The days of a “free lunch” are over for Asia’s banks, which face an intensifying threat from slowing economic growth and competition with technology firms, according to McKinsey & Co.
After years of rapid expansion, banks in the region are now seeing their revenue and profit growth slow and global market share shrink, the New York-based consultancy wrote in a report.
Tighter margins, declining asset quality and rising capital costs are putting pressure on lenders to partner or merge to boost productivity and scale.
“Many banks will struggle as the storm worsens,” McKinsey wrote. “The road ahead is difficult, and less efficient banks will disappear.’’
Banks will need to use technology to improve efficiency and fend off the threat from “digital attackers” such as Alibaba Group Holding Ltd (阿里巴巴) and Google, the report said.
Fintech companies might extend their ability to collect deposits and make loans, further eroding banks’ market share, it said.
Such firms are also squeezing margins of traditional lenders because they do not have to manage costly brick-and-mortar branches, said Joydeep Sengupta, one of the report’s authors and a senior partner at McKinsey in Singapore.
Asia-Pacific banks generated 37 percent of global pretax industry profit last year, down from 49 percent in 2012, the report showed.
It attributed the decline to slower growth and a recovery in other regions following the global economic crisis.
Lenders that adapt quickly to the changing industry could reap rewards, the report said.
It identified four areas where such banks could capture US$100 billion in new revenue annually if they adopt the right digital strategies: wealth management, retail banking, small-business lending and transaction banking.
“To pursue these opportunities, banks must beat the attackers at their own game” by developing digital platforms and analytics that track customers’ decisions in real time, the report said.
Recent innovations in automation, artificial intelligence and analytics might also give banks room to slash as much as 40 percent from operating costs, McKinsey said.
Such productivity gains are needed because of the region’s slower economic growth, it said.
“Multiple trends show clearly that the days of a free lunch and fast growth — especially for banks in emerging markets — are behind us,” the report said.
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