The Asian Banker

Asia Pacific retail banking income topped $447b in 2012
Sep 06, 2013

  • High growth expected for banks’ Asia Pacific retail banking income, estimated to reach $850b by 2020.
  • China and Japan, with $116b and $109b in retail banking income respectively, account for over 50% of total revenue generated. 
  • Vietnam and Indonesia have similar levels of retail banking income ($8b and $7.66b respectively) but show large difference in terms of asset base.

Singapore, 6 September 2013 - In the most comprehensive research of the retail banking industry in the Asia Pacific, The Asian Banker found that income from banks’ retail operations grew an estimated 10% to reach a record $447 billion in 2012.

High growth expected for banks’ retail income, estimated to reach $850b by 2020

Further growth is expected in this segment, with bank revenue likely to hit $850 billion by 2020. “Over the recent years, we have seen rapid development of wealth management products and services. We believe this activity will foster growth in Asia-Pacific retail banking,” said Bertrand Pigeon, senior research analyst at The Asian Banker.

Banks derive most, if not all, of their non-fee income from interest rates charged on loans, whether these are for mortgages, cars, or extended for purchase of appliances in households. One of the traditional yardsticks under our scrutiny is the Non-Performing Loan (NPL) ratio. Due to the evolution of financial instruments and lack of proper regulations in certain countries, this ratio has become increasingly irrelevant.

Besides NPL ratios and their underlying biases, also analysed was the impact of regulations on banks’ profitability. While some countries are hardly equals in terms of international banking regulations, banks have to be Basel III compliant.

One of the main issues with Basel III is liquidity: with higher reserve ratios, banks will not be able to lend as much as before, this in turn negatively affect the part of retail income that is interest-rate based.

Even if interest rates were to increase, the decrease in demand for loans would still lead to decreased retail income. Consumer loans are more easily affected by hikes in interest rates than corporate ones.

China and Japan, notching $116b and $109b in retail banking income respectively, account for over 50% of total revenue generated

“Two countries that came out top of our ranking are intrinsically different in the way their retail arms operate and in the customer pools available”, said Pigeon. Japan, with a population of 126 million, achieved a retail banking income of $109 billion, while China with over 1.4 billion inhabitants (11x Japan), recorded $116 billion (only 6% more than Japan).

Asia-Pacific retail banking industry notched up $447b in income for FY2012

Figure 1. China and Japan account for over 50%

“In China, those possessing a wealth in excess of Rmb10m ($1.62 million) reached 1.05 million in 2012. The super-rich, defined as individuals with personal wealth of Rmb100 million ($16.2 million) or above, increased by 2% to 64,500. With the increase of wealth among the domestic population, major local banks now have an opportunity to expand their wealth management businesses,” said Pigeon.

The Return on Assets for Retail (ROAR) of China is 50% higher than that of Japan (6% and 4% respectively). The retail banking industry in both countries exhibited different dynamics in terms of income generation.

China has been reducing its asset base by issuing wealth management products and by having dedicated vehicles that are considered as being off-balance sheet. However, the income generated, often fee-based, is considered part of the retail activity; the same does not apply to Japan.

Vietnam and Indonesia have similar levels of retail banking income ($8b and $7.66b respectively) but show large difference in terms of asset base

Vietnam boasts $68.4 billion in retail assets while Indonesia lags behind at $33.5 billion. This difference is caused by the framework in which banks evolve; for example the State Bank of Vietnam (SBV) is not yet independent, thus weighing on the industry.

“The lack of a clearly defined mission and transparency at SBV is holding back retail income growth in Vietnam, there is still a general distrust of banks and financial institutions,” Pigeon said.

The Indonesian retail banking landscape is well developed and offers a wide spectrum of products from basic credit card advances to Islamic banking vehicles. The ROAR ratio of Vietnam should increase drastically once SBV becomes independent and the various state-owned banks start looking at the quality of their assets.

Retail banks across the Asia-Pacific region have further room to grow as they increasingly make use of social media and online platforms to reach remote areas with large and scattered customer pools.

However, the burden of recent regulatory measures could hamper banks in terms of deposit collection and loan extension. Ultimately, banks will be able to increase their respective retail income while maintaining healthy balance sheets and abiding by heightened regulatory requirements.

Categories: Asia Pacific, China, Indonesia, Japan, Mortgage, Retail Banking, Singapore, Vietnam, Wealth Management
Keywords: The Asian Banker, Retail Income, NPL, ROAR, SBV

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