The overall conclusion from this year’s Retail Finance
Asia-Pacific conference was that while the US market will continue
to stumble, most markets in this region will maintain their upwards
trajectory, fuelled by strong fundamentals as well as foreign banks
looking for good market opportunities. Titien Ahmad
reports.
The conclusion drawn from RBI’s recent Retail Finance
Asia-Pacific conference, held in Kuala Lumpur at the end of
October, was clear: while the US and some European markets continue
to reel from the subprime mess, opportunities across the
Asia-Pacific market abound. The conference saw more than 30
speakers from around the world sharing their views on growth
opportunities and best-practice strategies with a focus on the
Asia-Pacific region.
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Owen Wilson, managing director retail Asia for ANZ, for instance,
highlighted the “strong opportunity in Asia’s retail banking
markets… There is good potential for more developed banking
services, low penetration of personal and small and medium
enterprise banking, strong savings, strong aspirations for home
ownerships and growing demand for consumer goods.”
Priority markets for ANZ in the region now include China, India,
Indonesia, Malaysia and Vietnam; the bank has been actively
acquiring or partnering with banks in these markets over the past
12 months.
Richard Williamson, general manager of Asia strategy for ANZ’s
rival, Commonwealth Bank of Australia, agreed that the region is
the ascendancy, with strong opportunities in mortgages. “Emerging
Asian markets have high growth potential and low penetration” in
the mortgage sector, he stressed.
“We think there is a lot of upside. At the macro level if you look
at the Asian economies there’s a burgeoning middle class and an
increasing amount of wealth among mass consumers in Asian
countries. The growth rate of premium or high net worth customers
is quite staggering – by some estimates mass affluent consumers in
Asia will more than triple to over 50 million over the next decade,
and true high net wealth/private banking clients will exceed 3
million,” Williamson said.
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By GlobalDataHe warned, however, that product development in terms of retail
banking and mortgages has been limited. “Products are simpler in
Asia, providing an opportunity for lenders with product expertise
to provide more sophisticated products that meet customer demand,”
said Williamson. “Product development will become increasingly
important as competition builds.”
A ‘voyage of discovery‘
Steve Monaghan, head of under-banked markets for Singapore’s OCBC
Bank, likened innovation to a “voyage of discovery – it is
important that you have maps, the right ship, the right resources
and the right training”. There is a need to accept failure as part
of the innovation process, as “too often, in organisations, if you
fail, the whole organisation bolts”, added Monaghan.
Puneet Bahl, head of consumer finance Asia for ABN AMRO, echoed the
need for innovative thinking in product development in his
presentation. He said he felt that there are still many niches left
unexplored by banks in the region. In a question-and-answer
session, Bahl said: “If we can’t find a niche, that’s the bank’s
fault not the consumer’s. All consumers have a need and it’s up to
the banks to find it.”
Emerging markets were well represented at the event. The big themes
for these fast-developing markets centred on catering for the
growing mass affluent market segments and improving distribution.
Han Ngoc Vu, CEO of Vietnam International Bank, for instance, said
that Vietnam is witnessing a robust increase in the number of
middle and upper income consumers.
But he added that Vietnam remains significantly under-banked: out
of the country’s population of 84 million, there were only 8
million individual bank accounts, 6 million retail banking
customers, 6.5 million ATM cards and 500,000 credit cards.
“Retail banking is so new in Vietnam that it needs ever more
capital for development in areas such as IT, infrastructure, human
resources and risk management,” said Han. “Vietnamese banks are
currently underspending Asian counterparts by 30 to 40 percent in
terms of IT… and without a long-term IT vision, it’s a money
waster.”
Han said his bank was leading the change in the country, which is
seeing an influx of foreign competition, by implementing the most
advanced IT system in Vietnam, offering a diversified retail
product portfolio and a multi-channel distribution strategy, and by
being one of the founding shareholders in Vietnam’s first private
credit bureau.
Opportunities in Pakistan
Another emerging market that hit the banking headlines in 2007 is
Pakistan, which saw bank acquisitions from ABN AMRO and Standard
Chartered. “Increased merger and acquisition activity [in Pakistan]
is around acquirers seeking to increase their branch network,” said
Abid Sattar, senior executive vice-president, retail and consumer
banking of Pakistan’s Habib Bank.
The big four in Pakistan – Habib Bank, United Bank, Muslim
Commercial Bank and Allied Bank – together command 61 percent of
the country’s branch network and, correspondingly, the largest
market share in deposits at 38 percent.
Sattar described the next few years as an era of “exceptional
growth and opportunity” for banks in Pakistan, a country that is
expected to show GDP growth of, on average, 7 percent a year.
Sattar added: “[There is] impressive growth in consumer loans.
Private banks are leading the way by providing better customer
service with newer branches, well-groomed staff and increased use
of technology… Two of the big four privatised banks are now owned
by foreign investors.”
Leaner, more sales-focused branches
In more developed markets such as Australia, the branch has been
making a comeback, albeit in a leaner, more sales-focused format.
David Liddy, CEO of Bank of Queensland (BoQ), shared his views on
BoQ’s successful branch franchising strategy – a strategy that saw
the bank grow from 93 branches in one state in 2001 to 270 branches
in every state and territory in Australia in 2006.
Liddy’s owner-managed branch, or OMB as he terms it, is essentially
a “small business with the owner manager paying establishment and
operational costs [estimated at A$450,000/$400,000] and sharing
profits directly flowing from the branch business”.
In his presentation, he said: “OMBs look the same as a
[traditional] corporate branch but have enhanced service.
Individual remuneration, together with growing a valuable business,
has been the key success to the model. Our OMB strategy leverages
the bank’s investment in infrastructure and its banking licence
through expansion on a low, variable cost basis, attracting the
best retail bankers by rewarding performance.”
Branches with the OMB model saw 23 percent annualised growth in
deposits and 17 percent annualised growth in lending, compared with
an annualised 4 percent growth in deposits and 5 percent annualised
growth in loans pre-conversion.
Other speakers pointed out the increasing importance of integrating
the online offering into the bank’s distribution and marketing
strategy. “Managing intermediary and online channels should be a
part of a distribution strategy, particularly as the percentage of
second-hand housing increases,” said Williamson from ANZ.
Digital creativity has just begun
Melanie Silva, industry market manager for Google Australia,
pointed out that “creativity on the digital platform has just
begun. We’ve definitely witnessed an increase in the number of
creatives and planners from traditional disciplines starting to
engage with the digital platform and search but they are just at
the beginning.”
Silva said: “Getting your message to people is a lot harder than it
used to be. Customer engagement is increasing and they are choosing
what they want and engaging with that media a lot more. There has
never been such a pervasive force in consumers’ lives. The internet
touches everything from commerce to communication, entertainment to
education, and has no limitations on who can create and consume its
content.”
With 120,000 blogs created every day around the world, Silva
contended, “it is possible for the first time for consumers and not
just big businesses to be content creators”.
Some banks are engaging with their customers online with a coherent
approach, she said. She cited HSBC and its UK subsidiary, first
direct, as examples of financial institutions that are engaging
well with their customers through the online medium.
For example, she said, first direct launched a podcast service
delivered by first direct staff directly, “rather than something
crafted by a PR agency and delivered by a professional ‘talking
head’”.
HSBC, according to Silva, extends its golf sponsorship online
through two microsites about golf – HSBCgolf.com and
HSBCtherange.com. “Sponsorship is a very expensive form of
marketing – but by creating these digital assets you’ve activated
your sponsorship online and extended the dialogue with your
consumers,” she said.
There was a clear move to create a more coherent and
customer-centric offering, beyond traditional product silos, from a
number of retail bankers at the conference.
Arup Mukhopadhyay, senior vice-president and group head retail
banking for Abu Dhabi Commercial Bank, highlighted his bank-wide
loyalty programme, called Touchpoints. In what he claims to be the
first such programme in the United Arab Emirates, customers earn
reward points for subscribing to a product, maintaining or
continuing a relationship for a product or service or for carrying
out a transaction or utilising a channel preferred by the
bank.
Much like Citbank’s ThankYou loyalty programme, the rewards
programme cuts across bank products such as credit cards, savings
accounts, debit cards, consumer loans, investment products and
alternative channel usage.
Reasons to remain optimistic
The potential for future GDP growth and low consumer credit
penetration gives retail bankers in Asia-Pacific strong reasons to
remain optimistic. In Pakistan, for example, Sattar pointed out
that only “30 percent of the adult population has bank
accounts”.
Even the subprime debacle that has spread from the US to Europe is
not seen as a likely threat to the growth trajectory for retail
banks in the region.
“It is difficult to see an Asian version of the US subprime
problems arising,” said Williamson. “Mortgages are a far smaller
percentage of Asian bank balance sheets than US or European bank
balance sheets. Asian mortgage loan-to-valuation ratios have been
managed tightly by local regulators. There are fewer low-start
mortgages, [and] collections and recovery issuers are different in
Asia as opposed to the stretched valuations in the US.”
