Asian banks are emerging from the
crisis in good shape, and that is having a catalysing effect on
their UK subsidiaries. A customer base eager for an alternative to
the status quo is proving to be an attractive proposition for banks
with large war chests or organic expansion plans. Dan Jones reports
With many Asian economies seemingly emerging from the crisis in
better shape than their Western counterparts, leading banks in
India and China have continued to grow impressively even as those
in the US and Europe struggle to start afresh. Significantly, many
such institutions are also intent on making gains in Western retail
banking markets as a means of expanding global footprints.
Go deeper with GlobalData
State Bank of India (SBI), India’s largest
bank, has been the most vocal about its intentions to expand in the
West, having amassed a sizeable war chest for UK acquisitions
alone.
The bank has said it is looking to make
acquisitions of up to $1 billion in the UK. SBI is also considering
acquisitions in the US as part of a strategy to boost its overseas
businesses’ share of overall profit.
SBI chairman OP Bhatt has stated that the
bank’s UK focus would be on capturing business from non-Indian
clients rather than non-resident Indians, adding that the 40
percent growth rate seen at the bank’s $3 billion UK business over
the past two years was expected to continue over the next financial
period.
Ambitious growth targets are also in place at
the UK subsidiaries of other institutions such as Bank of Baroda,
which is 53 percent owned by the Indian government. Baroda had
already made considerable progress in growing its international
business in the 12 months to 31 March, having increased customer
deposits by 56 percent and total assets at its international
operations by 36 percent.
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By GlobalDataSpeaking to RBI, SS Mundra, chief executive of
Bank of Baroda’s European operations, said that the UK business was
looking to double its retail customer base in 2009. “We presently
have 22,000 retail customers, and have set an ambitious target of
doubling it this year. We are on track to achieve that,” Mundra
said.
That progress has been achieved through the
introduction of a number of new products and an advertising
campaign which has been launched in print and online. Centring on a
‘Bank on Baroda’ tagline, the campaign emphasises the bank’s
stability amid the crisis and, in Mundra’s words, is part of an
effort to “broad-base” the bank’s customer demographics.
“We realised particularly in the last year of
the crisis period that people found comfort in dealing with us.
None of our existing customers had to face the stress or go out and
seek an alternative arrangement. Rather many customers came to us
because they had to come out of their existing relationship for
whatever reason,” Mundra said.
“That also prompted us to think we could
expand our base, and not be confined to only a segment or a
particular age group within a segment.”
Bank of China – a safe haven
That is a sentiment echoed by Xixu
Sun, chief retail banking officer at Bank of China (BoC) UK, the UK
subsidiary of China’s third largest bank by assets.
“More and more people find us as a safe haven
for their money and savings, especially during the past eight to 12
months. The composition of the customer base is gradually changing
– we see more UK residents coming to our bank,” Sun told RBI.
Bank of China’s overseas operations reported a
net profit of $1.5 billion for the first half of 2009, a 28 percent
increase year on year.
The increased interest in Asian institutions
from UK residents is also prompting an increase in branch network
size. Baroda, which currently has nine branches in England, is
awaiting regulatory approval to open a 10th and will thereafter
“look at possibilities in the Midlands and Scotland”, according to
Mundra.
The bank’s Indian peers are also in an
expansionary phase in the UK; SBI now has seven branches in the
country with further openings planned over the next 12 months,
ICICI has 11 branches and Punjab National Bank has four.
At BoC, where the current branch network stands at five, there
is a similar outlook.
“London is one of the main focal points
because of the concentration of the population. But we will not
miss any opportunity in other areas. It’s not definite to say how
many we will or won’t open, but we are working on it,” said
Sun.
The increasingly high-profile of Asian
institutions operating within the UK retail banking sector is not
without precedent, however.
Bank of Baroda has had a consumer banking
operation in the country since 1957, and previously had 20 branches
around the UK before a restructuring of the banking sector took
place in 1999. BoC, meanwhile, has had a UK presence since 1929 and
has been in the mortgage lending segment for two decades.
BoC’s lending arm is attracting more interest
than ever before due to both the state of the UK mortgage market
and the bank’s decision to work more closely with mortgage brokers,
said Sun.
“We’ve attracted a lot of attention because
our prices are competitive and the brokers are promoting our
products. Over the past two decades we haven’t used channels such
as brokers – the main focus was the Chinese community – but we need
them to gain wider access to the UK market, and we welcome other
clients,” Sun added.
15,000 brokers in the UK
A sharp increase in the bank’s UK
deposit base has also given it access to low-cost funding and
further catalysed the push into growing the asset side of its
business.
“We are seeing numbers of customers,
deposit balances, mortgage enquiries and mortgage applications
growing on a daily basis,” said Sun, who declined to provide
specific figures.
BoC now has access to a network of around
15,000 brokers across the UK, and will continue to target prime
borrowers using what Sun described as “traditional lending
methods”: an insistence that borrowers also take out a deposit
account with the bank; face to face interviews; and a shunning of
self-certification products.
“The customers we are covering are from all
different backgrounds. This year the new customers or new enquiries
from local residents are mostly higher end customers, probably
because of the lack of offers from other lenders in the market,”
said Sun.
That policy contrasts with that seen at Bank
of Baroda, as Mundra explains: “Mortgage loans are not on the
agenda as of now. We are waiting for the new Financial Services
Authority guidelines regarding asset/liability management (ALM).
Mortgage loans involve a longer period of time and we have to be
mindful of our profile,” he added.
Rather, it is the liabilities business that is
flourishing at Baroda. The ‘Bank on Baroda’ campaign has been
accompanied by two new deposit products, Baroda Smart Sweep and
Baroda Flexi. The former is a savings product that sweeps savings
into a fixed-deposit account or vice versa depending on a
customer’s need for higher returns or liquidity; the latter a
flexible deposit product offering customers the chance to deposit
between £100 ($160) and £10,000 per month.
Baroda has also launched a new remittances
product which enables customers to transfer money from any bank in
the UK to any bank in India at the click of a button. Mundra said
that the bank would set specific customer targets for each product
“in two or three months’ time”, once each offering had become a
more established part of the bank’s product offering.
Both Baroda and BoC also have an eye on
improving their direct banking channels. BoC did so last year,
launching an internet banking platform that has seen “very good”
take-up among customers, according to Sun. At Baroda, the online
banking channel is view-based rather than transaction-based, but
further improvements are expected in future. Mundra, however, says
that Baroda’s unique selling point is found in its personal,
face-to-face approach to banking.
|
Metrics |
||||
|
Bank of Baroda – assets and |
||||
|
International operations |
Group total |
|||
|
Assets ($bn) |
Revenue ($m) |
Assets ($bn) |
Revenue ($m) |
|
|
Q208 |
7.89 |
103.2 |
39.4 |
809.3 |
|
Q308 |
8.05 |
118.3 |
40.4 |
856.2 |
|
Q408 |
8.57 |
147.1 |
42.6 |
1,068.1 |
|
Q109 |
10.69 |
138 |
48.4 |
1,061.5 |
|
Q209 |
11.95 |
132.5 |
49.9 |
1,007 |
|
Source: Bank of Baroda |
||||
Competing with the mainstream
Asked if Baroda had witnessed an
influx of customers as a result of the high-profile troubles of
some of the larger names in UK retail banking, Mundra did not
comment directly but said that the bank “has seen business coming
from larger banks, and as we are well positioned to handle it we
certainly see ourselves as a competitor in that area”.
By contrast, Sun said that BoC is
“not trying to compete with the local mainstream banks because the
business models and the focus are very different”. More broadly,
both executives unsurprisingly believe that the rise of both India
and China as economic powerhouses have only served to strengthen
the position of their UK operations.
“There has been quite an upsurge in trade
relationships between the UK and India, as well as acquisitions on
either side. That has created a lot of business opportunities, and
those entities and customers coming from India are known to us or
have some sort of existing relationship, which is to our
advantage,” said Mundra.
Sun said: “Our edge would be products and
services that have, let’s say, a Chinese touch. There is a stronger
interest in doing business with China, in coming to China, and that
is helping us.”
The banker is also bullish on future growth
prospects: “We are the third largest banking group by market cap in
the world. And we have a very strong balance sheet. We’re already
seeing very wide levels of recognition for our brand name in the
UK.”
