Asian banks face tough competition

Asian banks face tough competition

SINGAPORE (AFP): Asian banks face fierce competition in attracting deposits as a result of the regional financial crisis, which has forced them to streamline operations, a poll of 50 banks in seven economies showed.

The banks will become less differentiated in their choice of customers, products and approach to delivery of services, according to survey results issued Sunday by Singapore-based research and publishing company Asian Banker Journal.

"Across the region, banks that previously had very different franchises are beginning to all want to compete in the same areas," said Carol Wheatcroft, a senior researcher and co-author of the survey report covering Hong Kong, Indonesia, Malaysia, the Philippines, Thailand, Singapore and Vietnam.

"We especially found many middle market or corporate banks saying that they wanted to compete for retail deposits, which will increase the competition in this area," Wheatcroft said.

The survey, the first of its kind in the region, had sought to determine the impact of the financial crisis on bank strategy and technology in Asia, especially business plans and budgeting priorities.

The Asian financial crisis broke out in mid-1997 when currencies began sliding rapidly against the U.S. dollar. It hit the financial sector and other key sectors and slammed the brakes on the region's rapid economic growth.

"As an immediate reaction to the crisis, the survey shows that financial institutions have put forth a defense business strategy by shrinking expenditures and consolidating operations," said Emmanuel Daniel, editor-in-chief of the Asian Banker Journal and the other author of the report.

The banks said in the survey that apart from attracting retail and corporate deposits, the other "greatest competition" areas were in corporate lending, trade finance, credit cards, cash management and third party funds.

The poll, which examined spending among banks in the region on information technology (IT), also showed they were not investing adequately in building their technology infrastructure.

"The survey benchmarked IT spending against the 1997 annual results of international banks in developed countries, and found that on average, Asian banks do not spend enough on IT to leverage their competitive advantages," the survey report said.

Banks in Singapore and Hong Kong have the highest IT spending levels per employee in the region while in Thailand and Indonesia, which have large and inexpensive labor pools, the impetus to invest in technology was seen as not very strong.

Bank spending on IT as a percentage of shareholders' equity drew a "remarkably different" picture, with specific banks in the Philippines, Indonesia and Malaysia spending a relatively high percentage compared to their counterparts in Singapore and Hong Kong.

The survey found that the average IT spending as a percentage of shareholder equity for banks in the region surveyed is between 1 percent and 4 percent.

Major European and American banks benchmarked in the survey spend double the amount, clearly indicating that if Asian banks want to be competitive in the future, they cannot afford to lag behind in their IT investment, Asian Banker said.