It has long been debated whether Western banks are superior providers of transaction banking services compared with their Asian counterparts. Does their experience and their technology set them apart, or are Asian banks holding their own with their strong local networks and on-the-ground market presence?
According to Markus Ohlig, Singapore managing director of Greenwich Associates, a US-based institutional financial services consulting firm, Western banks were the dominant service providers in Asia-Pacific before the global financial crisis, but things are changing. “If you look back at 2006 and 2007, the banking landscape for corporate and commercial banking services to the largest corporations in this part of the world was mostly dominated by the Western banks,” he said at the EuroFinance international cash, treasury and risk conference in Singapore last week.
But during the financial crisis, many Western banks either remained static, or in many cases “severely reduced credit lines and cut back on their client base” in Asia-Pacific, leading to a decline in their transaction banking services market share. At the same time, large regional banks were expanding their balance sheets and established a strong foothold in the region, and thereby permanently increased their market share. Ohlig attributes the success of Asian regional banks to their ability to be “relatively lenient in their financial dealings compared to Western banks”.
Post-crisis, it is no surprise that many Western banks are putting Asia-Pacific back on top of their list of priorities. Audacious expansion plans and aggressive hiring illustrate their plans to service existing clients that are looking to grow their presence in the region and to win new mandates. However, according to Ohlig, they are “pushing more conservatively than the local banks to the extent that the change of market share is unlikely to be reversed”.
In emerging markets corporations are first and foremost looking for banks that have the best skills and capabilities around trade finance. Trade finance is a risk taking business and is traditionally much less technology-dependant than cash management. Although many local banks are rapidly updating their technology platforms, Ohlig believes few local banks will be able to make significant progress with their cash management businesses in the short-term.
According to the World Trade Organisation, Asian exports rose by 23% and imports increased by 22% year-on-year in December 2010. Similarly, according to research statistics by Ohlig and Greenwich Associates, 71% of Asian companies, ex-Japan, used trade finance-related services in 2010 compared to just 48% in 2008.
It is trade finance that is driving the transaction banking business in Asia and it is the regional and local banks that are in the best position to take advantage of this trend, despite the big push back into the region by the Western banks. Critically for clients, this tug of war between Western and local banks will translate to lower fees, easier access to credit and better service in general for company treasurers.
“It is a good environment to be in as a corporate,” Ohlig concluded.
