Few would disagree that Asia's burgeoning trade flows are one of the key factors driving the region's booming transaction banking business, and nor would they dispute that local banks are in many ways in an ideal position to build sizable businesses on the back of this trend. But given that some of them have already increased their market shares often at the expense of international banks who retreated or quit the region altogether following the financial crisis, do international players regard these local players as any more competitive?
Trade finance is traditionally regarded as a risk-taking business and much less technology-dependant than cash management. According to George Nast, global head of product management for transaction banking at Standard Chartered Singapore, Asian banks have “clearly expanded very aggressively in trade”. He pinpoints Chinese banks as particularly strong in this area because “they probably have one of the healthiest balance sheets” in Asia.
However, “you can’t maintain a branch network on a one product level”, said Marilyn Spearing, managing director and global head of trade finance and cash management corporates at Deutsche Bank. Trade finance in Asia relies on many local relationships and although Spearing agrees that the large local players are indeed formidable forces in this business, she does not believe that cash management and foreign exchange are necessarily going down the same path. To become highly profitable, a bank would need depth in all product lines.
“Asian banks have raised their game,” said Nast. He sees Asian banks closing the capability gap and highlights the importance for international transaction banks to continue maintaining that gap. As things stand, Asian banks are lagging behind international banks' existing networks, especially when their local corporate customers need to expand cross-border. “Local banks will never be able to match the speed of expansion that a lot of Asian corporations are experiencing, and that is a key differentiator that Western banks will continue to have,” said Nast.
However, Asian banks may not necessarily be competing against their international peers post-crisis. In the eyes of the international banks, their roles are evolving so that rather than being only competitors they are actually also becoming important partners. Companies conducting businesses in Asia generally work with local banks for their broad branch networks and domestic capabilities. “We respect [Asian banks] as competition but at the same time they are also our partners,” Nast explained.
“Corporations specifically ask which names to be included in their partner bank group and they are very clear on how they want to divide the wallet,” said Spearing. Discussions between companies and partner banks have been more transparent post-crisis and, in addition, many companies do not want their risk concentrated among just a few banks, but rather to pick and mix between international and local partners.
To really drive a partnership, international banks must not only rely on their local partners’ network but also be able to connect at an in-country level by integrating fully to achieve the deepest reach for their corporate clients in Asia. Competition is healthy for both banks and expanding companies, but cooperation is an even more valuable relationship for everyone.
