280160MalaysiaEmergingeconomiesAdvancedeconomiesVietnamChinaThailandPhilippinesHong Kong2SingaporeSouth KoreaJapanIndonesiaLate COVID(2021)Pre-pandemic(2019)Pre-GFC(2007)1.Includes household and non-financial corporations debt 2.2020 numbers used for late COVID as 2021 not yet available for Hong Ko
83、ng Source:IMF,Oliver Wyman analysis Indonesias 15 years of strong growth Indonesia has enjoyed a remarkable run since the GFC,the recipient of steady portfolio inflows and FDI during the period relative to the rest of the region.A sell-down of foreign holdings of government debt during the pandemic
84、did little to disrupt balance of payments strength.The country also kept tight control of its total debt levels,which rose only 15percentage points to 81%by 2021 based on International Monetary Fund data.The banking sectors balance sheet was largely unchanged during the period,with deposit and loans
85、 accounting for the large share of either side of the ledger.The rise of the non-bank share of total credit relative to the rest of the region is worth noting,with the figure rising six percentage points to 18%between 2008 and 2022.The opportunities for financial infrastructure and technology(FITs)p
86、layers as incumbents to capture a share of the underbanked small and medium-sized enterprises(SME)and consumer loan markets via new digital solutions remains compelling in a market of nearly 280 million people.Indonesia has many large tech players and an even greater number of challengers.Regulators
87、 will want to continue keeping a close eye on balancing innovative business models with structural risks as the space continues to evolve through new entries and consolidation activity.Oliver Wyman14The New Monetary Order|Asia PerspectivesAsias economic and financial landscape has evolved since the
88、Low for Long period.Rising interest rates in the New Monetary Order will inevitably affect financing and liquidity conditions but there are no signs yet that the impact will be significantly greater than a typical credit cycle for most countries.Meanwhile,the regions GDP growth continues to outpace
89、that of the United States and Europe,even as the regionalization trend from capital to trade flows continues.This paper steers clear of crystal ball predictions.Instead,we present a spectrum of possible outcomes,forming the foundation for structured discussions.Through careful analysis,we embark on
90、an exploration of various scenarios that could shape the future of the financial landscape.Scenario drivers and potential outcomesCentral to our analysis are two pivotal scenario drivers that have gained prominence in the transition to the New Monetary Order and have the potential to mold the evolut
91、ion of Asias financial system:The degree of competition in the banking landscape.This is the extent to which the New Monetary Order strengthens the banks dominant position or triggers competition.Will banks,particularly local banks,maintain their dominance,or will a surge of competition from foreign
92、 banks and non-banking entities reshape the financial landscape?The degree of integration of Asia.In the New Monetary Order Asia could continue evolving into a highly globalized interconnected hub or it could turn inward and focus on regionalization.Will Asias future be intricately tied to the US do
93、llar,or will regional integration through local currency pairs and a regional payment bloc become the defining brushstroke?Three factors could affect these drivers,steering Asia toward one scenario or another.First,Asias interest rate situation compared with the rest of the world will influence mark
94、et attractiveness,affecting foreign capital flows.Second,the tightening or relaxation of financial regulations related to deposit and lending practices could either boost or hinder the growth of both banks and non-banks.Finally,cross-regional,long-term investment sentiment and confidence might be sw
95、ayed by geopolitical tensions,adding a layer of complexity to the scenarios.Looking AheadScenario Analysis Oliver Wyman15The New Monetary Order|Asia PerspectivesIn short,the New Monetary Order signifies a phase of change in Asias financial landscape.The intertwined drivers of competition in the bank
96、ing sector and the degree of Asiasintegration will play crucial roles in shaping the regions trajectory,unveiling scenarios that offer strategic foresight to financial sector players.Degree ofcompetition in thebanking landscapeDegree ofintegration of AsiaEver-dominantlocal banksNon-bank challengersi
97、n the mainstream123A highlyglobalized Asia4A superchargedAsian financial blocEver-dominant local banksIn this scenario,local banks triumph and global banks pivot,particularly in the deposit space.Interest rates in Asia stay above where they were during Low for Long;local banks increase dominance and
98、 global banks strategically recalibrate due to heightened competition in building a local deposit base and the attractive yields in home markets.Local banks demonstrate a strong ability to retain most of their deposit base despite raising deposit rates much less than their lending rates,leading to i
99、mproved net interest margins(NIM).Tier 1 local banks continue to dominate in the market,owing in part to their strong deposit base,crowding out competition from foreign banks and NBFIs.This scenario is a continued trajectory of trends that are observed across ASEAN markets today,where the top five l
100、ocal banks capture on average 70%to 80%of deposit share(Exhibit 9).In addition,the number of neo-challenger banks is emerging steadily across the region.They have yet to challenge the share of the dominant banks,with mainstream customers hesitant to move their primary banking relationships to new“un
101、tested”players on the block,but will continue to refine their business models and value propositions.SCENARIO 1 Oliver Wyman16The New Monetary Order|Asia PerspectivesFor global foreign banks,the US and Europes exit from the Low for Long era into the New Monetary Order ushers in higher yields within
102、their home markets.This reshapes the playbook for global foreign banks.For large global foreign banks that deploy their balance sheets in Asia,a strategic recalibration unfolds as Asias attractiveness dims amid heightened competition in building a robust local deposit base and attractive yields with
103、in their home turf.This steers them away from expanding their Asian footprint.Nevertheless,large global transaction banks continue to benefit from a fragmented banking sector among Asian countries as legacy payment mechanisms are maintained.NBFIs,meanwhile,find themselves grappling with escalating f
104、unding costs in the face of rising overall interest rates and the inability to convince depositors to switch to alternative non-bank assets,such as retail bond funds.They also face increasing regulatory pressure,such as policies on strengthening oversight and addressing risks as proposed by the Fina
105、ncial Stability Board(FSB).Exhibit 9:Leading banks by deposit base in each economy,categorized by domestic or foreign ownershipDeposit base in US$billion,shares of top 12 bank in%,2022SingaporeThe top local banks control 80%of depositshareDBSUOBOCBCBankStandardCharteredCitibankBNPParibasMayBankHSBCB
106、ankof ChinaANZSMBCJ.P.Morgan393(34%)275(24%)261(22%)86(7%)30(3%)24(2%)23(2%)19(2%)19(2%)13(1%)13(1%)10(1%)Local bankForeign bankTop banksHong KongThe top local banks control 80%of deposit shareHSBCBank ofChinaStandardCharteredHangSengBEAICBCCitiBankDBSNCBCCBChinaCITICBankBank ofCOMM784(41%)305(16%)2
107、19(11%)165(9%)83(4%)73(4%)54(3%)51(3%)47(2%)45(2%)44(2%)43(2%)Source:S&PSource:S&P Oliver Wyman17The New Monetary Order|Asia PerspectivesJapanThe top local banks control 85%of depositshareMUFGJapanPostSMBCMizuhoNorin-chukinResonaFFGConcor-diaMebukiChibaBankHoku-hokuShizuoka1,709(23%)1,467(20%)1,298(
108、17%)1,236(17%)497(7%)472(6%)158(2%)149(2%)132(2%)120(2%)102(1%)89(1%)South KoreaThe top local banks control 75%of deposit shareKBShinhanGroupWooriNong-HyupHanaBankIndustrialBankof KoreaStandardCharteredBusanBankDaeguBankSuhyupBankJBFinancialGroupKyongnamBank313(23%)305(20%)272(17%)250(17%)237(7%)123
109、(6%)48(2%)48(2%)43(2%)34(2%)33(1%)32(1%)ThailandThe top local banks control 60%of depositshareBBLKasikorn-bankGovt.SavingsBankKrungThaiSCBStandardCharteredBAACKrungsriTTBUOBKiatnakinPhatraMizuho93(14%)80(12%)76(12%)75(11%)75(11%)74(11%)54(8%)52(8%)40(6%)19(3%)10(1%)8(1%)Source:S&PSource:S&PSource:S&
110、P Oliver Wyman18The New Monetary Order|Asia PerspectivesMalaysiaThe top local banks control 75%of depositshareMayBankCIMBPublicBankRHBHongLeongAmBankUOBBankRakyatOCBCBankBankIslamHSBCAffinBank146(25%)104(18%)90(16%)52(9%)45(8%)30(5%)25(4%)20(3%)18(3%)17(3%)16(3%)15(3%)Source:S&P89IndonesiaThe top lo
111、cal banks control 80%of depositshareMandiriBRIBCABNIBTNCIMBNIAGAPermataBankOCBCNISPPaninBankBankBJBDana-monBankMayapada8567588(23%)(22%)(18%)(13%)(5%)(4%)(3%)(3%)(2%)(2%)(2%)(2%)VietnamThe top local banks control 70%of depositshare1AgriBankBIDVVietinBankVietcom-bankSCBSacom-bankMBACBSHBTe
112、chComBankVPBankLPBank69(19%)62(17%)53(14%)53(14%)22(6%)19(5%)19(5%)18(5%)15(4%)15(4%)13(3%)9(2%)Source:S&P1.While Japanese banks have been investing capital into Vietnamese local banks,they have only been able to acquire minority stakes,given regulations limiting the combined stake of foreign invest
113、ors in a bank to 30%Source:S&P Oliver Wyman19The New Monetary Order|Asia PerspectivesPhilippinesThe top local banks control 75%of depositshareBDOLandBankMetroBankBPIChinaBankPNBRCBCUnionBankSecurityBankEast WestBankAUBCitibank57(21%)56(20%)40(14%)38(13%)19(7%)16(6%)15(6%)13(5%)11(4%)6(2%)5(2%)4(1%)C
114、hinaThe top local banks control 75%of depositshareICBCAgriculture BankCCBBankof ChinaPSBCBankofCOMMCMBCITICBankSPDBankIndustrialBankMing-shengBankEver-brightBank4,331(41%)3,642(16%)3,628(11%)2,929(9%)1,843(4%)1,153(4%)1,101(3%)748(3%)710(2%)694(2%)587(2%)568(2%)Source:S&PSource:S&PNon-bank challenge
115、rs in the mainstreamIn this scenario,non-banks grow their market share,particularly in lending.There is conductive regulatory environment,and the non-bank financial sector matures rapidly alongside the growth of the corporate bond market as customers seek more competitive lending solutions.Banks enj
116、oy rising profitability fueled by lower funding costs,but both existing and unserved customer segments have increased appetite for alternative lending products.Local banks with a legacy model focused on retail or SMEs face growing competition from NBFIs in credit provision.Foreign banks with a capit
117、al market focus or an appetite to fund have an advantage as the maturing NBFI segment requires funding from capital markets as well as through bank loans.SCENARIO 2 Oliver Wyman20The New Monetary Order|Asia PerspectivesNBFIs,particularly asset management firms and consumer finance institutions,expan
118、d their share of credit and challenge banks from a lending perspective as the non-bank industry matures from a low base.These non-banks find innovative ways to get ahead and serve a market untapped by the banks.Asset managers expand their corporate bond and other bond-like offerings(for example,reta
119、il bonds backed by private equity cash flows)to retail investors,supported by regulators seeking to preserve household wealth against rising inflation.Consumer finance institutions,funded by regional and global investors,capture niche opportunities from slower-moving local banks and find innovative
120、ways to serve a market untapped by banks.Other non-banks such as private equity firms benefit from significant intraregional capital flows,especially from China to Singapore,allocating a growing share of assets into direct lending to higher-yielding corporates.This growth is further enabled by more
121、supportive regulatory stances,with regulators more comfortable with NBFIs as they seek new financing channels for the private sector.Exhibit 10:Bank share of non-financial sector credit across key economiesIn%of all total private(non-financial)sector credit,Q100-Q422 2030405060801009070IndonesiaEmer
122、gingeconomiesAdvancedeconomiesThailandMalaysiaChinaHong KongSingaporeJapanSouth KoreaPre-GFC(2008)Late COVID(2022)United StatesAsiaUSSource:Bank of International Settlement(BIS),IMF,Oliver Wyman analysis Oliver Wyman21The New Monetary Order|Asia PerspectivesA highly globalized AsiaIn this scenario,t
123、he US dollar and global capital remain pivotal to the region.Geopolitical tensions ease and global inflation ebbs,leading to a stream of global capital inflow to the region.Global bank activity remains robust,and the US dollar retains its primary status.Asias global attractiveness remains high as gr
124、owth rates accelerate,especially in Southeast Asia,and risk measures stabilize or ease.China returns to 5%-plus GDP growth and the government further liberalizes the financial sector,creating new opportunities for foreign investors and banks in China.Global players find Asia increasingly attractive.
125、Global foreign banks with substantial US dollar funding explore inorganic growth or partnerships with private financial sector players.Foreign banks focus on capital markets opportunities,where they already have a competitive edge.Global market infrastructure and payment FITs,as well as financial ex
126、changes,benefit from the stronger capital flow between Asia and the rest of world.The increased activity of foreign institutions in Asia creates a competitive landscape for local banks.Local state-owned banks,in particular,struggle to pivot their strategies toward higher commercial value areas due t
127、o restrictions toward government priorities.Meanwhile,the US dollar remains the primary currency for trade settlement across the region(Exhibit 11).Factors such as limited RMB capital-account convertibility,local Asia currency volatility,and intricate payment rails for non-US dollar cross-border set
128、tlements contribute to the US dollars unwavering prominence.Exhibit 11:Share of international payment settlements by currency1 globalUS$EUR 30%GBP 4%JPY 3.6%CAD 2%CNY 1.6%CHF 3%AUD 2%Other 6%EUR 37%GBP 4%CAD 2%CNY 1.7%CHF 2%AUD 1%Other 6%48%US$42%JPY 3.9%June 2023December 20151.Share of transactions
129、 conducted via SWIFT.At current exchange rates.Excludes international transactions within the Eurozone Note:Percentages may not total 100 due to rounding Source:IMF,SWIFT,Oliver Wyman analysisSCENARIO 3 Oliver Wyman22The New Monetary Order|Asia PerspectivesA supercharged Asian financial blocIn this
130、scenario,a resilient Asia bloc takes shape.Higher intraregional capital flows,increased non-US dollar settlement,and improved cross-border settlement drive a regional financial bloc.Global influences within the region are waning due to US and European interest rates remaining high,contributing to le
131、ss capital flow to Asia from outside the region.Within ASEAN markets,a structural upswing is evident,along with a persistent drive to reduce supply chain risks.Regional Asia banks play a greater role in both capital and financing.There is a shift toward North Asian and Southeast Asian banks in terms
132、 of intraregional capital flows,replacing the once-dominant Western capital presence.Noteworthy shifts include Singaporean or Malaysian banks increasingly assuming roles once held by global players in neighboring ASEAN countries.In addition,regional North Asian banks with established regional footho
133、lds are deepening their intraregional financing activities to capitalize on lucrative opportunities within ASEAN markets.This trend is exemplified by Japanese banks reallocating capital to the region,further facilitated by tighter US financial regulations that hinder expansion in the US market.A shi
134、ft toward a multipolar currency region accelerates.RMB-denominated financing emerges as a new dynamic given that Chinas interest rates remain low relative to local and US dollar rates.Panda-bond issuance by non-China Asian corporates surges,especially among ASEAN economies.The Hong Kong SAR expands
135、its role as a valve for the RMBs internationalization,accelerating its development of CNH solutions and building significant CNH liquidity.A rapid rise in Asias intraregional trade and capital flows increases demand for local currency settlement where companies are heavily exposed to a single countr
136、y.The US dollar remains important,but its share of FX settlement nevertheless falls,with local Asia currencies taking its place.The region is moving toward a multicurrency landscape hinging on the RMB.Chinas share of total trade with ASEAN markets continues to rise from its already high 20%,while RM
137、B settlement rises in markets where Chinas pricing power is high or a Chinese entity is a counterparty to the trade.The growth of Panda-bond financing further accelerates regional corporates using RMB for settlement.SCENARIO 4 Oliver Wyman23The New Monetary Order|Asia PerspectivesExhibit 12:Share of
138、 RMB settlement1 in Chinas cross-border goods trade20112023,(%)20000022Periods of RMB weakness20202031617241.RMB share of total goods settlement over sum of total imports and exports under BoP current accountSource:CEIC,Oliver Wyman a
139、nalysisRapid improvements in the speed and cost of cross-border settlement in local Asia currency pairs accelerate the overall shift.Project Nexus,among other initiatives,scales faster than expectations from improving the retail payment side into the corporate side.As the shift towards a multipolar
140、currency region gains momentum,the financial landscape is undergoing transformation.Regional,rather than global,NBFIs,financial exchanges,and capital markets stand to benefit.Amid the dynamic transformation,tier 2 local banks(family or conglomerate banks),along with global banks deploying their bala
141、nce sheets in Asia and US dollar-based financiers,are likely to encounter challenges.These players need to identify new avenues for engagement and growth in this evolving landscape.Oliver Wyman24The New Monetary Order|Asia PerspectivesEach of these scenarios brings a wide spectrum of opportunities a
142、nd obstacles for the various players in the financial services sector as well as policymakers and regulators.In the table below,we consolidate the suggested actions for the financial sector players likely to be impacted.The Clear BeneficiariesThe Moderately BenefitedThe Challenged EntitiesSCENARIO 1
143、.Ever-dominant local banks,in depositsLarge/tier 1 local banksExtend competitive advantage via sector consolidation or inorganic growth for example,merger and acquisitions(M&A)with tier 2 banks.Solidify franchise through technology investments,such as modernizing technology infrastructure.Innovate a
144、nd develop tailored product positioning by understanding depositors behavior.Global transaction banksTake advantage of continued fragmentation in banking and overall growth in the banking sector.Global banks deploying balance sheetPivot into niche business segments(such as wealth management).Enter p
145、artnerships as an alternative to head-to-head competition with local champions.NBFIsTarget the niche segment untapped by banks,for example,micro,small,and medium enterprises(MSMEs).SCENARIO 2.Non-bank challengers in the mainstream,in lendingNBFIs,particularly consumer finance institutions and asset
146、managersStand out through innovative proposition.Explore potential sector consolidation or inorganic growth.Global banks with capital market focus,or appetite to fundLeverage rise of bonds(from non-banks)and build offerings around bond issuance as a beachhead back into the market.Market infrastructu
147、re FITsPartner with NBFIs to develop technological infrastructure to enable new products and services.Global private capital players and sovereign wealth fundsMaximize returns from NBFIs investments through NBFI investment.Small local banks with legacy modelsPartner with and invest in NBFIs to offer
148、 a wider range of customer propositions and diversify revenue streams.Deepen understanding of consumer(analytics)to defend their share.Call to Action Oliver Wyman25The New Monetary Order|Asia PerspectivesThe Clear BeneficiariesThe Moderately BenefitedThe Challenged EntitiesSCENARIO 3.A highly global
149、ized Asian regionGlobal banks with substantial US dollar fundingLeverage lower cost of funding to compete against local champions and smaller players.Explore inorganic growth opportunities.Global market infrastructure and payment FITsPartner with banks to continue facilitating capital market activit
150、y and inter regional payment.Global financial exchangesCapitalize growth from continued strong capital flows in and out of Asia.Global transaction and capital market-focused banksCapitalize on strong deal flow to facilitate capital investment into the region.Local state-owned banksRefine proposition
151、s to retain a competitive edge over foreign challengers.Prioritize risk management in pricing and lending.SCENARIO 4.A supercharged Asian financial blocRegional banks with established footprints(especially North Asia and Southeast Asia banks)Double down on new revenue streams via direct access to re
152、gional payment infrastructure.Embrace lessons learned from past investments to focus on drivers of differentiated success.Regional NBFIsPartner with banks and other FITs to deliver innovative offerings to capture a piece of the growing payment opportunity.Regional financial exchangesTake advantage o
153、f increased intraregional flows to capture share from global players.Local and regional market infrastructure FITsPrepare for increased demand for local currency pairs in cross border transactions.Sovereign wealth fundsCapitalize on the move toward self-sourced capital.Local tier 2 banksDevelop uniq
154、ue propositions toward local customers through understanding depositors behavior and deepening relationships.Global transaction banks/US dollar based financiersStrategically pivot away from the region,or seek partnerships with winning players to have a share of a growing pie.Oliver Wyman26The New Mo
155、netary Order|Asia PerspectivesNavigating Scenarios Key Imperatives for Asias Policymakers and RegulatorsEach of the four scenarios offers a tapestry of challenges and opportunities for policymakers and regulators.The decisions invariably require a delicate consideration of costs and gains,as trade-o
156、ffs abound.Within this framework,several important areas call for the attention of Asias policymakers and regulators to take strategic action.As the sector retains its prominence,large tier 1 local banks and global counterparts could choose the route of expansion through mergers and partnerships.It
157、is critical for policymakers to increase focus on stability to safeguard the sector from M&A wave risks.Policymakers need to prioritize coordinationand collaboration with other global regulatorsto support the growth of capital flows.As markets become increasingly integrated,regulators should also re
158、evaluate their strategies or restrictions for the local state-owned banks to enable them to compete with global players and remain competitive.Policymakers need to invest in increasing intraregional coordination and collaboration across ASEAN and North Asia markets.This includes refining and alignin
159、g risk management practices in respective home jurisdictions,as well as coordinating efforts to develop the non-US dollar market.SCENARIO 1Ever-dominant local banks SCENARIO 3A highly globalized Asian region SCENARIO 4A supercharged Asian financial blocSCENARIO 2Non-bank challengers in the mainstrea
160、mAs non-bank entities ascend,policymakers and regulators must prioritize financial system stability to curb excessive risk-taking in pursuit of market share.Policies are needed to ensure NBFIs improve risk management practices and protect customers interests.The rise of NBFIs also invites regulators
161、 to explore collaboration to push for a financial inclusion agenda.Oliver Wyman27The New Monetary Order|Asia PerspectivesFacing the FutureA grand experiment in global financial markets is playing out as central banks around the world establish a New Monetary Order that looks very different from the
162、era that preceded it.Asia is both central to the conversation and separate from it in important ways.The competing forces of globalization and regionalization,as well as competition and integration,are already clashing;any change in geopolitical tensions could alter the balance one way or another.In
163、 that context,the power of scenario analysis becomes apparent for financial services firms and policymakers alike.For firms,there will inevitably be winners,losers,and wildcards.Financial institutions should look for early signs of a tipping point in policy rate differentials,regulatory trends,and g
164、eopolitics and pivot accordingly.Likewise,for policymakers,the ability to assess in real time the implications of their decisions on the evolution of a new financial services landscape and change direction when necessary will be paramount.Asias financial journey through the New Monetary Order is sti
165、ll to be determined.But many of the forces that will shape its course are already coming into view.Now is the time for leaders to navigate.Oliver Wyman28The New Monetary Order|Asia PerspectivesGlossaryASEANThe Association of Southeast Asian Nations,a political and economic union of 10 member statesB
166、ISBank of International Settlements,based in SwitzerlandBOJBank of Japan,the central bank of JapanBopBalance of payments,the statement of all transactions made between entities in one country and the rest of the worldBOTBank of Thailand,the central bank of ThailandCNHChinese Yuan traded in the offsh
167、ore marketFDIForeign direct investment,the ownership stake in a foreign company/project made by an investor,company or government from another countryFITsFinance infrastructure technology companies,commonly large cross-border payment gatewaysFSBFinancial Stability Board,an international body that mo
168、nitors and makes recommendations about the global financial systemFXForeign exchange,the trading of sovereign currenciesGDPGross domestic product,the monetary value of final goods and services produced in a country in a given period of timeGFCGlobal financial crisis,the period of extreme stress in g
169、lobal financial markets and banking systems between mid 2007 and early 2009HKMAHong Kong Monetary Authority,one of the Hong Kong SARs financial regulatorsHKSARHong Kong Special Administrative Region,a Special Administrative Region of ChinaIMFInternational Monetary Fund,based in the United StatesMASM
170、onetary Authority of Singapore,Singapores central bankMSMEMicro,small,and medium-sized enterprises,businesses defined as having annual revenue or number of employees below a certain threshold.Specific definition typically varies by countryM&AMergers and acquisitions,consolidation of companies or the
171、ir major assets through financial transactions between companiesNBFINon-bank financial institutions,financial institutions that offer various banking services but do not have a banking licenseNIMNet interest margin,a measure of the net interest income a financial firm generates,based on the differen
172、ce between interest paid and interest received,adjusted by the total amount of interest-generating assetsPanda bondsChinese renminbi-denominated bond from a non-Chinese issuer,sold in the Peoples Republic of ChinaPBOCPeoples Bank of China,the central bank of the Peoples Republic of ChinaQEQuantitati
173、ve easing,a monetary policy action in which a central bank purchases government bonds or other financial assets to increase the domestic money supply and stimulate economic activitySEASoutheast Asia broadly includes Brunei,Cambodia,East Timor,Indonesia,Laos,Malaysia,Myanmar,Philippines,Singapore,Tha
174、iland,and VietnamSMEsSmall and medium-sized Enterprises,businesses defined as having annual revenue or number of employees below a certain threshold.Specific definition typically varies by countryUS FedThe US Federal Reserve,the central banking system of the United StatesOliver Wyman is a global lea
175、der in management consulting.With offices in more than 70 cities across 30countries,Oliver Wyman combines deep industry knowledge with specialized expertise in strategy,operations,riskmanagement,and organization transformation.The firm has more than 6,000 professionals around the world who work with
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177、 India,Middle East&Africa+1 212 541 8100+44 20 7333 8333+65 6510 9700+971(0)4 425 7000 Copyright 2023 Oliver WymanAll rights reserved.This report may not be reproduced or redistributed,in whole or in part,without the written permission ofOliver Wyman and Oliver Wyman accepts no liability whatsoever
178、for the actions of third parties in this respect.The information and opinions in this report were prepared by Oliver Wyman.This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants,tax,legal or financial advisor
179、s.Oliver Wyman has made every effort to use reliable,up-to-date and comprehensive information and analysis,but all information is provided without warranty of any kind,express or implied.Oliver Wyman disclaims any responsibility to update the information or conclusions in this report.Oliver Wyman ac
180、cepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein,or for any consequential,special or similar damages even if advised of the possibility of such damages.The r
181、eport is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities.This report may not be sold without the written consent ofOliver Wyman.AUTHORSBen SimpfendorferPartnerCarey HsuPartnerShirley SimadiputriEngagement ManagerCONTRIBUTORSTed MoynihanGlobal Head of Financial ServicesJacob HookManaging Partner,Asia PacificPeter ReynoldsHead of Greater ChinaSeo Young LeeHead of Southeast AsiaXelios ChangSenior ConsultantAndrew ShinSenior ConsultantOliver Wyman A business of Marsh McLennan