September 09, 2014

Market fragmentation and the impact of international regulation on banking operations present the biggest barriers to future growth in Asia’s banking sector, says BNY Mellon

  • BNY Mellon’s Verschoyle-King shares his top seven barriers to growth for Asia’s banking sector
  • Regional harmony and collaboration are vital to the future health of Asia’s banking sector
  • Creation of an Asean Economic Community will play a positive role in helping Asia achieve its full potential
  • Asian banks need to consolidate if they want to compete on a regional scale over the next five years

  • SINGAPORE, 9 September 2014 – Trade and export finance leaders from across Asia-Pacific and beyond have gathered in Singapore this week for the GTR Asia Trade Finance Week 2014 to discuss the most pressing trends and issues impacting the region.  Alan Verschoyle-King, Executive Vice President and Global Head of Sales & Client Management for BNY Mellon’s Treasury Services business, shares his views on what he believes are the top seven biggest barriers to growth for Asia’s banking sector.

    “Global regulatory reform continues to be the largest driver of change and concern within Asia’s banking industry, with many banks struggling to understand the impact of and meet the new requirements.  Given the size and global reach of the U.S. economy, U.S. regulations, in particular OFAC (The Office of Foreign Assets Control), Dodd Frank and FATCA (The Foreign Account Tax Compliance Act), have the most substantial direct impact on Asian bank operations, business development and their working relationship with partnership banks.

    “If you take FATCA for example, which is an initiative set to recoup lost tax dollars from citizens who fail to disclose their offshore financial accounts to the US government, it has impacted the entire financial world, including Asia. A number of Asian countries have reached in-substance agreements with the US government regarding FATCA, but only Australia, Japan, and New Zealand have signed IGAs.

    “The sheer amount of information required to be learned, taught and implemented in a truncated timeframe is massive.  Another imposition on Asian banks through FATCA is the large amount of IT infrastructure that must be implemented.  The data repositories required to store, track, and demonstrate FATCA compliance are also massive. IT systems, along with personnel to run those systems, must be trained, updated and maintained. At this point, the best approach for Asian banks is to hit the ground running and learn FATCA as quickly as possible. 

    “To meet the new standards, banks are building higher capital and liquidity buffers, as well as re-evaluating their business models with many institutions choosing to focus on their core strengths and key markets.  Others are under intense pressure to consolidate and streamline to position for future growth and, in some cases, survive.  Whilst consolidation presents opportunities for stronger regional banks to emerge, the reality is many local banks within Asia-Pacific remain too small to effectively compete on a local, regional or global scale.

    “For those banks which do have strong business models and healthy balance sheets, their biggest barriers to growth are often the insufficient resources to meet rapidly accelerating client demand.  Attracting and retaining talent is a troubling barrier for many Asian banks, both in respect of the breadth of the regional labour pool and the skills needed to deliver the services clients need.  The war for talent is increasing, as are costs of acquiring talent needed to grow.  Many smaller scale banks also lack the capital to invest in their technology and infrastructure to offer the sophisticated automated and digital solutions clients increasingly expect, as well as meet the evolving regulatory requirements.

    “Unlike the European Union which benefits from strong collaboration and a collective desire for harmonisation across the region, Asia-Pacific remains much more fragmented.  Accordingly, the region’s separate and distinct regulatory frameworks, currencies, legal systems, rules on corporate governance and business practices can each complicate or limit regional expansion or operating capabilities. 

    “The much discussed creation of an Asean Economic Community by 2015 is viewed by the Asian banking industry as a positive step for the region as a means of initiating a collaborative dialogue on regional harmonisation.  Frustratingly for many, reports indicate that economic integration is unlikely to happen in 2015 as hoped. The disparity in individual country economic status along with varying differences in the Asian banks themselves, for example size, capital base and technology, have resulted in uncertainty of  countries to proceed with the integration.  What is even clearer is that integration efforts depend not only on the 10 member states and the relatively small Asean secretariat, but also on China and Japan.  I hope resolutions and agreements can be reached swiftly as regional harmony is vital to the future health of Asia’s banking industry.”

    Verschoyle-King’s Top 7 barriers to growth impacting Asia’s banking sector in 2015:

    1. Information management and reporting challenges under new U.S. regulations
    2. Regional market fragmentation
    3. Insufficient resources to meet client demand
    4. Balance sheet size of local banks
    5. Political tension within Asia
    6. Pace of global economic recovery
    7. Continuing concerns about China’s outlook

     

    Notes to editors:

    BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2014, BNY Mellon had $28.5 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.