If you have to be a banker during the global financial crisis, the best place to be is Asia. The region is home to a thrifty and conservative population that already holds 60 percent to 80 percent of its wealth in bank deposits. And bankers from Taiwan to India to mainland China have seen increased deposit flows as investors fled equities in the wake of the global financial crisis. But can bankers attract and retain more deposits in the flight to safety while still making adequate returns?
Like their counterparts in most of Asia, Taiwanese banks are witnessing deposit gains. State-owed Bank of Taiwan (BOT) saw robust 15 percent growth in deposits last year as the country’s stock market dropped 45 percent. Taiwan’s state-owned or affiliated banks have benefited more than non-government banks because they are seen to be more sound: Deposits in state banks grew an average 8 percent last year against 3 percent for non-state banks.
To bolster investor confidence in banks following the financial crisis, Taiwan is guaranteeing deposits until the end of this year, a move that is leveling the playing field for lenders competing for deposits, and is reported to be considering extending the guarantee to the end of next year.
But what happens after the guarantee ends or when the market takes a turn for the better? Will Taiwan’s banks be able to retain those deposits? The question is particularly important for Taiwanese banks without a strong capability in deposit gathering or those perceived to be less sound.
Even as deposits rise, Taiwan’s banks need to find new ways to spur investor interest over the long term. Bankers in Taiwan and throughout Asia have grown overly reliant on wealth-management services and consumer lending to fuel revenue and earnings growth.
But with skittish customers staying away from investment products, credit cards and loans for now, the best option for reinvigorating their business lies in competing for the unglamorous but deep pools of retail deposits.
The battle to win more deposits than rivals will be a zero-sum game with a big prize for the winners. But the passive approach by Taiwan’s banks to collecting deposits from customers who are already heavily inclined to save means their business muscles in this area are weak. Accustomed to earning higher returns during a market upswing, bank customers may be unwilling to settle for the low yields currently paid on conventional accounts.
The intensifying competition for deposits risks driving down returns as banks, unaccustomed to aggressive moves, may succumb to the pressure to overpay to hold on to skeptical account holders and attract new ones. In Taiwan, where most customers have put their money into time deposits, the pressure could be strong, as the interest rate difference between time and demand deposits is currently narrow.
The big question is: When the time deposits expire, will banks in Taiwan be able to hold on to depositors who start looking elsewhere for higher returns?
Innovation is, therefore, key for banks to retain and attract customer deposits. But innovation is one area where banks in Taiwan — and throughout Asia — have trailed those in other regions. Basic products that have worked in other markets — low-balance transaction accounts, hybrid interest-bearing checking accounts, flexible savings accounts that combine check-writing privileges with higher-yield term-deposit features, no-frills high-rate savings instruments — are largely unknown in Asia.
To avoid overpaying for their depositors, lenders will have to be more sophisticated about pricing products and setting rates dynamically. They will need to tread the line between attracting deposits while not overpaying for them. That entails regularly reviewing each pricing element based on how different depositor segments react to changing yields and account fees.
Successful banks aiming to attract more deposits should look at offering greater rewards to employees who bring in new deposits and cross-sell deposit products to existing credit-card and investment-account holders. Customers will see more promotional and merchandising campaigns wherever they come in contact with the bank — from branch windows and service counters to ATM receipts and on statement envelopes. Alert banks will tag such promotions to when customers’ deposits mature or following sales of real estate or other investments. They will also need to increasingly match these occasions with attractive offers that help land new deposits or keep funds in the bank.
The focus on attracting depositors will have implications for the management and organization of banks as well. As banks increasingly see greater deposit growth as a lucrative new franchise to offset declining business in wealth management and retail lending, they will increasingly value deposit management as a career path to senior positions. Most Asian banks’ deposit operations have been starved for professional talent and resources. They will now be more aggressive in recruiting top talent to staff product management, provide marketing and sales support and develop high-powered analytical capabilities to sustain a competitive edge.
The stakes couldn’t be any higher as financial uncertainty continues. Given the high rate of savings in Taiwan and the rest of Asia, the banks that do the best job of attracting deposits will be the place where much of the region’s money is kept, and increasingly, where banking profits are made.
Nick Palmer is a partner with Bain & Company based in Hong Kong. Sameer Chishty is a partner based in Sydney and Johnson Chng is a partner in the Beijing office. All three are members of the firm’s Asian financial-services practice.
A chip made by Taiwan Semiconductor Manufacturing Co (TSMC) was found on a Huawei Technologies Co artificial intelligence (AI) processor, indicating a possible breach of US export restrictions that have been in place since 2019 on sensitive tech to the Chinese firm and others. The incident has triggered significant concern in the IT industry, as it appears that proxy buyers are acting on behalf of restricted Chinese companies to bypass the US rules, which are intended to protect its national security. Canada-based research firm TechInsights conducted a die analysis of the Huawei Ascend 910B AI Trainer, releasing its findings on Oct.
Pat Gelsinger took the reins as Intel CEO three years ago with hopes of reviving the US industrial icon. He soon made a big mistake. Intel had a sweet deal going with Taiwan Semiconductor Manufacturing Co (TSMC), the giant manufacturer of semiconductors for other companies. TSMC would make chips that Intel designed, but could not produce and was offering deep discounts to Intel, four people with knowledge of the agreement said. Instead of nurturing the relationship, Gelsinger — who hoped to restore Intel’s own manufacturing prowess — offended TSMC by calling out Taiwan’s precarious relations with China. “You don’t want all of
In honor of President Jimmy Carter’s 100th birthday, my longtime friend and colleague John Tkacik wrote an excellent op-ed reassessing Carter’s derecognition of Taipei. But I would like to add my own thoughts on this often-misunderstood president. During Carter’s single term as president of the United States from 1977 to 1981, despite numerous foreign policy and domestic challenges, he is widely recognized for brokering the historic 1978 Camp David Accords that ended the state of war between Egypt and Israel after more than three decades of hostilities. It is considered one of the most significant diplomatic achievements of the 20th century.
In a recent essay in Foreign Affairs, titled “The Upside on Uncertainty in Taiwan,” Johns Hopkins University professor James B. Steinberg makes the argument that the concept of strategic ambiguity has kept a tenuous peace across the Taiwan Strait. In his piece, Steinberg is primarily countering the arguments of Tufts University professor Sulmaan Wasif Khan, who in his thought-provoking new book The Struggle for Taiwan does some excellent out-of-the-box thinking looking at US policy toward Taiwan from 1943 on, and doing some fascinating “what if?” exercises. Reading through Steinberg’s comments, and just starting to read Khan’s book, we could already sense that
RSS