Philippine banks among leaders in retail financing growth rate

MANILA, Philippines - Retail financial services rather than corporate banking and treasury income will comprise the growth area for commercial banks in Asia Pacific in the coming five years.

Emerging markets, particularly the Philippines, will generate the strongest growth, while China will generate the highest income by 2020.

Asia Pacific’s retail financial services market is forecast to be worth $824 billion by 2020.

A large scale study conducted by The Asian Banker Research on income generation in retail financial services in Asia Pacific found that commercial banks are expected to generate $464 billion in retail income by end of 2015, amid a growing shift away from thinning margins in corporate banking and volatile treasury income.

The study took into consideration the outlook in gross income for retail financial services across 19 countries, including Australia, Brunei, Bangladesh, Cambodia, China, Taiwan, Japan, Vietnam, Sri Lanka, India, Hong Kong, Singapore, Indonesia, Thailand, Malaysia, Myanmar, Philippines, Korea and Vietnam.

Retail banking income was defined as business from retail deposits, mortgages, credit cards and unsecured lending, wealth management and wherever possible, small and medium enterprise (SME) banking.

The Asian Banker head of research Mobasher Zein Kazmi said the ability to generate gross income in any given market is regarded as a key indicator of wallet share and a determinant of a bank’s bench strength in retail financial services.

“For the first time, Asian Banker Research has ascertained the income potential in retail financial service markets across the Asia Pacific, and identified the top players,” Kazmi added.

Currently China’s retail financial services industry alone generates 48 percent of total regional income, followed by India with 12 percent and Australia with nine percent.

Gross income for the entire region will grow by 11 percent by the end of 2015.

“Going forward we expect the region as a whole to grow at an annual rate of compounded annual growth rate (CAGR) of 12 percent between 2015 and 2020,” the research head said.

There are however stark variances in growth rates between the mature markets of Korea, Hong Kong, Australia, Japan, Taiwan and Singapore, and developing markets.

Income growth in mature markets is lower and expected to grow on average by five percent in 2015 and by the same amount in subsequent years until 2020.

Retail financial services in developing markets grew on average by 13-percent annually to 2015.

However there have been dramatic changes since 2014. The fastest growing markets up to 2013 were Thailand and China, which experienced annual growth of over 20 percent. Both markets have been slowing down in line with wider economic woes and retail financial services in these markets in the next few years to grow at a slower pace.

Among emerging markets, Malaysia expected to see the slowest income growth and Philippines the strongest, while China will continue to generate the highest income by 2020.

Since 2014, the Philippines outpaced China and Thailand, and the Southest Asian country is becoming one of the key growth engines in the Asia Pacific.

Retail profitability measured by the return on retail banking assets decreased from 2.6 percent to one percente on average since 2010 for Japan, Singapore, Australia, Hong Kong, Taiwan and Korea although there has been a slight recovery; at the of end 2014, the figure was 1.2 percent.

The most profitable retail financial services market in this group is Hong Kong with an average return on asset (ROA) of 2.2 percent.