Development of Retail Banking in Asia

Written by Fay Zhou || November 12 2013

The Asian Retail banking business has developed rapidly in the past two decades as both economies and businesses have increased in sophistication and wealth. Japan is still the largest retail banking market in Asia, however, China will surpass Japan to be the largest in Asia in 2015.

Although China’s market potential is huge, the retail banking market is still relatively immature. In the past decade, China’s retail banks have focused heavily on expanding their retail banking business scale. Because of the relatively fixed interest rates, a huge deposit base has ensured nearly guaranteed profits for China’s banks. However, with the recent economic slowdown and start of interest rate liberalization, bank profits are under pressure. This compressed spread will mean that banks will need to focus heavily on improving profit market with more value added and fee services.

Compared with ‘developed Asia’, retail assets to total assets are still very low in China; retail banking in Asia revenue represents 40% of the total revenue in China Merchant Bank (CMB), one of the best retail banks in China. As a comparison, Singapore's retail banking sector has developed rapidly since the early 1980s’, and the retail business has became the main source of profit today with retail revenue accounting for almost 80% of the total.

After HSBC, Morgan, Deutsche Bank, and the Royal Bank of Scotland pared down their businesses in a few Asia markets including China, Citi has taken up the slack with nearly half of Citi’s net income and revenue coming from their Asia retail business.

Looking at Asia as a whole, increased liberalization and a wealthier customer will be a key source of revenue for banks across the region especially in the next five to ten years and should be an increased focus for banks going forward.