Commentary

The latest bailout of Bank of Jinzhou shows the intervention by the People's Bank of China (PBoC) on Baoshang Bank was not an isolated event. There are indeed fundamental solvency and liquidity issues for some small Chinese banks, widely influencing both bond market as well as broader financial sector.

Traditional banks are under fierce rivalry from new competitors, both big tech companies and smaller fintech start-ups. Initially, existing regulators were making it harder for new entrants to challenge banks, but this is starting to change. In Hong Kong, Chinese technology firms such as Alibaba, Tencent and Xioami were recently granted virtual banking licenses. They can now compete head-to-head with traditional banks on a level playing field. To preserve their market share, banks need to reposition themselves in the market and offer customers a better digital experience. Simply hiring a digital team and occasionally implementing stand-alone digital initiatives will fall short.

The Emerging Mobile Investment Service Launched in Japan LINE Corporation launches the LINE Securities, a mobile investment service, August 20, 2019. Based on the joint venture agreement to form a business partnership to pursue financial businesses focused on the securities business, LINE Financial Corporation ("LINE Financial") and Nomura Holdings Inc. ("Nomura") established LINE Securities Preparatory Corporation on June 1, 2018.

Digital innovation initiatives are gathering speed at financial institutions around the world. This was made further evident by the Celent Model Bank awards announced in April 2019. The awards recognized 22 projects from 30 countries, and all were initiatives that feature digital elements and innovation.

The first section of this two-part commentary was published here. 

Chinese yuan has been under pressure in recent weeks due to the double dip in recent ecomomic data and more importantly, the escalating trade war with the US. Since then, the CNY has shown weakness against USD, breaking 6.9 versus the USD, but also against major global currencies. The looming prospect of the China-US relationship, as well as a likely continued lax monetary policy in China, has all pointed to a weaker yuan, at least in the short term.

In November 2018, the Japanese Bankers Association and Zengin Net launched a new platform—the so-called “more time system.” This extends the operation hours of the Zengin System, the backbone of the nation’s bank payment infrastructure, extending the service hours of financial services related to fund transfers. As a result, together the existing and new system will enable round-the-clock operations 365 days a year, making it possible to confirm the receipt of funds from other banks in real time.

The results of a global survey published by PricewaterhouseCoopers (PwC) confirm that Asia remains the leading growth region for mobile payments. In line with other countries in the region, Singapore continues to see an increase in mobile payment usage, with the proportion of consumers making such payments growing from 34% in 2018 to 46% in 2019.

In recent years, we have seen an influx of Asian money into countries like Singapore and Hong Kong. According to the recent World’s Billionaire’s list published by Forbes, Asia is home to 719 billionaires, approximately 32.65% of the world’s billionaires. The ultra-rich are starting to take a more hands on approach in the investment of their wealth and Family Offices are on the rise. At the end of 2018, Asia has nearly 500 Family Offices in Asia and this number is set to rise in 2019. Family Offices not only provide investment strategies, they also assist with diversification of the family’s business portfolio, dispute resolution, and succession planning.

We are living in Industrial Revolution 4.0 where data have emerged as the new ‘growth fuel’, powering everything from productivity and profits to politics and dominance.

During the 13th National People's Congress (NPC), Chinese Premier Li Keqiang presented the government work report. Whilst the market read the new growth target (6-6.5%) rather negatively, Premier Li Keqiang was very transparent about the difficulties in reaching this target and the fiscal and monetary expansion which will be needed to achieve them. Whilst a lot has been written about tax cuts as well as lowering the still high reserve requirement ratio (RRR), less has been commented on how banks will be affected by the measures announced during the NPC. Li Keqiang made a number of specific announcements on this front. a) lower funding costs for small-and-micro enterprises (SMEs); b) 30% growth in state-owned commercial banks’ lending to SMEs from negative growth in 2018; and c) extending the maturity of loans, especially for manufacturing firms.

Asia is not only the largest single market in terms of consumer payment value but is also home to the largest share of the world’s unbanked population. Rising smartphone and internet penetration have enabled many to gain access to financial services that were previously limited to mainstream financial institutions. Consumer uptake of mobile payments has been driven by the providers’ ability to value-add by addressing the local markets’ pain points. The value that mobile wallets bring to consumers revolves around the ability to transact with a peace of mind, accessibility to lifestyle services and integrated loyalty platform.

Along with my colleagues Mark Goodridge and Mulya Chandra from Morgan Stanley’s ASEAN equity research department, I have been writing about the potential disruption to ASEAN banks from new payments technologies for much of the last year. We believe it is one of the key structural themes for equity investors in banks to understand as they think about future earnings and dividend streams.

Capital market participants and market infrastructure providers around the world are working to assess and apply emerging technologies. The results of the Celent Global Exchange CIO Survey released in July 2018 found that a high level of respondents were tackling emerging technologies. More than 70% of respondents said that they were already using or working on pilots when it came to cloud, artificial intelligence, robotic process automation, and blockchain technologies.

It is no secret that the private banking industry in Asia is facing revenue pressure on multiple fronts, with margin compression and revenue erosion becoming the new normal. There are a few key developments driving this pressure, including:

For private banks and wealth managers, investment suitability is a hot regulatory topic and should be at the heart of front-office digitisation efforts. Increasingly, supervisors are expecting private banks and wealth managers to strive for good customer outcomes and demonstrate that their decision-making processes are centred on an understanding of customer needs.