Asian banks struggle with less liquidity amidst global slowdown

Shifting economies and interest rates shape the banking landscape.

The Asia-Pacific region's wholesale banking sector faces challenges as it adapts to a slower global economic growth and changing interest rates, according to Jasper Yip, Partner and Head of Corporate and Institutional Banking, Asia Pacific, at Oliver Wyman. 

Yip underscored the evolving landscape where global banks are reevaluating their strategies due to cost and regulatory pressures, particularly under frameworks such as Basel III.

Yip highlights the contrast in the region: while global banks face constraints, Asian regional banks appear poised for expansion. 

"Japanese banks have been acquiring relentlessly in the last decade," Yip pointed out, noting the favourable shift in the interest rate environment for these institutions. 

Similarly, he expects Chinese banks to continue their international expansion to support their globalising clientele. Additionally, select Southeast Asian banks might seize the opportunity to regionalize, adapting to the changing dynamics.

In response to these shifts, Yip advises banks to reconsider their business models to maintain competitiveness. Key strategies include diversifying income sources beyond net interest margins, which have peaked in recent months, and improving pricing discipline and cross-selling. 

Moreover, he suggested a shift from traditional loan practices, encouraging banks to consider whether they want to "originate to hold" or "originate to distribute," which could enhance balance sheet velocity and efficiency.

Another area of adaptation involves technology, specifically the deployment of generative AI. Yip believes that embracing such technologies can enable banks to expand into new markets without the proportional increase in personnel, addressing cost pressures while harnessing innovation for growth.

Regarding new growth opportunities, Yip identifies wealth management as a fertile area. He advises banks to 
focus on emerging sectors such as green energy, biotech, and sustainable practices. 

Equipping relationship managers with specialised knowledge in these areas can better serve clients transitioning to newer, cleaner technologies and industries.