Fewer takeover targets will mean fewer mergers and acquisitions in Asian banking in the next couple of years, forcing lenders to rely more on organic growth, Moody’s Investors Service said Tuesday.
Moody’s financial institutions group analyst Simon Chen said deals will be harder to come by in the region’s financial services market even though banks are on the hunt for businesses outside their home territory.
“More of them [banks] will tend to grow organically,” Chen said, while some small lenders that cannot afford organic growth will soon be acquired.
“Having said that, some Malaysian banks are still interested in Filipino banks although their valuations are quite high. They are mostly eyeing the growth prospects of those Filipino banks.”
The rating agency said Asian banks have been a growing presence in the region beyond their home shores over the last few years. Hong Kong-based Bank of East Asia, for example, extends about 53 percent of its loans in Asia outside its home market, up from about 42 percent five years earlier.
About 45 percent of Singapore-based DBS Bank Ltd.’s loan book is to Asian borrowers beyond the city-state, a steady increase from about 37 percent in 2008. And Malaysia-based Malayan Banking Berhad, better known as Maybank, extended about 38 percent of its loans to non-Malaysian borrowers in Asia last year. That’s up from 27 percent five years ago.
The shift in focus is mainly due to the region’s rising middle class, increasing cross-border trade and the exit of foreign banks in Asia five years ago, which gave Asian banks room to grow.
“The growing middle class in Asian economies creates opportunities in retail lending growth, proven by strong annual growth rate in consumer loans in various Asian markets,” Moody’s said.
Consumer loans have grown by more than 10 percent on average over the last three years in countries such as China, India, the Philippines, Thailand and Malaysia. Indonesia has been an even better performer with average annual consumer loan growth of 30 percent over the last three years.
Total trade is expanding within Asia as well. In 2011 and 2012, the region registered about US$600 billion in annual trade between members of the Association of South East Asian Nations, compared with less than US$400 billion in 2009. Moody’s expects that volume to grow even more in the next few years, strengthening banks’ regional expansion in trade finance.
The potential has not gone unnoticed by lenders outside the region. The agency noted that non-Asian banks slowly returned to the ground they gave up in 2008. But some Asian lenders have been able to hold on to and grow their share of the loan market.
“Japanese and Singaporean banks had 25 percent of cross-border lending in ASEAN at the end of 2013, rising from the 18 percent achieved in 2008 when foreign banks started to retreat,” Chen said.
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