1、July 2019 Global Banking Practice Asia-Pacific Banking Review 2019 Bracing for consolidation: The quest for scale Authors and acknowledgements Jacob Dahl Senior Partner Hong Kong Vito Giudici Senior Partner Hong Kong Joydeep Sengupta Senior Partner Singapore Suho Kim Partner Seoul Ervin Ng Associate

2、 Partner Singapore The authors would like to acknowledge the contributions of the teamAalind Gupta, Amanda Teo, Belinda Ong, Donna Soh, Fabien Chen, Gabriela Gunawan, Genevieve Cham, John Crofoot, Khadijah Suhaimi, Teddy Nguyen, Yihong Wu, and the Panorama teamas well as the countless number of part

3、ners, colleagues, industry and topical experts, and communications experts to this report. 1Asia-Pacific Banking Review 2019 Bracing for consolidation: The quest for scale Bracing for consolidation: The quest for scale In the previous Asia-Pacific Banking Review in 2016, we wrote that the Asia-Pacif

4、ic banking industry was heading into a storm. Over the past three years, the storm has worsened. There are rays of light breaking through the clouds, but only a small number of banks will climb above the storm, unlocking the potential of scale to boost productivity, optimize capital, and pursue stra

5、tegic growth. Make no mistake about it, consolidation is looming on the horizon. The road ahead is difficult, and less efficient banks will disappear. For many years Asia-Pacifics banking industry has outperformed global banking averages. Today, however, as the regions emerging economies mature, its

6、 banking industry is converging with global averages on margins, returns on equity, and price-to-book multiples. In addition, as economic growth across the region slows (especially in emerging economies) and digital attackers challenge incumbents both in customer acquisition and share of wallet, ban

7、ks are grappling with thinning margins, declining asset quality, and rising capital costs. We believe that the forces sapping strength from Asia-Pacific banks point to possible consolidation, as they exert pressure on banks to achieve scale benefits in distribution, productivity, and capabilities. A

8、s capital is drawn to organizations generating higher returns, weaker organizations may find it difficult to raise the capital they require. Smaller institutions, including new disruptors and specialists can also survive, provided that they offer superior value to niche segments. In many cases, purs

9、uing a partnership or merger may be the most efficient way to build scale, boost productivity, and consolidate technology and talent. To prepare for the battles ahead, banks must first attack costs and seek to achieve market-leading efficiency ratios. Those that develop best-in-class digital and ana

10、lytics capabilities will also be in a position to capture significant new revenue in four fast-growing businesses: wealth management, retail lending, small and medium enterprise lending (SME), and transaction banking. As they seek to build scale, banks should also develop a systematic practice for m

11、anaging partnerships, joint ventures, mergers, and acquisitions. To emerge successfully from a period of potential consolidation, banks must reinvent themselves or risk disappearing. For many organizations, the building blocks for a data-driven, customer-centric digital banking business are already

12、in place. In order to carry through with the transformation, however, banks must shift to a more flexible technology architecture and operating model, build up their data and analytics capabilities, and develop a plan for acquiring and developing the new talent required for the workforce of the futu

13、re. High-performing banks will likely acquire smaller organizations to achieve synergies of scale, market share, technology, and talent. 2Asia-Pacific Banking Review 2019 Bracing for consolidation: The quest for scale The storm intensifies In our 2016 Asia-Pacific Banking Review, we warned that a st

14、orm was brewing due to slowing macroeconomic growth, attackers, and weakening balance sheets. Three years on, these forces continue to exert pressure on the regions banks, and forward- looking indicators suggest that many banks will struggle as the storm worsens. We believe that the combination of l

15、ow growth, thinning margins, possible higher risk costs, and the need for scale efficiencies point to potential consolidation. As they brace for this possibility, there are several efficiency measures and growth strategies that banks should pursue in order to maximize value. We discuss these opportu

16、nities, following our examination in the present chapter of historical trends, the future outlook, and possible consolidation in Asia-Pacific banking. Historical trends Growth tapering in the worlds largest regional banking market There are two ways to look at Asia-Pacific banking. On the one hand,

17、it appears to be strong and growing. In 2018, Asia-Pacific banking generated revenues of approximately $1.6 trillion. The regions profits (before taxes) topped $700 billion in 2018, representing 37 percent of global banking profit pools.1 Revenue and profit pools continue to grow, average returns on

18、 equity (ROEs) stand comfortably above the cost of capital, and total returns to shareholders for Asia-Pacific banking exceed TRS for global banking by 51 percentage points.2 On the other hand, closer scrutiny reveals a sobering situation. Multiple trends show clearly that the days of a free lunch a

19、nd fast growthespecially for banks in emerging marketsare behind us. Asia-Pacific banks are facing challenges typical of mature marketsincluding slowing growth, thinning margins, higher capital requirementsand in many cases will need to build scale to strengthen their competitive position. 1 McKinse

20、y Panorama Global Banking Pools 2 Based on a sample of 2,000 listed banks across markets. 2017 data from SNL, Thomson Reuters, McKinsey Panorama Global Banking Pools Tapering growth is the most obvious sign of a weakening environment for Asia-Pacific banking. The regions banks enjoyed double-digit a

21、nnual growth from 2010 to 2014, but from 2014 to 2018, annual revenue growth slowed to five percent, and growth in profit pools slowed to three percent. While there was a slight recovery in banking profit pools in certain markets from 2017 to 2018, the longer trend of slowing GDP growth in China and

22、 India, Asia-Pacifics two largest emerging economies, has weakened economic expansion for the entire region and dampened demand for banking services. Over the same period, banks in Europe and North America have rebounded from the 2008-09 crisis, meaning that Asia-Pacifics share of global banking pro

23、fit pools is shrinking (Exhibit 1 ). Non-performing loans are still rising Examining the situation more closely, we see several signals that weakening industry performance is not simply a reflection of the slowing macroeconomic cycle but also results from significant changes in the market. The avera

24、ge risk cost provision for the Asia-Pacific market was approximately 0.30 percent 3Asia-Pacific Banking Review 2019 Bracing for consolidation: The quest for scale in 2018. This is the highest level of loan losses for the region since 2002, when the average risk cost provision for emerging and develo

25、ped Asia-Pacific markets hit approximately 0.31 percent. For emerging markets, the average risk cost provision spiked from 0.43 percent in 2015 to 0.49 percent in 2018.3 Non-performing loan (NPL) ratios in Thailand, Vietnam, and Indonesia are especially high, but pale in comparison with the crisis i

26、n India 3 McKinsey Panorama Global Banking Pools 4 World Bank database (concentrated in wholesale lending by public sector banks), where NPLs accounted for 11.7 percent of loans in 2018.4 The decline in returns on equity continues Over the past decade, the story has been the rebalancing from West to

27、 East, as growth in Asia- Pacific has driven global economic growth and generated robust returns. Now, the combination of slower growth with rising risk and capital costs in 1 Total pre-tax proft pools of all customer-driven banking activities, including retail and institutional management. 2 Includ

28、es Western and Eastern Europe. Source: McKinsey Global Banking Pools 25% 34% 47% 26% 2010 49% 39% 3% 33% 3% 20072015 5% 32% 24% 2008 50% 14% 23% 7% 1,092 2009 30% 12% 44% 37% 6% 2011 47% 9% Latin America 12% 6% 2014 40% 1% 2012 45% 8% 17% 5% 34% 6% 40% 33% 40% 7% 32% 17% 2016 32% 18% 7% 42% 2017 37%

29、 2013 18% 7% 2018 Asia-Pacifc North America Europe2 6% Middle East 6% Africa 1,265 856 612 843 991 1,316 1,451 1,571 1,585 1,768 1,924 33% 12 18 15 13 16 8 15 6 -22 -32 10 -11 11 -13 CAGR 2007-10, % Proft before tax1 $ billion, fxed 2018 FX rate, % CAGR 2014-18, % CAGR 2010-14, % 3 7 19 14 1 3 7 Glo

30、bal 3% 2% 3% 2% 3% 2% 3% 2% 3% 2% 3% 2% 3% 2% 3% 2% 2% 1% 2% 2% 4% 1% Exhibit 1 Asia-Pacifcs share of global banking pre-tax proft pools has declined due to slower growth and post-crisis recovery in other regions. 4Asia-Pacific Banking Review 2019 Bracing for consolidation: The quest for scale Sourc

31、e: SNL; McKinsey Global Banking Pools Return on average equity, 2010-18, % 12.4 12.9 11.4 10.6 8.1 7.6 7.9 8.1 19.5 17.6 14.3 12.3 11.4 9.2 9.3 9.6 9.0 9.5 20 0 4 8 12 24 16 2011 5.6 2010 2012 2013 2014 2015 2016 2017 10.1 2018 Asia-Pacifc (APAC) APAC Developed Global APAC Emerging Exhibit 2 Return

32、on average equity of Asia-Pacifc banking has been drifting down toward the global average. emerging economies is creating a new equilibrium, as seen in the convergence of Asia-Pacific banking returns with global averages. The average ROE for Asia-Pacific decreased from 12.4 percent in 2010 to 10.1 p

33、ercent in 2018. The average ROE for global banking was 9.5 percent in 2018 (Exhibit 2). If rising risk costs have eroded banking ROEs significantly in emerging markets, thinning margins on fee and interest income have cut deeply into returns across developed and emerging markets alike, as banks face

34、 increasingly fierce competition from both peer banks and digital attackers. Rising capital costs (due to a combination of stricter regulatory requirements and inefficient capital management) are another significant drag on returns (Exhibit 3). (See Appendix A for a summary of the factors behind the

35、 decline in banking ROEs across major Asia-Pacific markets.) Improvements in cost-efficiency help, but banks can do better While many banks have improved efficiency through infrastructure improvements and extensive digitization, among other measures, these actions have not been sufficient to reverse

36、 the general decline in ROE. In some markets, including the regions giants, China and Japan, the biggest 5Asia-Pacific Banking Review 2019 Bracing for consolidation: The quest for scale factor behind stronger cost-to-asset (C/A) ratios has been the expansion of lending volumes.5 As volume growth slo

37、ws, however, it will become increasingly important to leverage state-of-the-art capabilities in areas such as digitization, robotics, and machine learning to boost productivity across 5 S McKinsey Global Banking Pools CapitalFines and others4 TaxesCost efciency3 Risk cost2 Margin+=ROAE 2014, % ROAE

38、2018,5 % CAGR 2014-18 Developed markets Emerging markets Asia-Pacifc 12.8% 10.1% -4.9% -2.3% 3.2% 1.5% 0.0% -0.2% -2.6% Australia 14.6% 12.9% 0.7% 1.2% 0.6% -0.4% -1.3% Hong Kong 13.9% 12.3% -1.2% 0.4% 0.3% 0.3% 0.2% -1.5% Japan 6.3% 5.4% -5.2% 0.3% 2.7% 1.3% 0.0% 0.1% South Korea -0.7% 3.4% 1.5% -1

39、.0% -0.5% 1.3% 4.5% 8.5% Singapore 11.8% 12.1% -0.8% 0.8% -0.1% 0.1% 0.0% 0.3% Taiwan 9.7% 8.2% -2.7% 0.1% 1.3% 0.2% -0.6% 0.1% -8.0% -3.7% 5.5% 2.1% -0.1% -0.6% Mainland China 17.4% 12.4% -2.9% -14.7% 6.7% 0.5% -2.9% 0.1% India 11.3% -2.0% -4.6% -1.0% 2.8% 0.6% 0.0% -2.0% Indonesia 13.2% -1.9% 0.1%

40、 1.0% 0.4% -0.1% -1.3% Malaysia 12.8% 10.9% 1.1% -2.2% -0.1% 0.8% 0.0% -1.8% Thailand 14.0% 11.7% -6.4% 0.1% 0.2% 0.8% -2.1% 2.2% Rest of APAC614.2% 9.1% Vietnam 7.3% 12.2% 2.9% 1.7% -0.7% -0.4% -0.4% 1.9% Below -1% Between -1% and 0% Above 1% Between 0% and 1% 17.4% ROAE for Asia-Pacifc markets,1 2

41、014-18, % Exhibit 3 In most markets, the impact of lower margins has been tempered by more cost efciency; emerging markets have struggled with rising risk costs. 6Asia-Pacific Banking Review 2019 Bracing for consolidation: The quest for scale throughout all Asia-Pacific markets.6 Profits from net in

42、terest margins and fee margins are declining, making the growth in loan and deposit volumes the last remaining stronghold for profit growth. This should give industry leaders pause. Nimble digital platform providers (armed with data-centric business models that entail relatively low capital and oper

43、ating expenditures) are positioning themselves to challenge incumbent banks with increasing force. And, depending on regulators postures toward innovation, these attackers may extend their deposit-taking and lending activities, cutting further into the market share of incumbent banks. In China, for

44、example, Yue Bao, Ant Financials digital savings vehicle, has grown from managing less than RMB 200 billion7 (approximately $30 billion at todays exchange rates) in 2013 to surpassing RMB 1.1 trillion ($160 billion) in assets under management (AuM) in 2018.8,9 In South Korea, messaging service Kakao

45、Talk launched Kakao Bank in 2017 and grew to approximately eight million users and KRW 12.1 trillion (approximately $10.4 billion) within 18 months. For a closer examination of the threats posed by digital attackersand banks potential to withstand these attackssee the sidebar “Will digital attackers

46、 gain market share at the expense of incumbents?” on page 12. Future outlook Asia-Pacific has entered a new phase in which growth will be much slower than in recent memory, and the potential for protracted slow growth in China could weaken the regions growth even further.10 In addition to macroecono

47、mic headwinds, banks also face increased competition with the gradual adoption of open banking standards and will likely continue to struggle with declining returns. Investors have already registered their pessimistic outlook for the industry, and price-to-book (P/B) multiples for Asia-Pacific banki

48、ng have declined from 1.1 in 2011 to 0.7 in 2018,11 trailing the global average for the fourth consecutive year (Exhibit 4). Nearly two- thirds of Asia-Pacific banks have a P/B ratio less 6 McKinsey Panorama Global Banking Pools 7 Wind Database 8 “Meet the earths largest money-market fund,” Wall Str

49、eet Journal, September 13, 2017, spinoff-created-the-worlds-largest-money-market-fund-1505295000 9 “Money market funds on Ant Financials Yue Bao grew by 80 times on average,” China Knowledge, March 27, 2019, https:/www. 10 IMF Economic Outlook, April 2019 11 S pricing, third-party access to banking systems, and authentication (as in the EU); or risk control and interoperability (as in Singap